2021-02-24

Castles on the Ground

I posted another discounted stock today. Everything going on in the markets says it has more room to run, but chart screams warning for the whole market:
This reminds me of MicroStrategy, which I posted on two weeks ago. When stocks do nothing for years on end and then start spiking like they did in 2000, or 2008 and 2011, I pay attention. What year is the right analog? Commodities feel more like a 2000 situation because of the bear market, but it's also the case that the anticipated growth is wholly artificial. The bulls like myself expect the government will create demand for low carbon and EV transporation. The Austrian-leaning like myself expect it will end in disaster for the economy. What happened to Texas last week will be replicated worldwide, or there will be debilitating inflation to create effectively zero growth once the inflation is netted out in the eventual deflationary collapse. If for some reason these government plans don't come through, if say, the Republicans sweep Congress in 2022 because inflation becomes a problem far more quickly than expected, the plans will be cut short.

The U.S. economy is "growing" only because of stimulus. There have been no cleansing defaults that reduced the cost of capital. Companies didn't go bankrupt, today owned free and clear by new owners. Instead, small businesses were wiped out by lockdowns. Their defaults are in the future if the economy cannot revert back to "normal." If there is a transition to a new economic pattern, it will come with transitory unemployment and recession.

In short, this is not the start of an economic growth cycle unless there are incredibly inflationary policies. The opening of the economy is assumed. The $1.9 trillion is assumed to hit a normalized economy. The market is not discounting the risk that the economy needs far more than $1.9 trillion in stimulus. It isn't considering the risk that the public revolts again, like in 2016, and chooses not to wreck the economy for a green pipe dream. It isn't discounting the risk on the other side of the ledger, that interest rates rise amid soaring inflation. It seems like many people think the Fed can control the whole yield curve and that markets won't break if they try. As if the dollar or oil, or some other assets, won't trigger a recession. The government, central banks, ruling classes and seemingly most investors are more naive than I've seen at anytime in my life.

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