It's A Big Fat Ugly Bubble

Way back in September 2016 just ahead of the election, Trump accused the Yellen Fed of being politically motivated. He said that Yellen had created a "big, fat, ugly bubble" to the benefit of Hillary Clinton. Trump's first order of business when he got elected, was to replace Janet Yellen with Jerome Powell as head of the FOMC. Throughout Trump's term, the bubble grew inexorably bigger, first due to his deficit-funded tax cut and then due to the bond market collapse ("repo crisis") the tax cut opportunistically created. That crisis precipitated immediate QT cessation AND three emergency rate cuts in the summer of 2019 - what Powell euphemistically called "a mid-cycle adjustment", arriving ten years into what was already the longest economic cycle in U.S. history. Then of course came the pandemic which was the shortest recession in U.S. history, and the first recession in which asset prices went straight up instead of straight down. Which gets us to this latent juncture following 15 years of zero interest rates and QE capped off with a fiscal and monetary "eight ball" of pandemic stimulus. Creating the biggest, fattest, ugliest bubble in global history and totally unhedged trust in central bank bailouts. Wall Street now overrun by thirty-somethings who were in middle school during the Global Financial Crisis. A generation believing that money printing is the secret to effortless wealth, and they were the first ones intelligent enough to think of it.

All good.

Now, here we are again ahead of another election, however this time the Powell Fed has missed their window of opportunity to cut rates ahead of the election. To do so would once again risk Trump opprobrium. Last week we learned that the jobs market may be beginning to weaken. This past week we learned that consumer sentiment is imploding. Meanwhile, markets are on the verge of going RISK OFF in what should be a very exciting mass deleveraging of gamblers who have been front-running "imminent rate cuts" which are now delayed until after the election.

In summary, the term "imminent" currently means at best seven months from now. Unless of course something breaks in the meantime. And by something, I mean everything. Is that imminent? If bulls are "lucky", it just may well be in progress.