| | | zerohedge.com
“Everything has consequences and the consequences this time may or may not include some intractable inflation” Grantham writes. “But it has already definitely included the most dangerous breadth of asset overpricing in financial history.”
Here, we disagree: yes, there will be a crash, one which will send deflationary shockwaves around the world, but it will only prompt an even bigger rescue by the same Fed which no longer has an alternative after it crossed the Rubicon in 2020 and bought corporate bonds and junk bond ETFs to avoid an all out collapse in the post-covid turmoil. In the next crash the Fed, whose only contribution over the past 100 years has been to make the rich richer and create an epic "wealth effect" bubble, will buy stocks and ETFs, transforming into the Bank of Japan, before eventually it loses all credibility. But by then, stocks will be orders of multiple higher, completely disconnected from reality and fundamentals and trading only on the quadrillions in liquidity central banks inject to preserve the western way of life.
Incidentally, the question of what happens after the next crash is one that was posed just yesterday by another market bear, Stifel strategist Barry Bannister, who predicts a market drop to 4,200 in Q1 2022, but wonders what happens post-correction, when he writes that "equities risk the third bubble in 100 years if the Fed loses its nerve and cancels much of the tightening plan. We doubt that occurs anytime soon, because we believe bubbles are exceptionally poor policy, and the prior two equity bubble tops (1929 and 2000) were followed by “lost decades.”
We do not doubt it at all, and are absolutely certain that the Fed - which has no choice but to blow an even bigger bubble after the coming market crash - will do just that.
The only question we have is how much of a crash can the Fed weather before it capitulates, i.e., what is the level of the Fed put. We are confident that another 10-20% lower - which will obliterate Biden's ratings and Republican avalanche in the miderms, surging inflation notwithstanding - and the market will finally discover what it is looking for. |
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