Friday, April 17, 2020

Thou Shalt Not Bear False Witness

Trump will forever be known as the lying president. If it wasn't Trump it would have been the next Manchurian Candidate who could con stadiums full of dunces. Which is why his disciples are about to learn the true cost of false witness, in the biblical tradition...

Per my 2020 prediction, the anger level is rising by the minute as the populace is now caught between the pandemic onslaught and the economic shutdown implosion. It's only a matter of time before violating shutdown orders becomes a matter of "patriotic imperative" circa 1987 Running Man...

The ignition factor for rampage will arrive when the populace realizes these bailouts are a fraud. Once that idea takes hold on social media all hell will break loose. Even Jim Cramer is starting to get worried.

"Last week, the stock market caught fire even as historic job losses painted a grim economic reality — the stark disconnect was captured by this screenshot that blew up across social media"

Of course that was last week, this week the carnage continued and of course the market rally continued as well.

Here's the thing, forget about these stimulus gimmicks, they are totally meaningless. And forget about these sugar rallies based upon Fed dopium and Trump hopium that the economy is re-opening. The only thing that matters now is how many jobs are being lost or created. Already 23 million jobs have vanished, which is more than TWICE the number of jobs lost during the Great Recession 2008-2009. Yes, you read that right.

So the only thing that matters now is WHEN those job losses slow and begin to reverse. Here below we can see via quarterly payrolls that this is a leading indicator for the end of recession.

This graph only shows data through the middle of March so it doesn't capture the MASSIVE job losses from the last four weeks. When it's updated with NFP for April, the new line will be well below the nadir from 2009:

Of course as the above Jim Cramer article about seething rage elucidates, today's gamblers have been conditioned to believe that bad news is good news for the stock market. Which is why they've been buying this rally with both hands. They believe that the Fed is going to pump ever more money into "stocks".

Unfortunately, that is a bad assumption:

"The U.S. central bank, which has been aggressively purchasing Treasuries in a bid to offset the economic and market fallout from the coronavirus pandemic, on Friday said that it would buy securities at a pace of about $15 billion a day April 20-24. It bought around $30 billion a day this week following several earlier reductions."

"The current round of Treasury purchase operations began March 13 and peaked in size at $75 billion per day from March 19 to April 1."

In other words, peak dopium has collapsed from $75 billion per day down to $15 billion, which reminded me of October 2008 because that is when the Fed applied maximum dopium in that era. 

The theory goes that the market is melting down, so the Fed uses its balance sheet to slow the descent. However once they take their foot off the accelerator, the REAL decline begins:

This is 2008:

This is now:

I call this chart "Sugar rally":

Nowhere is the fairy tale of v-shaped recovery more in denial than in the oil market.

The only reason crude oil hasn't hit $0 already is because crude arbitrageurs are storing RECORD amounts of oil in supertankers:

"The last time floating storage reached levels close to this was in 2009, when traders stored over 100 million barrels at sea before offloading stocks."

What happens when the amount of available tanker capacity runs out? Then, the spot market for crude will collapse to $0. Which will lead to MASSIVE losses for futures speculators. Currently, the crude market is in steep contango (futures > spot) because speculators are betting on a v-shaped recovery. However, when the spot market collapses and the futures follow suit, then literally an OCEAN of crude will be dumped back onto the spot market, as the ocean-borne floating arbitrage becomes unprofitable. No one will be willing/able to further finance the v-shaped fantasy. 

This article does a very good job of explaining why central bank money printing is not currently inflationary. In a nutshell, because the velocity of money has collapsed due to the shutdown. This is the most deflationary event in human history without any comparison. And the unprecedented amount of money being printed has no means for circulating throughout the real economy. On the other side of shutdown - whenever that is - consumers and corporations will emerge with far greater debt, which is also deflationary. He somehow still recommends gold. I do not. Yet. I also don't recommend long-term Treasuries given the volatility. 

"Unfortunately, as the world recovers, economies will emerge significantly more indebted, and thus, the velocity of money is not only likely to fall, but rather accelerate to the downside."

Treasury reflation expectations continue to track oil prices 1:1, which does not bode well for the future, relative to the 2008 v-shaped recovery hypothesis:

This will forever be known as the era of the hardcore sociopath, capped off for emphasis with the Criminal-in-Chief. Human history's biggest bagload of liars are now trapped. So what to do? Lie constantly, what else. Those sheeple who are now fully addicted to exceptional bullshit are their willing victims.

Useful carbon, in the Banana Republican tradition.