Thursday, January 30, 2020

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.