Dear Junkies Addicted to Fed Smack: The Monkey on Your Back Is Now a Gorilla
June 20, 2020
You thought that monkey on your back was light as a feather, but now it transmogrified overnight into a crushing gorilla.
Dear junkies addicted to the Federal Reserve's free-money smack: like all addicts, you firmly believe you're not addicted. Never mind those tracks, you can stop any time. Yeah, sure, but we all know you're going to buy the dip and max out your margin account because the craving cannot be denied.
Speaking of denial: you don't realize you're the dealers' chumps, the bagholders who bought at the top who the dealers are counting on to cling on to the bitter end because those Fed speedballs have inspired a euphoric faith in your god-like trading powers.
Here's how it ends, figuratively speaking: you'll wake up inside your Mercedes in a god-forsaken patch of urban wreckage, all the doors will be locked and you won't remember even leaving the party, much less how you got here.
You'll compulsively check your account and find that your margin call exceeds the value of your entire portfolio because the bottom dropped out while you were in a Fed-smack-induced haze, dreaming of prancing unicorns and angels dancing in the head of a pin.
Only now will you understand you were not a trading genius who would get out at the top, no problem, but a bagholder, played perfectly by the big dealers who sold to you. Now you're wiped out because you don't have enough cash to cover the margin call that's left after your portfolio was liquidated.
You thought that monkey on your back was light as a feather, but now it transmogrified overnight into a crushing gorilla. The dealers who you thought were your pals at the party made sure you wouldn't be around to cause a scene when you found you could no longer count on the Fed's baggies of the good stuff.
While you gird yourself for the agonies of cold turkey, consider Exhibit 1, the Fed'a balance sheet in February 2020:
2/5/20 $4.166 Trillion
2/12/20 $4.182 Trillion
2/19/20 $4.171 Trillion
Notice anything about the Fed's supply of free-money smack? It dried up. But all the junkies didn't notice because they were so sure that the Fed's supply of junk was infinite.
A funny thing happened on February 19--the market topped out and crashed the following week. Now look at this month's supply of Fed smack:
6/3/20 $7.165 Trillion
6/10/20 $7.168 Trillion
6/17/20 $7.094 Trillion
Umm, notice any similarity?
Fed junkies know one thing: the only thing that matters is the Fed's junk. Real economy: doesn't matter. Corporate sales: doesn't matter. Corporate profits: doesn't matter. Tax receipts: doesn't matter. Household income: doesn't matter.
The only thing that matters is the Fed is supplying baggies of the good stuff. Spoken like a true junkie, my friend, but once the high wears off consider what the Fed can't do:
1. It can't reverse the unprecedented wealth inequality its policies have pushed to the point of social disintegration and breakdown.
2. It can't make people take on the risks and heartaches of starting new businesses.
3. It can't force employers to hire more employees.
4. It can't make unprofitable businesses profitable.
5. It can't force people to buy assets at prices that no longer make financial sense.
6. It can't make insolvent businesses and local governments solvent.
7. It can't force people who now realize their priority is to save money to spend their cash, even if the Fed forces negative interest rates.
8. It can't lower the unaffordable cost structure of the entire economy.
9. It can't de-link all the financial dependencies in the financial system that make it so vulnerable to the first domino falling.
10. It can't stop people from selling their assets.
In summary, The Fed can't stop the unwinding of an unsustainable bubble of epic proportions. We are entering The Greatest Depression because Fed smack has zero effect on the real world; its only effect is to increase the delusion that asset bubbles are all that matters.
Also recall that the Deep State is not going to allow Jay Powell to re-elect Donald Trump with a stock market rally. From the point of view of the inner circle of the Deep State, the market collapse in March was simply a test to confirm what happens when the free-money smack is withdrawn. The test was a success and now the real crash can begin. Only this time it won't last three weeks. It will last all the way through October because, well, you know why: Deep State to Powell: Stop Goosing Stocks Higher Or You'll Re-Elect Trump (June 9, 2020)
A Reverse Wealth Effect? (41:52)
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