Global RISK OFF 2.0
China Lehman, Yen carry trade implosion, Armageddon in the Middle East, political civil war, weakening global economy. What to do?
Buy stocks...
Deja vu of August, Japanese stocks imploded on Monday following the ruling party's election of a new Prime Minister "Ishiba", who is deemed to be an inflation hawk:
"Ishiba, who is set to become Japan's next prime minister, has expressed support for the Bank of Japan's efforts to normalize monetary policy and may consider raising the capital gains tax"
A stronger Yen is something no pundit was predicting back in August and it's something no pundit was predicting now either. Why? Because today's pundits specialize in leading the denialistic masses to the brink of extinction. Nothing can dare challenge their bullish narratives.
Here we see Japanese stocks are once again plunging, deja vu of August. The counter-trend rally carried wave '2' slightly above the July FOMC high at 'ii'. This wave count is the most bearish because it predicts a much larger crash is imminent.
While Japanese stocks were re-imploding, Chinese stocks were having their best day since September 2008 circa the Lehman short-covering rally:
"The Shanghai Composite Index surged 8.06% in its best day since September 2008"
Also on the topic of record FOMO:
"The interest was so intense that broker applications collapsed and requests for opening trading accounts surged, according to local media."
There is a specious theory that circulates from time to time from Wall Street to Main Street that if you miss the handful of "best" stock market days i.e. due to market timing then you miss the entire bull market. Which is a total lie. The "best" stock market days are always in bear markets and they always precede new lows in the index. As we see below, prior to this week, the five "best" days of the past 20 years for the Shanghai Composite were ALL in the 2008 bear market. How is it that there is not one pundit who sees this as a warning sign? Where were they in 2008? Where were they in 2015?
Speaking of 2015, as I said on Twitter, this latest Chinese stimulus pump and dump has turned into the Hugh Hendry moment, deja vu of 2015. That was the last time the Chinese government attempted to use epic market stimulus to gin up the imploding economy. However, this time the stakes are much higher economically. Hugh Hendry was a hedge fund manager who asserted that central banks had created what he called a new monetary "Imagined Reality" in which markets move based upon specious narratives (such as Artificial Intelligence) and they are no longer driven by economic fundamentals. He then went on to say that he was planning to allocate a majority of his fund's capital to that spike you see in the middle of the chart above which was an imaginary Chinese recovery. When he issued that investor memo, his instituational clients bailed en masse. They wanted no part in a liquidity driven pump and dump scheme.
The same thing is happening right now, except it's very likely going to fizzle out far sooner than 2015 which by the way also preceded a global meltdown.
In summary, Chinese stock gamblers just had their biggest FOMO day in history and then they went on a week-long vacation. In the meantime, global markets are re-imploding deja vu of August. I predict the Chinese will come back from holiday next week to mass margin call at which point the China Lehman event that started in September will accelerate. Global central banks will ultimately panic cut interest rates which will make matters worse as the Yen carry trade final implodes. That will be the Fed's dick in hand moment. At that point, EVERY amnesiac pundit will realize the Fed can't save markets with panic stimulus. Similar to how the Fed couldn't save markets in October 2008.
Sadly, for today's investors there is no Imagined Reality they won't believe and there is no truth they WILL believe. So now they will all go into China mode and enjoy very large interest rate cuts that they've been told all year are a huge buying opportunity.
Believe it, or not.
