Tuesday, December 10, 2019

The Perfect Shit Storm

We're just blogging for the archaeologists now. The first question they will ask is how did so few zombies see this coming? Who wants to take that question...

We are seeing a culmination of risks at this juncture that is beyond anything we've seen in our lifetimes. As always the burden of truth falls on us minority believers in inconvenient reality:


Average true range (lower pane) captures overnight gap moves, unlike most volatility measurements which are intra-day.

Begin with this end of year liquidity implosion:

ZH: Liquidity Crash Is Imminent

What the Zerohedge article takes pains not to mention is that this problem was due to the chasmic Federal deficit, which is the equivalent of quantitative tightening on a record scale.

“The dramatic increase in Treasury issuance takes liquidity out of the system,” Kaplan said

What the Zerohedge article kind of gets right despite avoiding the root cause is that there is now a massive duration mismatch between Fed liquidity operations and the underlying liquidity constraint. The Fed is buying short-term debt, while the Treasury is issuing RECORD long-term debt.

This is to avoid the "optics" of financing the Trump deficit. 

Federal debt $ rate of change:

Meanwhile, Jamie Dimon, CEO of JP Morgan, has been blaming regulations for the liquidity shortfall, but the Bank for International Settlements isn't buying it. Their assessment is that "too big to fail" U.S. banks are now too much larger to fail:

In other words, let's say the Fed assured everyone that they were fixing the overnight bank liquidity problem, but instead of doing that they bid up revenueless junk stocks while putting everyone into a deep narco coma. 

Would that be a problem?

Another factor never mentioned on right wing media is the fact that insiders have been cashing out for two years straight.

Now at the fastest rate since you know when:

While home gamers are taking record risk

Add in this fake trade deal which has done nothing other than generate a massive short-covering rally. 

And the fact that central banks have lost control over the underlying economy. They are merely controlling the misallocation of capital.

Creating asset rotations that are not based upon anything real.

The important thing is that once again simulated prosperity is at an all time high:

Because another Tech bubble has been assiduously ignored

And because the beloved narco pharma sector is going parabolic. Again.

But the main reason they don't see this coming, is because they are all glued to the circus. 

And the Entertainer-in-Chief