Markets Ready to Fall No Matter What

Update: I covered some shorts today. Still think a larger decline can unfold, but should be a bounce from here. I see the market decline being blamed on new coronavirus cases. Total nonsense. Even in February 2020, the market was due for a plunge. In my uncheckable opinion, were there no coronavirus, the bull market may well have ended in 2020 with a recession following close behind. Instead, markets primed for collapse did just that in the face of coronavirus lockdowns. Government stimulus that would never have been approved in a normal recession was rapidly passed not once, not twice, but thrice.

This time around it is the same setup. Markets are overextended, sentiment is at extremes, the place for short squeezes are U.S. treasuries and the U.S. dollar. Six days ago I posted Short Everything. Now we'll find out if this will be a brief pullback, a larger correction, or the start of a bear market. With funds such as ARKK still well off their highs, the possibility that a bear market is already underway cannot be ruled out.

The fundamental case for a correction or even a bear market is relatively simple: consumers are spending less because of inflation. Stagflation is here. If the government tries stimulating the economy, it will destroy economic growth via inflation. It is theoretically possible for the government to make capital investments in infrastructure projects, and that would be long-term disinflationary, but the current spending plans out of DC are approaching 80 to 90 percent welfare. If more stimulus passes, the smart economists will lower their growth forecasts for 2022 and beyond. The more spending, the lower the forecasts. Similarly, the Federal Reserve will face the reality that higher inflation equals higher unemployment again, which means to reduce unemployment they must first drive it way up along with interest rates. This helps explain the paradox of falling bond prices: the bond market is one step ahead of everyone. It is anticipating the crash. The economy and financial markets are driven by stimulus and inflation now, not organic growth. The economy goes from boom to bust and back again based on governemnt spending. The stock market will go from bubble to crash to bubble and crash. This type of market played out in the 1970s, but will be far worse this time given demographics, the credit bubble, scelrotic economy and government intervention. The government will raze the private economy with each round of stimulus, destroying ever more wealth with each round.

For the conspiratorial-minded, assuming USG and the Federal Reserve want to do more stimulus and intervention, the best possible outcome would be a brutal market panic that destroys much of the inflation seen in the past year. Below is lumber, down 70 percent from its high in May. More charts like this across the financial markets would have the public clamoring for more destructive inflation. At that point, your last chance to load up on cheap precious metals will have arrived.