Terminal Idiocracy

It's clear that we are heading for a meltdown of a biblical magnitude. When I say "clear" I mean totally unforeseen by the Terminal Idiocracy.

As the chart below shows, entering the last week of February, global stocks (incl. U.S.) have been up 10 months in a row since the trade war lows in April. This is the longest monthly win streak since the Y2K lows of 2003 at the onset of the Iraq war. As of this writing, everyone KNOWS that war with Iran is inevitable and yet unlike the Iraq war which was an impending fiasco of unknown magnitude and therefore approached cautiously by investors - this time, the prospect of yet another massively failed clusterfuck in the Middle East is getting bought with both hands. By well educated draft dodgers taking a break from Call of Duty.

What's amazing on this chart is that the trade war low of last April barely appears. It was a -20% v-shaped crash and panic rally that barely registers on the monthly chart. In other words, the AI bubble rally was clearly a blow-off top of the rally that began over three years ago at the 2022 lows.

However, this Terminal Idiocracy is incapable of distinguishing a top from a bottom.

First off, we begin with the Friday bombshell from the U.S. Supreme Court which totally nullified Trump's global trade war. In other words, following almost an entire year of market sturm and drang, Trump's cornerstone economic policy was instantly terminated. Trump vows that he will get the tariffs back on track by whatever illegal means necessary, however now we are headed for the mid-term elections and a protracted trade war and legal battle was not the campaign strategy the GOP had in mind.

But here is what every market pundit missed about this story - which is that for the past year global markets ex-U.S. have vastly outperformed U.S. stocks. For the last several months since the end of Q3 2025, Wall Street has been pounding the table to dump U.S. assets in favour of global assets. Meaning that markets ALREADY had repudiated the trade war long before the Supreme Court ruled that it's over.

Which gets us to positioning this week ahead of Friday's Supreme Court decision, per BofA's weekly flow report:

"On sentiment, the firm’s Bull & Bear Indicator eased to 9.4 from 9.5 but remained firmly in “extreme bull” territory."

In other notable trends, BofA highlighted record four-week inflows into international equities of $64.6 billion and the largest six-week inflow ever into Korean equities."

Ok, so let's get this straight - coming into a Supreme Court decision that makes global equities vastly more attractive than they were previously, global investors were already stampeding into international stocks led by Korea. In other words, this news puts the global trade on steroids. EXCEPT that it was already the consensus trade BEFORE this news.

Therefore we are to believe that this melt-up in Korea will continue, because tariffs will be lower than expected.

However, there were no tariffs a year ago last February and yet Korean stocks more than doubled DURING the trade war.

U.S. Momo stocks are tracking Asian momentum:

Right on time, the Barron's cover story this weekend recommends investors continue the anti-dollar rotation:

"After decades of U.S. dollar dominance, it’s time to do more buying elsewhere"

"Foreign stocks outperformed U.S. stocks last year, with the MSCI All Country World ex-USA Index up 31% over the past year, more than double the S&P 500’s increase"

Investors who want to (continue) to buy "elsewhere" need to sell U.S. assets first.

This week we got an updated BofA Fund Manager Survey (FMS) which confirms what I said in my last blog post - investors are now panicking over the level of capex spending on AI: Capex Concerns Now the Number One Risk. Therefore I predict that what we will see this coming week is that U.S. mega cap Tech stocks go bidless.

Nevertheless, we saw this rotation last February as well and Emerging Markets imploded on "Liberation Day" when Trump revealed his "reciprocal" tariffs and crashed global markets. So it would be extreme irony if the end of the trade war crashed the market all over again, because the U.S. was now deemed uninvestable:

Also from the FMS survey:

“Long gold” remains the most crowded trade for a second straight month"

In summary:

Bulls, pundits are telling you to keep rotating into the riskiest global stocks until something explodes. And then pray for another bail out, BEFORE you get margined out.

And also pray that you are NOT the Terminal Idiocracy that were convinced over 15 years of monetary bailout that printed money is the secret to effortless wealth.

Because if you are, then no amount of bailout is going to rescue you from your own monetary moral hazard this time.