Saturday, January 18, 2020

Buy And Hold System Meltdown

You can't be too bearish right now. Aside from riding out a 1,000 year storm in Donald Trump's last casino, there is no solid argument in favour of mass insanity. It appears that in 2016 (too) many people voted for a super cycle con job, and that's what they got. Trump was elected specifically for his unmatched ability to lie on a magnitude unprecedented in U.S. history. The FULL cost of non-stop lying is about to land straight onto the heads of those who place 100% belief in non-stop lying...

The data mining techniques used by today's market denialists happen to be the exact same ones used by climate denialists: Go back in history and extrapolate the long-term trend into the indefinite future. On a long enough timeline all untoward "events" appear as mere bumps in the road. What these people are all about to find out is that THEY are the Terminal Idiocracy. This is not an "event", this is THE event - the end of the consumption way of life...

Many are now comparing this melt-up to the January 2018 melt-up into VIXPlosion 1.0. Here is a point by point comparison:

U.S. and Global Economy: Far weaker today than two years ago
Per share earnings: Peaked 3rd quarter 2018
Stock buybacks: Peaked 4th quarter 2018
Overvaluation: Highest in U.S. history
Fiscal and monetary safety net: Depleted
Index bubble/Mega cap overweight: Unprecedented
Safe havens (Recession stocks): Overbought
Breadth: Peaked October 2018
Speculative positioning: More extreme than January 2018
Complacency/risk exposure: Extreme
RSI/Overbought: Highest since Y2K (see below)

All of these combined mega risks and of course the attendant delusion and complacency have now put "the system" at risk. When the masses at large realize that their own retirement is entirely a fiction sold down the river by corporate insiders, the level of rage will be unfathomable.

What today's gamblers are betting on is yet another bailout at middle class expense. This belief that no matter how bad things get for the average family, the casino class will come out intact. Which is why they totally ignore the economy. As Hugh Hendry said

"The worse the reality of the economy becomes, the more we take on the reflexive belief in further dramatic monetary expansion, and the more (speciously) attractive the stock market appears."

"The problem front and center is how investors are looking past the continuous earnings rout"

The stock market and the economy are also telling two different stories"

The U.S. manufacturing sector has been contracting since August"

"While megacap tech giants lift the market higher, more economically sensitive pockets of the market continue to fall behind"

Meanwhile, a century-old classic tool known as Dow Theory has yet to confirm the rally is for real"

The Fed has put everyone into a coma, including themselves:

“The primary driving force behind the advance is increased liquidity/money flows — massive injections of funds into their systems by central banks”

“Whether one wants to call it QE or not, we believe this excess liquidity has suppressed volatility to extremely low levels

The Fed has artificially compressed volatility and yield spreads, so now they tell everyone not to worry because risk is suppressed. Holy fuck, you can't get any dumber than these people.

I am not giving specific investment advice, however anything outside of "cash" is potentially at risk. As always, I am long volatility (options). For now. 

Deflation will be extreme.

Political discord will be even more extreme.

Central banks won't be able to stop the global asset crash. That realization will lead to further panic.

Weak banks are at risk. 

Weak currencies are at risk.

Weak nations are at risk.

"Cash" is a relative term in the digital age. Fractional reserve lending has put bank deposits at risk. As we learned in 2008, even money markets were at risk. Specifically corporate money market funds. Treasury bills and those instruments bought by central banks will likely be the safest. Safe being a relative term.  

Again, merely my opinion.

Gold net specs are close to record high right now. It's become a consensus trade on Wall Street. Gold had a MASSIVE key reversal on the weekly chart last week. 

The 2008 analog would see gold falling along with everything else but then recovering first.

I'm not saying how far it could fall first. I have no idea.

Here we see via the Australian stock market and Aussie dollar the extent of delusion right now. Global macro is at decade lows while stocks hit new all time highs (local currency):

Beneath the mega index bubble distorted by a handful of historically overowned Tech stocks, the average stock tells the true story. The bull market ended over a year ago. 

What comes next will be a popped Tech bubble and third wave panic attack in everything else.

The average U.S. stock above is in synch with the rest of the world (dollar basis):

In summary, home gamers have bet their retirement on a Tech bubble. And an imaginary bailout when it explodes.

You heard it here first. And last. Because in the age of Trump telling the truth is a relic of the past. 

NOTE: Tech RSI (top pane) is the most overbought since Y2K. 

Position accordingly: