Deflation Is Coming Hard And Fast

The vast majority of today's pundits are of the belief that inflation is the theme of 2021. The reality will be the binary return of deflation. And no, it's not going to be friendly to Tech stonks this time around. Those pushing the fake inflation narrative have their own agenda to pump up asset prices. Today's pundits propagating this inflation narrative are useful idiots along for the ride. All of them are building us up to the biggest asset crash in human history...

 

It speaks volumes of our grifter society that today's market pundits are solely fixated on asset inflation while ignoring the morbid state of the underlying economy. Today's borrowed "GDP" is 20% Federally borrowed money, hence it's 100% fraud. And yet, today's economists make no adjustment for the magnitude of the deficit. It can grow to infinity as far they are concerned at a rate 10x the growth in the "economy". All of which points to Japanification, which is something they will all vehemently deny. After all, they've been predicting a "return to normal" continuously since 2008 amid 1000 year low interest rates.   

What they all don't realize is that Japanification implies ZERO long-term inflation. Meaning that this spike in inflation we are now seeing is partly due to COVID supply bottlenecks but mostly due to the buying frenzy that it has unleashed. In other words a speculative demand side frenzy has temporarily cornered the market for various commodities, which will be resolved by inevitable crash. 

What's the difference between pushing a fraudulent Ponzi crypto and pushing a false economic recovery narrative? The difference is the second one is going to wipe out millions of people economically and financially. Nevertheless those involved in these two types of scams both have the same agenda - to enrich themselves at the expense of everyone else.

This is capacity utilization in the U.S. economy. It has been falling for forty years straight - during the entire ascendancy of the Reagan revolution and its widely ignored underemployment crisis. Each cycle seeing more lives destroyed by mass layoffs. 

Conservatives STILL to this day believe that free trade is the key to prosperity. But which country has benefited by far the most from U.S. free trade? China. Because they don't believe in free trade. Now they have the jobs, the factories, and the intellectual property that was eagerly handed to them by U.S. companies.

U.S. free trade policy created a global hegemon that is now challenging the U.S. for global dominance. It's no wonder Trump easily took over the Republican party. He repudiated the entire disaster.

One of the gifts that keeps on giving from "free trade" is the importation of deflation from the Third World. Which means that when THEY decide this inflation scam is over, it will be over. And those who are oblivious to the working people doing the heavy lifting in these squalid and oppressive global conditions, are the ones who don't see this coming.

And that's the way it should be.

At the end of this fiasco, even the dumbest morons will realize that the low prices at Walmart are totally unaffordable.

And after that the non-economists will get it too.

Achieving The Apex Of Stupidity

Sane observers want to know, when do we reach the apex of stupidity? It's a great question, however in a society of limitless idiots all surprises are to the upside, until it all explodes unexpectedly...

"No one saw it coming"

Filed under careful what you wish for, monetary heroin addicts have reached the inevitable point of stimulus overdose. Central banks have Ponzified markets to the point that now there are no "safe havens" in risk markets. Every asset class is massively overvalued and waiting its turn to spike and collapse like a cheap tent. Those who think that the S&P 500 will be spared, were not investing 13 months ago. The process of alleviating these newbies of their misallocated wealth is well underway... 

"Dogecoin, the cryptocurrency branded after a viral dog meme from years ago, has a market capitalization of about $86 billion following a six-month climb of nearly 25,000 percent"

A joke crypto is now worth almost two Ford Motor Companies. You have to wonder why anyone goes to work anymore, when they can become millionaires by hanging out in Reddit chat rooms.

What we have now is a society of digital grifters roaming from one scam to the next.  

Under the surface of this post-pandemic Ponzi scheme, the bodies are stacking up. It seems ages ago in late 2020 that pundits were breathlessly extolling "The Money Tree" Cathie Wood and her Ark Fund Ponzi ETFs. Then they crashed. Gamestop was the big story in January of this year, then it crashed. SPACs were the hot topic in February, then they crashed. The Nasdaq implosion in March took down the virtual economy stocks, plus Biotechs, Fintech, EVs/Solar, and pot stocks. That kept the assholes quiet for a few days. But then the BTFD team piled back into their favourite Tech stonks in March according to the monthly report from Ameritrade. In other words, after the Nasdaq crashed, home gamers INCREASED their risk exposure and their margin leverage. But it didn't help because those broken bubbles have languished and are now clinging to the March lows while the "inflation" trades have rocketed higher.

It's a tale of two markets. Both of which carry their own massively ignored risk. One market is skyrocketing higher, the other is imploding. What fairy tale to believe now? The red line will catch up to the black line and continue on to happily ever after. Record NYSE highs (lower pane) will expand to infinity.

In my estimation, below is the most bearish chart on the internet right now. It shows that the "high beta" cyclicals aka. Financials, Industrials, Transports, Retail, Energy stocks have closed above their 50 day moving average every day since the election. A record across two decades.

These stonks have now priced in paramount delusion aka. The Post-Pandemic Investment Hypothesis. The asinine belief that a locked down economy emerges far stronger than it was previously. The only question being why don't we lock down every other year? A belief held by today's predominant class of supertards who have stampeded anyone with an IQ greater than a shoe size. 

Elon Musk, who is making his SNL appearance tonight, has put himself at the center of this mass Ponzi scheme. A key beneficiary of Cathie Wood's Ponzi empire, a key proponent of DogeCon, and a major buyer of BitCon. His own Ponzi stock makes no profit other than the one collected via carbon offsets from other car companies and from trading BitCon which has the carbon footprint of Pakistan, a country of 200 million people.

Tesla makes no money from selling cars.

In other words, Tesla gamblers must prepare for the reality that nothing changed in the past year except that other car companies are catching up to Tesla on EV technology and are way ahead on making cars.

Minting DogeCoin billions out of thin air is Elon Musk's and Jerome Powell's only remaining advantage.

Because they are both on the way to becoming a spent farce. 

The Asshole Bubble: See It, Or Be It

The unfounded belief in U.S. "inflation" is now the most crowded bubble in human history. And for that we can thank this era's ubiquitous assholes whose job it is to herd the sheeple into unwise investments...

Needless to say, they can't afford to be wrong again this time.

The U.S. is attempting its first bailout of the middle class in history. However, it's coming under attack from the right who believe that only billionaires and stock investors deserve monetary subsidization. Therefore the economic recovery is now caught between two competing ideologies - the supply side and the demand side. While that's not getting resolved, the gambling class is doubling down on faltering recovery. Because per the Iron Law of Disney markets, the more the economy disintegrates, the more gamblers expect further and dramatic monetary expansion.

Which will be the epitaph for this era:

Search the internet for "Employer bias against long-term unemployed" and you will find article after article discussing this well known structural employment issue. Now, the COVID lockdown and attendant re-opening has finally exposed this latent disaster for everyone to see - an economy unable to re-open due to the mismatched needs between laid off workers and employers.

This article from 2014 gives a great summary of the problem. Not only is there a societal bias against the long-term unemployed, there is a bias against the unemployed period. Which is not a great problem to have in an economy that is world famous for its mass layoffs to meet the corporate earnings quarter.

"Studies found strong evidence that employers’ willingness to consider applicants dropped like a stone after the candidates had been unemployed for six months. The companies actually preferred candidates with no relevant experience to those with a background in the field but who’d been out of work for a stretch"

Corporate leaders haven’t always viewed unemployment this way. Traditionally when the economy improved and created new jobs, businesses would look to the ranks of the unemployed to fill them. Until the mid-1980s, the term “layoff” actually referred to a temporary job loss — and employers were expected to rehire these workers as soon as the economy turned up again"

This chart shows that it takes years to clear the long-term unemployment backlog. And most of that "resolution" comes as a result of workers dropping out of the workforce and "retiring" early.

Anyone who has worked in corporate America knows exactly what the problem is - HR departments are scanning only for exact qualifications. They are more interested in specific skills than attitude and aptitude, so they filter out anyone who does not have the exact qualifications. They're not willing to take a chance on someone who needs to be trained or who has skills that are deemed "obsolete". I saw this all the time during my IT career. Not only do they want the exact system and platform, they want you to have experience with the latest version. 

Low wage establishments have a somewhat different problem. They don't pay high enough wages to retain employees, so they are constantly churning through a marginally attached workforce that is roaming constantly from one employer to the next. 

This battle between the Reaganite supply side which has been ascendant for forty years and the newly resurgent Keynesian demand side which has implemented the most humane unemployment program in U.S. history will be the frictional theme of this "recovery".

The demand side is worried that if the unemployment programs end early, the long term unemployed will be stranded without income and no way of getting back into the workforce. Mass homelessness will be the end result. The supply side is worried that if they don't punt everyone off of unemployment, then employers won't find their ideal candidates in the haystick of the mass unemployed. The fact that entire families will be obliterated, is collateral damage. 

Now we face a situation where policies differ from state to state. Many states are once again requiring mandatory work search, which was suspended during the pandemic. And some red states (South Carolina, Montana) have already decided to  prematurely end the Federal pandemic assistance programs that Congress passed in March. Meaning they are going to have a major homeless problem in the near future. 

I highly doubt blue states will take the same path of curtailing extended unemployment. All of which points to an extremely uneven recovery and an economy that languishes well below its potential output. In other words, until HR departments and corporate management decide to loosen up their hiring criteria for the first time in modern history, we will be reading about the "critical labor shortage" and the mass unemployment problem on the same pages at the same time. And of course the two sides will be blaming each other constantly. 

Getting back to the casino, due to today's disastrous jobs number, the stock market ended higher once again led by cyclicals. Why? Because belief in fake inflation is now the last super bubble. So it doesn't really matter what bad data rolls in, these people are now wed to the belief in inflation regardless. It's at the very core of their 2021 investment hypothesis.

Recall that year over year March 2020 through April 2021 was the best 12 months for stocks since the 1930s. So what to do but plough massive amounts of money into stocks after the best year on record.

After all, flows follow performance. 

The Dow is entering its 60th week of making new highs. 

A good time to be ploughing record amounts into stonks? We will soon find out.

The Perfect Crash Hypothesis

This society has stumbled upon the perfect formula for unforeseen meltdown on an epic scale. The only question is, who gets the credit when it explodes - the people who built this time bomb or the masses who bought it? Suffice to say, this society of spoiled, decadent assholes is about to learn the lesson of a lifetime for trusting known psychopaths and their fabricated predictions for the future...

What happens when you combine record over-valuations, a hobbled economy, record corporate debt, record stock market leverage, record IPO issuance, a collapsing Tech bubble, a maxed out Fed, and end of cycle inflation? 

You get mass complacency. What else?

This is the perfect formula for "unforeseen" meltdown. It combines all of the elements of fraud and delusion this society demands. A populace desperate to be lied to is finding no shortage of con men to meet their needs.

Which is why the Federal Reserve just issued this "CYA":

"The combination of stretched valuations with very high levels of corporate indebtedness bear watching because of the potential to amplify the effects of a re-pricing event"

While broader market spillovers appeared limited, the [Archegos] episode highlights the potential for material distress at [nonbank financial institutions] to affect the broader financial system”

Cue Ark ETFs which are trading like a brick. The combination of non-stop rotation from deflation trades into cyclical reflation trades along with Wall Street's relentless IPO supply dump are a recipe for disaster.

Here we see the flagship Ark Innovation ETF (weekly) is back at key support and volume is rising. 

One of the many sectors in the Ark portfolio that are now going bidless is the Solar/Green Energy sector:

We see via IPOs that another successful pump and dump cycle has ended. The Millennials were bilked by the exact same psychopaths they were protesting one decade ago. 

From Occupy Wall Street to Imploded by Wall Street - it took ten years to democratize fraud. 

Full credit, these useful bagholders took down decade high IPO issuance in a mere four months. A round-trip back to Ramen noodles in record time. 

The platform that was almost imploded by the Gamestop pump and dump just added nearly 10 million new crypto users since that debacle. Crypto is Gamestop x 100. 

Here we see what I mean about complacency:

It's abundantly clear that most people don't factor in market risk when they invest. These people are flying blind, duped by bullish headlines.  

This anniversary week of the 2010 flash crash is the fourteenth up week in a row for the Dow Transports, which is the longest sequence in half a century. 

In the words of the Fed, a "re-pricing event" is no longer an option. 

All Signs Point To Weak Recovery

The bar that constitutes a recovery keeps getting lower and lower.  It's so low now that a 2% annualized increase in GDP since 2019 (using CBO projections) is now causing end of cycle inflation hysteria. The irony of bailing out the economy without allowing any deleveraging is that it truncates the length of the new cycle, because bottlenecks typically associated with the end of the cycle manifest instantaneously in the *new* cycle.

On the other hand we could just be honest and acknowledge that this is STILL the longest cycle in U.S. history now running on record stimulus. 

"The ISM survey's measure of prices paid by manufacturers rose last month to the highest reading since July 2008, when the economy was in the midst of the Great Recession. That bolsters expectations for higher inflation this year"

Of course July 2008 was the end of the cycle. Back then economists expected inflation to worsen but when the Great Crash of 2008 took place, the exact opposite occurred. 

First off, as I pointed out on Twitter, the reason there is so much "inflation" hysteria is because the middle class has been obliterated and therefore small price increases have outsized impact on household budgets. It's a poverty trap in which wages can never rise because inflation hawks immediately call for higher interest rates to quash the recovery. They have a well brainwashed populace taught to believe that prices at Walmart can only go down, never up. The virtuous circle of rising wages and rising output/productivity that created the middle class in the first place cannot exist under this current paradigm. Likewise, amid record debt, small increases in interest rates have outsized impact on credit markets. In other words, this is a Mr. Creosote economy. Always only a wafer thin mint away from exploding.

Due to the year over year "base effects" of comparing a re-opening economy to a locked down economy, all of the various metrics economists use are skyrocketing. Unlike anything we've seen in modern history. This is all due to year over year comparisons against a zero baseline. 

If we look at more absolute indicators, we quickly realize that this "recovery" is by far the weakest in U.S. history. Which portends badly for what is coming on the other side of asset  super crash.

First off, looking at the ten year Treasury yield, what used to be the floor for interest rates, is now deemed to be the ceiling. According to today's inflation hawks a 2% bond yield would be the end of the world.

If we look at air travel (passenger miles) as a proxy for tourism and business travel, here is what we see:

This is through January, nevertheless the increase is nominal:

If we look at vehicle miles as a proxy for people commuting to work and/or taking vacations, we see they are at a twenty year low as a 12 month moving average.

This data is through February:

No surprise, crude oil is languishing amid demand still at an eight year low. This is the third echo bubble since 2008.

Crude oil demand is from mid-April:

Here we see the big "housing boom":

Housing starts are fractionally above pre-pandemic levels:

Housing starts are from March:

And if we look globally, we see that the Baltic Dry Index which is a measure of shipping costs, is a pale shadow of its 2008 levels.

Bear in mind, this is all the good news, imagine what happens when the asset bubble crashes.

BDI is updated weekly:

The Post-Pandemic Investment Hypothesis

The premise of the post-pandemic investment hypothesis is that an economy that is locked down for an entire year emerges far stronger than when it entered. You have to be a brain dead idiot to believe it, therefore it's now the consensus theory...

According to this novel hypothesis, mass unemployment, record deficits, small business obliteration, and soaring corporate debt are all factors that make stocks more attractive. If this all works out, we can look forward to the next global pandemic buying opportunity. I'm sure Redditors are hatching a global Ebola epidemic as I write.  

Per the post-pandemic hypothesis, there is now a *new* category of investment called "Value Momentum". What used to be two polar opposite investing strategies have now been morphed into one gigantic Ponzi momentum chase. In other words, there is no longer such a thing as value investing. 

Incidentally, the fund company that manages the MTUM ETF is Blackrock, the world's largest ETF issuer and overall money manager.

Maybe they will add their own stonk to the fund to get some momentum going:

The Fed, for their part has done everything possible to avoid the Minsky Moment by making the bubble far bigger by promising unlimited liquidity forever. The ubiquitous belief that attends this lunacy is that as long as the Fed never raises short term rates, the market can't explode. The fact that the Fed has already imploded the long-term bond market apparently doesn't matter. In other words, the stock market is now in an upward momentum feedback loop that will only end when the bubble spontaneously explodes at all time highs.

Unfortunately, the Treasury Secretary almost caused the Minsky Moment today when she accidentally told the truth:

Risk markets were not very happy with the news, because they had assumed that Fed liquidity would flow until happily ever after. However, the bond market appears to be pricing in an inevitable tightening which would ironically be bullish for bonds as it would reduce inflation expectations. 

If the thirty year yield breaks key support, then the ultra-crowded cyclical trade will be the next domino to fall. Needless to say, no one is expecting that to happen. 

"RISK OFF"

And then there will be no "momentum" left in the casino. And without momentum, Ponzi schemes collapse very quickly and of course unexpectedly.

The New Cryptocracy

A Cryptocracy is a de facto Idiocracy that believes in creating wealth out of thin air, without any effort whatsoever...

Unfortunately, no one told these historical illiterates, that it's already been tried.

This past weekend Charlie Munger, Warren's Buffett's second-in-command called crypto currencies "wealth created out of thin air". He also said that Bernie Sanders had accidentally "won" the war on inequality, because future generations will find it impossible to repeat this same level of alchemy.

"The difference between the rich and the poor in the generation that's rising is going to be a lot less"

A billionaire monetary crack addict dispensing sage advice about wealth created out of thin air. Sadly his entire legacy will be  absolutely demolished in the impending  meltdown, as will Buffett's. There is such a thing as living too long.  

Ironically, when this cycle started in 2009, few if anyone believed in the new alchemy of monetary inflated assets. Now, 12 years later few people question it.

The ultimate irony of this Wall Street recovery which massively favours the economic cyclicals over last year's Tech/deflation trades, is that the asset bubble is now the biggest risk to the economy. This market is far too over-leveraged and overbought to sustain a RISK OFF event, the likes of which is long overdue. In other words, the market IS the economy.

Among the cyclicals, Transports are leading, what else?

The Dow Transport index has now been up 14 weeks straight and is two decades overbought. We see via the lower pane that the signature of this bounce is deja vu of 2009/2010. Except of course this time, the index is at record highs and is far more overbought than last time - compliments of central banks and BTFD investors who collaborated on the shortest bear market in history at 16 days.

Now, celebrating the anniversary of the May (6th) 2010 Flash Crash. What could go wrong?

Looking at the VIX from that same era, we see that the Cryptocracy has grown more and more complacent over time. 

Due to the shortest bear market in history, the VIX futures net speculative never actually turned positive. Unlike every other volatility event of the past decade. 

I would be remiss if I coined the new term "Cryptocracy" and did not make a connection back to crypto currencies.

Here we see that the financial asset managers, the Rydex asset allocation ratio, and searches for "Crypto" are now reaching new highs at the same time. Deja vu of 2018 Vixplosion.

In other words, today's financial advisors are in the same league as crypto con artists. Both spinning a falsehood of recovery.

One thing stonks and Bitcoins have in common is that when the meltdown begins, the machines will go offline, leaving no one on the other side of the trade. And then all bubble assets will discover their "true value".

In summary, it's no accident that all of the cyclical industries are now seeing ludicrous all time high valuations. These are the industries that are most prone to salesmanship and ludicrous predictions for the future: Real estate, car sales, financial investments, fracking etc. etc. 

This is a con man's paradise, and they are taking full advantage to ensure that consumers and investors have maximum FOMO. Which is why they all agree that "inflation" is the biggest risk. They want us to buy now before prices go up later. 

In the event they have purposely created panic buying in every asset class.

Soon all of their lies will turn to dust and blow away. Today's hot air "inflation" will morph to permanent deflation. 

This rampant delusion that the post-pandemic economy will be far better than the pre-pandemic economy is the dumbest fucking lie in human history. Those who believe it are addicted to bullshit. When their hot air bubble bursts, these people will finally realize they can no longer afford this level of delusion.

Then, they will be forced to settle for the inconvenient truth for the first time in their lives.