I try to stay laser-focused on the analysis, conscious not to stray into the conspiracy realm. The Fed may buy S&P futures contracts at key market junctures and the government might at times fudge the numbers. I don’t know, and I’m not going there. Some will question the veracity of Friday’s payrolls data.
It’s easy these days to question securities market sanity. Yet it’s a fundamental tenet of Credit Bubble analysis that things turn crazy at the end of cycles. In the waning days of history’s most spectacular financial Bubble, should we be too surprised by Complete and Utter Craziness?
The world was late in a historic Bubble period prior to COVID. Whether in the markets, real economies, politics or geopolitics, Bubble Dynamics play a profound role. Understanding that enables us to foresee what comes next.
Depression was a consequence of egregious boom-time excess rather than the Fed’s post-crash failure to print sufficient money. Now COVID19 strikes at peak fragility.
At its roots, QE is a mechanism of wealth redistribution. Zero rates transfer wealth from savers to borrowers and speculators.
Moreover, there are myriad costs associated with central banks nullifying the business cycle.
Now on a weekly basis, we’re witnessing things that couldn’t happen – actually happen.
Crazy, Dangerous Things have taken root in policy circles. Traditional norms are being tossed on the compost heap. Deficits don’t matter; the size of central bank balance sheets doesn’t matter; what central banks purchase doesn’t matter; money doesn’t matter.
The Fed’s aggressive liquidity measures and resulting market recovery have created a precarious dynamic whereby badly distorted and inflated markets will require persistent liquidity support.
The house of cards is being exposed – and a crisis of confidence is at this point unavoidable. A domino collapse of currencies, Credit and banking systems, and economies has become a frighteningly high probability outcome.
Every segment of the economy will be impacted – many deeply. Expectations for a quick recovery are wishful thinking.