Money Spews

The Fed has created this monster, with some help from Congress and the White House, where the bubble gets so large, that popping it creates so much pain that at any sign of market weakness, they will quickly go back to the same Rona playbook of multi trillion dollar fiscal/monetary combo bazooka.  They know nothing else other than spewing money and basking in the glory and praise from the brainwashed media and investors who measure their self worth by looking at their account balances.  

The bubble mentality has gotten so pervasive that a popping of the greatest bubble ever created would create immense pain not just financial, but also emotional and psychological.  That pain will quickly cause the crowd to be outraged and demand the government come to the rescue, which means more money printing and stimulus to "solve" the problem.  The only solution to this bubble popping is more money spews.  They will do a few rounds of $2,000 (why not $10,000? $100,000?) stimmy checks regularly. They want the stock market to keep going up.  They want meme stocks to stay hot.  They want to see bitcoin go to $1,000,000.  

Its insanity, and the end result will be high inflation that the government will lie about to say its low.  Stagflation with the real GDP growth masking the fact that all the nominal increase is inflation, not growth. 

I am amazed that with this hyper sensitive ultra dovish Fed, the majority of investors think that the Fed will be able to raise rates back up to 1.5%, as shown by the Eurodollars December 2024 contract, priced at 98.40, which is effectively a Fed funds rate ~1.5%.

That is 5 to 6 rate hikes over the next 3.5 years, with probably 1.5 years of that spent talking about tapering, doing a turtle taper, and after that, probably delaying rate hikes further if the bubble has popped and the stock vigilantes demand the Fed to pause and/or go back to QE.  Even in the rosiest scenario where the economy stays strong, the bubble has not popped, and the Fed hikes 3 times a year, it would take almost 2 years from December 2022 for them to get to 1.5% Fed funds by December 2024.  So basically the Eurodollars market is pricing in the rosiest scenario as the average of the possible outcomes by December 2024.  

Do you really think this massively overvalued and stimulus addicted stock market can stay calm when the Fed is not doing QE and is hiking rates?  There will be some serious withdrawal effects from the QE + fiscal stimulus drugs.  The market has to just sneeze and Powell would fold like a cheap lawn chair if the SPX dropped 10% and stayed down. 

By pouring more gasoline on this raging bonfire, the Fed is creating such a huge bubble that they've reached the point of no return.  They can't normalize.  Even talking about tapering gets the market nervous.  Imagine actually finishing the taper, no QE with trillions of new Treasury issuance every year, that the market has to buy up, along with the never ending supply of SPACs, plus rate hikes.  At these bubble levels, with so much investor participation, that's a train wreck waiting to happen.   

This is easily a much bigger bubble than 2000.  Just the sheer amounts of liquidity, the breadth of the price increases in assets, either real or perceived, is mind boggling.  Cryptocurrencies, NFTs, sports cards, meme stocks, shitcos, etc.  

But as big as this bubble is, with so much liquidity sloshing around, any big drop in the market probably gets bought up quickly just because there is so much excess cash, expecting the Fed to come to the rescue, like what happened in January 2019, when Powell made his dovish pivot.

The strength in the SPX is amazing.  I sold too early, like all the other times I bought the dip.   Just watching how effortlessly this market goes up, and expecting nothing but an explosion higher after the taper announcement, whenever that happens.  Taper fear is the only thing that is keeping this bottle rocket from going parabolic.  

Hoping for one more lasting dip to buy before the parabolic phase.  I may or may not get it, but if I could buy SPX at the June 18 opex expiry close at 4150, that would be a gift.  Maybe some pre taper jitters could get us there, or some rehash of the Covid Delta variant scare or whatever, just to get the market down for a few days before it pops back up again.