Global Crash. In Progress.
It's apparent from my collapsed Twitter stats that very few people see this coming. Hence for the title of this blog post I went with blunt as possible in hopes of awakening gamblers from their mid-summer narcoleptic coma...
Rewind to last week when Trump dodged a bullet and the sky-rocketing Trump trade caused the AI trade to implode. At one point Trump had a 20 point lead over Biden and bulls were certain that Trump election was a lock. Bulls were ALL IN. Suddenly, during the past weekend, amid scathing opprobrium Biden withdrew his nomination for president. Now, over the course of the past few days Trump's election chances have collapsed like a cheap tent back towards the mid-point of 50%. In other words, lampooning Biden mercilessly has backfired. Kamala Harris has awakened the Democratic party from their narcoleptic coma and she is starting to give Trump a run for his money. Which means that Wall Street can't count on the landslide victory that was fully priced in last week. Last week the Dow was three sigma overbought on the 20 day Bollinger band, which is the most since the 2018 tax cut, immediately preceding VolExplosion.
Election odds via PredictIt.org
Which brings us to this market week. Wednesday was the worst day for stocks since the 2022 bear market. On Tuesday night both Tesla and Google disappointed investors. Tesla missed on sales, deliveries and earnings. The top performing stock of July is now imploding. Recall that both Tesla and Apple had catch-up rallies in these past few weeks on the basis of their AI future potential, therefore this negative reaction to Tesla sales decline is a warning to Apple investors that the AI glue fumes have worn off. Likewise, Google "beat" on their results, but the stock imploded regardless. Which is a cautionary tale for all of the rest of the mega cap Tech companies. Beat or no beat, the bar is high. Here we see the "Magnificient Seven" had their worst day since the ETF was created. We also see that the Mag7 was fabricated at the depths of the 2023 bank run. Coincidence? I don't think so. Wall Street desperately needed a new theme to keep investors from bailing. So, this Tech bubble has now completed its job of obscuring bank meltdown. The Regional Bank sector has been the best price performing sector of July and yet it has reported the biggest earnings decline of any sector. On Wednesday, bank stocks hit a new high and then ended the day negative, along with the rest of the imploding Trump trade.
Another risk I've been discussing is the Yen carry trade. Recently Yen shorts reached a new record high and yet analysts expect the BOJ will tighten again next week on the same day as the Fed telegraphs imminent rate cuts. If this selloff continues, I predict Fed rate cuts will arrive much sooner than expected as Powell confirmed his recession fears during his latest testimony to Congress. Which means that the Fed and BOJ are on a collision course. In fact the BOJ is on a collision course with the entire world because this week on Monday China cut rates and on Wednesday Canada cut rates again.
The idea that Japan which has had the most deflationary economy in the world is now the only country still raising rates, puts the icing on the cake for this asset inflation bubble. Consider that China's GDP growth rate is STILL 10x higher than Japan's (5% v.s. .5%). What we are witnessing is the abject failure of Globalization to create a global middle class, while imploding what's left of the existing middle class. And yet the pundits at large are totally clueless.
Tracking the imploding semiconductor sector, this crash is now the fastest on a % basis from one year high since March 2020.
In summary, what Biden gave us was a four year reprieve from civil war.
But now the intermission is over.
And soon everyone will be wishing it was Weekend At Biden's again.
