This market is
running on the back of massive and I mean massive deficit/debt spending once consumed
then what manipulative game will the FED introduce, as the appetite for fiscal
giveaways is weakening!
Master
Asset inflator Powell (who kisses the asses of the elite and most
wealthy): dares to warn about DEBT, so then he stealthy
(through many back-doors and “BS” lending programs of the day” decides to give
more crack cocaine DEBT to enslave the
crack-cocaine “DEBT junkies” many are zombie
firms that are massively over-indebted and fiscally irresponsible run by
braindead corporate idiots whose only goal is self-enrichment via cheaper free
flowing monies...they are still taking on debt wherein they will run up even
larger debt (to buy-back-stock, as the FED has reduced borrowing to
~1.0%....not to grow their business, as many of these firms are also laying off
hundreds and thousands of employees) where is the logic in that...then again
its perfect logic if your primary goal is to enslave the masses & working
class, as the “taxpayers” become the back-stop for this reckless endeavor,
basically the rich get richer the poor get poorer! Government DEBT is
almost at the unserviceable level right now!
The
FED has been the willing slave like (pawn) of the elite/wealthy as they
purposely in the endeavor to transfer massive wealth into their vaults blew up asset
classes to Hindenburg like proportions (especially the equity markets) creating
many new bubbles at the expense of the working class / poor! The new-asset
inflator master Powell: warns about DEBT, but in his next breath/statement he
wants to give more crack-cocaine (free-flowing extremely cheap “near 0%” money)
to the crack “junkies” many of which are zombie firms that are overly-indebted
and fiscal irresponsible corporate idiots; via cheaper free-flowing money wherein
they will run up even larger debts & deficits (many will use the money to
buy-back stock) where is the logic...then again its perfect logic if your
primary goal is to enslave the masses/working class in debt as far as the eye
can see as they are the real back-stop for this endeavor, the rich get richer
the poor get poorer!
Stocks remain at/near their all-time highs despite the mega-warning
signals that these levels of sheer euphoria suggest a counter-trend correction is
imminent. I have been suggesting that markets are in or may be headed for a
mega bubble all of the preconditions for a mega bubble are in place. Financing
costs of new-debt to subsequently use it to buy-back-stock are at record historic
lows, new participants are being drawn like moths to a flame into markets, and
the combination of significant accumulated savings and low prospective returns
on traditional assets have created both the means and the desire to engage in massive
speculative activity! In the months ahead, investors will need to pay close
attention to risks of a monetary policy reversal, massively raising equity
valuations, and the rate of the real post-pandemic recovery.
The past 5-7 months can best be characterized as a period of
unprecedented market extreme optimism and pure euphoria... As I pointed out previously
in my weekend write ups there was a wave of bullishness due to recent news,
with (3) Covid-19 vaccines showing promise against a backdrop of FED manipulated
zero interest rates, a record fiscal deficit and an ultra-dovish Janet Yellen soon
to be in charge of it all. Another way
of describing it is extreme euphoria, the likes of which surpass even the
dot.com bubble. Naturally, stocks have taken the recent news flow very well,
with prices hitting record highs despite traveling at significantly elevated nosebleed
valuations. As I have discussed before, the November-December rally has been
driven by the most shorted hard-to-borrow equities, taking the SPX-500 to
technical levels not seen in many-many years, like we saw back to 2000. The November-December
rally was clearly a short covering rally. As the most shorted stocks were up
28.48% in November alone since, while the SPX-5000 was up about 11.1%.
Fed-head Powell seems to be raising the bar for what
constitutes “troubling inflation”, and this FED is crazy as they come as
almost every sign of inflation they tag and characterize inflation as “transient”,
despite what the data depicts. The FED is in a perpetual state of denial as
their biggest fears should be that real inflation accelerates sharply over 4%
or even 6% [as I suspect will easily happen in this cycle] forcing a rapid move
to neutral or worse and that markets see through the smokescreen of excuses
like we saw in the 1970s as an unabated willingness to explain away all real-life
inflation surges. The FED’s reaction to inflation developments under their new framework does not have an approximative formula such as the Taylor rule does so
it is useful to look at recent FED-head comments to tease out how quick off the
mark the FED may be in the case of taking off their rose-colored glasses and
see inflation for what it is “real higher inflation”. We have heard recent
comments from FED-heads as having raised the bar significantly in their ability
to react to higher inflation. At the press conference following the January
FOMC meeting, Powell said: “we think it’s very unlikely that anything we see
now would result in troubling inflation” this statement made me laugh as real
inflation abounds all around us you just have to open your eyes! Powell then
went on to categorized inflation resulting from likely massive effects from a
spending boom after reopening the economy as mere “transient”
rather than disconcerting. Inflation resulting from higher food, higher energy
prices or from a weaker dollar is already excluded from the FED’s “BS”
inflationary fuzzy-math calculations. The FED’s stupid “show me and then again
show me” view on inflation means the reaction to the current Tsunami wave of fiscal the stimulus will likely be subdued and masked-over as they try their best to cover
up the real inflation facts! Accordingly, if we read the “between the lines” the
FED believes that their historically low manipulative inflation history of the
past few decades allows them to be more willing to risk higher inflation [what
a farce] they believe that if their so-called “BS” inflation does hit 2%, their
so-called policy response will largely
depend on how fast inflation is supposedly accelerating; as a slow-moving unit
labor cost (ULC) trends that are highly manipulative will likely be one of the “BS”
indicators that the Powell FED uses to determine how troublesome unit labor
costs are.
So, the $64,000 question to be answered is what kind of
inflationary pressures concern this manipulative FED? This FED has set an extremely
high bar for removing their lame historic low policy rates off the zero mark [
I wonder why?] Some FED-heads have suggested that the FOMC would initially
treat almost all inflation as transient.
The tolerance in this new age of “bailouts” called fiscal
stimulus is striking. Powell was invited several times during the post FOMC
statement to express concern on overdoing fiscal stimulus and each time he
refused the invitation: “the judgment on how
much to spend, and in what way is really one for Congress and the
administration and not for the FED” he stated! By contrast, in his
June 2018 press conference he said in response to a question on the King-Trump
tax cut (giveaways to the elite and most wealthy): “You asked, is the … neutral rate moving up because of fiscal
policy? Yes.… there should be an effect if you have increased deficits that
should put upward pressure.” Seems he speaks with fork tongue! Of course, underlying economic conditions are
quite different now but his comments at the January 2021 press conference
avoided any and all implications that this massive wave of fiscal stimulus
would put upward pressure on yields [I wonder why?].
This is important because the sustainability of the massive
onslaught of the government’s fiscal plans advocated by Placating Biden and
Grandma Treasury Secretary Yellen depend on historic low-interest rates to
enable debt servicing. His agnosticism on the appropriate level of fiscal
stimulus can be seen as the FED now abandoning a forward-looking approach to their
“BS” cover-up inflation policies. Their new monetary policy
framework enables the FED largely to make policy based on their manipulated realized
inflation rather than expected inflation.
It is economic 101 low yields and low debt servicing costs
allow deficit/debt spending to be used significantly to achieve “believed” economic
and social goals, without significant redistribution through needed taxation;
at least for the time being. Under this guise, the Fed need not act in
anticipation of hitting maximum employment or of hitting troubling inflation,
because it will likely have ample time to manipulate the calculation of both from
incoming inflation data.
Reality is that after hunkering
down for much of this past year and into this new one, folks are quite eager to
get out and party, and enjoy life again sort of making up for lost time. So called
policymakers, who are taking ad hoc reckless massive actions in order to recoup
significant lost economic output and return to their bogus level of maximum
employment as quickly as possible.
This lecherous FED has moved to a lame self-serving flexible
average inflation targeting framework, making a overshoot of the 2.0% inflation
target an likely explicit policy goal. The FED has also redefined their so-called
employment mandate from full to maximum employment, which Powell called a more “broad-based
and inclusive goal.” We have also been seeing massive fiscal policy being deployed
to supposedly address the pre-existing issue of wealth inequality [like the
large-scale government transfers to working-class income households]. According
to government data cumulatively, the Covid-19 recession has cost US households $425
billion in income, but they have already received more than $1 trillion in
transfers bailouts payments and this was before the last “late December”
King-Trump stimulus [it does not even account for the Biden massive give-away proposal].
According to data households have already accumulated close to $1.5 trillion in
excess saving, which is set to rise to over $2 trillion (9.5% of GDP) by
early March 2021 once the additional “bailout” fiscal package is enacted. These
policy shifts also mean that central bankers will likely tighten much later in
the recovery cycle than in the previous cycles (they are committed to enriching
the elite, most wealthy and keeping zombie firms alive).
I have repeatedly argued that this massive deficit/debt spending
policy response has for the time being averted significant economic scarring
effects. Furthermore, the massive negative impact of the exogenous Covid-19 shock
is likely to fade (hell with after close to $5 trillion in stimulus can go a
long-way to cure economic contagions), and I foresee a likely surge in
demand as the economy reopens more and more as spring in looming. Spending
patterns have indicated that households have been forced to accumulate excess
saving as restrictions on their mobility have limited their opportunities to go
out and spend-spend-spend. Now with warmer temperatures coming and vaccinations
set to cover a larger part of the vulnerable population, I am convinced that
the coming relaxation of restrictions, which has begun in many states with the
tightest controls, will pick up momentum as spring approaches.
The speed and strength of this pent-up demand pressure will likely
put a strain on the supply side, which has limited time to respond. Against
this backdrop, inflationary pressures will build up very quickly (and despite
the FED hype they will not be transitory). But the nature of the recovery (what
I call a new-age massive transfer-driven consumption cycle which implies
that inflation risks are to the upside). If I am correct and underlying
inflation momentum accelerates it could precipitate a significant disruptive
shift in FED tightening expectations, raising the probability of a FED induced recession.
Another sign of a market that is very frothy and bubblicious
is that the average yield on U.S. junk bonds dropped below 4% for the first
time ever as investors seeking a haven from the FED’s manipulative ultra-low
interest rates, as folks are forced to chase and pile into an asset class
historically known for its higher yields (not so much anymore now. We saw that this past week the measure for
the Bloomberg Barclays U.S. Corporate High-Yield index dipped to 3.96% on
Monday, as yield-hungry investors have been gobbling up junk bonds as an alternative to the meager income offered in the less-risky highly manipulated bond
markets. Demand for this type of debt has outweighed supply by so much that some
money managers are
even calling up various firms to pressure them to come to the market
and borrow instead of waiting for deals to come their way even those rated in
the riskiest of levels “CCC” tier of junk
the worse of the worse “risky” debt issuers have been more than significantly oversubscribed
(this is thanks to the FED and their lame interest rate policies). The lower
yields could encourage more speculative-grade firms (zombies” and those with very-very
risky business models and mountains of existing debt to tap the market after
raising more than $7.2 billion last week. January was a record
month for sales Junk-bond sales with a tad over $52 billion placed.
Buyers that have been starving for yield (as a result of the
FED manipulating rates to near 0%) have been snapping up CCC graded issues as
yields for that portion of high yield portfolio need. They CCC rated “Crap
paper” dropped to 6.21% on Monday, also a record low. I find it absurd that issuance
conditions have been so conducive that some of the riskiest types of transactions
that have been coming to market, such as bonds that are used to fund dividends
to a company’s owners and so-called pay-in-kind bonds
that allow a borrower to pay interest with more debt. I, unfortunately, see
continued outperformance from the junkiest part of the market. CCCs, is insanity!
