August has been an ugly month. Look around the world and most assets are suffering as the lagged reality of shrinking central bank balance sheets and a Fed-enabled dollar-shortage has sparked a renewed anxiety the likes of which we have not seen for a decade. There’s just one thing – despite all this turmoil, US stocks remain the cleanest dirty shirt as investor ignorance or faith continues to beggar belief.

David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates, feels the same way – questioning market participants’ cognitive dissonance: “The ‘Shining City on the Hill’ so far this month has seen eight economic data releases miss, three beat and one come in as expected. Nice start to Q3“.

The ‘Shining City on the Hill’ so far this month has seen eight economic data releases miss, three beat and one come in as expected. Nice start to Q3.

— David Rosenberg (@EconguyRosie) August 16, 2018

Visually it is easy – US Macro data plunged to 11-month lows today as US equities remain somewhat bulletproof… 

A look around the world and it’s clear that the fecal matter is starting to hit the rotating objects in almost every asset class and geography. As Rosenberg exclaimed last week, “The only folks that can’t see it in the FX and commodity markets spend too much of their day gazing at the SPX and Russell 2000. There is no decoupling, just lags”.

No contagion, eh? The only folks that can’t see it in the FX and commodity markets spend too much of their day gazing at the SPX and Russell 2000. There is no decoupling, just lags. pic.twitter.com/521jXi9BiE

— David Rosenberg (@EconguyRosie) August 15, 2018

And as the chart below shows – with central bank balance sheets now contracting, ‘risk-on’ trades are being collaterally-damaged as dollar tightness spreads (except in US equities).