Sunday, May 10, 2020

Fear of Missing Crash 2.0. Panic Edition.

Back prior to the last election Trump predicted that the casino would explode due to excessive monetary lubrication. I usually hate when he's right, however, what remains of Trumptopia is rigged to explode. Having round tripped back to terminal delusion, the next stop for social mood is panic...

Most people don't believe that social mood drives markets, which is why it works. These people are too busy predicting the future to realize they got caught up in a dumbfuck mania in the here and now.

The zombies have had plenty of warning and yet TWICE they believed that the Corona pandemonium was a buying opportunity. Something about being a mindless social media Borg is interfering with their thought process. Needless to say they are well lubricated for what comes next. Of course I said the same thing in February and yet they came back for even more punishment. 

No question, central banks and momentum algos have in many ways supplanted the human footprint in markets. Fear and greed have been replaced by money printing and volatility compression, in order to ensure that nothing approaching reality sets foot in Trump Casino ever again. Nevertheless, outside of the passive mega indexes, the footprint of social mood is clearly visible:

Here we see the Global Dow which peaked over two years ago (January 2018) and is three wave corrective at ALL degrees of trend:

The average U.S. stock peaked in October 2018 and as we see, the 2019 rally exhibits the same three wave corrective form, albeit much flatter:

I can't really say why speculators were so exuberant at the top in February. All I know is that we are seeing the exact same FOMC (Fear of Missing Crash) now.

Greed is truly blindness:

Re: February 21st, 2020:

"You would think that the coronavirus concerns gripping China (and the world) would cause massive panic and fear in stock prices. And it sure felt like they were... for a moment at least. But it didn't last long."

This, my friend, is the Melt Up."

Indeed. The market peaked two days BEFORE this article was written (Feb. 19th). The U.S. stock melt-up arrived right before the most violent crash in U.S. history. 

Where it gets interesting - and I pointed this out in February - is that Chinese speculative Tech stocks were leading the global rally at that time. I "speculated" that Chinese gamblers were trapped at home bidding up their own portfolios:

Here we see the ChiNext (Chinese Nasdaq), wave 'c' was the Corona top, February 25th, which was a few days AFTER the S&P peaked. 

Where this gets interesting is that during the April rally, U.S. gamblers were trapped at home bidding up their own portfolios, just as the Chinese were doing in February. 

Whereas the February melt-up was lubricated by the PBOC, this latest melt-up was lubricated by the Fed. In other words TWO central bank sponsored Corona melt-ups in a row.

And yet despite the exact same circumstances a mere two months apart, every pundit today is still wondering what comes next. 

I think we have an idea. 

What these combined melt-ups have accomplished is to concentrate ALL market risk into a handful of massively overowned and overvalued stocks while leaving the majority of the market essentially bidless - outside of short-covering.

What was already a huge risk in January and February, just became an even bigger risk during the ensuing retracement rally, as everyone "hid" in the same COVID-safe virtual economy stocks.

On April 26th, Goldman warned about this increasing concentration. Which incidentally was the Monday prior to the FOMC meeting (29th), which also incidentally was the S&P top so far in this retracement rally.

"The five largest companies make up 20% of the gauge’s market capitalization, exceeding the 18% level the measure reached in March 2000"

If we look at the Tech ratio relative to Banks, this is what we see:

In summary, central banks have coordinated their efforts to create a Tech super bubble at the beginning of a new depression. Greed-addled gamblers have taken the exact same bait TWICE in two months.

And when this Virtual Economy super bubble explodes, not only will it explode the mass complacency bubble, but it will explode Trump Casino as well.

Exactly as Trump predicted it would in 2016 - due to excessive monetary lubrication: