Tuesday, December 20, 2016

A Generation of Whores: "More" Was Never Enough

"This new administration hates weak, unproductive, socialist people and policies, and it admires strong, can-do, profit makers"

You know - profit makers - like people who need taxpayer-funded bailouts, $10 trillion in new Federal debt, and $4 trillion in printed money, all to keep their hedge funds from imploding...

And of course a few million manufacturing jobs went under the bus, right after the bailout, to bolster the "profit makers" who trade pieces of paper back and forth, creating absolutely zero value:

Trump's impending tax cut is the last nail in the coffin for Globalization. The new can-do profit making consists of robbing Peter to pay Paul - global and intra-generational theft on an unprecedented scale...

The Trump rally is doomed to fail, because it came at the expense of the marginal consumer aka. Emerging Markets:

Emerging market currencies (red) with U.S. cyclicals. EMs are the marginal consumer of all cyclicals (energy, resources, infrastructure):

But first, the initial quote above is from the following:
Overnight, hedge fund gambler Ray Dalio on Trump:
"It's Glorious to Be Rich: Regarding Economics, If You Haven't Read Ayn Rand Recently, I Suggest You Do..."

We are about to experience a profound, president-led ideological shift that will have a big impact on both the US and the world. 

Too late:
The question is whether this administration will be a) aggressive and thoughtful or b) aggressive and reckless.

Back to Forrest Trump and his tax cut:

As I explained in the prior two posts, the reflationary narrative is a fabrication born of gamblers who onboarded too many cyclicals over the past year. However, it gets far worse than that, because Trump's tax cut was a tightening of monetary conditions due to higher real yields, on the long end of the curve. In addition, the Fed's tightening last week reduced liquidity on the short end of the curve. In other words, far from being reflationary, the widely-anticipated tax cut has been DEFLATIONARY, which is why gold is going down. 

This entire fantasy that a country with a debt to GDP ratio at 100% would now AGAIN cut taxes for the ultra wealthy with total impunity, is arrogance born solely of a reserve currency. Trump's circus clown arrogance, likewise, a product of reserve currency. The South Park-educated Idiocracy that buys into all of this corruption, again, reserve currency funded vacation from reality.  

"Everyone else in the world will pay for our tax cut. Any questions?"

The strong dollar is KILLING Emerging markets, who are the marginal buyer of everything. Hence as the chart above shows, this entire rally is running into the brick wall of economic reality. There will be no follow-through. 

In addition, the U.S. middle class, including Trump's ardent supporters are now paying for Ray Dalio's impending tax cut via higher interest rates. Nevertheless, whenever stocks and bonds get this far out of whack, there tends to be what's known as "rebalancing":

Thirty year versus S&P:

And, this is the FIRST time the Fed has ever tightened so late in the cycle, as they themselves bought the reflationary fantasy hook, line and sinker, so they could begin to normalize rates. In other words it's a "policy error" of unprecedented proportions.

It's a cyclical rally to nowhere...

"Insider sentiment collapsed soon after the postelection rally began and insiders have continued to cash out"

"The selling is even more intense in the banking, industrial and energy sectors"

"So who's the sucker?"