Thursday, October 11, 2018

The Elevator Ride Down

The good news is that Trump extended the cycle by two years. The bad news is that he did it by conning gamblers into going ALL IN...

And now, it's all turning back into a pumpkin:

The S&P 500 rinsed the 200 day several times today, similar to the battle with the 50 day earlier this week. The break of the 50 day yesterday sent the casino straight down to the 200 day. A breakthrough at the 200 day would be the first time since (before) the election. Needless to say, the timing of this from a political standpoint does not bode well for the incumbent.

I don't know what stunned fools will say when this is all over, but  leaving aside the usual Zerohedge fantasizing, what the history books will say is that global Central Banks inflated a massive asset bubble post-2008 with no viable exit strategy. And then Trump came along and made it far bigger - knowingly. And then he blamed the Fed for popping his bubble, while giving them no other option.

In other words, he was previously worried that the bubble was a product of loose monetary policy, so his solution as president is to keep monetary policy loose forever.

"They’re so tight. I think the Fed has gone crazy"

The best economy in U.S. history, can't handle interest rate normalization above 2%? By definition that would make it the worst economy ever, without any comparison.    

What we are witnessing is economic policy by a ten year old, caught in his own MASSIVE fraudulent lie:

All denial aside, as we know, Trump acknowledged prior to the election that there was a big, fat, ugly asset bubble, just waiting to be imploded by higher interest rates. Yet for some reason - call it MASSIVE EGO - that fact did nothing to deter him from applying for the job. Suffice to say, the man is no stranger to bankrupting casinos. His election win combined with the promise of massive tax cuts vaulted gambler confidence to record highs, putting a massive bid under the casino for 2017. When his tax cut arrived in 2018, a trillion dollars of hot money flowed straight into the casino via stock buybacks. A massive bubble became far more lethal. The Fed, for their part - already in tightening mode prior to the election -  were forced to play catch-up. By design, Trump's tariff policy raised prices for lumber (Canada), steel and aluminum (global) and now consumer products (China). Meanwhile, his 4% of borrowed GDP end-of-cycle fiscal bonfire of the sanities is massively reflationary. If anything the Fed has been more than patient given the circumstances.

The Fed follows the Personal Consumption Chain Price index of inflation. Which we can see is what they are doing:

Fed Funds (red). PCE (blue). As we see, earlier in they cycle, they did not follow the PCE, because they were concerned about massive unemployment post-2008. Now that unemployment is "all time low" according to myriad dunces, they don't have that problem. Notice how the PCE cratered two years ago right before the election? Because the cycle would have already ended were it not for Trump's end-of-cycle fiscal Bonfire of the Sanities... 

Getting back to the casino, today has been a very volatile session as the 'BTFD' team was back on the field, sifting through the debris from yesterday.

However, here is where it gets interesting, because whereas yesterday all of the momentum stocks were getting annihilated. Today, all of the "safe haven" stocks are getting monkey hammered. 

Which means tomorrow should be more interesting all around...

Like the S&P 500, the Nasdaq 100 is clinging to the 200 day.  Quite a coincidence that two key indices are camped at critical support:

The equal weight Nasdaq (100) is already in no man's land:

Here we see the defense has now left the field. A casualty of higher interest rates. 

Banks, Energy, Transports aka. Fake reflation trade

And what holding company owns all of the above?