Friday, July 6, 2018

Party Like It's 1929

A business-friendly president, financial deregulation, tax cuts, overallocation to risk, Fed double tightening, inverting yield curve, EM annihilation. The U.S. is now engaged in a multi-front trade war with countries representing ~90% of global GDP, with special enmity for its own supply chain. 

What's not to like?

"I bought for the tax cut, but I stayed for the trade war"

We've clearly reached the logical limits of alt-reality, wherein a society of aging cynics can no longer tell right from wrong, fact from fiction. What we are witnessing in real-time is the inconvenient end of the cycle. However, the "optionality" of the status quo has banished that term from existence. There has never been a time when gamblers lingered in the highest risk stocks so late into the cycle. Because in a generation of salesmen, who would warn them not to?

As they said back at the top in 2007:
"You've got to dance like a hairless monkey, while the music is playing. Because, in this cynical society who would blame them?"

This week, safe haven recession stocks "led" (Utilities and Consumer Staples). Which means there is no place left to hide...

Consumer Staples (red):


Bond bears are getting annihilated as the 2008-level rotation from stocks back to bonds accelerates. 

Despite another rise in new McJobs, wages refuse to move higher. These are not intelligent people:

Time has run out to discover the mysteries of the missing 'Conomy

Where this all went wrong is the belief in the zero sum Darwinian society. First the strong preyed on the weak, then they preyed on everyone else. Now, there's no one left to be consumed. Ignorance is bliss, until it's not. The less one knows about the world, the more one has been insulated from the machinations taking place over the past decade to keep the Globalized clusterfuck from imploding. Everything from printing trillions in new money to paying people to borrow money. After 2008, Japanification went global: The overriding compulsion by an aging society to do everything possible to maintain the illusion of the status quo.

At any cost.

Accelerated aging included. These denialists living in their dystopian Disneyland are forced to constantly reconcile the lies they are told versus the reality they are seeing. It's cognitive dissonance on steroids, washed down with a bucket of Faux News bullshit. The non-stop game of fake-believe takes its toll.  

While watching the Ken Burns documentary on the Vietnam war, I heard one commentator make the cogent observation that the more arrogance is at work, the harder it is to overcome the twin evil of ignorance. That statement aptly describes what we're seeing now, in spades. Somehow failure keeps getting recycled as success. These current generations are smoking their own crack, incapable and unwilling to face reality. Hubris masquerading as competence. 

Now the end game is becoming impossible to ignore for all but the most denialistic observer. Which means pretty much everyone you know. And yet in doing so, they've turned this cycle into something of a call option. Heads they win, tails there is no plan 'B'. 

Grasshoppers. Not ants. 

"How good are the yields on government bonds at predicting recessions? If history is any indicator, the answer is very good. But with the economy strengthening, not weakening, some question whether looking at the yields on an array of government bonds is an effective forecasting tool. That includes the Federal Reserve."

How good is the Fed at creating recessions? If history is any indicator, the answer is perfect. But with the economy strengthening this past quarter, some question whether looking at what bonds are saying about future quarters is an effective forecasting tool. That includes the Federal Reserve.

In other words, apart from the obvious sign of recession they've created - a flattened yield curve - the Fed sees no obvious sign of recession. Therefore they will keep tightening until all doubt has been removed. 

Holy fuck, with logic like that who needs enemies?