The Trump Super Bubble

This is the largest bubble in human history without any comparison. Go big or go home.

Picking up where we left off late last week, this week Trump pulled the trigger and fired Fed governor Lisa Cook. Which means that after Powell capitulated on rates to Trump at Jackson Hole, Trump further humiliated Powell by taking MAJORITY control of the FOMC. Which is why Barron's came out with this apropos article today:

State stock buying. You had me at hello.

There is a belief circulating among pundits that Fed independence doesn't matter to markets. However, recall that the last time Trump forced a Fed pivot on interest rates was in December 2018 during his first term. This chart below shows the difference between Treasury inflation expectations back then versus now.

We are one bad inflation report away from market explosion.

Another dire chart is the massive divergence opening up between Japan and the U.S. as the bond spread is now wider than it was last August when the Yen carry trade collapsed and more than it was at the trade war lows in April. And we see that the currency pair is starting to roll over in the direction of explosion:

In China this week stocks are going late stage parabolic deja vu of August 2015. Then as now, there was a chasmic divergence between the stock market and economic reality. However, this time around as we see from Chinese bond yields, the divergence between fantasy and reality is much larger. In addition, we see that this super bubble combines all of the elements of the past 15 years' of monetary bubbles. Still, pundits don't see the same risk now that imploded global markets ten years ago THIS month.

Obviously. It's a much bigger divergence than last time.

Back in 2015, when global markets crashed, I called it "Shanghai Surprise", which I will revisit below:

Overnight, Nvidia confirmed that AI sales are still booming but the growth rate is decelerating. The casino did not like that news because the AI sector is priced for second derivative acceleration, not just straight line growth. How are we going to replace the entire work force if we don't keep it growing?

Meanwhile at Wednesday's S&P 500 all time high, the Nasdaq 100 registered ZERO new highs.

Therefore it's highly likely that what started out this year as the Magnificent 7 is now the Magnificent ZERO.

In summary, global central banks have conspired to create the biggest super bubble in human history. As of now, even the Trump FOMC is on board with the bubble inflating process. Not one mainstream pundit is concerned about the obvious asset inflation central banks are creating. They only care about economic inflation that could drive up wages and reduce corporate profits. In the process, they have created a RECORD divergence between financial fantasy and economic reality:

Prepare for Shanghai Surprise.