A rug-pull event!

 In a historic move, credit-ratings agency Fitch Ratings downgraded the U.S.'s credit rating from AAA to AA+. Fitch projects that the government deficit as a percentage of gross domestic product ("GDP") will rise to 6.3% this year... a steep increase from last year's 3.7%. And within two quarters, U.S. interest payments are expected to surpass $1 trillion for the first time ever...

  One of the government's largest expenditures won't be for social welfare or defense spending... but instead for interest on money already spent. And this will only increase, fast!

 

 So the market got spooked and has dropping like a stone in the past two days. But in my mind, this rug-pull event is just the start of a much larger correction in the weeks ahead. This downgrade is just an excuse or a catalyst for the market to give FOMOs "some color see see" for now. It is just an appetizer. The entree is coming, soon. 

Here is what I think:

 

 But nothing goes in a straight line. I'm actually betting on a quick rebound today.

Unspectacularly Normal

Amid all of this end-of-the-world…ism, you were probably surprised to find – in colleague Joel Bowman's weekend report – that the summer, 2023, so far, has not been particularly hot at all:

Current temperatures across the UK and Ireland are unseasonably cool, according to the Met Office, with London a fresh 66...and Dublin a rainy old 60. Over on the continent, it's... well, summer. Berlin is 73... Paris 69... Budapest 70... Prague 68... Vienna 62... Florence 84... Moscow 73... Krakow 75... 

Of the 50 European capitals, the average temperature today... during the "hottest July on record"... is a searing, sweltering, blood-boiling... 

...76.1 fahrenheit. 

In the United States, the summer so far (June 1 - July 19, 2023) across the Lower 48 states has seen unspectacularly normal temperatures of a mere +0.07°C above average. Readers along the mid-Atlantic, the Carolinas and the Ohio Valley are no doubt enjoying the relatively unextreme weather. Same for the Pacific Northwest. And the Northeast. And along the Prairies. And the Rockies. Sea to shining sea, as it were... and practically anywhere that is not Phoenix, Arizona... which was virtually uninhabitable before the advent of air conditioning anyway. Death Valley, too, has been pretty hot. Who woulda thunk?

But what about all these "extreme heat waves" we're hearing about? Perhaps some perspective might come in handy. The folks over at the EPA (the Environmental Protection Agency...that bastion of racist, transphobic, right-wing climate deniers) provide the US Annual Heat Wave Index going back 120+ years.

What the Annual Heat Wave Index shows is that the media is either mistaken…or lying. It turns out, the new normal is the old normal. So far, the summer of 2023 looks much like any other summer. It is hot in Las Vegas…and cool in Dublin. 

There were no Weapons of Mass Destruction. But that didn't stop mass mayhem…as wrought by the US military. There may not be any real facts that support the Global Warming Hypothesis either. But our guess is that that small inconvenience will not prevent the destruction ahead.  

Bill Bonner

A New York's warning

Below is the July cover of New York Magazine. If you're having trouble reading the slug line, it reads:

"Manhattan's office buildings are dangerously empty and crushed by debt, and their owners are in over their heads."

If you have money invested in commercial real estate, be mindful of what is coming. It won't be pretty to say the least. 

We still yet to see how widely this commercial real estate debt crisis will impact on the economy as a whole. The market seems no worry at all at the moment but this can quickly change when the tidal wave starts to hit. When that happens, it will fall like a domino that can collapse within a blink of eyes.  

Meme Market Mania

Share a good write up, forwarded by my friend, regarding what is going on with this crazily bullish market. ********************************************

The entire stock market has become a meme stock. You remember the meme stock craze in 2021, don't you? Back then, the Reddit-crowd of retail investors would buy far-out-of-the-money call options on stocks like GME, AMC, and BBBYQ. Market makers would willingly sell the options to the retail investors. They were happy to collect the premium. But in order to offset the risk of being short calls, the market makers would buy shares of the underlying stock – thereby making a "delta-neutral" trade, a trade that is not dependent on direction but profits as time passes and the option premiums decay. As more and more retail investors bought calls, market makers had to buy more stock in order to offset the risk of being short calls. This buying pressure – in the absence of natural sellers of the stocks – forced the stocks higher. The higher stock prices brought in more call buyers, which then forced market makers to buy more of the underlying stocks, which brought in even more call buyers – and on and on. This is a gamma-squeeze. And, it continues until folks stop buying call options and/or enough natural sellers of the stocks show up and pressure the price lower. Then it all unwinds in spectacular fashion. Gamestop (GME), for example, lost about 80% of its value in just one week in early February 2021. AMC Entertainment (AMC) dropped 70%. Bed Bath & Beyond (BBBYQ) lost 60%. Like I said, this happens on individual stocks all the time. Now though, it seems the entire stock market is being gamma-squeezed. Folks have been buying large amounts of out-of-the-money call options on the market indexes (SPX and QQQ mostly). Market makers who are selling those calls need to buy the underlying indexes in order to neutralize their short call positions. That buying pressure – in the absence of natural sellers – is pushing the indexes higher. This doesn't happen if there is a bearish counter force. But, the bears have been run over so badly the past several weeks that no one is shorting. No one is selling. So, the market squeezes higher. How long can this keep going? I have no idea. All I know is that when it stops, the market will unwind in spectacular fashion. Be careful out there