Monday, January 13, 2020

Fools And Their Money. Are Soon Parted.

What we are witnessing in real-time is the end of globalized capitalism. A supernova of over-valuation driven by recession, in accordance with the rules of modern financial alchemy, as taught at America's "best" business schools...

Archaeologists will be studying this era for centuries - how the average IQ collapsed down to the level of a dead gopher. And then, how today's "best and brightest" got conned by a known con man. I'll give the historians a hint, it's called misallocation of capital due to the poverty arising from 2008 and the attendant RECORD low interest rates. The fate that met labour in 2008 now awaits capital. Nothing lies more than misallocated capital:

"What a fool believes, he sees
No wise man has the power
To reason away
What seems to be 
Is always better than nothing"

Of the three bubbles, this is by far the most obvious one. Why? Because it has key risk indicators from BOTH of the prior two bubbles - Massive Tech overweight deja vu of Y2K, and credit bubble due to low interest rates deja vu of 2008. In addition, this bubble has currency risk circa 1997. The 1998 collapse of mega hedge fund LTCM (Long-term Management Capital) was caused by the Asian currency crisis. The book that chronicled that event was called "When Genius Failed". Because the fund was run by a group of PhD Nobel Prize retards. The same type of people who are ignoring risk RIGHT NOW.

There are multiple reasons why today's artificially intelligent pundits are willing to ignore risk right now. First off, they've been conditioned over the past decade to believe that central bank money printing is the secret to effortless wealth. In addition, from a Finance 101 perspective, analysts have been raising their price projections as interest rates fall, in accordance with the discounted cash flow (DCF) model. This fantasy model straight from Disney Wharton, conveniently ignores WHY interest rates are falling. Therefore going into recession, this model predicts rising valuations straight into the end of the cycle. And then collapse in price as Wall Street's extrapolated forward earnings estimates fall off a cliff.

Speaking of which, here we stand at record price and (over)valuation, even as both CEOs and CFOs warn en masse that a downturn is coming THIS YEAR:

Imagine going down in history knowing that the CFOs warned, the CEOs warned, but true believers instead chose to trust a proven con man on Twitter. Donny is also from Wharton Business School by the way, where apparently they hand out degrees at the bottom of a Cracker Jack box.

In summary, 2018 priced in Trump's tax cut and ended the year down -20%. 

In 2019, the Fed stepped in to bailout Trump and his trade war, cutting rates three times and expanding their balance sheet at the fastest pace since 2009. The Fed called it the "Mid-cycle" adjustment, at the end of the longest expansion in U.S. history.

All of which has led to the highest valuations of the cycle at a time when corporate insiders are bailing out at decade pace while warning it's the end of the cycle. 

Now, the bailout is priced in.

Which means 2020 will be downturn sans bailout. 

"Genius" sans intelligence.

When the sheeple finally realize that our leaders are the biggest dunces of all, the underwear will be fully stained. And the rioting will begin post haste.