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Global System Test

Maximum risk is coalescing amid maximum complacency at all time highs because faith in central banks is now total.


This global melt-up began after the last FOMC meeting when Powell was inexplicably dovish despite intransigent inflation. At that meeting, the FOMC voted to taper quantitative tightening (bond rolloff) in June which is now.


As we know, the leading stock has been Nvidia which has outperformed not only the rest of the market, but the rest of Tech, and the rest of the "AI" trade. At the close of this week - effective Monday - Nvidia will split their stock 10:1 in the largest stock split in the company's history. The previous largest split was 4:1. As I showed on Twitter, the history of Nvidia stock splits is dubious at best, including two -70% drawdowns directly preceding the last two major recessions. It appears that Nvidia stock split is an accurate bellwether for the end of the cycle.







As I asserted on Twitter, AI is now the biggest tulip bubble in world history. There is no final demand or software solution awaiting this massive hardware over-spending binge. Wall Street has informed CEOs that they have to claim to be investing in "AI" in order to garner a premium valuation in the stock market. Here we see that actual sales of semiconductors was lower in this year's first quarter than they were at the height of the pandemic three years ago. Which most seem to forget was another pump and dump led by Wall Street.








Of course it's not just U.S. semiconductor stocks going vertical either. This week, European stocks made new all time highs as the ECB cut rates for the first time since 2019. And Indian stocks went late stage parabolic due to the re-election of Modi. No surprise, Adani stocks were at the epicenter of the melt-up, since Adani is expected to be a key beneficiary of Modi corruption. The Hindenburg report calling the Adani empire a Ponzi scheme has long since been forgotten.






Throughout 2024 we have been told that the U.S. stock market rally would eventually broaden out to include more sectors. That has never happened. We are now witnessing the most narrow stock market rally in history.






I don't know what Powell will say next week, perhaps he will be dovish. However, one thing we know is that global markets have been melting-up ever since he was dovish at the last meeting. Which ironically means that the BOJ may well be the most hawkish central bank on the planet right now.


"June 6 (Reuters) - Bank of Japan Governor Kazuo Ueda said the central bank should reduce its huge bond purchases as it moves toward an exit from massive monetary stimulus, reinforcing his resolve to steadily scale back its nearly $5-trillion balance sheet"


In other words, for the first time in 34 years, the BOJ is more hawkish than the Fed because the Fed is now tapering their bond ROLLOFF.


"(Bloomberg) -- Political upheavals, tumbling stock markets, spiking volatility and a flash crash from nowhere: None of it is enough to dissuade Japan’s large cohort of individual investors from betting on emerging-market currencies"


All of which mass risk exposure and mass complacency sets us up for what I call Global System Test.



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