“The universe is under no obligation to make sense to you”
2021–01–26
Last year was a very weird year. Markets crashed, the central banks intervened, as they should if you believe in those sort of things. People has been screaming for ages that we are in a market bubble of unprecedented size and in various asset classes. The central bank intervention did pour gasoline on the fire with the printing press. First of all they made the wealth gap even wider, which will lead to social unrest. Then the US government gave people free money as an aid to combat the effects of the virus. At the same time it became easier for the retail investor to enter more complex products. If you add one to the other you get the market we are in now. A market that does not make any sense at all, if you wouldn’t take the earlier aspects in consideration. Of course you get weird distortions in the market when you give free money to young adults who love the meme culture and got a distaste for the system since 2008.
People acting as one against “the system” to deep fry short sellers because they are “the other” or at least seen as the bad guys because they are the symbol of the establishment. The crowd manipulate market prices to that degree that hedge funds will be shut down in bankruptcy. Even if these people get fined or what ever, it doesn’t really matter, the damage is done. This will have ripple effects through the markets, this free money will get burned. They will lose everything, again. When you see this behavior you get the feeling that Mark Baum had in The Big Short after talking to the CDO-manager “I’m going to try to find moral redemption at the roulette table”.
This market behavior will lead to a deep correction of at least 10% before mid February where all these “new money” guys will get burned and loose everything they earned so far. Probably this move will come following the FOMC meeting January 27. To quote Paul Tudor Jones: “You look at every bear market and they’ve always basically occurred because of an uptick in inflation and an uptick in interest rates”. There has been upticks in inflation everywhere, but in wages, since many people got layed of during the pandemic. If you look at asset classes or commodities, they have all soared. The 10 year bond yield is also rising, the euro dollar futures (2023) is starting to signal that yields are on the rise. There will be a huge reflexive move in the coming days or weeks. This reflexive move will destroy the “new money”, both in the “reddit stocks” but also in Tesla and the crypto currencies, it is all connected, it is the same people trading it. Maybe the crypto currencies will survive better because institutional money have invested, maybe they will be worse of because of it.
It looks like the bottom for the dollar is in or very near at least, this coincide with the market rolling over. I would not be surprised to see the USD/SEK at above 9.20 (a move of 11 percent) during the first quarter or may be april. If the central banks steps in again, I doubt that they will be able to hold this one back. Everyone is looking for Tesla to the trigger, maybe it will, maybe it wont. Maybe it will be the destruction of the call buyers in $GME. Maybe it will be the destruction of the hedge funds that were short $GME. Who knows, what ever it will be, it will bring it all down. When the US 10 year bond yield passes 1.28, it will blow the market to pieces.
Bear moves are like gravity, it only takes one push.
