"We only see this once in a decade. At the mid-cycle adjustment"
Unprecedented risks are coalescing to make this next 12 months leading up to the election, the year of living dangerously...
Among those risks:
Recession
Deficit crowding out/liquidity collapse/repo explosion
Fed monetization of debt/index asset bubble
Monetary policy exhaustion/rising deflation
Global asset correlations approaching 100%
Mass complacency
Political dysfunction
Trade war risk
Circus clown president
First off, complacency is rampant. It's abundantly clear that the "mid-cycle" adjustment con job was bought and believed by the masses at large. Virtual simulated prosperity is the order of the day.
Recall, this came out October 15th:
President Donald Trump looks likely to cruise to reelection next year under three different economic models Moody’s Analytics employed to gauge the 2020 race.
Barring anything unusual happening
Moody’s based its projections on how consumers feel about their own financial situation, the gains the stock market has achieved during Trump’s tenure and the prospects for unemployment, which has fallen to a 50-year low. Should those variables hold up, the president looks set to get another four-year term.
The modeling has been highly accurate going back to the 1980 election, missing only once: 2016.
The irony.
Contrast that viewpoint with this one from October 26th via professional investors:
In other words, the gap between public perception of economic risks, and professional investor perception of risks is the largest in our lifetimes.
That's how well the con job worked. Because even as the public has evinced confidence in this circus, the smart money has been cashing out at the fastest rate since 2007.
Which sets up an interesting political dynamic over the coming year.
It's clear now that the Fed stepped in to provide the necessary liquidity to fund Trump's deficit, and in the event took the first real step towards "MMT" Modern Monetary Theory. Only, instead of funding reflation of the economy, they funded asset inflation. Which in conjunction with the index asset bubble, propelled the U.S. senior indexes to new all time highs. Wholly unsupported by fundamentals.
Where this gets interesting is in the comparison between now and the 2016 "reflationary" period. As depicted below via the German 10 year. This is a busy chart, but my key point is that up until this past week, the anniversary of the 2016 election, the sequence of events that took place in 2015/2016 are eerily similar to 2018/2019. So far.
In both 2015 and 2018 the market peaked and rolled over. The Fed tries raising rates in December, global markets implode. Then in both 2016 and 2019 global coordinated monetary bailout. Except as we see, deflation is worse in 2019 despite the largest monetary expansion since 2009. Why? Because monetary policy is losing its effectiveness, something the IMF warned about last week. In late 2016, the monetary reflation rally morphed into a fiscal/tax cut rally. Today (????), there is no such hand-off to be made. Which is why this reflationary "spike" is a headfake in a deflationary downtrend.
In other words, as I've said many times, there is no safety net below this market anymore.
Worse yet due to the passive indexing bubble, "stocks" at the index level are no longer a meaningful barometer of the economy.
However, below the cap-weighted indexes fueled by parabolic semiconductors, a clearer picture emerges, across a variety of disparate sectors:
Temp hiring
Restaurants
Autos
Appliances
Product packaging
Retail
Cruise lines
Transports
