Saturday, February 22, 2014

It Will Be Cataclysmic

Central Banks have made me look like an idiot for five years straight, but the favour will be repaid spectacularly. This blog is no more than an ongoing exercise in explaining that the impossible is not possible.

The technical and fundamental risks that attend currently are far beyond anything we've experienced in the past 100 years. This asinine strategy of supporting lenders while borrowers get buried under ever-growing debts, has generated extreme risk.

And this Fed-generated mass stupor, assisted by junk food and junk culture, in the face of unprecedented risks, only assures that the inevitable "reset" will be cataclysmic...

The Life and Times of a Perma-Bear
This isn't about ego. My blog is my personal diary. It's where I keep my sanity. Personally, I don't appreciate being gamed by over-educated retards for 15 fucking years straight. It's a good thing I'm not bitter. None of this is rocket science, anyone who is willing to put their self-interest aside and take the blinders off can clearly predict where all of this is heading. 

I didn't always used to be bearish - I got shellacked financially in Y2K which was my personal wake up call and the sign that it was time to take my head out of my own ass.

So when I saw Greenspan lower interest rates to 1% after 9/11 for "Patriot Loans" to subsidize houses, cars and other pull forward one-time consumption items, I realized that this was all going to end extremely badly.

I found Prechter in 2006 and he explained exactly what was happening via the deflationary paradigm. It all made perfect sense. There's no chance of hyperinflation until all of this debt gets liquidated. Central banks are attempting the impossible which is to support lenders while allowing borrowers to flounder amid ever-growing debts. 

My newfound insight enabled me to dodge the Bush/Greenspan housing bubble which I started writing about in 2007.

I remained bearish during the July/August headfake in 2007 and called the 2007 top within days

As we can see throughout my blog, I have a love/hate relationship with EWI. Although to their credit, they have been A LOT more consistently bearish in this post-2008 cycle than in the prior cycle, which of course has not been easy for any of us. The goal of Central Banks clearly is to get everyone to capitulate and embrace their new bubble. Everyone must drink their cyanide laced Kool-Aid.  

I stayed bearish during 2008 despite the zig zags. I posted "So Far, So Bad", days before Lehman. Granted, I am not one to understate risks ;-)

I was right on Apple in 2012. I was right on Bitcoin this year as recent posts show.

Full Accountability
Since I started my blog seven years ago, my total return from short-term Treasury Bonds (1-3 year) (SHY ETF) has been 19% fully reinvested with NO DRAWDOWN or loss. In that same time, the stock market (SPY/S&P 500) has returned 53% dividend reinvested with a 55% drawdown in 2008. I need not remind anyone that a 50% loss requires a 100% gain off the lows to break-even, so at the lows the bulls had dug themselves a deep grave indeed. I am more than willing to forego that fleeting difference of ~35% in exchange for seven years of high quality sleep and zero stress. 35% over 7 years is chump change anyway. It's only a difference of 4% per year and my health is worth a lot more to me than 4%. After 15 years of this bullshit, somehow today's stock investors still haven't learned that the market is a massive con game, and they are the suckers at the table. Some people have to learn the (really) hard way.

The Fed's Potemkin Village
All of that said, so far, the Dow Casino has eluded me for several years straight, because I honestly had no idea that money printing could go on this long without causing massive dislocation. As David Rosenberg points out, and we can see plain as day in the charts, the correlation between stocks and the Fed balance sheet is approaching 100%. 

So, I have no doubt that I will be right in the end, however, unfortunately, due to the delay in the consequences and hence interim accumulation of imbalances, the outcome will be cataclysmic. Central Banks have been anesthetizing the masses for five years straight, thereby encouraging them to take ever-more personal financial risk - bigger house, bigger car, more debt etc. It was just a long noose that the Idiocracy wrapped around their neck so they could go bungee jumping off the bridge. Given the overwhelming complacency at this extremely late juncture and the resulting lack of warning this time, the outcome will be devastating.

As a skeptic, this has been the hardest stretch for me since I started blogging seven years ago. It's not easy watching serial insanity taking place and coming up with ever-more strident ways of describing the spreading lunacy. Meanwhile, unlike 2008 literally every well known skeptic has capitulated to the status quo leaving the remainder of us clinging to fragments of our own sanity. That said, that mass capitulation was clearly in the cards and hence seals the fate for the overwhelming majority and especially Wall Street who profited from 2008 but won't see this one coming. It had to be this way, because otherwise they would just invent a new way of rescuing the status quo. This time, globalization will be obliterated.

Those of us who bear witness to the ever-mounting risks and realize where this is all heading are now in the miniscule lonely minority. There are far fewer of us skeptics today than there were back in 2008 when risks were much lower i.e. bank level versus sovereign nation level. 

Unfortunately this isn't about ego, it's purely about survival.