The Crack Up Boom And Bust

“There is no means of avoiding the final collapse of a boom brought about by credit expansion" - Ludwig Von Mises

Since the early days of the pandmemic, the Fed has committed one policy mistake after another. As I've pointed out, and seems to escape the attention of the financial media, the Fed has been far too tight on the economy and far too loose on financial markets. What I call "the casino". The net consequence is that the economy and the stock market are now heading in opposite directions.

At their most recent policy meeting two weeks ago, the Fed committed their latest installment of this ongoing policy error - they kept interest rates high and they signaled they will taper their balance sheet reductions starting in June. This has led to the largest melt-up high in stocks since they curtailed QT in 2019 during the overnight repo funding crisis. We are now ten trading days into this melt-up, which happens to be the exact number of trading days since the FOMC meeting two weeks ago. The repo melt-up is shown on the left.

Here we see that the broader market is in no way confirming this melt-up:

And here we see that consumer sentiment is now heading in the opposite direction from stocks.

Homebuilder confidence down. Homebuilder stocks up.

What it all points to is the fact that the Fed has totally lost control over the markets. This week, Powell admitted that inflation is running hotter than expected, and the Fed will need to keep rates high until they see definitive signs of economic slowdown. Unfortunately, financial markets are obfuscating the Fed's view of the economy. Financial conditions are far too loose as we saw this week with the return of the meme stock rally.

“The perception is that the entire system is set up and insulated to benefit the powerful elite. GME is the symbol of the populist movement against that concept"

Gamestop is just a massive pump and dump scheme that is meant to entice dumb money into losing everything. The only reason this is NOT like 2021 all over again, is because those investors are STILL sitting on huge losses from all of the pandmic-era stock scams from criminal SPACs to Arkk ETFs and 1,000 junk IPOs.

This entire stock market melt-up is now just one big Gamestop rally. When it explodes, the Fed and SEC will have zero credibility. And the losses will be monumental.

But, as long as Go Daddy doesn't roll over, this will all be fine.