To be honest, I thought this question had already been settled, but apparently, not everyone "got the memo":
Sad to say, but erstwhile realist NorthmanTrader appears to have capitulated to the bull camp, now considering the scenario of a short squeeze melt-up into the end of the year. I won't refute his entire hypothesis line by line - almost entirely technical - however suffice to say, it's the 2016 scenario redux: Central Bank engineered soft landing. Which first and foremost presumes that they reverse course in time. At present, by no means a certainty.
"Nevermind"
Bigger picture, this capitulation to fantasy raises the more relevant question - can Central Banks indefinitely extend the business cycle? I suggest not. However, what they can do is keep gamblers entertained in the casino much longer than would otherwise be prudent. Suffice to say, the Kool-Aid always tastes best at the end of the party.
On the surface, the similarities to 2016 are compelling. Oil/commodity meltdown, EM selloff - months in the making, Yuan devaluation, Fed rate hikes, speculative blow-off, deflation.
Here we see via U.S. banks, if global Central Banks are planning to save the day, they need to get busy.
The other major difference between now and 2016 is the minor detail of the trade war. The fantasy of the day seems to be that Trump and Xi will use their photo-op this week to hammer out two decade's worth of grievances. I suggest that won't happen. Moreover, Trump's own trade representative already said that won't happen:
“We certainly won’t have a full formal deal by January. Impossible...Ross said that the U.S. is still planning on Jan. 1 to increase tariffs to 25 percent on some $200 billion in goods from China that became subject to a 10 percent import tax in September."
Let's see, a deal by January is impossible, therefore raised tariffs on Jan. 1 are already in the cards. Which means that within the next several weeks gamblers face the prospect of another rate hike and more tariffs.
The other major difference between now and 2016 is the abject lack of fear in the casino. Here we see the notable difference in selling pressure now versus earlier this year and especially relative to 2016.
There has been absolutely no sign of capitulation.
In terms of breadth, I would say the two eras are very similar:
Another major difference lies in the fact that the past two years of Trump and tax cuts represents the "FOMO" era. Fear of missing out. It was the juncture at which the home game masses at large finally began to believe in the recovery, and hence went ALL IN.
It was their casino asset allocations and $1 trillion in stock buybacks that propelled the casino to all time highs this year:
But the real difference between now and 2016 is that the Fed took full advantage of the tax cut and attendant euphoria to continue to normalize interest rates. As per their mandate.
Hence, what we find is a global cost of capital far higher today than it was two years ago, amid debt levels also substantially increased.
Which again, raises the question - can Central Banks quickly unwind the economic impact wrought by two years of global tightening?
Because that is the bet that's on the table.
