Thursday, May 7, 2020

The Biggest Dumb Money Bubble In Human History

MAGA will forever be known as the biggest dumb money bubble in human history. Biblical plague, global economy shut down, 33 million U.S. unemployed, 75,000 COVID deaths, no toilet paper...

Dow up 400.

Every time they announce millions more unemployed, the stock market skyrockets. Highlighting what is wrong with America. 


We only have to go back to the February highs for a reminder of mass insanity. Back then moronic gamblers could pretend this was a Black Swan event even though they piled into risk at the top. However, now they have no such excuse. That was the COVID melt-up rally, and this is the COVID meltdown rally. The same dumb idea, except this time far more lethal.

Here we see the beloved mega caps are not only green on the year, they have blown through the February top. What took four months last time took five weeks this time:

The S&P 500 has been battling the 50 day moving average (blue line) for four weeks straight. As we see in the lower pane, compared to last year's rally, new highs are minimal:

This is the eye of the storm.

Here we see volatility has declined substantially and yet is coiling far above the lows of February:

Among the other risky sectors leading this rally is Biotech which was the leading sector in August 2015 just prior to the Smash Crash.

Cloud internets are among the speculative stocks going back to vertical mode, as if the new great depression never even happened:

The rest of the world is not impressed with this spectacular show of extreme denial:

The apex of the dumb money bubble is the bet on reflation i.e. gold. These are the people who are ignoring the fact that 3 million+ unemployed per week is over 3x the highest MONTHLY total in 2008.

He is half right, stocks will get cut in half. However, relative to commodities and silver, gold is the most overvalued it's ever been, going back 5,000 years:

WHEN, not IF, mass delusion explodes all over again, the impending retest will be beyond the control of central banks and algos. As the largest cap stocks lead the way down:

"In the broadening top formation five minor reversals are followed by a substantial decline"

"It is a common saying that smart money is out of market in such formation and market is out of control. In its formation, most of the selling is completed in the early stage by big players and the participation is from general public in the later stage."

MAGA will forever be known as the biggest dumb money bubble in human history

Wednesday, May 6, 2020

The New Plateau Of Virtual Prosperity

Many of today's pundits are decrying the total disconnect between the stock market and the real economy. The only question I have for them is, where were you for the past decade? Artificial intelligence has now taken over the economy. It's rampant in humans and machines alike...

The human species is always trying to invent some sort of virtual reality, because the real thing is not good enough for them. I suggest that those who eschew God-given reality in favour of this last crack fantasy begin to gain an appreciation for what is real, before it's too late. 

The fact that U.S. stocks are now negatively correlated to GDP should come as no surprise to anyone who has observed the steady progression of central bank Disney markets during the past decade. It's Japanification gone global - The concept that true market price discovery would be far too jarring to the fragile population. The inconvenient truth would trigger a panic in the old age home. The overriding mandate of central bank based "capitalism" is to protect people from their own asinine mistakes. For anyone who doesn't believe in fairy tales, it's a padded cell in an insane asylum. The next step in this progression is to shut down trading altogether and mandate that the S&P 500 goes up 12% per year like Bernie Madoff's Ponzi fund. 

Of course U.S. GDP in 2020 will be far worse than the IMF-predicted -6% we see below. And take out the asinine amounts of MMT stimulus, and REAL GDP would be far worse yet. One year hence, somewhere around -30% of GDP will likely be the annualized downside if the 1930s are any guide. 

However the populace at large is too drugged on monetary euthanasia to face the monumental challenge at hand, which is why we have achieved the FULL virtual simulation of prosperity.

Picture a virtual "economy" in which the actual economy has been shutdown and replaced by Amazon and its network of automated warehouses. No need to leave the house ever again. Order everything online. 

In this de facto scenario, one might expect the stock market would implode, however, now only five mega cap Tech stocks are needed to give the impression of a "market". These handful of stocks now over-represented in every passive market index can be easily algo manipulated via the S&P futures and a steady stream of printed money. Meanwhile, these companies have fully supplanted the real economy with the virtualization of everything. A growing trend that went into hyperbolic overdrive during the lockdown. Benefiting the few among the virtualized knowledge workforce at the expense of the many in the real economy. However, only the former have a voice in this shutdown. The working class have no voice in anything. In the American tradition. It's the one thing that both political parties can agree upon. 

One would think that mass unemployment could become a point of frustration among the masses. However, that problem can be easily solved by printing money and sending checks out to the masses. A process that has already started and yet is in its earliest stages. Over time this free money bonanza will grow by leaps and bounds, although it's currently at a temporary political snag ahead of the election. A bit of non-social-distanced rioting over the summer should clear this last hurdle of GOP intransigence by November or sooner. As long as everyone remains at home and otherwise never has human contact again, the economic multiplier that could lead to inflation will remain ZERO. And in the meantime, the bills keep stacking up. 

Boredom taking over? No problem, for that we have unlimited streaming television, and of course video games so kids can kill their friends online all day.

Sexual frustration? We have sex robots which are approved for COVID safe sex. 

All of human life now virtualized. What's not to like?

In order to capitalize upon the dystopian Brave New World I just described above, Jim Cramer put together a portfolio of stocks called the "COVID 19 index". 

What else?

“There are just so many obvious winners and obvious losers. Please don’t make life difficult for yourself by owning the losers”

There are actually very FEW winners under this lockdown paradigm and a huge number of losers. Noticeably absent from the list: banks, autos, homebuilders, mall retail, hotels, airlines, casinos, and of course small businesses which are the backbone of the REAL economy.

As realists it's our sole responsibility to ask what could go wrong. By the end of this year, U.S. debt to GDP will surpass 100%. However, Japan's debt to GDP is above 200%. So as long as the Fed is the primary buyer of U.S. debt, they SHOULD be able to keep control of the Treasury market. 

The difference is that the entire world can't be Japan. Meaning Japan was stuck in a deflationary funk while the rest of the world - especially the U.S. and China - were still growing. We've never experienced global deflation across the board since the 1930s.

The other difference is that Japan reserved their monetary largesse for the supply side - buying up financial assets to encourage continuous borrowing, which was deflationary. Once the world starts printing money in massive quantities to bolster demand, reflation expectations will spike. At which point what remains of the non-defaulted bond market will implode. 

That day remains months away, if not longer. 

In the meantime, the last of the COVID "winners" have been making new recovery highs this week, now approaching their February all time crack high levels.

Here we see the mega caps powering to new weekly highs, while the rest of the market (gray) is rolling over:

Online retail is breaking to new all time highs today, although Amazon (not shown) peaked last week.

One would have no way of knowing that Trump ordered the lockdown to be over:

Gold stocks are rolling over deja vu of February, as record ADP job losses for April take the steam out of the reflation fantasy ahead of Friday's mega jobs report.

Healthcare is deja vu of December 2018 when it rolled over and imploded the market:

EM Currencies are languishing at 2016 levels having not participated in this virtual simulation of prosperity:

If this all sounds stupid to you it's because it is.

However it's not nearly as dumb as the people who believe in it.

At least that's what history will say.

Monday, May 4, 2020

Trumptopia Is History

I have to constantly remind myself what's so great again about non-stop lying. Make no mistake, history won't be nearly as forgiving. Trump's entire re-election strategy is based upon killing off his own base healthwise and wealthwise. Among those who discuss markets, I'm STILL somehow one of the few who say that the policy of throwing people under the bus to get re-elected won't work. 

Do you know why? Because it's their turn to go under the bus and no they don't see it coming.

Every day Trump breaks fundamental rules of honesty and decency with impunity. His Faux News handlers never once call him out on his ludicrous behaviour. Their goal is to be forever memorialized as part of his circus act. 100 years from now historians will look back on all of this buffoonery and say that the Trump era was America's dire moral low point. To be sure, we didn't get here overnight. The moral decline has been taking place since 1968 - my entire lifetime. This is a seminal moment for Republicans to finally put the country ahead of their own corrupt failed ideologies. We know which path they will take. And the cost will be totally unaffordable. 

From inception, MAGA was always a sheer fantasy, however now it has entered the Darwinian lethality stage. Those Trump supporters who believe there will be no consequences from his non-stop lying, are only lying to themselves. The 2020 consequences will be most acute in the areas of health, wealth, and politics. However, from an historical standpoint, these Trump denialists will be tattooed with his lies and their dire consequences for the rest of time.

America's political divide is not political. The politics of the day are merely a manifestation of societal aspirations going in two totally different directions. The real divide is about the past versus the future. Liberals and progressives are trying to build a future out of the ash heap of the past, while the reactionary right is still clinging to a past that no longer exists. A past that self-destructed due to unprecedented greed.

This of course in many ways is also a demographic divide, although there are plenty of young and old on both sides of the political spectrum. However, those who cling to the past are of the mind that they are entitled to never change. To continue down the same self-destructive path as always. Failure is the new success. MAGA is running on the glue fumes of ancient mythology. 

Unfortunately, reality doesn't care what people want. This Coronavirus so-called "Black Swan" event exploded the latent fragilities in the MAGA delusion. A slightly stronger than average flu bug literally imploded the global economy overnight. The problem wasn't the virus itself, it was the sheer pandemonium that it created in the old age home. 

Make no mistake, our politicians, most of whom are ancient geezers themselves, panicked when they saw the mortal threat posed to their own health AND more importantly their political future. The politics of the U.S. are controlled by the AARP (American Association of Retired Persons). These senior citizens are 6:1 in favor of social distancing at the expense of the economy. Whereas Millennials are 60:1 in favor of ending forced celibacy. Had this so-called pandemic arrived when the Baby Boomers were in the prime of their free love Woodstock orgy I assure you it would have just been one more flu bug coming from China. Not this clusterfuck it's turned into.

Aside from age, which is a generic risk factor far less predictive than overall health, diabesity and its attendant complications of high blood pressure and heart disease, is the biggest risk factor associated with COVID. As we know, corporations have been systematically fattening this society for the past several decades. In other words, this designer virus targets people who are addicted to the corporate deathstyle. And it arrived at a time when Trump has put unemployed healthcare in jeopardy. No surprise, it's a recipe for systemic healthcare collapse and personal bankruptcy. 

This fiasco will all be looked back upon as being the last straw that imploded a denialistic fantasy in progress. Thereby hastening the demise of what was already imploding on its own. Recall that in Trump's greatest economy of all time, the yield curve had been warning of impending recession for a year before Coronavirus:

January 30th, 2020:

"2019 went down as the year of the yield curve inversion."

This classic sign of pending recession—when short-term government securities offer higher yields than longer-term ones—lingered for a "solid five months" from mid-May to October...It was the first time in years the yield curve had inverted."

In other words, the only hope that Trump has of getting his fabricated Ponzi economy back on track is to convince the elderly to end social distancing. And yet they are the least likely to follow his advice AND the least likely to appreciate his blitzkrieg re-opening "strategy":

..."Any way you slice it, Trump is playing with fire in promoting a megastrategy for the pandemic that appears to make the safety of seniors a secondary concern"

This strategy will fail both economically AND politically among his elder base. As they attend more and more virtual funerals, Trump will eventually feel their ire. Time and body count are not on his side. 

Of course this is not the only buffoonery we must yet endure. Somehow the man who sold himself as an isolationist president is now agitating for war in China's backyard. WWIII is just another political stunt to get him re-elected. Why the U.S. military is still encamped in Asia fomenting war when Trump's entire foreign policy was based upon isolationism, is a function of political opportunism. Our oldest son (USMC) is now trapped on Okinawa by the travel ban, when he was supposed to end his two year overseas tour in April.

It's the most fucked up and convoluted foreign policy any draft dodger could possibly fabricate. Again, all part of the extraordinary arrogance that is the only thing that remains of abandoned empire. We don't care what happens overseas, but we'll go to war over it for political gain. 

What history will say is that Trump was America's moral low point. The wholesale collapse of reason and responsibility, all so that a denialistic old age home could pretend they were still great again.

My prediction is that those few true believers who survive this Trumptopian gauntlet of lethal lies will never again admit that they were Trump supporters. In the future it will be an IQ test.

Yes or no, did you support that jackass?

Hell no.

Welcome To 1930

Depressionary economy, 30+ million unemployed, Herbert Hoover lying constantly, escalating trade war, record wealth inequality, fiscal multiplier of zero, record low interest rates, fake retracement rally...what's not to like?

It's important to note that all of the above has been tried before, the year was 1930 and what followed was a 90% decline in stocks over the next two years. Meaning that a lot of Trump supporters are going to have to go under the bus to get him re-elected. And that's ok with him...

Speaking of 1930, the world's greatest investor, Warren Buffett, turns 90 this year. Meaning that his entire lifetime bookended the most prosperous period in world history. How is that for sheer luck?

Trump's virtual town hall meeting last night was a showcase of exceptional lying. On the economy he said that going into this fiasco he had the best economy in U.S. history, the best economy in the world, and the best economy in the history of the world. None of which is true.

In the modern era, the U.S. economy peaked twenty years ago with respect to labor share of GDP, GDP growth, quality of jobs, and fiscal surplus. At any other time in history, Trump's 2019 Ponzi economy consisting of 4% of GDP deficit and 2% growth, would have been called a recession. That's before liars took over the White House. 

Now of course, Herbert Hoover has an even bigger hole to dig himself out of ahead of the election, which is why the lying has been ratcheted up to FULL BURIAL mode. As in, believe these lies at your own peril. The political impasse surrounding the next round of failed stimulus continues into this week. As I've pointed out, the fiscal multiplier due to social distancing mode, is the limit approaching zero. Meaning these bailouts have zero impact on GDP - all of the money is going to pay utility bills and credit cards. No one is out there spending, and all indications are that this "re-opening" will be a clusterfuck. Warren Buffett collapsed airline stocks today with his comments over the weekend indicating that air travel will not return to 2019 levels any time in the foreseeable future. 

He also warned that the Fed has done a marvelous job of manipulating the stock market to a level that is entirely outside the realm of reality. Which is why stocks are now inversely correlated with GDP for the first time in U.S. history, as Hugh Hendry warned so eloquently in late 2014:

"The worse the reality of the economy becomes, the more we take on the reflexive belief in further and dramatic monetary expansion and the more attractive the stock market looks."

Which is where this all gets interesting, because the U.S. is now going where other central banks have already gone before. As to the all-important question of whether or not extreme QE can generate reflation, we only have 30 years of Japan's failed experience as a guide. JGBs have been glued to the zero bound for over a DECADE straight. AND as for this newfound Idiocratic belief that the Fed will buy stocks and keep markets levitated, both Japan and China have tried that gambit and watched it fail disastrously.

Which gets us back to Hugh Hendry's ill-fated gamble on imagined realities 2015 which cost him his hedge fund, and which is eerily reminiscent to the magical thinking in the U.S. today:

"China is set to record its weakest growth in GDP in 25 years. Yet it seems to have entered a bull market and may be where we deploy much more of our risk capital next year. That's because the recent exuberant run up in onshore Chinese equities seems to me to amply demonstrate the power of imagined realities. "

Per imagined realities 2020, the U.S. is set to record its weakest growth in 90 years. And yet the recent exuberant run up in stocks amply demonstrates the power of imagined realities.

The circled area is where the Chinese government started buying stocks. Which took place just before the Chinese meltdown blew up the global asset markets. What I call "Smash Crash":

As I've said before, we must never under-estimate how dumb today's pundits, leaders and sheeple will become. There is NO LIMIT to the magical buffoonery they MUST believe.

Whereas fake optimism worked for over a decade straight, now it is LETHAL for health AND wealth.

Today's economists are looking at stale data that is weeks and months old to predict the future. The White House is lying constantly. Wall Street is conjuring up fake-believe earnings estimates even as the majority of companies provide no forward guidance.

I believe that gasoline demand at the service station pump level is a good proxy for true economic activity.

Here we see gasoline demand going back 28 years:

If Herbert Hoover drops the hammer on China, this gong show will explode in every direction.

“In my personal opinion, we should drop the fucking hammer on them. Stop being such pussies,” a senior White House official told me, speaking on condition of anonymity because they weren’t authorized to disclose internal deliberations"

The ideas reportedly under consideration include stripping China of its “sovereign immunity” status under US law — and cancelling some or all of the interest payments on the more than $1 trillion in debt the US owes to China (the senior White House official I spoke to said they favor the latter option)."

Can you imagine if the U.S. defaults on $1 trillion of debt? That is the thermonuclear option for global credit markets.

Saturday, May 2, 2020

Rich Man's Panic aka. Shared Sacrifice

America's wealthiest are about to share in the spoils of Trump's non-stop lying and renowned criminality. The reasons they elected him in the first place. Whereas Trump's loyal base will always gladly go under the bus for him, which is where they are currently...

I said on the first leg down that the casino would explode, because central banks would lose control. I was wrong, that never happened. The most violent crash in U.S. history was ultimately brought under control by two trillion in Fed money printing. AND RECORD BTFD from new casino gamblers flooding into Trump Casino. My bad.

Nevertheless a large amount of technical damage was done. And now the casino is far MORE overvalued than it was two months ago at the prior top. Meanwhile, gamblers have a newfound sense of invincibility and TOTAL belief in central bank lubrication.

It's rare that we have the chance to make the exact same monumental bet twice in a matter of years, much less two months. Yet this is the opportunity rampant denial has presented us. The good news is that if history is any guide, it won't be the last.

Which is why I am doubling down on my call for extreme dislocation in this next leg down, what some are calling "the re-test". Although, this time I am not predicting they will shut down the casino for an extended period of time, now that the Grand Re-opening has begun. As a sign of "confidence" they will want to keep it open. Which will make the decline even more brutal. Nonetheless, the built-in circuit breakers could still see the market halted -20% for the remainder of the day.

"The Trump administration’s response to the coronavirus has coalesced in recent days around the same message - the need to reopen quickly."

Among those calling for a re-test is billionaire Jeff Gundlach who ignited this week's short-covering bonanza. According to the article below, over the past 92 years and 25 bear markets, the market re-tested a bear market low 60% of the time. But here is where it gets really interesting - of the 25 bear markets since 1928, 11 of them took place during the Great Depression. Yes, you read that right. And during the Great Depression, bear market lows were re-tested 90% of the time. Meaning it was an extraordinarily volatile decade. Which I believe is the new normal. Massive rallies and crashes. An annual bull market, and annual bear market.


But here is where it gets even more interesting - what many are calling a "re-test", already was a re-test, of the 2018 lows. And according to today's bulls that re-test passed per this recent sugar rally.

NOTE in the lower pane that this latest rally was driven by mega cap Tech and therefore breadth never confirmed the rally. This leg down should blow through the (third) "re-test" level like a hot knife through butter. Next "support" is the 2016 low - 50%:

Here we see via Tesla a return of FOMO deja vu of the February top. This time, the stock is three wave corrective. As it was in February, the second high matched the top in the S&P 500:

What I am saying is that fear is about to make a comeback into markets after a decade hiatus sponsored by central bank market magic. It's a bold call to make to be sure. Because in order to come true, the market will have to break in such a way that faith in central banks is imploded. At which point fear and panic will re-enter the markets. And at that point volatility and true "price discovery" will return. 

We already see via the virus pandemic that this is a new age of fear. The age of zombies is over. There is nothing to fear but fear itself, however, the zombies who took the decade off from reality are now experiencing fear. Their vacation from reality is over, and they have no will or ability to face the truth. They are out of practice. Non-stop lying bought them a decade reprieve from reality at what history will say was a terminal cost to health and wealth. Mental health is about to become a serious problem for this society of denial addicts. Being fake happy is now a full time job. 

Those of us realists warned over and over again that inconvenient reality would return in brutal fashion, and it did in a way that not even the most bearish among us could predict. Now the denialists are trapped and therefore the lying is ratcheting up commensurately. It's all they have going for them - a groupthink of lying dunces jacking each other off constantly. 

This lockdown is a powder keg ready to explode. Policy-makers are all over the place trying to juggle the economy versus the  outbreak. It's an impossible task in the hands of incompetents. 

The political divide is now chasmic. Each side blaming the other with only six months to go until the most important election in U.S. history. The fact that Herbert Hoover's approval rating among his base hasn't imploded yet is a testament to their depth of denial. He has a deathgrip on his base and they will follow him into the depths of hell at any cost to their health or wealth. Anyone who follows them down the Road to Perdition is doomed. 

The combination of haphazard re-opening of the economy, denialistic views on the Coronavirus "hoax", non-existent safety net, sugar rallied markets, is a recipe for societal explosion and rampant panic.

These people have everything on the table now, letting it ALL ride on Trump Casino.

This is going to be one hot summer.

Any questions?

Friday, May 1, 2020

A Deep State Of Denial

We won.

We got everything we wanted. The end to the reign of desecration AND a paradigm shift away from the de facto slave state, albeit in its metamorphic stages. A deflation trap with no way out for denialistic morons. And of course carbon collapse on a biblical scale beyond all imagination. 

The reign of sludge is ending, the hardest way possible. Thank God Almighty. 

I know, denialists are still in denial. They will live out their remaining corporate half lives in a deep state of denial. Nature is merciful in this way. The presumed "winners" in this rat race to nowhere are still of the belief that printed money will save them from the fate that was bestowed upon everyone else. 

After all, it did in 2008, right?

The difference between now and back then is that back then the nation state of China was seen as the mighty economic engine of global growth. Remember free trade, cornerstone of the Republican economic agenda? Now, China is viewed as a pariah state stealing jobs and forcing multinationals to maximize profit. A real conspiracy if there ever was one. 

Which is why now, all efforts to implode China are applauded. China pulled the WORLD out of recession in 2008. Now they're about to get final imploded. 

Here we see that the sheeple at large are about to learn a hard lesson in trusting proven liars. They took the initial Coronavirus crash as an opportunity to increase risk exposure. The rally off the lows was driven by new investors on a RECORD scale. People who have never seen a selloff before.

Apparently the shutdown was viewed as an opportunity to take up gambling in Trump Casino:

When the casinos/sport betting closed down, some of that action went to stock markets”

“What’s happening right now is that fear has turned to greed for the retail investor. Nobody wants to be left behind”

I realize there is extreme suffering right now. Because there is extreme suffering every day on this planet. The only thing that's different now is WHO is suffering. When African children go under the bus by the thousands per day, it's not breaking news.

Despite this victory and attendant carbon collapse, I will continue blogging. I thought that this moment would bring respite to my level of rage, but I was wrong. Rampant lying has done nothing to assuage my anger. 

Hence, I will continue to rage against the machine. Pointing out that the lamestream media exists SOLELY to serve ad-sponsored pablum to an old age home. Confirm that Monetary Policy is financial euthanasia administered to an addicted geriatric populace. Remind everyone that Faux News is the existential crap one finds in every last stage empire. Point out that Zerohedge is 90% sludge and 10% useful information to be fished out of a toxic waste dump of humanity. Confirm that the "Deep State" is the obligatory fictional entity that today's Republicans invented to deflect blame for all of the problems arising from the fact that they elected a fucking moron to president. 

So forth and so on. Suffice to say, history will not be kind. We live in a garbage dump of humanity eager to burn itself to the ground. Those of us pointing out the truth are only slowing things down. 

Nevertheless, if we can navigate this perilous journey from extreme deflation back to reflation AND make some money, then so be it. Because I didn't sign a contract saying I would be a useful idiot along with everyone else.

Let's get to some facts and data and leave the opinionated bullshit to those who traffic in impending collapse. 

Picture a scenario in which the "Powell put" delivers the exact opposite result of the "Powell pivot".

That is my base case scenario. Stained underwear:

On a closer timeframe, here we see that Amazon had a massive reversal of fortune today. Closing at an all time high yesterday and then gapping down to a two week low today. It turns out that everyone stuck at home sans job, isn't shopping on Amazon all day.


Let's say for the sake of argument my wave count is correct. That would mean that semis wave ii and 2 stalled at the same level:

Zoom out again for a look at Financials.

Here we see the re-test hypothesis at work:

The rest of the world ex-U.S. is third wave down at all degrees of trend:

Which gets us to my presumptive wave count.

My base case expects political regime change in November, however, more importantly from an economic standpoint, monetary regime change is only a function of time and pain to the downside. 

My advice to the Democrats is to get a cardboard version of Biden ASAP. This can be like Weekend At Bernie's.

The Lord Of The Flies

America's social safety net is non-existent. I predict that extreme deflation will implode ALL asset values. Before we hit rock bottom...

The massive economic lie known as Globalization could only persist this long due to the pernicious will and ability to overlook the relentless exploitation of global poverty. 

As we know this blog is U.S.-centric. Therefore when I discuss deflation I am referring to dollar-based deflation. I have no doubt that Bitcoins, gold and other assets may rise relative to other currencies during this period of extreme deflation.

Among those discussing deflation versus inflation in recent days are Peter Schiff, Mike Shedlock, and Ed Yardeni. Schiff as always presumes hyper-inflation is imminent. Shedlock and Yardeni lean towards deflation although their level of conviction is unconvincing at best.

Not one of them mentioned the RECORD 30 million job losses to date, on the way to who knows how many by the end of this year. Today's pundits are still focused on the demand collapse from the lockdown and social distancing while ignoring the crater that has been created in the real economy. Which is why Shedlock lays down his standard challenge to anyone who can prove why low prices are bad for the economy:

"Of all the widely believed but patently false economic beliefs is the absurd notion that falling consumer prices are bad for the economy and something must be done about them"

Shedlock and most other people are of the well-conditioned belief that collapsing prices of everything are a good thing. However understanding the downsides of extreme deflation are not nearly as complicated as some people make it. If you are someone whose income is  going up while prices are going down, then deflation is good. For you. If on the other hand you are someone whose income is non-existent due to job loss during a period of collapsing prices then deflation is bad. For example, negative oil prices arriving during a nascent economic depression are bad for oil companies and oil workers. However, they are good for independently wealthy "consumers". The kind of which can be found living with the Sasquatch. If however collapsed oil prices arrive during a time when the neighbourhood kids are dumpster diving your trash cans, then they could be viewed as a net negative.

I think we're all on the same page now. One's views of the benefits of deflation are entirely a matter of perspective. Ignoring the plight of others is the best way to understand the joys of deflation.

Getting back to the problem at hand, when a decade worth of job creation evaporates in a mere four weeks and the Monetary and Fiscal policy tools are already maxed out on an historically unprecedented basis, then it's a recipe for unmitigated disaster. Until we cross the Rubicon from socialism for the rich to socialism for everyone else, EVERYTHING will go down in dollar value. These bailouts so far have had zero effect on the real economy . Most of the bailout money is going towards debt service, which means it will have ZERO impact on GDP. 

One of the things Congress did with their recent stimulus bill was to make it easier for people to withdraw money from their 401k retirement plans to pay bills. Which is one of the reasons why they didn't shut down the stock market during the March crash. Apparently so people could use it like an ATM machine. JP Morgan estimates that stock buybacks will be down 70% in 2020. Wall Street analysts have zero visibility on earnings for this year and next. Which is why despite the declines to date, the overall stock market remains massively overvalued.

This COVID fiasco is the most deflationary event in human history without any comparison. No amount of fire hose liquidity will offset the ever growing black hole of demand. Until our politicians acknowledge that global capitalism has failed, the destruction of asset values via deflation will continue. These people and their true believers are caught between a rock and a hard place now: Allow deflation to ravage their wealth, OR allow inflation to implode their wealth. This moment is the crucible for global capitalism.

As always, the burden of this ordeal is falling on the same working class people, which is why there is no political will to make the paradigm shift to a reflationary regime change. That will require far more pain both economically and financially. And it will arrive at the nadir of extreme deflation. At which point everyone will be on the same page as to why collapsed prices are bad for a massively debt laden economy.

In summary, every low price for a consumer is an equally low price for a debt-strapped producer. The Shedlock "challenge" to prove why low consumer prices are bad, is now being put to the ultimate test:

"It’s game-over for most of the U.S. oil industry.

Prices have collapsed and storage is nearly full. The only option for many producers is to shut in their wells. That means no income. Most have considerable debt so bankruptcy is next."

Energy is the economy and oil is the most important and productive portion of energy. U.S. oil consumption is at its lowest level since 1971 when production was only about 78% of what it was in 2019. As goes oil, so goes the economy…down."

The best leading indicator we have for S&P profits, is oil: