Some Predict a Major, MAJOR Stock Blow-off is Imminent

Keep in mind that I made no predictions of a market crash for 2023 or 2024, but I did predict a big crash to start in late 2021 and run through 2022 in response to Fed tightening due to the necessity the Fed created—with the government’s full help—for a major inflation fight that would force the Fed to tighten hard and fast.

I want to capture what Zero Hedge had to say Friday morning about the stock market’s response to Friday’s jobs report, as I think the market’s reaction sets the table for the details I’ll be laying out below about the peril the market may be barreling toward. It also recaps critical sources of trouble I said would be developing this year:

"The Market Is Pricing A December Cut": Wall Street Reacts To Today's Solid Jobs Report

After today's solid jobs report, which showed hotter than expected payrolls and wage growth, and which hints at much more wage growth now that "foreign born" (i.e., illegal workers) are tumbling forcing employers to hire much higher paid domestic laborers, the market is still convinced that the Fed still remains on track to cut rates in two weeks, even though core CPI is once again on the rise, at 3.3% and soon much higher, while the Atlanta Fed's GDPNow tracker has the US economy growing also 3.3% this quarter.

Neither rising GDP nor rising inflation bode well for a stock market that has been surging forward lately in good part due to the Fed’s shift to a rate-cutting financial regime. The market has been floating on the hopium of a string of rate cuts, while I’ve been saying inflation will be holding the Fed’s feet to the fire, making the interest-cutting scenario less likely than the market, in its big sigh of rate relief, believes.

The jobs report from the Fed’s broken employment gauges, coupled with the cost reality that mass deportations under Trump will bring to the labor market, mean the market is likely to face some unwanted surprises from the Fed, blowing up some strong headwinds in 2025.

The rise in background inflation (on the producer side) has flowed into CPI figures as expected here in The Daily Doom, and those inflation numbers are likely to climb higher as cheap labor is driven out of the country.

Here is a summary of comments from a few big market trackers and prognosticators:

“What started out as a Fed pivot has evolved into a central bank swerve."

—Seema Shah, chief global strategist, Principal Asset Management

“As hiring activity rebounded from an October print weakened by hurricanes and strikes … the rebound is short of what it should have been if October’s weakness were all due to such temporary factors…. The November jobs report doesn’t seal the deal for a rate cut in December, but it also doesn’t take it off the table. We think the November CPI report (due out Dec. 11) will be critical for the Fed’s decision this month.”

—Anna Wong, head of Bloomberg Economics

“Wage growth looks to have bottomed out at 4% in year-on-year terms and has crept up to 4.4% on a three-month annualized basis. That won’t stop the Fed from cutting rates again later this month but it will give them pause for thought – 4.4% wage growth doesn’t really work with 2% price inflation.”

—Brian Coulton, chief economist at Fitch Ratings

“We suspect a December cut may be followed by a January pause.... The market is basically pricing for a December cut, but then the Fed to skip January, cut in March and skip May, with a final cut in either June or July. Given the incoming economic data, we don’t think this is unrealistic at this point -- but we must remember this is a major shift from the cut at every 2025 meeting that was priced just three months ago."

The decline in the Dow today was likely due to the repricing talked about above. The job news was positive for the economy in terms of job growth, but not greatly positive; however, ZH is right that mass deportations are certain to raise labor costs by increasing the intensity of competition among employers to fill the voids created by those removed cheap workers.

To the extent that the market was rising on fumes of Fed rate cuts, which become less realistic as inflation now moves from rising in the background (producer prices) to rising in the foreground, the market is likely to become unsettled in the months ahead by the disruptions to labor. It is not that these changes are not long overdue. It is that they are so long overdue that correcting them quickly will be a major economic disruption in itself.

Monday’s video made a number of strong points for a truly major (as in worse than 2000 or 2008) stock market crash. The reasons given relate to the reasons I started laying out about five years ago to paying subscribers for a truly massive crash to come in a few years—the bust of the Everything Bubble the Fed created after the Great Recession but especially via layers of corporate welfare and government dole of free money to most citizens in response to the government-created Covidcrisis.

(Here I am talking particularly the high inflation I said the government’s response would create with the help of the Fed’s money printing, bringing the need for some equally massive Fed tightening after the Fed and feds created towering asset bubbles in all assets.)

The Fed’s unexpected and totally unprecedented MASSIVE money printing doled directly to the public via the government for the first time obviously changed the timing of that bust because it was unlike the scale of anything we’ve ever seen, but the Everything Bubble Bust is now back play as that hoarded cash has finally run out for businesses and individuals.