Everything is transient except debt, stimulus and asset bubbles

Local market started negative on US lead and kept sliding on lockdown extension and inflation data. Relatively low turnover continues with seventh week without a double-digit turnover day. Size mattered with Mid Caps being the best in a red day while Micro Caps were the worst. Property and Staples were the best sectors in a bad day while Tech and Energy were the worst hit. Asian markets were not getting bashed like yesterday but remain weak. Japan, NZ, China and Hong Kong markets continue to trade below 200 day moving average. History suggests elevated risk ahead. It could be different this time!

China regulatory crackdown risk continues to reign over Chinese markets despite media articles calling for calm. It seems pretty clear that China has realized too many companies have taken too much control over certain industries and jammed up the prices. They accept the reality that there is no gain without pain. There can’t be reform without bursting asset bubbles. May be the rest of the world should learn from their willingness to lose billions for reform. 

The political cycle means the rest of the world will not do reform at the cost of asset bubbles but rather ignore the economic problems by hiding the symptoms via QE bond buying. Don’t worry, everything is transitory…except for rising Government debt and Central Bank balance sheet expansion. It could be different this time!

Australia inflation was hot as expected. It hit post GFC high while RBA’s fudged rate moved higher but below their band. 

We just had massive global supply side disruptions, historic high global stimulus, massive V shape recovery, massive job recovery, historical government debt, historic low rates, pandemic waves, property boom, market boom, commodity boom, massive government handouts and yet the core inflation barely beaks their band. It is clear to say that rates are never going to go up! 

May be a collapse in the AUDUSD is the only thing that will get a core inflation to breakout. AUDUSD is falling despite commodity prices in a boom. Market does not believe that commodities are coming off anytime soon. It may be different this time!

US earnings season takes center stage this week with mega caps reporting. It started last night after market and it was all about the level of beats. US reporting season is on 90% strike rate and that is already priced in. Time will tell if the market moves higher on sentiment or sells on the update. US Fed update tonight will be a bigger story but in reality will deliver nothing. US Fed has fudged the bond market higher by lowering bond supply and jamming up QE buying. Expect them to say everything is transient except asset prices, government debt and US Fed balance sheet expansion. What could go wrong? 

Even IMF is warning that inflation is persistently high and likely to remain that way into 2022 while extra stimulus in the US will drive inflation even higher. It could be different this time!

You can view the full Sunset Strip report, with charts and the end of day market stats, on the following link.

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