Thursday, December 19, 2019

2019: Year Of Imagined Realities

For the benefit of historians, I will provide a synopsis of 2019 using an investment letter penned in the spirit of former hedge fund manager Hugh Hendry...

January 1st, 2019:

Dear Super Idiocracy,

Good news, I too am smoking crack now.

There are times when a manager of other people's money must believe in things that don't exist, in order to maximize bonus. For us, that means being willing to be long risk assets in the full knowledge of two things: that those assets may have no qualitative support; and second, that this is all going to end painfully.  

This is one of those times.

Remember the film The Matrix?  Morpheus offered Neo the choice of two pills - blue, to forget about the Matrix and continue to live in the world of illusion, or red, to live in the painful world of reality. Today's perma-bears have chosen the red pill and with it the frightening and less lucrative world of reality. 

The bears know that today's central bankers are spinning a falsehood of recovery; they steadfastly refuse to be suckered in by the euphoria of a monetary boom; and they are convinced that they will therefore be spared the consequences of the inevitable crash. Everyone else, currently drugged by the virtual simulation of prosperity and its acolyte QE, will be destroyed. They can't pinpoint the date, they just say it's inevitable. Which is why we keep your money fully invested at all times. 

As your dutiful non-Fiduciary money manager, Trump has absolved me of all malfeasance, therefore I have chosen the path of virtual prosperity which is far more accretive to my annual bonus. Fortunately, today there is no stimulus program that our Disney markets will not consider to be successful. The good news is that mankind clearly has the ability to suspend rational judgment long and often. 2019 will mark the longest suspension of judgment in U.S. history. And we expect it to continue indefinitely. 

In 2019, the U.S. is set to record the weakest GDP of the entire cycle despite running an asinine 5% of GDP deficit. What would be considered a recession at any other time in U.S. history. Trump will be escalating the trade war throughout the year, in order to coerce the Fed to expend the last of their rate cut ammo, ahead of the impending recession. By June, this will be the longest cycle in U.S. history. However, the Fed will tell everyone this is the middle of the cycle, and everyone will believe them.

Throughout this year, insiders will be dumping stock at the fastest rate since the top in 2007. Meanwhile, Wall Street and Silicon Valley will dump a record number of unprofitable billion dollar market cap "unicorn" IPOs into this market, all of which will implode spectacularly.  

By August, Trump's mega deficit will be causing massive dislocations in the overnight funding markets. Therefore, the Fed will be forced to monetize his entire deficit. This monetary overdose will cause speculators to push stocks to cycle high over-valuation. The market will enter a Y2K-style end of cycle vertical melt-up. Led by the riskiest junk stocks in the market. By this time next year, there will be no safe havens in the stock market and no safety net beneath the economy. Which is why the general public will be told by their advisors that this is the beginning of a new bull market, hence they will move their capital back into the market in decade-high size.

With any luck, what would have been the end of the cycle in 2018 will be inflated to a much larger Tech bubble one year hence. Giving Wall Street one more chance to cash out at public expense. 

The overall theme of 2019.

The U.S. Super Tech bubble will distort all of the major indices, giving the illusion of a strong stock market and strong economy. The majority of U.S. sectors (Banks, Transports, Homebuilders, Autos, Retail, Energy) have already peaked in 2018. U.S. gamblers will be merely misallocating capital and making up stories as they go. In the longstanding tradition of Wall Street.

What economic "reflation" exists, will be solely a function of the oil futures market. And the largest IPO in human history, Saudi Aramco (December 11th, 2019):

Also by the end of the year, copious  disinformers will claim that "World" stocks are at an all time high, however the rest of the world left this gong show in disgust a long time ago.

This is now a uniquely American circle jerk:

Late in December 2019, Wall Street will break out their Magic 8 ball and extrapolate another year of projected gains for CNBS to publish along with the Farmer's Almanac and horoscopes for 2020. We expect the market should go into manic blowoff mode at around the same time as Trump is impeached for rampant corruption on a scale never before witnessed in U.S. history. Completing a full year round-trip of non-stop lying and mass lunacy. This last stage of delusion will complete the right shoulder of a two year head and shoulder top for the U.S. stock market ex-Tech.

The three major speculative bubbles will be in crytpo currencies (left shoulder), pot stocks (head, what else), and real drugs, the kind that kill you (right shoulder).

Algos will do everything possible to keep this Ponzi scheme pinned to all time highs for as long as possible, on minimal volume and minimal volatility. 

Which ensures that final rollover will be violent and spectacular as a year of fraud and record leverage is unwound overnight.

Regardless of dislocations we will keep your money deployed through year end bonus, since no one can predict the future. 

Happy New Year Dumbfucks.