Market Analysis

The Record

March 23, 2020. The day of the bottom and markets never looked back a few intermittent corrections aside. Central bankers have done it again: Print the world out of another crisis and they are basking in their own glory keen on continuing on a path of permanent intervention that appears to be consequence free.

I remain a very lonely voice highlighting consequences that either appear to not matter or no one cares about. But I can’t help myself, I’m a reality junkie. I maintain that what we are witnessing is the direct result of a monetary intervention excess that comes with consequences that are currently all too gladly ignored by institutions, retail participants and central bankers themselves.

For the record is very clear on one consequence: Central banks have once again made the rich richer:

Trillions for the top 10%, crumbs for the bottom 50%.

Continuing and exacerbating a trend that has really kicked off with the advent of permeant central bank interventions and reaching the perverse levels we see today:

Yet:

Man, Powell is such a hitter. He is relentless in his desire to help the underclass in this country. More than anyone. It’s truly incredible… and joyous!”

Don’t you know?

The sheer vastness of the wealth gap expansion is starting to get political attention but my sense is politicians are still shooting in the dark not understanding or pretending to understand who the real culprit is here:

In my view applying the same solution (money printing) over and over again & producing ever wider wealth inequality is not a long term healthy, desirable or sustainable situation and is setting up for major blowback.

I don’t know when the dots are being connected but it is notable that perhaps Jay Powell has left himself vulnerable on that front by finally admitting that there is a link between monetary asset prices after previously denying that Fed policy has anything to do with inequality.

That’s rich:

Look, I’m the first to acknowledge that the sheer vastness of the interventions have even taken me by surprise as we saw money supply growth, balance sheet expansions and debt expansion taken on never before seen historic levels.

Recall last year I was bearish in the lead up to the February top. Literally at the top I wrote:

“From my perch this market is the most dangerous we’ve seen since 2000. A market in full retard mode, utterly removed from any economic foundation, artificially propelled by knucklehead central bankers who are refusing to take responsibility for the reckless investor animal spirits they have unleashed resulting in the largest asset bubble of our time.”

My view then was that the Fed which had already again accelerated balance sheet expansions and rate cuts in advance of any Covid crisis and with unemployment still at 3.5% was setting up markets for dangerous times.

The covid crisis then triggered a 35% crash in a matter of weeks. 35% because of the very excess we had leading up to it.

According some Twitter dimwits I’ve been bearish since the March lows which is of course the polar opposite of the truth for I wrote on the day of the bottom:

“The 1929 redux tells us a big rally will come, either from here or from lower first still, and this rally will be awe inspiring, it’ll produce technical reconnects in a market that is now widely disconnected to the downside and it will bring back optimism”.

On that point I was fully correct. But clearly I was wrong on the following:

“But then the historical script suggests lower highs to come as the world is then confronted with the consequences of the costs of extinguishing this fire. The bill comes due as the world will be settled with even more debt, but now a much higher unemployment rate, poorer consumers, and companies focused on margin efficiencies.

1929 redux is staring us in the face and it says this won’t be a “V” recovery. This will take years of heightened volatility and wide price ranges to negotiate through and the first really big counter rally may prove itself to be a big fat sell. No matter how much the Fed prints.”

Instead of lower highs markets raced back to new highs and no consequences have come to bear so far even with a higher unemployment rate. Too overpowering proved the unprecedented liquidity injections helping ferment a never before seen set of equity inflows and retail mania:

And clearly I did not foresee individual stocks behaving in such a manner:

I could show you dozens of examples, but I’ll just highlight this basic industrial stock here, a company that has been around since 1837. Not a small cap stock, not a hyper tech stock, nothing of the sort, but rather an industrial company that manufactures agricultural, construction, & forestry machinery, diesel engines & lawn care equipment. Deere ($DE).

This stock, and many others, have simply never behaved like this before. It’s simply outside of normal market behavior.

Sure it’s a linear chart, but even the run up to the 2007 top can’t match the technical disconnect we can observe now:

And note the excess of 2007 did not have a happy ending.

So let’s just note that markets have evolved in an unusual and unexpected way. And when they do you adjust with time and that’s what we have done over the past few months, from my perch very successfully so, as the technicals helped guide us through the market gyrations. Yet now we find ourselves in an even worst bubble than in February 2020 with asset prices even further disconnected from the economy and entirely incapable of sustaining themselves without ongoing intervention and stimulus and hence my statement from last year rings true again:

“From my perch this market is the most dangerous we’ve seen since 2000. A market in full retard mode, utterly removed from any economic foundation, artificially propelled by knucklehead central bankers who are refusing to take responsibility for the reckless investor animal spirits they have unleashed resulting in the largest asset bubble of our time.”

Be clear I’m not calling for a crash, yet I see again footprints in the charts that strongly suggest another larger re-balancing trade will develop in due time. As I highlighted last week the current battle of control resides with tech and yields and central bankers are again in full damage control mode with a barrage of Fed speakers this week.

Yet note, for all the happy talk of even more stimulus coming in the form of a $3 trillion infrastructure bill the limits of debt expansion may also be just ahead of us in the form of tax hikes.

The implication: After unprecedented interventions on both the fiscal and monetary fronts I submit this torrent level of interventions can not only not be maintained but is now slowly transitioning to a period of relative tightening. While not with rate hikes by central bankers or tapering of QE, but due to incremental less liquidity and a tightening imposed by the bond market.

As of this writing the broader market has not been challenged in any serious manner, and it keeps defending its upward bound trend since the March 2020 lows:

But the tags of the trend appear to become more frequently highlighting again the relevance o the trend line. And note the trend line while currently intact, is steep, very steep indeed and can hardly afford a technical break given the chart extensions we see across the stock universe (as in $DE).

To my eye it remains one of the most important aspect of this market bubble to watch. While the first real correction of 2021 will likely get bought a trend break of this size would leave a mark.

Perhaps the record of central bankers making the rich ever richer and widening the wealth gap to ever greater heights will remain consequence free, but I doubt it. But let’s see if Janet Yellen and Jerome Powell, aside from Ben Bernanke the key architects of this wealth gap construct will come under fire from Congress this week as they make their first joint appearances. I won’t hold my breath, but perhaps someone finally wakes up and connects the dots and dares to speak out.

The larger population hardly knows who runs the Fed or what the Fed does or the consequences of their actions and perhaps it is best for the Fed if the people never figure it out. For the record is quite clear: The Fed succeeds in one thing consistently: Making the rich richer while each recovery produces mere crumbs for the bottom 50%.

Best hope that reality never sinks in.


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Categories: Market Analysis

15 replies »

  1. My Friend Sven As crazy as it all is no one wants this to stop? And the Fed knows there trapped as from 2008 they not stopped? To see charts like we do every day and over shoots that keep going on? The only thing you can do is keep stops in place and trail to be safe. As if you think and try to find real balance on math you will just miss out on this non stop bull markets? BTFD works 95% of the time blindly. Just like to day we open down test gap after a run up then run to next options build SPY, and to be fair on most stocks AAPL and the list is long it’s the same buy on clear patterns on any pull backs, go to the bank! Sure you have to be nimble and trade by rules but when a pattern just keeps repeating over and over why not just follow and make $? Fighting with this in your mind just cause a headache! I will say, I see every thing you talking about and I am on your side at some point this will have to re-balance but till then party on! I do love your & wife’s chart work as truly masters of this game and that is what it is now just a game. Good Hunting~

    • “We continue to stand united against wealth inequality and attacks against the free market, capitalism and the 99% community”

      #StopTheFederalReserve

  2. “Fresh printed money can buy and stop everything on planet earth. Even the upcoming climate change.” – Macroeconomic encyclopedia, issue 2020/21

  3. Consequences most come from countries around the world, decupling from the abusive US.
    We must see some changes from the rest of the world against the irresponsible US printing trying to save their failure system & companies.
    When a big country step aside against the abusive printing, the US will be in the toilet making diarrea

    • I think you should check the printing of other nations. China printed more than the US. The ECB has been printing as has the BOJ. It is a central bank group effort.
      I think you need to research a bit more.

  4. Panic -> Euphoria -> Panic -> Euphoria -> Panic and then the smooth curve up of that hockeystick of hyperinflation.

  5. Consider this…Once a Dollar crisis does manifest we’ll find ourselves in a darkly odd universe of a Fed raising rates gradually to put a floor under it while at the ‘same’ time expanding their balance sheet to prop up and bail out everything. Now explain how markets won’t be immensely relieved that a Dollar collapse has been averted while rallying to record highs on perpetual Fed balance sheet growth.

  6. What I thought was a running flat second wave down in the XLK (and called for $108.00 in XLK) is starting to look like an inverse head and shoulders which would make this inverse head and shoulders a wave 4. Meaning we could have started wave 5 up with today’s monster move . The bulls showed very strong hands during this correction and the “buy the dip” mentality is still very strong. As long as the XLK does not move above $135.18, my running flat is still in play as so is my account.

  7. If we exceed $135.18 we could still have an expanded flat wave 2 in the XLK. But a close above $139.24 in XLK will wipe out my top call as well as my account.

  8. DXY above 93, US10yr above 1.77% early this Tuesday, 30th March, could be headed to very near 95 and 2% over coming weeks at which point big directional decisions will need to be made. Gold is being pressured, currently just below $1700, if its drop isn’t halted in the 1670-1680 range it could drop below $1600 (if so, probably very briefly). April, and summer, are going to be very interesting. Liquidity remains king for now but, as I’ve said since a month ago, stocks look tired – tech especially so.

  9. We continue to stand united against wealth inequality and attacks against our free market and 99% community.
    #StopTheFederalReserse

    share widely

  10. “We continue to stand united against wealth inequality and attacks against the free market, capitalism and the 99% community”

    #StopTheFederalReserve

    share widely on twitter

  11. Actually, all the Fed can print is debt, not money. The rich have gotten rotten rich by borrowing to the hilt and then leveraging that to Kingdom come. All of them. All the big companies. All the hedge funds. All the banks. It’s not just Archegos. That was just a tiny crack, there is a whole chasm behind this complete financial facade.

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