Bizarro World: The Herd Has Truly Gone Mad

You’re not crazy. The world we now live in is.

By Adam Taggart and cross-posted from Peak Posterity.

Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.

~ Charles Mackay (1841)

Like me, you may often feel gobsmacked when looking at the world around you.

How did things get so screwed up?

The simple summary is: the world has gone mad.

It’s not the first time.

History is peppered with periods when the minds of men (and women) deviated far from the common good. The Inquisition, the Salem witch trials, the rise of the Third Reich, Stalin’s Great Purge, McCarthy’s Red Scares — to name just a few.

Like it or not, we are now living during a similar era of self-destructive mass delusion. When the majority is pursuing — even cheering on — behaviors that undermine its well-being. Except this time, the stakes are higher than ever; our species’ very existence is at risk.

Bizarro Economics

Evidence that the economy is sliding into recession continues to mount.

GDP is slowing. Earnings warnings issued by publicly-traded companies are at a 13-year high. The most reliable recession predictor of the past 50 years, an inverted US Treasury curve, has been in place for the past quarter.

Yet the major stock indices hit all-time highs earlier this week. And every one of the 38 assets in the broad-based asset basket tracked by Deutsche Bank was up for the month of June — something that has never happened in the 150 years prior to 2019.

It has become all-too clear that markets today are no longer driven by business fundamentals. Only central bank-provided liquidity matters. As long as the flood of cheap credit continues to flow (via rock-bottom/negative interest rates and purchase programs), keeping cash-destroying companies alive and enabling record share buybacks, all boats will rise.

So this week, the world found itself waiting for the release of the latest jobs report. And here’s how perverted things have become: investors were praying for disappointing data. They WANTED to see more warning signs of the recession threat.

Why?

Because a worsening macro outlook will make it easier for Federal Reserve Chair Jerome Powell to deliver on the future interest rate cuts investors are counting on. And rate cuts should boost stock prices higher (as well as the prices of nearly all other assets, too).

In a sane world, when signs of an approaching recession are visible, stocks and other risk assets should be nowhere near all-time highs. And should recessionary warnings mount, stocks should start diving, as recession = lower earnings + higher interest rates = lower valuations

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