Already Crossed the MMT Bridge

You know a country is on the road to becoming Argentina when politics is the most important factor for determining equity valuations.  Who would have known that Congress and the White House becoming pre-occupied with filling a Supreme Court seat would be the catalyst for a big gap down?  

Since when did Supreme Court seats move the stock market?  Its only because it reduces the chances of a pre-election fiscal stimulus package, which thus reduces the chances of Trump winning the election, which is a negative due to the likely higher corporate tax rates under Biden. 

All this market cares about is fiscal and monetary stimulus.  Company fundamentals don't matter.  Covid doesn't matter anymore.  Vaccines don't matter.  In fact, whatever it takes to get more stimulus (more job losses, virus cases going up, vaccine delays) are a net positive for the stock market. 

Trump is better for the stock market than Biden not because he's going to make America great again, not because he helps the economy, its because he is willing to tolerate even bigger budget deficits than Biden by not raising taxes and/or even trying to lower them further, with the same amount of spending.   The stock market wants bigger budget deficits because they lead to higher GDP, especially when the Fed is monetizing those deficits. 

There is no longer a negative feedback loop between bigger budget deficits leading to higher interest rates leading to lower stock prices.  When the Fed doesn't let interest rates go higher, the bigger the budget deficits, the better.  The weaker the dollar, the better.  The more dollars they print to cover the deficits, the better.  Because when assets are priced in dollars, and there are more dollars floating around for the same number of assets, asset prices go up.  Simple economics. 

Argentina, Zimbabwe, and various banana republics crossed the MMT bridge a long time ago.  The U.S. crossed the MMT bridge in 2017.  There is no going back.  Europe and China are more than halfway across that bridge.  Short term solutions don't solve long term problems.  Trees don't grow to the sky.  Last time I checked, there is a finite amount of resources on Earth.  I guess if Space X can colonize Mars, that will open up room for more growth.  

The sustainability of the current system is based on continuous economic growth, if that becomes impossible, then real interest rates have to be zero to negative to match zero to negative economic growth.  

We got a little flush out on Monday, and it probably marks a short term low that could last a few days.  But I fully expect another wave of selling as we are still on day 13 of the selloff, which has marked the end of a few of the selloffs since 2009, but not all of them.  I have a feeling this one will last around 22 trading days just based on the lack of capitulation and the negative catalysts still ahead (contested election the biggest one).  Considering the selloff started on September 3, 22 trading days would equate to selloff ending around October 5.  But since the election is on November 3, I would not expect a V bottom back up to all time highs.   

SPX is still way above the 200 day moving average which is just above 3100.  History shows that the SPX usually doesn't like to bottom too far away from the 200 day moving average.  I expect a bottom sometime in early October, and closer to 3100 than current levels.