Monetary Euthanasia
The endgame consequence of 15 years of continuous monetary bailout is that at this latent juncture, global investors have been conditioned to believe that economic collapse is bullish. Suffice to say, investors are well lubricated for what's coming next.
Case in point, as we see in the chart below, by the 3rd quarter of last year the best performing stock market in the world was China which had the worst performing economy in the world. Here we see the Hong Kong Hang Seng has round-tripped back to the high of 2024 which also happened to be the high of 2023. A ~50% gain from the bottom, nevertheless still leaving the index far lower than it was back in 2018:
We are seeing the same dynamic playing out in Europe. So far in 2025, European markets are outperforming the U.S. despite the fact that the ECB is easing due to the imploding economy. In other words, economic weakness is now widely viewed as a buying opportunity.
The German Dax has been up every week of 2025 so far:
The most recent BofA Fund Manager Survey which is also mentioned in the FT article above indicates that global fund managers are at their most bullish (lowest cash position) in the past 15 years:
"Investors are “long stocks, short everything else,” strategist Michael Hartnett wrote in a note. The bullishness was underpinned by expectations of robust economic growth"
Clearly fund managers are NOT bullish because of economic growth. They are merely bullish because they see global interest rates falling and therefore they "have to" own stocks instead of cash and bonds which will soon be yielding 0%. In other words, fund managers are front-running economic collapse and they believe that central banks can bail them out. If they can't bail them out, then it's not their money anyways. They can't afford to be on the sidelines in cash.
What we see in the U.S. is that stocks are now inversely correlated to the economy as implied by consumer sentiment. This divergence began during the pandemic and has grown more acute over the course of the cycle:
There are now a generation of fund managers who have never been through a real bear market nor a real recession. They believe that every recession and bear market is like the pandemic: Everyone sits at home trading stocks all day with their stimulus checks. This divergence between financial assets and the real economy guarantees that this deleveraging event will be maximum painful for those who are massively levered to risk ahead of financial/economic collapse.
This chart shows that the last time central banks were easing at a market top was back in 2007/2008 when financial markets were on the verge of collapse. Recall what Citigroup CEO Chuck Prince said back at the top in 2007 while subprime was imploding:
"The Citigroup chief executive told the Financial Times that the party would end at some point but there was so much liquidity it would not be disrupted by the turmoil in the US subprime mortgage market."
Long term interest rates have been at this level for two years. The same length of time as they were during the last housing wreck.
