The Most Dangerous Market In History

We are seeing 2021 levels of market speculation in IPOs, Ark ETFs, Cryptos AND AI stocks. However, in 2021, speculative stocks peaked first and the rest of the market peaked later in the year. This time, everything is going vertical at the same time. As we see, in 2021, the Ark AI ETF made its high early in 2021 then it crashed, and then it made a lower high late in 2021. This time around it made a high in January this year, then crashed, and now it's making a higher high. In the lower pane we see that large cap momentum dominance is also making new highs concurrently.

The Nasdaq is in a broadening top. Which means this third decline of the past year will be the most severe with respect to price and volume. Given the record volume we've already seen, we should expect this crash will bring the Fed off the sidelines, albeit at much lower stock price levels.

The new trade war deadline of August 1st is fast approaching. After this week's in-line CPI, markets are once again ignoring the potential impacts of tariffs on inflation and the economy. Therefore the "TACO trade" is still on in record size. It's a game of financial chicken of record magnitude.

Trump's war against the Federal Reserve also ratcheted up this week with rumors yesterday that Trump was going to fire Powell "very soon". Markets imploded on the news, but Trump then denied that he was planning to fire Powell, so markets recovered. Nevertheless, the immediate market reaction itself was very telling, because BOTH stocks and bonds spontaneously imploded when the news broke, indicating that there is ZERO confidence in Trump taking over the Federal Reserve. As I show below, the long end of the yield curve would very likely back up in the event of a rate cut.

What we are seeing are conditions that attend EVERY end of cycle. Highly inflationary pressures in some parts of the economy and nascent deflation in other parts of the economy. Which makes the Fed's job impossible because as much as they would like to preemptively cut rates to forestall recession, if they do THEY will cause inflation to accelerate. So as always at the end of the cycle, they have to wait until the economy implodes.

The fact that ZERO of today's pundits recognize that THIS IS the end of the cycle is proof that they have all fallen for the false belief that monetary policy is invincible. They forget that in 2008 the Fed reduced rates from these current levels all the way down to 0% but still the economy and housing market imploded.

Which gets us to the other news this week that the housing market is indeed already imploding due to high interest rates:

“Home sales, homebuilding, and even house prices are set to slump unless mortgage rates decline materially from their current near 7% soon,” Zandi wrote in the social-media post. “That, however, seems unlikely,” he added."

Unlikely indeed. As the chart below shows, when the Fed cut rates last year, long term interest rates went higher not lower. In other words, it backfired.

If Trump fires Powell OR if Powell resigns - which is now a very likely prospect - then long-term rates will sky-rocket and risk assets will spontaneously explode.

As we see from housing starts, stock gamblers are in total denial of the housing implosion.

They still believe this is the Trumpian Golden Age.

In summary, the 2008 Global Financial Crisis led to 0% interest rates and Quantitative Easing which reinflated the asset bubble. The pandemic and a second round of record fiscal/monetary put the asset bubble on steroids.

Now the biggest asset bubble in human history is imploding at the end of the longest cycle in U.S. history: 15 years, and who's counting?

No one.