The Donald seems to think that the 37% gain in the stock market between election day and the January 26th high was all about him, and in one sense that’s true.
Donald Trump is all about delusional and so are the casino punters. They keep buying what the robo-machines are buying, which, in turn, persist in feasting on the dip because it’s there and because it’s worked like a charm for nine years running.
So doing, the punters have become downright reckless. After all, the market was already sky high last January—-trading at 23X earnings on the S&P 500 and resting precariously on a record $554 billion of margin debt . Yet in order to load up on even more of these ultra risky shares, punters have since added $112 billion to their already staggering margin accounts, thereby helping to propel the S&P index to a truly ludicrous 27X by the end of January 2o18.
And therein lies the true danger of the Fed’s 30-year long regime of Bubble Finance and the $67 trillion of debt it has piled upon the US economy. To wit, it has completely unmoored Wall Street from the main street economy, meaning that the speculative momentum and internals of the casino are operating in free flight: They will just keep levitating financial asset prices higher until some powerful shock triggers another meltdown of the type experienced during 2008, 2000 and 1987.
We happen to believe strongly that a bond market “yield shock” will be the crash-trigger this time around and for a self-evident reason. The central banks of the world have unleashed a credit monster—-$67 trillion in the US, $40 trillion or more in China and $230 trillion on a global basis—and know they must finally stop the relentless monetization of…