TRAPPED IN DISNEY MARKETS

The post-2008 era of monetary euthanasia has been a con man's paradise. Any false narrative could be bought and sold under the assumption that central banks were standing by to bail out markets. Sadly, none of today's fairy tales will end with happily ever after this time around...

So many fairy tales, where to begin...

During the pandemic lockdown investors were told that the Tech bull market heralded a new "virtual economy". All of the non-profit startup companies were "disrupting" traditional industry, rendering in-person business models soon to be obsolete. Any and all business could be conducted over the internet. They were selling dollar bills for 90 cents, financed by free capital. Then, in early 2021 as the lockdowns ended, left for dead shopping mall stocks and retailers suddenly exploded higher, led by the Gamestop mega short squeeze. We were told it was the new small investor revolution. Retail investors were the new "smart money" and the professional investors shorting stocks were now the "dumb money". Managing risk in the age of central banks, was viewed as foolish and obsolete. The mainstream media quickly ran with this new specious narrative under the guise of "democratized markets". Record new brokerage accounts opened and money flooded into the markets at the fastest pace in history. Throughout 2021, Wall Street mercilessly exploited this playground of non-profit concept stocks and democratized pump and dump schemes, for maximum profit. Featuring the largest issuance of IPOs and SPACs in history. Most of which are now on the verge of becoming worthless. Crypto currencies were bought under the assumption that the Fed money printer would render the U.S. dollar worthless. However, when the Fed "pivoted" to the most extreme tightening regime in history, the narratives never changed. Despite the fact that the rationale for buying no longer existed. Since then, all of the "cheap money" trades have collapsed. Because that's all they ever were - cheap money chasing fantasy narratives. 

This latest housing super bubble is deja vu of the last bubble. Back then adjustable rate mortgages and packaged subprime mortgages were blamed for the 2007 bubble. However, the REAL underlying cause for both bubbles is/was cheap money. Both times industry hacks convinced policy-makers that a shortage of supply was fueling higher prices. Therefore the solution to rampant speculation was to massively increase supply. It was a lie last time and it's a lie this time as well. And yet no mainstream pundits question it. We continue to turn to the same "experts" who were wrong in 2007 to seek their counsel this time as well. Back in 2007, the ratings agencies played a pivotal role in the overall housing Ponzi bubble. They gave the AAA ratings to the exploding packages of subprime mortgages cranked out by Wall Street. The same ones Michael Burry of "Big Short" fame predicted would explode the economy. Now he's predicting the same fate again. However, Fortune magazine instead of asking Michael Burry what he thinks, they are asking Moody's what they think of this housing bubble. No surprise they assume modest downside.

National housing prices rose 30% year over year. But they only see 5% downside on a national basis. Worst case scenario:

In other words, the home gamer fool reads the mainstream media moron who asks the corrupt rating agency if we have a problem. No problem. 

Greed is out of control. Von Misers tell us that greed is not the problem, only government bureaucracy is the problem. Unfortunately, that's another massive lie. Unfettered greed IS the problem and now it has spread to government institutions. During the Gamestop debacle last year, Congress and SEC wanted to know why retail brokers had prevented small investors from buying Gamestop - prudent restrictions which in the end saved people a lot of money. What most people don't realize is that Wall Street came in at the end of the super spike and shorted Gamestop at the top. THEY made the most money. But the common narrative is that small investors made the money at *smart* money's expense. Most small investors came in late and got wiped out. 

When greed is not held accountable then you end up in the situation we are now in, wherein every type of lie now gets bought and sold. Meanwhile government regulators look the other way or help to "democratize" fraud. One wonders how much of this monetary policy error is due to the fact that Fed members were trading stocks LATE into the largest asset bubble in human history. When they were forced to sell, that was the top for stocks. And one wonders how much of the regulatory lapse is due to the fact that Congress is STILL actively trading stocks. 

Last but not least is this cyclical inflation fraud masquerading as secular stagflation. The last and greatest bubble that has aided and abetted record inflows into passive stock market indexes at the apex of the largest stock bubble in history. Coming at a time when Boomers are at peak retirement and hence exposed to maximum risk aka. WORST CASE SCENARIO. 

No one believes this secular inflation narrative more than the Fed despite the fact that they were the last to be converted. Now, their belief in this latest fraud has put the entire system at risk.

Perma-bull Jim Cramer sums up the Fed conundrum:

“If Powell can get this market to go down and stay down, repealing much of those gains, then the rich are less likely to spend aggressively and a lot of people are more likely to remain in the workforce when they might otherwise have retired,”

Wow. That is the most bearish thing Cramer has said in a LONG time. Contrarians would jump all over that and presume that means a bottom. What they ignore is the fact that the Fed has ALL the power to crash this market and it doesn't matter anymore what market participants believe. Otherwise we would believe the current PRIMARY fantasy that the Fed can CREATE massive bubbles, but they can't burst their own bubbles.

Sheer idiocy.  

Cramer's logic is the paradigm shift that occurred last week on Wall Street. The Fed's panic increase in rates by .75% and re-rating of Fed increases through the end of this year has GUARANTEED hard landing. Everyone on Wall Street knows what's coming, which is why they just shorted stocks at the heaviest pace since June 2008. 

And yet, according to Goldman Sachs and Zerohedge, this is bullish.

ZH: Nasty Short Squeeze On Deck

"And predictably, following such massive shorting episodes, what follows traditionally has been a major squeeze: as Goldman's table below shows, returns following 20% S&P 500 declines have typically been positive"

What's scary is that Goldman's table in the article DOES NOT show what happens after each major shorting episode. Instead, it shows what USUALLY happens after each time the market is down -20% - which is totally unrelated. Unless you read that paragraph multiple times, you wouldn't catch it. In other words, they are MISLEADING the reader into believing that heavy shorting leads to big rallies. When in fact, the largest shorting episodes preceded MASSIVE declines. Particularly in 2008.

Had they shown this chart below, then any blind man would have reached the OPPOSITE conclusion, that this shorting and attendant mini short covering rally is THE LAST CHANCE TO GET OUT. 

In summary, anyone can believe whatever they want in Disney markets. Pundits are standing by to satisfy any and all denialistic fantasy. 

Sadly, the middle class can't sustain the high price of EVERYTHING at the same time. Which is why the first order effect we are seeing is falling sales quantity - of homes, cars, and durable goods. The second order effect will be falling prices.

At the aggregate level, Price x Quantity = GDP.

Which means that the Fed is actively crashing the markets AND the economy at the zero bound. 

With ZERO chance of a successful bailout. 

MELTDOWN MODE

The age of rampant fraud and corruption is set to explode in the faces of true believers who are now doubling down on criminality. What can they say but "No one saw it coming"...

TWO YEARS OF RAMPANT FRAUD:

Since the pandemic recovery began we've heard one lie after another, non-stop for two years. First we were told this was a whole new cycle, rising from the ashes of the shortest recession and bear market in history, following the LONGEST expansion and bull market in history. Then we were told that post-pandemic hyper valuations were justified by ultra-low interest rates and a post-pandemic economy strengthened by forced lockdowns. All of that of course was a massive lie. The pandemic stimulus merely pulled forward demand while the forced lockdown collapsed the supply chain and tightened the job market compliments of 20 million mass layoffs in the U.S.  Subsequently, ongoing China lockdowns and the Ukraine war created further supply-chain disruptions that continued since the pandemic. In addition there was rampant speculation in every corner of every market fueled by record amounts of central bank liquidity.

Now with global monetary policy tightening at the fastest pace in history, bulls are trapped in an end of cycle recessionary bear market. History will say that the pandemic was the melt-up phase of the longest bull market in U.S. history.

And yet even at this lethal juncture the massive lies continue, and by necessity grow larger. There is no bullish case at this point in time. Buying overvalued stocks in a recession with a panicked Fed making up monetary policy on the fly is financial suicide. As of this week, ALL of the 2022 economic predictions made by Wall Street at the beginning of the year are now NULL and VOID. FAR too optimistic.

STILL, no sign of fear or capitulation:

 

There have been more pump and dump schemes during the past two years than during the past two decades combined. In addition to Tech stock and housing market bubbles, there was an EV bubble, a cloud stock bubble, meme stock bubble, crypto bubble, Ark ETFs, and IPO/SPAC bubbles. And in 2022 there is now a massive commodity bubble. Which is a big part of what is driving what I call Ponzi inflation. Those bulls who think that commodities can't collapse like a cheap tent, were not around in 2008.

In this post-2008 cycle every manner of criminality has been arrayed against the public. Millennials are about to be exploded from every direction at the same time - homes, stocks, cryptos, salaries - ALL inflated by the pandemic.

An entire generation is now the new subprime. They are currently getting crushed like a tin can while the mainstream financial media says NOTHING other than to regale them with more fairy tales. 

It's DISGUSTING. 

WE did our part to warn the sheeple. Unfortunately, you can't warn zombies. I've tried. This monetary sponsored vacation from reality went on far too long and eventually sucked almost everyone into Disney markets. 

We have now reached the point wherein all of these MASSIVE lies will spontaneously explode at the same time. Trapping untold numbers of gamblers in their various beloved Ponzi trades. 

This week, Bill Gates said that Crypto is 100% a greater fool's game. That's true. However, at these valuations, stocks are a 99% greater fool's game with the benefit to the 1%. 

We also learned that the CPI is expected to ACCELERATE for the next four months in a row: 

Which means that the Fed has been FULLY cornered into tightening until they final implode markets sooner than later. Just as Millennials finally came to believe they will be bailed out of ANY market scenario, in 2022 the Fed has taken off the training wheels and pushed them straight off the cliff. 

So far, there has been no sign of panic or fear in these markets. However, it's only a matter of time before Millennials capitulate en masse because they've been trained by the Bernie Madoff school of investing to trade by consensus. When that happens  they will figure out the sell order for the first time in their lives.  

But when they all reach to sell at the same time, the machines will explode. There is no way that Skynet can handle that much selling all at one time. 

Remember February 2021? Millennials almost crashed the markets last year:

February 2021:

‘What I would like to point out here is that we have come dangerously close to the collapse of the entire system, and the public seems to be completely unaware of that, including Congress and the regulators.’

What took place last year will be minor compared to what is coming. Here we see Nasdaq down volumes have been climbing throughout 2022 back to the same dangerous levels from last year:

When Millennials get trapped in the casino and watch their fantasy wealth get obliterated, they are going to shit a brick.

THEN they are going to fall out of love with Wall Street and go back to the streets where they were ten years ago at the post-2008 nadir. Where they are going to BLOCK every single bailout attempt in Congress. 

And then EVERYONE ELSE is going to shit a brick.

What I call "BAILOUT RISK". 

And when that happens, every REVISED economic forecast being made this week will be off by a MINUS sign. 

After that, I predict the stock market will be DEAD MONEY. Meaning it will trade in a very wide trading range, but it will never be trusted in this lifetime. You can rent stocks, but you can't own them. 

In summary, I lowered wave '3' down to the ~50% decline range to reflect my INCREASED bearishness due to the simultaneous bear market, record tightening, and recession all confirmed in the exact same week. 

LEHMAN 2.0: MILLENNIAL EXPLOSION

It took 14 years for investors to forget the MAIN lesson from 2008: The cure for high prices is explosion. Only instead of subprime exploding, this time it will be an entire generation that explodes...

As I write, the Fed just raised rates by .75% in a panic move sparked by last Friday's CPI. Up until Friday, markets were pricing in a .5% rate hike which is already the largest rate hike in two decades. This one is the largest in three decades. Combined with QT at $45b/month, today's policy action was the most EXTREME tightening in U.S. HISTORY.

The Fed is playing a very dangerous game called outrunning recession. They are trying to raise rates as quickly as possible BEFORE recession sets in. And yet they fail to acknowledge that their own policies are accelerating the recession. 

Under the Cinderella hypothesis, the Fed raises rates to the "neutral" level aka. 3% as quickly as possible. Which gives them a theoretical buffer for THEIR ensuing recession. That strategy makes two ASININE assumptions. One that markets don't explode in the meantime. And two that recession isn't ALREADY in progress. 

Unfortunately, there are many signs that the economy is tipping into recession:

> Negative Q1 GDP

> Record low consumer sentiment

> Oil shock/inflation shock

> Bear market in stocks

> Elevated VIX

> Inverted yield curve

> Slowing housing sales

> Collapsed personal savings rate

> Recession-level car sales

> Collapsing durable goods consumption

> Corporate profit recession/Margin collapse

The Fed's own "GDP Now" real-time GDP predictor is currently at 0% for Q2:

If the past is any guide, what we know is that this Idiocracy will wait until recession is 12 months old before they declare it a recession.

Meanwhile, the vast majority of pundits are FULLY behind this SUICIDAL Fed policy. Jim Cramer is calling for "Monster" rate hikes as far as the eye can see.

Jim Cramer is in a VERY LARGE consensus of idiots, none of whom question Fed policy. 

What makes this entire gambit lethal is the fact that monetary policy operates on a lagged basis. So by the time the Fed realizes they've tightened too much it will be far too late to save the economy. The Fed has never attempted to raise rates when consumer views of the economy were anywhere NEAR this poor:

 

It took 14 years for everyone to forget the Lehman event in 2008 when the Fed was primarily focused on inflation:

What The Fed Got Wrong In 2008 

"The Fed’s understanding of the crisis, however, was clouded by its reliance on indicators that tend to miss sharp changes in conditions. The government initially estimated, for example, that the economy expanded in the first half of 2008 because it basically assumed that some economic trends, like the pace of business creation, had continued apace. The Fed also relied on economic models that assumed the existence of smoothly functioning financial markets, limiting its ability to project the consequences of a breakdown. And the outlook of Fed officials also reflected a deeply ingrained bias to worry more about the risk of inflation than the reality of rising unemployment."

All FOUR of those mistakes are now being repeated. First off, the Fed's own financial stress index is at record lows. Secondly, as I showed above the Fed is ignoring incipient recession. In 2008, the recession began nine months before Lehman. Third, the Fed is assuming that markets can handle this much liquidity withdrawal all at one time. An asinine assumption that will soon be system tested.

The Fed is now pushing the entire world into a credit crisis and their own financial stress index is now INVERSELY correlated to every type of risk:

Last but not least of the 2008 mistakes, the Fed is once again overly obsessing about inflation. 

In 2008 as they are now, inflation was their main concern and then it went away OVERNIGHT when markets went into meltdown mode. Monetary policy is a blunt instrument. The Fed has no control over WHICH prices come down. This week, the 30 year mortgage hit 6.3% amid signs that the housing hyper bubble is beginning to crack:

"The National Association of Home Builders warned on Wednesday that soaring inflation and higher mortgage rates are slowing home sales, with CEO Jerry Howard calling the combination a "perfect storm."

However, where today's pundits are truly clueless is forgetting the immediate impact that all of this tightening has on markets. 

Investors are NOT positioned for imminent deflation. They've been told all year that INFLATION is the biggest risk to markets. Which is why cash balances are near an all time low. 

We hear all the time how "bearish" investors are, yet a survey of wealthy Millennials indicates they have no fear whatsoever. They've only experienced 14 years of continuous monetary bailouts so they assume recessions and bear markets are relics of a bygone era. Banished by central bank money printing:

"Most millennial millionaires feel optimistic about the U.S. economy, with nearly three-quarters expecting improvements by the end of 2022"

In summary, inflationists deserve FULL credit for ensuring that once again no one sees this coming.

And for ensuring that gamblers are trapped in end of cycle trades in a deep recession with NO monetary bailout.

Prepare for rioting. 

THE HARDEST LANDING

Epic Fed policy error, groupthink pundits, and bailout-addicted investors are collaborating to create the hardest landing since 1929...

Today's pundits never tell the full truth because they're afraid of scaring their audience away. So instead they equivocate and spread mass confusion. They NEVER weigh one risk over another and come down on the side of full bearish. Full bullish for over a decade is fine. But full bearish is never acceptable. Which is why the public have been led to believe they can ride out any amount of economic dislocation in stocks. Yet they never question these fairy tales because they're now addicted to baby talk. They have an overwhelming need to be lied to continuously so they can avoid financial PTSD. Hence they will be fed financial pablum until their centrally managed financial Disney World explodes with no warning. 

At this latent juncture, the Fed is totally out of control. Six months ago they believed inflation was transitory, yet now they believe this is 1978 all over again. Powell desperately wants to be the new Volcker - a central banker who was vilified at the time, but later venerated for having the intestinal fortitude to "stamp out inflation". Because what could be worse than inflation?

Total global asset meltdown that's what. You see, what all of today's pundits have in common is that they don't understand the rules of Japanification. First and foremost a central bank must never over-tighten and cause an out-of-control asset crash. Why? Because they don't have the monetary tools to get it back under control.

The Fed currently has .75% dry powder. Likely going up another .75% to 1.5% on Wednesday. Still, that's not nearly enough to offset a financial meltdown. In 2000 and 2008 it took 5% interest rate reduction to halt the recession. So all the Fed has now is their balance sheet. But balance sheet expansion only works if markets are not in total meltdown mode. It worked great in 2020 because the Fed bought in size early in the crash and aggressively increased their bond buying on a daily basis. That's why it only took six months for the market to reach a new all time high. Conversely, back in 2008 the Fed made the EXACT SAME policy error they're making now by focusing on inflation instead of the market meltdown. So what happened then - stocks entered Death Valley and took four months to find a LOW much less a high. Then it took SIX YEARS to make a new all time high. Again, that's with the help of a 5% rate reduction. This time around, there will be a bigger crash followed by a far weaker financial and economic recovery. And there will be tremendous societal rage when the stoned zombies are awakened from their narcoleptic coma.

Here is another problem that NONE of these acid trippers have figured out - you can't properly measure "inflation" as a one year rate change coming out of a pandemic when commodities collapsed to a five decade low. Any blind man can clearly see that oil is LOWER than 2008, so how could inflation be the worst since 1980?

Gas prices adjusted for wages (lower pane), are currently LOWER than half the years SINCE 2008. 

 

The greatest source of inflation is due to corporate profiteering. Something the Fed has no control over. 

Here we see corporate profits over wages:

Adding to this epic buffoon festival, it's only fitting that the financial stress index is now positively correlated with consumer sentiment for the first time in history. Why? Because as the economy implodes, stoned gamblers have been conditioned to front-run collapse. On the presumption of imminent bailout.

As things get worse, their complacency increases. 

No surprise, gamblers are now trapped by moral hazard. They've been well trained to double down on risk and wait for their bailout. Sadly, no one has told them this time it's not coming. The Fed  has mistaken their complacency as a sign to continue tightening. 

The irony can't be overlooked. Both sides totally misreading the other, NONE bright enough to figure it out. 

ALL of this insanity should be very obvious, however nothing is obvious in an Idiocracy that believes printed money is the secret to effortless wealth. It should have been obvious a long time ago after the Dotcom collapse and the housing crash both PROVED that we can't continually borrow our way out of a debt crisis by further lowering interest rates each time. Eventually that gambit fails at the zero bound, as Japan and China have found out the hard way.

They've learned their lesson. Which is why no surprise BOTH Japan and China are in easing mode right now. China, also because they are driving their economy straight into the ground using their patented "ZERO Covid" policy. The most populous country in world history is attempting to have zero cases of COVID. It doesn't get any more idiotic than that. Which is why we will CONTINUE hearing about serial lockdowns and re-openings until their economy EXPLODES bringing ALL Emerging Markets down with them. Which is the next event "no one" sees coming.  

All of which explains how the Fed now finds themselves tightening monetary policy at the fastest pace in three decades in a confirmed bear market AND a nascent recession. When for most of the past decade they were continually SUPPORTING markets during expansion and bull market.

TOTAL INSANITY.  

It's all fun and games until someone loses an everything. 

And NEVER gets it back again. 

MONETARY FAILURE AT THE ZERO BOUND

In the perfect world for stocks, the Fed implodes the middle class, inflation comes down, and the Fed rescues markets before they collapse. This is what Wall Street now universally expects from the Fed, because it's been standard policy for the past 40 years. This time, they are flirting with disaster at the zero bound. Anyone who is now betting policy-makers can pull this off, deserves their certain fate...

The CPI print did indeed come in hot. As expected, the hotter than expected reading INCREASED bets on massive rate hikes.

"Stubbornly hot U.S. inflation is fueling bets that the Federal Reserve will get more aggressive about trying to cool price pressures and even potentially ditch its own forward guidance by delivering a jumbo-sized interest rate hike in coming months.

Yields on the two-year Treasury note, seen as a proxy for the Fed's policy rate, topped 3% for the first time since 2008"

Commodities just round tripped back to the 2008 high and the two year just hit the same retracement level it reached in 2008 when markets went into meltdown. In other words it took 14 years for investors to forget the exact same policy error that took place in 2008. Only this time on a far greater scale:

The belief that the Fed is behind the curve on rate hikes is now extant on Wall Street. The fact that these higher interest rates are already imploding the middle class are of NO concern. Now the Fed is under pressure to go big on rate hikes. Which means they are falling ever further behind the curve on bailing out the collapsing middle class.

Nevertheless, we are to believe that these rate hikes are to help the middle class by bringing down inflation. In other words, the Fed will implode the middle class in order to save them. A 2008 meltdown on steroids. And yet no pundits question this idiotic narrative. 

So be it. This money printing gambit was always doomed to end at the zero bound with an Idiocracy certain of the invincibility of central banks. So here we are.

We have now reached the point at which monetary policy can no longer save the middle class from imploding. But investors are betting THEY will be the ones who are bailed out.

It's not going to work out that way.

We got news late on Friday that consumer sentiment just hit an all time low. Lower than 2008 and 1980 which were the two worst recessions since WWII. And at the same time we see that corporate profits are at an all time high. It's no wonder investors are delusional. 

Consumer sentiment is at a record low and yet the Fed stress index is ALSO at a new record low, clearly indicating the Fed considers middle class implosion to be a sign of low risk. 

Meanwhile, corporate profits are at record high. 

So it is that Wall Street sees new highs on the horizon:

Putting it all together, the middle class will continue imploding and Wall Street will continue making new highs. And if you believe that then there is nothing you won't believe. Except the truth. Which means you are wasting your time here.

What happens next is dictated by basic logic:

A global RISK OFF event leading to financial bailout failure aka. "The Gong Show". It's now logically impossible for this next stock market bailout to work as well as the last one. Considering the fact that the Fed was in FULL bailout mode back in 2020 and they are in FULL tightening mode now.

Financial bailout failure will be followed by a Fed slow to realize the magnitude of their policy error. At that point stocks enter Death Valley. The point of no return wherein future returns are deeply negative for long term bag holders. In addition, political acrimony will rise in a mid-term election year. Politicians will be slow to enact a fiscal bailout. The combination of inadequate monetary and fiscal economic fire power combined with an asset collapse will ensure that the recession is much deeper than anyone currently expects.

Consider consumer sentiment has already hit a record low with home prices at a record high. Back in 2007 consumer sentiment collapsed AFTER home prices collapsed.

 

The Fed's next bailout visualized:

 

DENIALATION. THE PROBLEM THAT FIXES ITSELF.

The overwhelming consensus that inflation is "sticky" and won't easily come down ignores the past 40 years of data, and instead recounts 1979. Sadly, in a circle jerk of like-minded fools there is no strength in numbers...

First off, I am not making a bet on tomorrow's CPI. I wouldn't write an entire blog post around a single data point. Suffice to say that if the CPI continues to run hot it will only make the Fed policy error that much larger. So, for those in the ultra crowded inflation camp, move along this is not for you. Take solace in the fact that you are part of an overwhelming consensus right now that inflation is intractable. My bet is that the  inflation consensus is wrong and the consequences will be cataclysmic. 

Unfortunately, we must first re-visit the definitions for inflation and deflation before we can reach a prediction for what comes next. At the individual level, inflation and deflation can feel similar - a lack of spending power. Cost of living higher than wages. A declining standard of living. 

It's at the macro level where they are nothing alike. Recall that coming out of the pandemic demand greatly exceeded supply due to the demand stimulus colliding with a supply chain shock. Now, I predict those two factors will reverse. Meaning demand will collapse and supply will overshoot. In everything at the same time. Homes, cars, durable goods, crypto currencies, Tech stocks, and commodities. A glut of EVERYTHING at the same time.  

Why will this happen? Because the consumer will collapse. Nothing about this is sustainable. And yet Wall Street is convinced it is. Just this week we see these articles:

CNBC:

Bringing Down Inflation Will Take Time

No it won't. It will take sell orders and limit down markets. Not time. 

Einhorn:

The Fed Can't Bring Down Inflation

Yes they can. They have every time since WWII and they're going to do an even better job this time. 

Suze Orman:

Inflation Is Here To Stay

You get the point. Inflation is a broad based consensus at a very lethal juncture. 

First off, as I showed in my prior post the economy has changed drastically over the past 40 years. This is now an import dependent economy and therefore the relative value of the dollar has a huge impact on U.S. inflation. Here we see the dollar is at a two decade key breakout level. A break above this level will likely collapse Emerging Market currencies. More on that later.

On a long-term basis, macro deflation is a result of outsourced industries and imported poverty leading to a lack of  domestic demand brokered by debt. Debt is deflationary. Now we are seeing the fastest increase in consumer debt in decades. 

The net effect of the pandemic was to create a supply/demand imbalance which boosted the prices of everything. But then, policy-makers took away stimulus. So now not only are prices higher, but LIABILITIES are higher as well. Unfortunately, prices can come down but liabilities are contractual. So the middle class is about to get trapped in a deflationary collapse. One in which asset prices collapse and liabilities remain high.

This year will see the largest stimulus removal since the end of WWII, which by the way was a recession. 

From almost 20% of GDP last year to less than 5% this year. I can't say when the "official" recession will begin however growth is currently hovering at 0% right now, which means that ex-deficit we are ALREADY in a 5% recession.

This story got ignored today ahead of tomorrow's CPI, despite being a harbinger of what's coming:

"Target is canceling orders from suppliers, particularly for home goods and clothing, and it’s slashing prices further to clear out amassed inventory"

The actions, announced Tuesday, come after a pronounced spending shift by Americans, from investments in their homes to money spent on experiences...That’s a change that arrived much faster than major retailers had anticipated"

Today we also got this deflationary factoid:

At the same time as new mortgage applications are going into meltdown, the annualized % price increase just reached an all time record, AND homes under construction just reached an all time record.

Which equates to the mother of all impending housing gluts. 

Worse than last time. 

Not to be outdone, we have EM debt going into late stage meltdown mode. A function of EXTREME monetary policy divergence between the U.S. and Emerging Markets.

And strong dollar:

Amid all of this burgeoning risk it's only fitting that the Fed financial stress index just reached an ALL TIME LOW this week. Why? Investor complacency. 

AKA. DENIAL.

A buffoonish level of over-confidence has given the Fed a green light to double hike the Fed rate next week while reducing the balance sheet at a monthly accelerating rate. 

In summary, Millennials who don't believe any of the risks of the past decades were real will now experience all of the risks at the exact same time with no monetary safety net.

This is what happens when you get bailed out for 14 years straight. 

You eventually take a lethal amount of risk, sans bailout. 

Our so-called leaders are idiots. And they will clearly be the last to know that their reign of idiocy is ending. 

Badly.