Wednesday, March 14, 2018

The News Breaks With The End Of The Cycle

How To Manage (Other People's) Money In DunceTopia:
"There are times when an investor has no choice but to behave as though he believes in things that don't necessarily exist... that means being willing to be long risk assets in the full knowledge of two things: that those assets may have no qualitative support; and second, that this is all going to end painfully"

If GDP for ALL three months of Q1 can be revised from 5.5% to below 2% at the end of the quarter, what does that portend for the rest of the year?

The central tenet of Elliott Wave Theory is that social mood is the final arbiter of risk assets. While I agree to some extent, I don't fully subscribe to this thesis - for several reasons, chief among them the fact that Prechter has yet to prove definitively that economic reality does not exist. And I'm not holding my breath for that revelation. For example: euphoric social mood can exhort an individual to buy a new Ford F150 with all of the trimmings, at the end of the cycle, but it can't help him pay for it when interest rates rise:

During the rally phase, we saw that the croupier-in-chief was cheerleading the Dow higher every step of the way. Since the casino rolled over in February, he has been strangely silent on the stock market, switching his focus to 'Conomy instead. Unfortunately, he and most EconoDunces are not bright enough to realize that the Dow and the 'Conomy are now a zero sum game with the fulcrum being monetary policy. Central banksters are ever-vigilant to ensure that following ~38 years of middle class implosion, the advantage never switches back to wages and labour over a higher discount rate for stocks. Furthermore, as we see above the level '11' tax cut accelerated the tightening of monetary policy. 

Another fulcrum for stocks versus the economy are tariffs and rebalancing trade. Which has been Trump's focus since the casino peaked.  

Which is why, for all of the reflationary bullshit, and the historically unprecedented treasury short "Gundlach" trade, and the "yield breakout" bullshit - yields are at the same level as they were one year ago. Which just means that the same dunces as last time are the same dunces this time. What even Prechter and his acolytes don't understand is that deflation is poverty. And until we resolve poverty there won't be economic reflation in a world that is continually investing excess capital into excess capacity. 

"The decline in retail sales last month was largely concentrated in auto dealers, gas stations and traditional department stores"

Exactly ten years later:

Getting back to social mood - there are many excuses now being offered for why Signet Jewelers is down this week. Shockingly - end-of-cycle is not one of them.