Manias, Panics, And October Crashes

Let's recap events since last time:

Over this past weekend, the Chinese Ministry of Finance held an emergency press briefing and proceeded to disappoint markets with an undefined amount of future stimulus. The exact outcome that analysts predicted would happen. So while China was re-imploding on Monday the rest of the world was aptly celebrating a blow-off top in the Artificial Intelligence bubble led by Nvidia. When I posted on Twitter that the Chinese press briefing was a big dud that would move markets this week, that Twitter post got very few hits compared to the other charts I posted at the same time. Why? Because U.S. investors are now totally blind to the risk that China poses to EVERY single market on this planet. China is the locus of collapse in broad daylight. The only thing both political parties have in common is their zeal to implode China. Not only are both candidates threatening more tariffs if they get elected, but the Biden administration just announced a new set of restrictions on semiconductor exports DUE to China:

"Already, the Biden administration has restricted AI chip shipments by companies like Nvidia and AMD to more than 40 countries across the Middle East, Africa and Asia over fears their products could be diverted to China"

"You get the sense that this is the only consensus on Capitol Hill"

Indeed, it is the only consensus. It's a consensus of collapse at a time when the U.S. is navel gazing another "existential" election.

Now U.S. investors are going ALL IN ahead of the election. Why? Because after the last two elections, stocks sky-rocketed, both when Trump got elected in 2016 AND when Biden got elected in 2020. So from an investor standpoint, it doesn't matter who gets elected, they have to buy ahead of time which is why markets have sky-rocketed AHEAD of the election. Which is the opposite of what happened in 2016 and 2020 when markets were oversold ahead of the election.

Here we see AAII (Retail) % bearish is at the lowest point of 2024:

On a similar note in today's news, chip bellwether ASML warned on imploding China sales:

This is exactly how the chip rally ended back in July - At the beginning of earnings season when ASML and Taiwan Semiconductor reported, the AI bubble imploded.

In summary, both China and the AI trade are re-imploding. Since the Fed rate cut in September, cyclicals have led this rally despite the fact that global macro is collapsing.

Ironically, the rally has been led by Wall Street brokers which are now vertical.

Anyone who trusts Wall Street, deserves their certain fate.

"Trade desk strategists at Goldman Sachs noted that a year-end rally is gaining traction among their clients, with a notable shift in investment strategies from defensive hedging to more aggressive positioning.

Institutional investors are particularly motivated by the fear of materially underperforming benchmark equity indices, a sentiment referred to as "FOMU."