The Depression Trade

News of an impending recession is spreading like wildfire on Wall Street. Over the weekend, Trump admitted there will be some "pain" in the short term due to his policy blitzkrieg which includes mass tariffs and mass Federal layoffs. The theory goes that Trump will now "fix" all of the problems while balancing the budget at the same time. It's an end of cycle fool's errand of the largest kind, hence it's largely unquestioned.

Anyone who wants to tackle the convoluted "logic" behind the Trump recession gambit is free to read this piece from Zerohedge asking (aka. asserting) "(Is) Trump Trying To Push the Economy Into Recession". Warning, your head may spin 360 degrees around the axis while reading that bull shit, but it's important to understand what the Idiocracy believes at this lethal juncture because that will inform what WON'T happen next.

First off, I have to state for the record that Trump's budget deficit (14% of GDP) in 2020 at the end of his first term was more than DOUBLE the size of Biden's budget deficit in 2024 (6%) at the end of his first term. Now, one can argue that it was due to the pandemic, but the Trump tax cuts had already blown out the Trump deficit to almost 5% pre-pandemic. If we argue that Trump had no control over the pandemic and hence HIS unprecedented 2020 deficit, then we would have to say the same for Biden who inherited the post-pandemic economy, right Zerohedge?

But obviously that's not where the buffoonery ends, that's only where the buffoonery begins. Because the REAL leap of faith is to now believe that Trump can win a global trade war, balance the budget, AND bring the economy through a recession all in time for the mid-term elections. Which is the endgame takeaway from the Zerohedge article above. In other words, it's an even bigger demented delusion than what happened in the first term.

Here is what commonsense and history inform us WILL happen next.

First off, this nascent market crash will be far worse and far deeper than anyone on Wall Street expects. Already we are seeing rampant complacency relative to the last August crash, to say nothing of the 2022 bear market shown below. The mass deleveraging across every asset class at the same time - especially the massively crowded AI trade - will have an extreme reverse wealth effect on consumer sentiment.

Below we see that the past four weeks has already been worse than the worst four weeks of 2022 for Momentum Tech.

The next miscalculation arises from the fact that the Fed will soon pivot to cutting rates, but when they do monetary policy will be rendered inert by mass deleveraging across every risk asset class. This is what is happening in China right now, but no U.S. pundits think it can happen here. This is due to the lethal "exceptionalism" fantasy.

China has had the worst performing stock market in the world these past two years, despite record monetary stimulus. Here we see the Hang Seng is having just another three wave dead cat bounce which has been mistaken for a long-term rally.

The biggest miscalculation will be in the economy because consumer sentiment is already imploding prior to a confirmed recession. One can only imagine how low this can go after a 15 year unprecedented debt binge.

In summary, if Trump is trying to push the U.S. into a recession, then it will be Terminal Idiocracy.

And anyone who buys into this endgame gambit is a full fledged member.