Ponzi System Test

Now that the largest pump and dump in Wall Street history is completed, what comes next I call "Ponzi System Test" because it will test the financial system to the most leveraged extreme in history. I am of course referring to leveraged ETFs, record stock margin (loans), and record options volume.

And I expect the system will fail at least temporarily, which will induce widespread GLOBAL panic selling.

It will be Gamestop x 100.

However it's what happens on the other side of that panic crash that I want to focus on with this blog post.

This week, Trump's new Fed chairman Kevin Warsh leads his first FOMC meeting. Markets currently expect interest rates to remain unchanged, however the majority of Fed participants are in hawkish disagreement with Trump's stooge due to the Iran War. Therefore it would take a LOT of financial dislocation to get the FOMC to lower interest rates. Fortunately, that's what is coming.

However, Warsh is not a fan of the QE bond buying programs that were used heavily post-2008 and in 2020 to support financial markets.

So ironically, Trump has inadvertently created the most hawkish Fed since 2008.

The Bond Trade:

In the chart below we see that the 30 year (20+) bond ETF spiked sharply (rates fell) in 2008 and again in 2020 when the Fed bailed out markets with massive rate cuts and massive QE. I expect a similar spike this time, but I expect it to be somewhat delayed due to the inflation bias and QE reluctance, at which point panic will spread in the global bond market. Soon Warsh will be tripping down stairs while juggling ten pies falling on his head. Jerome Powell will realize he is the luckiest man in history.

What we also see below is that TLT spiked in 2008/2020, but then each time it came down quickly as inflation expectations drove long-term interest rates higher. I expect that TLT will likely spike at least 50% from where it is currently, but we could first see a dip when markets come unglued i.e. yields could spike dramatically above 5%.

I call this trade: Front-running the Fed.

After the bond trade, my LONG-TERM trade will be gold.

Below we see that gold went into a parabolic bubble above the trendline in the past year. Now it's correcting back to the long-term trendline and will likely go lower. There is no rush to buy gold yet because the bubble excesses are NOT shaken out yet.

My preconditions for buying gold are:

1) Technical price reset back to trendline

2) Fed QE bailout of the bond market

3) Massive fiscal stimulus to bailout the middle class deja vu of the pandemic

While all of that is happening at the speed of government, bear in mind that we will be witnessing the largest wealth destruction in human history which will be massively deflationary. So gold could easily implode below the trendline, creating an even BETTER entry point.

In summary, I don't trust Trump. I don't trust Warsh. I don't trust Congress. I don't trust Wall Street. And I don't trust Silicon Valley.

And after this crash, NO ONE will trust them.

And then the final question - after the crash, why not buy stocks?

Because inflation-adjusted, stocks will not make a new high in our lifetime.

This is the inevitable consequence of allowing the dollar to become destroyed by tax cuts for ultra wealthy oligarchs and military blunders for hawkish NeoCons who want to convert the Middle East into DisneyLand.