Saturday, December 21, 2019

House Of Cards

Those who chose to propagate this mass delusion have squandered their credibility. The bill for non-stop lying is now overdue...

This decade long bailout was ill-fated from the start. Japanification gone global - the serial over-use of stimulus as a proxy for a real economy i.e. one balanced in domestic supply and demand. Not a pseudo-economy arbitraged across oceans by multinationals, buying in one locale and dumping in another, using debt to broker the difference. Globalization in a nutshell.

This serial asset bubble gambit was already failing three years ago, but then Trump took office and ignited the largest conflagration of combined fiscal and monetary jet fuel in U.S. history. A stimulus supernova at the end of the longest expansion in U.S. history. Basically a dying gasoline-fed bonfire, prior to total darkness.

Those like Hugh Hendry, who chose to be drugged by the virtual simulation of prosperity and its acolyte QE, made the fateful decision long ago NOT to see this ending. The MAGA Kingdom sudden death overtime has only served to increase the ranks of those who don't see this coming, substantially.

He clearly served his purpose:

The Creator had in mind to test how much delusion these hairless monkeys would really believe. And she was not disappointed. Trump being the icing on the cake. Pick a farcical con man with proven experience bankrupting casinos, see if they'll trust this guy with their life savings. 

No problem. 

I still haven't fully explained how this all ends, beyond "cataclysmically". Of course there have been many warnings on global debt levels over the past decade, all of which have been ignored. Which is why faith in central banks and simulated prosperity is now complete. Arriving at an inconvenient juncture when monetary policy happens to be exhausted, according to the Central Bank for International Settlements:

March, 2019:

"Global central banks' role is now exhausted and monetary stimulus adds little economic value, in fact it does more harm than good. Those are not the warnings of rabid Marxists, but the Bank for International Settlements."

"Zero-interest rates and quantitative easing alone cannot deliver genuine growth, and the trade-off from asset booms is becoming ever harder to justify,"

Here we see via the global freight index, Baltic Dry Index, that the largest monetary stimulus since 2009, is failing. It's heading in the wrong direction. Certainly not what one would expect in the week following a major global "trade deal":

In addition, somehow the 1930s trade war between the U.S. and China - a clear indicator of the fracturing of Globalization - has yet to terminate financial markets. Likewise Brexit. Leading policy-makers to believe they can pick the raisins out of the oatmeal. A seamless deconstruction of the global world economic order.

While the DotCom Tech bust did not immediately implode the economy. And the 2008 credit crisis eventually found a v-bottom. And the 1997 Asian currency crisis did not spiral out of control. What we don't know is what happens when all of that takes place at the same time, with monetary policy exhausted. 

In other words, is this a good time to be bidding up stock market assets to record over-valuation? Probably not.

The clear locus of risk is China and by extension Emerging Markets. Where I expect fractures to appear first, and then explode wide open. But with asset correlations approaching 100%, it really makes no difference where this begins.

I did find it interesting to note that speculative appetite is the highest since the markets topped in August 2015 just prior to the Yuan devaluation and smash crash.

What I called at the time, Shanghai Surprise - the vertical rise and collapse of Hugh Hendry's imagined realities 2015. This will be the rise and collapse of 2019 Trump Imagined Realities:

VIXPlosion 2.0?
I have surmised that this entire "event" will be initiated by VixPlosion 2.0, due to record short positioning. 

Vis-a-vis banks, the right shoulder melt-up is proceeding identically to the left shoulder, EXCEPT it appears to be peaking sooner in time AND VIX speculators were covering during the past melt-up, whereas this time they've been increasing their positions until recently.

Volatility shorts learned NOTHING from the first event: