Friday, January 31, 2020

The Big Long aka. Global Panicdemic

It's hard to remember what it was like when the inconvenient truth was valued and not feared. When the honest people were considered the honourable ones. Not the detritus in leadership today. We are witnessing an epic historical moment. The time when an erstwhile corporate empire goes supernova amid climactic fake optimism...

The Big Long:

This is how it ends, with a political movement based solely upon revisiting the mythical past. There's nothing real about it. It's all just a Jedi Mind Trick paid for with record stimulus. Japanification fueled by 10 megatons of fiscal and monetary payload.

When the Japanese attempted all of these stimulus gimmicks they were roundly criticized by economists in the U.S. for not taking on the hard reforms to create a sustainable economy. Fast forward past 2008, and U.S. economists are doing the exact same thing - ignoring real economic reform. Because that was when they were forced to realize they had spent a career studying failure. More than anyone they were happy to embrace Disney markets. The alternative was to admit failure.

Fast forward and the belief in printed money is total. Gamblers have been conditioned to be complacent. Which is why in the midst of global meltdown they merely shrug their shoulders, or better yet buy the dip. Because it's only a matter of time before the central bank bailout arrives.

Here we see selling pressure has become more and more complacent over time. 

Japan and China have both learned the hard way that there are limits to bailout-o-nomics. The limits arrive exactly when gamblers begin to believe that central banks are invincible. Ironically, Hugh Hendry who coined the phrase "Disney Markets" and even described the very mechanics of delusion, discovered the hard limits of moral hazard in 2015:

"China is set to record its weakest growth in GDP in 25 years. Yet it seems to have entered a bull market and may be where we deploy much more of our risk capital next year. That's because the recent exuberant run up in onshore Chinese equities seems to me to amply demonstrate the power of imagined realities."

After that delusion he lost his hedge fund. 

Chinese markets have been closed all week, so I will show Hong Kong as a proxy for then and now AND 2008:

The MAGA Kingdom is now the epicenter of imagined realities. The epicenter of denial. And the epicenter of moral hazard. The unquestioned belief in central bank invincibility, leading to over-leverage and super crash.

Only in a certifiable insane asylum would a random blogger such as myself have to describe this insanity to anyone. We've been long awaiting the day when the sheeple at large are no longer amply rewarded for bending over with their heads in the sand eagerly awaiting their daily talking point enema from Sean Hannity. While their assets are artificially levitated by central bank money printing. 

That day has arrived.

Our days of rage are over. However, for those taken in by this biblical delusion, theirs are about to begin. Nevertheless, after the rioting, the new day will dawn. And the new policy-makers will be forced to realize that the days of continuously recycled gimmicks are over.

Hard to believe, I know.

Biblical Impeachment aka. Meltdown

No surprise, the Roman Senate is set to acquit Trump of rampant abuse of power. Why? Because he embodies all of their same values - supreme greed, corruption, fraud, and of course environmental desecration on a biblical scale. Which is why with eight months until the next rigged election, and Democrats who can't find their ass with both hands, it's up to global markets to impeach Trump, and his merry band of loyal criminals...

Two more Hindenburg Omens this week.

Picture a scenario in which a Manchurian Candidate hand picked by Vladimir Putin wins election and then spends the next two years fending off legal attacks over his rigged election. In the event, dozens of his election cronies are indicted and sent to jail. Then, the same week he himself is finally exonerated due to lack of proof of direct collusion, he picks up the phone and calls ANOTHER Russian stooge government and demands that they help him rig his NEXT election. You can't make this shit up.

I realize what I described has been adamantly rejected by Faux News and all of its senile acolytes, but this is the story that history will tell. This will be the legacy of the Banana Republican party. The total destruction of democracy, in order to keep Caligula in power. 

But of course the 2016 criminality merely led to greater abuses of power. Because not only did Trump perfectly time his tax cut to buy the mid-term election, the Republicans purposely modified paycheck withholdings to give the illusion of a larger tax cut ahead of the mid-term election:

January 10, 2018:

"The IRS is facing its first big challenge implementing the new tax law: deciding how much in taxes to withhold from millions of Americans’ paychecks. The agency is under pressure to take as little as possible so people will see big increases in their take-home pay ahead of this year’s midterm elections. But that would come at a cost: smaller or even nonexistent refunds next year, though millions rely on them to plug holes in their family budgets."

We know what happened. While tax refunds in aggregate remained about the same thanks to the tax cut for the wealthiest households, MILLIONS of middle class families were bilked out of their annual tax refunds.

No consequences.

All of which fraud has led to the biggest election rigging gambit of all. A Fed pivot in 2019 to save Trumptopia from crashing, featuring three "mid-cycle" rate cuts, and a fully monetized deficit. The largest balance sheet expansion since 2009. And now the Fed has NO exit strategy for monetizing Trump's massive deficit. Because the bond market can no longer absorb this much Treasury issuance. A fact NO ONE wants to admit. Combined fiscal and monetary stimulus running at 10% of GDP. Yes, you read that right. On a scale unprecedented in U.S. history. Concerns for deficits and future generations no longer even a consideration, amid 5% borrowed "GDP". Unbelievable.

The Fed safety net was squandered to rig another election. Which will lead to the hardest economic landing in U.S. history.
And of course, all of that hyper-stimulus went straight into the veins of financial markets, causing the largest uninterrupted melt-up in 48 years. While the economy itself rolled over in the other direction. Setting up the largest gap between stocks and bonds in U.S. history.

On Tuesday I described the end-of-cycle Lehman type conditions that attend this longest expansion in U.S. history, with China as the locus of implosion. Yesterday I described the 1987 stimulus over-dose risk and unresolved liquidity collapse. Also yesterday, I explained that VixPlosion is right on schedule. So, it's only appropriate that this (non) impeachment week also features a Y2K blow-off top in progress.

While everything else is going RISK OFF due to the Coronavirus, a handful of the most over-owned and over-valued mega cap Tech stocks are going parabolic into the trillion dollar stratosphere. Giving the illusion of a strong market. The most recent being Amazon which reported earnings Thursday evening. A divergence that has expanded crash risk every day this week:

Which is why it's fitting that we learned this week that consumer confidence is the highest since twenty years ago, in Y2K.

By way of showing just how well this entire con job has worked.

All manipulated by *free* money:

Which gets us to smash crash 2015. As we recall, Hugh Hendry predicted tremendous opportunity in Chinese stocks due to their 25 year low GDP growth. Or to paraphrase his words, the Chinese government has unlimited ways of fueling imagined realities in Disney markets. Well it turns out that was not true. The Chinese markets soared and then crashed. At first U.S. gamblers believed they were "decoupled" from China risk. Therefore they continued speculating. Biotech in particular was on fire.

The last time we saw Amgen doing this was in August 2015.

Good times. 

Fast forward and China is once again crashing, amid 30 year low GDP growth and Chinese markets re-open to global pandemic on Monday.

"The United States, Japan and others tightened travel curbs to virus-hit China on Friday while businesses struggled with supply problems from an epidemic that has infected nearly 10,000 people and been declared a global emergency."

Position accordingly.

Thursday, January 30, 2020

Don't Worry. VIXPlosion 2.0 Is On Schedule.

The ignition trigger is primed. You can't be too bearish right now, unless you're getting your face ripped off in the S&P futures, covering shorts ahead of the final implosion. Because every fool knows that global pandemic is a buying opportunity...

Gamblers will say that "markets" gave no warning of risk ahead of the crash. What they will mean of course are the S&P futures. Most other markets gave ample warning ahead of time. Copper, oil, global trade, emerging markets, carry trades, bond yields, gold, are all screaming risk right now. This is all just an algo-driven delusion, waiting to explode. Most Wall Street idiots only follow the major averages which is why they don't see this coming. To them, stocks ARE the economy.

As we see below, on the left shoulder two years ago, the S&P peaked during the second to last week of January, just as it did last week.  Then during the FOMC week, it rocked back and forth, just as it's been doing all this week. Then on the Monday following the FOMC, it exploded. Which if the analog continues, would be this Monday. Coinciding with the day that Chinese markets come back online from the Lunar holiday:

Of course history rhymes, it does not repeat. This thermonuclear detonation will be substantially more lethal than the one two years ago. Due to all of the damage that has occurred in ancillary markets. In other words, the S&P and Dow are the last dominoes to fall.

Here we see banks are far weaker than they were two years ago:

Emerging Markets are much weaker than last time, testing the 200 day deja vu of last Spring:

Pandemic positioning is about right. If that's your thing...

$USDJPY (carry trade) camped at the 200 day:

Volatility is about right. On the Friday before VixPlosion 1.0, the VIX closed at 17, as I write it's at 16, so Friday is still a wild card. We're seeing a lot of short-covering after the WHO announcement. 

Once that ends, look out below...

Which means that the MAGA Kingdom is now massively leveraged to Tesla

Transports are a reminder of why I keep calling this a two year head and shoulders top. What happens to the global supply chain when countries decide to ban all travel to China? Transports will go bidless. After all, Trump is looking for a way to final implode China.

I am confident he will pull the trigger. Off hours. 

That will be the end of the MAGA Kingdom.

1987-Style Impeachment aka. "Sumamabitch!!!"

"Extreme greed and corruption denial kept the Faux News Super Idiocracy infotained while risks reached biblical proportions in the background. Not one of them saw it coming. Super lubricated by generational plunder and locked in human history's biggest circle jerk. In the end it wasn't only Trump who got impeached by record corruption"

The 1987 crash was caused by a combination of factors including the Reagan tax cut, excessive speculation, computer-driven selling, and low liquidity. All risks that are far greater today than what attended that era.

As I write, the Dow is clinging to the support shelf from December 2019, as a month of gains evaporated in four trading sessions. The casino is stair stepping lower in a cascading waterfall.

A review of risks:
Unprecedented fiscal and monetary stimulus (10% annualized)
Excessive speculation, deja vu of January 2018
Extreme complacency/moral hazard/Fed put
Breadth non-confirmation/Third wave down
Global deflation
Slowing U.S./global economy
Lack of policy safety net
Tech overweight
Global RISK OFF/Coronavirus
Declining stock buybacks/blackout window
Reduced liquidity

Most of these risks are self-explanatory, therefore I will focus on the ones that bear further elucidation.

It's this last risk factor - liquidity - that will likely be the most decisive in a crash scenario. Liquidity issues began last August after the raised debt ceiling led to severe liquidity withdrawal from Treasury's financing of Trump's mega deficit. The Fed stepped in to calm the overnight repo market by increasing their balance sheet, which accidentally created the most overbought condition since 1972:

“By this measure, US stocks haven’t seen this consistent of a rally since most of us have been alive”

The period is relevant as it tracks the period during which the Fed has resumed its balance sheet expansion"

Here we see the repo melt-up created an overthrow of the Dow's broadening top upper trend-line. This chart indicates multiple risks including the broadening top formation, melt-up overthrow, and of course elevated volatility. 

The elevated volatility is due to the fact that the average U.S. stock and global markets ex-U.S. never confirmed the Dow/S&P new highs. Under the surface this has been a global bear market for two years now:

Worse yet, the most recent central bank bailout which fueled the 2019 three wave counter-trend rally shown above did NOTHING for the underlying economy. Global deflation is returning with a vengeance:

Getting back to liquidity, today's speculators are of the belief that the Fed "fixed" the problem. However, professional traders are not so confident:

"A JPMorgan study from last year showed measures of market depth in U.S. stocks, Treasuries and currencies in August relative to the rest of the year fell below the average since 2010. It’s a sign that market players have diminished capacity to absorb shocks."

Put it all together and one would have to be a hardcore denialist to believe that this is not all culminating in a super crash. Which is where this impeachment spectacle fits in - by keeping the venal mob infotained while risks grow unchecked.

Wednesday, January 29, 2020

Nothing Matters, Until It Explodes. Spectacularly

All of the problems that have been successfully ignored until now, are coming to a climax...

The next few days should be very interesting as the post-FOMC short-covering rally unwinds, Coronavirus goes global, the reflation trade goes bidless, and the Y2K Tech bubble finally explodes. All at the same time...

Where to begin...

First off, technician Carter Worth on Fast Money recently predicted that Tech earnings this week would set-up a blowoff top for big cap Tech. Yesterday Apple beat expectations the stock hitting new highs today, and after the close today (Wednesday) Microsoft hit new highs in after hours. These two stocks now share a market cap larger than the German stock market (fourth largest economy in the world).

Also in Tech, the semiconductor bubble is popping as AMD and Xilinx both missed expectations on earnings. 

AMD was the top performing stock in the S&P 500 two years in a row:

Getting back to the FOMC, as is tradition recently, the reflation trade got pole axed after the meeting. Already weakened by the Coronavirus:

Energy stocks are bidless, as are commodities in general

Emerging markets back-tested the 50 day from the underside:

Small caps are rolling over hard:

Which is why the crash ratio reached a new extreme today:

I would be remiss if I didn't mention Tesla's earnings "beat" after the close today. The stock is at $650 after hours (not shown). The last time we saw this amount of asinine short-covering being October 2008:

As expected, the Fed held rates steady today and then made the point of saying they are not trying to boost stocks. Which means that they are boosting them by accident. Which apparently makes it Ok. 

As we see, the Fed is already under the microscope for sponsoring Trump's re-election bid. Which means that Powell can scarce afford to look like yet ANOTHER Trump stooge during an election year. 

Which means that there is no actual safety net beneath this casino, until it's limit down and exploding in every direction.

Position accordingly. Because every denialistic risk known to man is now coming home for a totally unforeseen hard landing.

Today we learned that the World Health Organization is on the verge of unleashing global panic:

“I strongly advocated on air for [WHO] to declare a global health emergency today,” Eric Feigl Ding, an epidemiologist and health economist at Harvard University’s Chan School of Public Health, said in a Twitter post on Monday.

“The facts are pretty clear this #coronoavirus #nCoV2019 epidemic is no longer localized to China and has higher pandemic risk than SARS.”

China's markets don't open until Monday, however Hong Kong was open today. 

Any questions?

MAGA Is A Hoax

The Trump vacation from reality will forever be known as a time when fraud and criminality ran rampant on a scale previously unimagined. To say that history will not be kind, is a ludicrous understatement. The GOP constantly using religion to propagate sheer evil...

Extending the longest expansion and bull market in U.S. history into another year, the burden of truth remains on us skeptics of Disney markets. The majority would prefer to trust a serial casino bankrupter over anyone who would dare question printing money to bid up stocks. 

Historians will say that central bank alchemy gave rise to magical thinking and Disney markets - a vacation from reality capped off with non-stop lying to make America great again. Exploded by the largest monetary and fiscal financial weapon of mass destruction ever devised. No one saw it coming. It was a biblical deception.

This blow-off top will forever be known as the impeachment rally. Because what could be more bullish than unprecedented criminality?

When this Roman circus explodes we will see criminality and fraud unveiled on a scale never before imagined in history. Trump has given free reign to licentious criminality on an epic scale. His own personal entourage riddled with ex-cons and aspiring ex-cons. Trump's collapsed morality and non-stop lying sets the tone for his entire party. Anything goes. 

Sadly, only a handful of Republicans have stood up to Trump's reign of corrupt tyranny. Perhaps the most improbable being Mitt Romney, the Mormon Senator from Utah and former presidential candidate (2012), now on a one-man campaign to restore dignity to the Roman Senate by demanding witnesses be allowed at the impeachment Kangaroo Court. Taking on his entire party and the Tyrant-in-Chief. The other one who stood up to Trump was another Republican nominee who ran against Obama (2008), John McCain, RIP, who alone stood up against Trump on his mission to kill Obamacare, just before he died. 

Unfortunately these meager exceptions prove the rule that there really are no good representatives remaining in the Republican Party. They are all now eager parties to human history's greatest fraud, the scale of which has yet to be fully revealed. A sad endgame for the U.S. conservative movement that ultimately squandered its principles betting on a known con man.

The MAGA bubble demonstrates mind control on a massive scale. Propagated by Faux News, shock jock radio, and social media. Lethal propaganda weaponized against their own voters. The useful Republican base, repeatedly conned by fraudulent appeals to patriotism. Never once questioning whose interests they were really serving.

Trump staked his campaign on the Obama birther hoax - the lie that Obama was a foreign-born Muslim. From that point forward, Trump cemented the undying loyalty of his alt-right base.

The Vietnam war schismed America in a way that has not healed to this day: Between those who went to war and those who opposed war. The divide has only grown over time, between those proud of America's imperial history and those ashamed by abuse of military power. Iraq and Afghanistan were sad attempts to regain lost glory not seen since the days of WWII. The country can no long afford exorbitant empire, and yet the jingoistic muscle memory of the glory days still remains fused to the GOP. Always the same con job - appeals to fake patriotism.

Here we see the U.S. deficit has grown in lockstep with the military budget. Rising during Republican tenure and falling during Democrat tenure. Inciting jingoistic pride is a formula, albeit a ludicrously expensive one.

Had the Democrats won in 2016, central bank Disney World would have likely imploded by now. Collapsed by global deflation. However, Trump took a big, fat, ugly bubble and made it biblical in magnitude. Powerful enough to wipe his entire party off the map.

Proving that everything happens for a reason.