Main Street

It Can End Well… If You Want It

By David Stockman  |  October 26, 2018

And it happens… justlikethat.

“Halftime” talk turns from “new 52-week highs” to “new 52-week lows” during ad breaks. Beltway barnacles wonder whether we’re heading into a Trade War-induced global recession.

We’re back to bloody chyrons – “Market Selloff,” “Tech Turmoil,” and “S&P Joins Nasdaq and Russell 2000 in Correction.”

Meanwhile, Bubblevision’s politics channels are reporting an arrest in the #MAGABomber/#FalseFlag/#SuspiciousPackage plotline.

And this Cesar Sayoc situation is developing as quickly as market internals are crumbling.

They’re all signs of the same, fundamental rot.

Wall Street and Imperial Washington “uncoupled” from reality a long time ago. Perhaps they’re getting back in touch.

Now, it seems, some ugly things are dawning on an Acela Corridor doped-up but dumbed-down by decades of monetary central planning.

“Easy money” made elites look and feel smart. And they certainly got wealthy.

But Main Street’s toughed it out for more than a decade after the great grift that was the Global Financial Crisis.

There’s going to be some roosting.

And our institutions provide strong mechanisms for that kind of stuff – the most important is called the “ballot box.”

As a matter of pure price action, the S&P 500 is about 80 points, or nearly 3%, below its 200-day moving average.

The last time we saw this type of wild action was back in early February.

The S&P bottomed at 2,581 on February 8 – 43 points above its 200-day moving average.

It bounced off that level twice, in April and May; with support confirmed, another “BTFD” spree carried Wall Street during the summer and early fall.

This preposterous 2018 rally took the stock averages to absurd heights – the Donald’s Trade War and the GOP’s Fiscal Debauch notwithstanding…

Now, we’re starting to digest it all.

When benchmarks like the 200-day moving average do fail, it’s usually pretty spectacular.

The 200-day moving average – as do like and similar technical benchmarks – represents all the price-action-based information the algorithms and robo-traders care about in a market distorted by monetary central planning.

When things are on schedule, central banks “accommodate” ever-expanding bubbles through liquidity injections and stuff like “forward guidance” and “dot plots.”

They fuel confidence and foster systematic, repetitive “Buy-the-Dip!-Buy-the-Rip!!” momentum-driven success.

The economics underlying it all just don’t matter… Fundamentals don’t matter…

Until they do.

All this desperate thrashing is the irrational reaching out for the rational. It just doesn’t know where, or even how anymore, to find it.

The dimmest Wall Street permabulls will insist that the bubble can’t pop because there’s never been a recession when unemployment was as low as it is right now.

Well, the opposite is actually the case: There has invariably been a downturn whenever a long business expansion resulted in a sub-4% unemployment rate.

Indeed, the last time unemployment hit 3.8% was December 2000. Three months later, the economy “officially” tipped over into recession.

This, folks, is a vacuum… a void… created by a doped-up, dumbed-down Acela Corridor.

And it means the Everything Bubble is precariously poised for any old “swan” – be it “black,” “orange,” “blue-and-wavy,” or any color scheme of your choosing…

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David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR