Monday, June 15, 2020

You Can Lead A Horse To Water

I've been remiss in my (lack of) commentary on today's aspirational Idiocracy. Unfortunately, one grows bored of finding new ways to explain how and why ludicrously misallocated capital and delusion are ending badly...

The second stage of epic meltdown has commenced, as the chasmic divergence between intelligence and stupidity has never been wider.

Any questions?

Last week, post-FOMC witnessed the reversal of fortune we had been anticipating. Thursday was a 90% down day, attended by extreme volatility carrying over into Friday and now Monday. The algos are going berserk, featuring alternating jaw dropping rallies and crashes. The S&P finally found support at the 200 day this morning (Monday). We can see the big open gap from last week deja vu of the February top. We can also see that when the 200 day fails, the 50 day will fail at the same time. It's a two for one explosion:

Stepping back to the economy, the lagged economic data is surprising to the upside as it wobbles back from depressionary levels. My overall thesis remains the same - the combined effects of social distancing, lingering COVID fear, disorganized re-opening clusterfuck, and general anxiety have combined to collapse overall capacity utilization. None of which will get remedied any time soon. As COVID deaths begin to rise in lockstep with economic liberation, the calls to shutdown the economy will return. This aged corporate Idiocracy is caught between the Scylla and Charybdis of health and wealth. 

As a gauge of overall demand, here we see that gasoline demand at the service station level is still -20% year over year. The largest decline in our lifetimes. 

The insanity of the past several weeks somehow survived last week's turmoil and arrived this week fully unscathed. Seizing upon the home gamer zeal for bankrupt stocks, it was only a matter of minutes before Wall Street jumped on the opportunity to dump more worthless stock.

These are the types of headlines that make blogging somewhat redundant:

"Hertz Global Holdings warned potential buyers in its common stock offering that it’s almost certain that the equity will become worthless"

Remember, this has been the most popular stock on Robinhood for the past week (Hertz split off from its parent company in 2016):

The other breaking news this week is that the same home gamers who are chasing bankrupt companies are vastly outperforming active managers so far this year. Which brings to mind the Y2K bubble,when the lament among active managers was: the dumber the money, the bigger the return. 

As I recall, that didn't work out so well.

You can read the article, but I will tell you what they are buying - junk stocks, bankrupt companies, and crowded MAGA caps.

All of which makes this just another massive pump and dump.

In summary, we are getting buried with non-stop bullshit. First off because this is an election year, but also because we are surrounded by sociopathic salesmen desperate to make the quarter. A feat that is growing more difficult with every passing day. Under the calm surface of the Dow Jones Illusional Average, lies the ugly truth: The economy has been imploded and QE money printing can only drive a larger chasmic gap between reality and fantasy.

And between rich and poor.

“The downturn has not fallen equally on all Americans, and those least able to shoulder the burden have been the most affected,” Federal Reserve chair Jerome Powell said this week."

Ironically, the Fed itself has massively increased the divergence between rich and poor by way of their Japanified monetary asset pumping:

"Black and Hispanic families accumulate proportionately less in real estate, stocks, business assets and other forms of wealth than white families."

However, contrary to the disinformers of the day, the Fed didn't create economic inequality in the first instance. Decades of free trade and mass outsourcing created extreme inequality. When all of that exploded in 2008, the Fed was enlisted to paper over obvious failure with printed money. A process that has now gone into asinine overdrive.

In the near future EVERYONE will know what we know.

And they will be a hell of a lot poorer for it.