Friday, December 20, 2019

The Point Of No Return

This decade will forever be known as the decade of delusion. A period in which this society sacrificed its sanity in order to avoid the inconvenient truth that Globalization had failed. Instead of lifting most people out of poverty, it lowered most people INTO poverty - while making a handful of bailed out oligarchs wealthier. A decade of handing out trophies for failure, culminating in the Casino-Bankrupter-in-Chief leading a final round of let's play "No one saw it coming"...

Most people are of the socially obligatory delusion that central banks can stop this bubble they created from exploding. They are all very wrong. Nevertheless, the burden of truth remains on those of us who are not smoking crack, or otherwise trying to maximize bonus. The magnitude of over-valuation, combined with the magnitude of Tech stock concentration has put this mega bubble far outside of the realm of bailout. Which is why this won't be a crash, it will be an explosion. One that ends an entire consumption-oriented way of life, based upon mass deception - formerly known as "The American Dream". Now, dwindled down to the American Powerball lottery...

Today is quad witching, which means the confluence of multiple options and futures expirations (weekly, monthly, quarterly). On Zerohedge this week there has been a lot of talk about dealer "gamma" hedging which has accelerated this melt-up. When call option buyers bet on upside, market makers must hedge their (short) exposure by buying the underlying stocks. Which creates a massively leveraged melt-up situation of the type we are seeing right now.

Options speculators are essentially renting short-term leverage from Wall Street dealers, which has the net effect of driving the market higher. Until speculators sell to lock in profit, which reverses the "gamma" hedging flow. We can think of derivatives and machines as essentially momentum accelerators for leveraged casino gambling.

It's all fun and games until someone loses an everything. 

This week, the equity call / put ratio hit levels last seen at VixPlosion 1.0 (circled) and before that the election:

This era will be known as a failed experiment in algo-driven markets lubricated by central bank drip feed liquidity injection. The widespread delusion that traditional valuations are no longer a part of "investing". An experiment in pure momentum gambling. 

Apparently it's necessary to be self-medicated to see the point in all of this delusion.

What we see via Apple is that the Tech melt-up began seven months ago when Powell capitulated to Trump and fabricated the "Mid-cycle adjustment" fantasy, first hinted at on 60 Minutes, June 2nd, 2019:

Which spawned a Y2K style melt-up:

Outside of the 5g bubble which includes Apple and semiconductors, the rest of Tech peaked months ago. These stocks bounced and are now completing second wave correction:

The reflation trade and attendant cyclicals are dependent upon reflation which is peaking deja vu of last year.

aka. 'Conomy

Some cyclicals are already rolling over

Defensive safe havens are also finishing up their first leg correction:

Emerging Markets had a good week following last week's all-important fake trade deal:

Notice the difference, one year of non-stop bullshit later:

As of today (Friday), positioning is back to the prior decade highs that brought the last two dislocations.

Perfect timing:

"No one saw it coming"