Market Analysis

It IS Different This Time

They’re right. It IS different this time. It’s worse. Much, much worse. What is? Everything. In terms of preparedness for the next recession that is. Debt is higher than ever, be it corporate debt, government debt, central banks balance sheets, available ammunition to deal with a new recession, wealth inequality, the social divisions and political extremes, and now trillion dollar deficits, everything points to a much more fragile system. Oh yes on paper low rates keep it all afloat, but the context is as ugly as it gets.

Here we are, the great collapse unfolding in front of us. With yesterday’s Fed meeting we witnessed a confirmed breakdown in central bank narratives over last the year, an utter capitulation to market realities that are forcing central banks to commence the new easing cycle. No, this is not a temporary little rate cut event they are promising, it’s a new cycle. The Fed yesterday offered a 3 rate cut outlook, precisely what markets had been pricing in. The Fed bowing before market demands. Give us drugs. Yes, whatever you want, you got it.

The response: An overnight collapse in yields to now below 2% on the 10 year, the lowest reading since the US election in 2016.

It was all bullshit:

The glorious growth stories everybody told, the tax cuts that were supposed to bring greatness, all nonsense. Instead we’re now stuck with trillion dollar deficits, collapsing yields, and a renewed TINA effect as money doesn’t know where to go but stocks, chasing whatever they need to chase.

Or, if you don’t want to chase, you can lend money and pay people to borrow from you. It’s all the rage:

Over $12 trillion of negative yielding debt floating about there. Quite the recovery.

But be clear the bond market is screaming recession is coming, none of this is fundamental based:

It’s central bank driven, desperate to prevent what happened during the past cycles when dropping yields marked tops in cycles:

You know things are bad when a FRED chart goes viral:

Why is it going viral? Because it’s true. We’re at 3.6% unemployment with a 105% debt to GDP ratio and the Fed is signaling 3 rate cuts. The track record is clear, it’s not good news for the economy and ultimately not good news for stocks either.

If you are arguing that rate cuts are good for stocks you’re willfully ignoring this:

And this:

Yet, eyes wide open, we may see the combustion scenario here, complete panic TINA chase, central banks throwing free money around again and the same idiocy that has structurally produced nothing over the last 10 years going back into full swing.

Yet it is the combustion scenario that also outlined that the chasing into stocks on the premise of cheap money again may set up for a valley of tears and hence perhaps is setting up for the the biggest selling opportunity in a decade:

For things are not better this time, they are worse, much, much worse and central banks are reacting to it again. Because they have to.

What is the end vision here? What do central banks have to offer but a dystopian vision of the future?

For cutting rates again is making wealth inequality even greater, is again punishing savers, pushing wealth toward the asset class holders and encouraging ever more debt accumulation. In short: Make the bubble even bigger. Debt is higher than ever, growth is weak and 10 years of cheap money policies by central banks have failed to produce growth and/or meet artificial inflation targets.

Let’s do it all again, except it’s different this time. It’s worse. Much, much worse.

But no central banker will never admit it.

I can’t emphasize how pitiful all this is. Bulls, not one having predicted the 10 year to drop below 2% this year, are getting bailed out again by central banks:

At least for now. Central banks have once again set in motion an environment where all asset classes are inflating. All of them. Stocks, bonds, gold, crypto, you name it. Everything is appreciating. Growth may be slow, but assets are flying higher everywhere. Asset inflation without growth. We are the US Federal Reserve. Always wrong about growth and inflation, but always easy on the money front.

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Categories: Market Analysis

31 replies »

  1. A beautifully written dose of the truth. Spot on.
    Amazing how so many are so desperate for a life of fantasy.

  2. We live in a disgusting “system” that makes humans sick and destroys the environment while a tiny few get ridiculously rich from it. We need a “communist” revolution…and I think we will get it at some point.

  3. Sven, you have communicated the crises western governments have created as clearly as humanely possible. Your chartwork and narrative tell the story honestly. with integrity. You have provided aware and intelligent followers with a true public service. Thank you for this.

    • History is littered with monetary systems that did not work. Our death warrant was signed before all of us were born 1913 the year private banks became overseers of our government’s economy. What could possibly go wrong. Folks get some physical gold and silver in your pocket NOT paper a couple of 10 bagger PM (Precious Metal) stocks and hold on this is going to be rough for a good long while.

  4. The 1% ers are going to use their free Fed money and rush to safe havens and ultimately crash the system, how’s that for gratitude and poetic justice? I wonder if the Fed saw that coming?

  5. Sven,

    The Fed is playing their cards way to early. Perhaps their plan is to do everything in their power to not take blame for the next finacial wipeout? The Fed is more worried about long term survival, not an election in Nov 2020. So do you really think this bull market will last another 17 months with the fed caving to market demands this quickly? Why not dump all the fuel on the fire now, push this market into the euphoria phase over the next 3 to 12 months, drop interest rates to 1.25%, and watch it all collapse 6 months before the election. Dow 30,000 in early 2020 and then Dow 15,000 by mid 2021. I’m betting we will find out who is the real “stable genius” soon enough…

  6. Would love to hear Svens recommendation to somewhat get on a track to correct/fix this. Very good opinion article that all is much worse and you’ve laid it out very well.


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