Sunday, March 15, 2020

The Minsky Moment

The true cost of being trapped in a circle jerk of like-minded morons is now about to be revealed. Sadly, in an Idiocracy, there is no strength in numbers...

By interfering in markets all the way down Central banks have been exacerbating this selloff. They have banished hedging, annihilated short sellers, and sponsored complacency. Fed sugar rallies do far more harm than good. More pablum for babies who can't accept the inconvenient truth...

The end result will be a no bid market.

Today's pundits continue to extrapolate ten years of insanity into the indefinite future. Still basing their predictions on the underlying belief in printed money. And therefore still buying the dip. Notwithstanding Friday's epic last minute short-covering rally, overall central bank efforts to date have been an abysmal failure. As we were in a one-way market up for ten years straight, now we are in a one-way market down. Those who don't respect and understand the new trend will be wiped out. We are now seeing extreme deflation of all asset values. What we are also witnessing in real-time is the flaccid impact of QE relative to the tsunami of selling. Liquidity programs that are still only a drop in the bucket compared to the overall value of global markets. Central banks are the Dutch boy with his finger in the dike. 

The Fed is now officially panicking and in doing so they are making things far worse. Over the past two trading days, they injected RECORD liquidity into U.S. markets. And so far all they got to show for it was a manipulated bounce in the S&P futures. Just one of many massive bounces we've seen over the past two weeks - all of which ended lower. The Fed is going ALL IN before the market has a chance to find bottom. A lethal experiment in attempting to prop up asset bubbles in the middle of explosion. 

By not allowing capitulation, they have allowed this stair-step lower to continue. They have funded the BTFD mentality all the way down. They have given it false hope. Today's "capitalists" no longer believe in markets, they only believe in non-stop bailouts. 

Worse yet, the Fed's market manipulation efforts via the S&P futures have continued to see more money rotate to mega cap Tech stocks and out of the rest of the market. While the average stock gets massacred, the largest stocks keep receiving an artificial bid due to index alchemy pushing more and more inflows to the largest cap stocks. What is happening at the index level in no way conveys the total devastation to the average stock. 

The average U.S. stock has given up seven years of gains in two weeks:

Here we see on the hourly chart, with each Fed sugar rally, the Crash Ratio keeps reaching new extremes. With each fake rally, more and more stocks are left behind while a handful of mega caps become more overbought. The market is not being allowed to clear. 

Due to these end of day robo-rallies, MOST of the selling has been overnight, leaving U.S. gamblers buying the dip lower and lower while algos sell the futures limit down in the off hours.

These pundits who keep recommending buying the dip have now trapped gamblers in a non-functioning and wholly illiquid market. Which has become less liquid and more volatile with each stair step lower. All on the premise that central banks are coming to the rescue.

The perceived safe havens are now the least safe stocks

Does this look like low volatility?

Until our clusterfucked leaders come to the realization that they brought a water pistol to a raging inferno, deflation will get inexorably far worse. Asset values will continue to collapse.

Outside of cash and cash equivalents (short-term t-bills), there are no safe havens.

All of the so-called safe havens got monkey hammered this past week. Even Treasury bonds.

What we notice from the super crash ratio (below) is that breadth actually bottomed BEFORE the market in 2009. A turn of events we have yet to witness. Which means that the average stock actually began to outperform the mega cap safe havens prior to the market finding bottom. 

In fact, the bottoming of the crash ratio marked the acceleration point of the decline (October 2008) as the last safe havens finally got sold en masse. Something we can expect in the days to come. Between trading halts.

We saw three trading halts in the past week - two down, one up. Equal to all of the trading halts in prior U.S. history. A widely ignored wake up call to stoned zombies.

Those who are buying the dip right now are merely buying the most overvalued stocks in the market. The ones that have yet to see any major selling. And the only ones that have kept this gong show from final exploding. 

What the BTFD team have done is to bring buyers into the market to enjoy maximum downside acceleration and ZERO liquidity. 

If all you looked at was the major indices, which is what most of today's pundits focus on, one would have no idea the extent of bear market damage that has already occurred.

For those looking to "pick a bottom", be very careful. In an extreme deflationary environment, cash gains value relative to ALL other asset classes every single day.

You can be sitting in cash knowing that your purchasing power is rising by the minute. Soon you will be able to buy a near-new Mercedes for a massive discount. 

In summary, the music is over. 

This past week was the Minsky Moment.