It’s Just A Matter Of Time (Before The Market Tips Over Again)

July 24, 2019

Texas Instruments reported its Q2 yesterday after the close.  Revenues were down 9% YoY for Q2 and management forecast an 11% decline for Q3.  The stock market rewarded this fundamental deterioration in TXN’s business model by adding nearly $8 billion to TXN’s valuation as I write this.

The Dow Jones Transports index is up 1% on the news that the U.S. is sending envoys over to Shangai for a face-to-face love-in with their Chinese counterparts to discuss the two Governments’ differences of opinions on how to conduct bi-lateral trade.  The  stock  market momentum chasers are happy because the headline announced that the meeting would “face to face,” therefore it’s a given that the meeting will save the freight industry from the deep recession into which it’s headed.

The U.S.’ economic woes are not caused by the trade war anymore than China’s issues are caused by the trade war.  The trade war is a symptom of the underlying systemic structural issues.  Trump’s handlers crafted a clever strategy to enable the policy-makers and war-mongers of the Deep State to use China and the trade war as a scapegoat.

Fixing the trade differences – which likely won’t happen in any meaningful manner – and taking interest rates to zero will not stimulate economic activity.   The stock market is melting up because the western Central Banks have made money free to use for those closest to the money spigot.  The banks and companies with access to the free money know that investing it in capital formation is a waste of time because real economic activity is contracting.  Instead they plow this cash into the stock market (cheap loans to hedge funds from banks in  lieu of margin credit and corporate share buy-backs).

The real source of the problem is too much debt.  The global financial system is on the precipice  of a Von Mises’ “crack up boom.”  The melt-up in the chip stocks and unicorns is stunningly similar to the melt-up in the same chip stocks and the dot.coms in late 1999/early 2000.  The “unicorn” stocks are this era’s “dot.com stocks.”  Most of the hedge fund managers and daytraders were in grade school during the first tech bubble.  They will remain clueless until the rug  is pulled out from under them.

The stock and housing markets will eventually collapse because the foundation of debt on which both asset markets are propped will implode.  This process of systemic cleansing started in 2008 but was deferred by the trillions in printed money and credit creation thrown at the problem.  Rather than “fixing” the system, the “solution” did nothing more than add gasoline on the underlying fire.

Someone asked me yesterday what triggered the sell-off in tech stocks in early 2000.  I said, “the market started to shit the bed for no specific reason other than it stopped going higher and decided to go south. The Fed jawboning was not nearly as pervasive although Greenspan was good at ‘talking’ stocks higher. The President then never cheered on the stock market like Trump does. At some point, no one can for sure when, this stock market is going tip-over – it’s just a matter of time…”

Dave Kranzler

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