HARD LANDING

As of today, all of Wall Street's economic and market predictions are now off by a minus sign. The "soft landing" that Powell's Fed believed they had pulled off will now turn into the hardest landing likely since 1930.

For some unknown reason, today's pundits and advisors believed it was their job to shepherd the masses into extreme risk consisting of the most over-crowded Tech market in history amid the most crowded Yen carry trade in history, while the BOJ was actively tightening. As I've pointed out 100 times, it was a fool's errand of the highest order. Pundits assumed the BOJ would never tighten even though the BOJ told the world they were going to tighten at their July meeting last week. Now these same "experts" are blaming the BOJ for tightening and causing this inevitable global market collapse. Make no mistake, what caused this market collapse wasn't the BOJ it was BAD positioning by those who ignored the warnings. That combined with the moral hazard of believing that central banks are omnipotent. Which is by far the most dangerous delusion that STILL abides.

Now, these same pundits who pushed people into unprecedented risk are out in force telling the sheeple not to panic. Be assured the "top investors" telling people not to panic are right now liquidating their own portfolios Warren Buffett style. After all, it was Warren Buffett who recommended index funds for self-managed portfolios while he himself sits on record cash.

THIS is the biggest lie of all, the ubiquitous belief that central banks are omnipotent:

China's central bank - the PBOC - has been trying to "fix" their economy for the past two years and they are unable to stop the collapse. Why?

Because China is now in a Japanese-style liquidity trap which is where the entire world is heading. In a liquidity trap, low interest rates DO NOT stimulate the economy, because everyone already has too much debt. AND also because in a deflationary environment everyone expects prices to come down - homes, cars etc. etc.

July 25th, 2024:

"In 1998 after Japan’s property bubble burst, its economy slid into recession and monetary policy lost impact as interest rates were close to zero"

Contrary to the headline above there is nothing "unique" about China's liquidity trap. It is a classic 1930s style depressionary collapse. Japan has been in a liquidity trap for over two decades and therefore it is extremely ironic that they are the country that was very last to raise rates and that wafer thin rate hike to a miniscule 0.25% t-bill rate brought down this entire global house of cards.

Turning to markets, this selloff is another Asian-induced vol shock similar to the the last three shown below. Volatility is the key metric used by market algorithms to increase or decrease leverage. Therefore this is a deleveraging event which is why the futures keep selling off overnight, in addition to the Yen carry trade unwind.

So far, the response to this selloff has been highly complacent based upon total volume. Nevertheless, the market is now oversold and a short-covering bounce could happen at any time, however it will be a dead cat bounce. The Tech super bubble is officially over which means that the new trend in markets is down.

Unlike 2022, this time the bear market will be attended by a recession. Even before this crash occurred, the lagged data was already pointing to a severe slowdown in the economy. However, this vol-shock-induced deleveraging event will further impair risk sentiment. By the time the election rolls around social mood will be dark indeed.

I predict the Fed will soon cut rates on an "emergency" basis ahead of their September meeting.

And when they do that they will unknowingly officially confirm recession.