Is the meltdown happening?

It feels like the US economy just left the highest level tower. Just dived off.

With the full free-fall ramifications only now beginning to truly seep into the consciousness of investors.

As is often the case, the real world Main Street situation can have a long lead time on major stock market price shifts. We like to think Wall Street anticipates and leads the real economy. The truth is Wall Street gets it wrong most of the time. Then plays at times savage catch up.

It is a little disturbing right now that we may be about to enter one of those worryingly fast market periods. Liquidity remains extreme, and has certainly been strongly supporting markets in recent months. Yet long positioning is also high among the world’s biggest funds. In terms of the major money managers of the world, there is no doubting most were keen to look past the current US and global economic wobble, to a believed strong recovery period.

We have been warning all along that there would be no economic rebound post the Covid boom. Largely in fact due to the nature of that artificially induced growth spurt, which brought forward, sucked out of the future, out of this very moment, large chunks of economic activity that would otherwise had been occurring just now.

This is a very deep valley indeed. Perhaps, more accurately depicted as a deep gorge.

US used car sales

US mortgage applications

Yesterday, we saw confirmation that credit growth is slowing, flat over the past two months. Except perhaps for short term debt and student loans. Used car sales have begun falling again and mortgage applications have yet another long string of monthly declines to testify to something being seriously wrong in the very fabric of the US economy.

Consumption, un-necessary consumption, is taking on a very cautionary note.

Commercial property crisis is most definitely building. Banking crisis is simmering. Manufacturing is already in a significant recession and services are now flat lining as well, All the while inflation may even be rising again and the Fed feels compelled to maintain a tightening bias even with a possible pause.

There are no policy solutions on the horizon for what is already a deep water slow-down.

The US stock market may no longer be able to hold on. The way it has, for some miraculous rate cut that was never going to happen, or any other so far unforeseen positive catalyst.

With many money managers, both globally and in the US, already heavily invested, it as if everyone was just simply holding their breath in ‘hope’.

The market, had a false rally as we forecast on the back of the lifting of the debt ceiling. Then awoke to the realisation that this only means the overall situation gets worse.

Here is the crux of the issue. The fundamentals are not good. There is a lot of liquidity but a large portion is already invested. All money managers at some point have their very own pain threshold.

If the price action begins to roll over further as we have been warning, then gradually, level by level  those pain thresholds will be hit. Initiating a hedging and market exit response.

This is what I call the snowball experience. With hope having been exhausted and the dire fundamentals coming to the fore there will not be the same ‘buy the dip’ enthusiasm as we saw in the first phase of this multi-year bear market. The price fall gathers mass and speed, rather than depleting the selling pressure as it goes.

The combination of the economic realities, the market sentiment and positioning, and the first signs of crumble in the price action itself, all point to a present and immediate risk of collapse.

Not to totally despair, there is one hope the bulls can cling to, and only one. That the level of liquidity on the sidelines is sufficient and will be chosen to be deployed?

That’s not really something I would rest my portfolio strength on however?

Defence, defence, defensive to absolutely bearish portfolio structuring should be seriously considered. Right now.