Monday, August 31, 2020

The Biggest Fool's Rally Since The Great Depression

Ponzified gamblers just bought the largest wealth gap in U.S. history, with both hands. The Casino Class always assumes that everyone else will go under the bus to make them wealthy. Now they ARE everyone else...

The month of August began with millions of unemployed workers seeing their monthly incomes crash as the Federal stimulus stipend ($600/week) ran out. An event which sparked the best August rally in 36 years (1984), and the best 5 month stretch in 82 years (1938).

"This is the best rally in 82 years"
"It's just getting started"

Most people are apparently unaware that there were ten bull markets(+20%) and ten bear markets (-20%) during the 1930s. We can expect the same thing now - hyper-volatility. Central banks are no longer in control, they have the illusion of control. The broken stock market is now a mirror image of the broken economy - massively ignored disparities between the haves and have nots with respect to economic sectors. 

The equal weight S&P 500 has gone nowhere for almost three months, since the June 10th FOMC meeting. Notice below that this index has been stalled at the open down gap from the February crash. That STILL OPEN down gap was Monday February 24th, so let's take a trip down memory lane:

February 24th, 2020:

That tweet was at the beginning of a -35% decline (sideways green arrow):

Of course things have gotten far riskier and far more ludicrous on the rebound.

Within the mega Tech bubble, Apple and Tesla have become super bubbles within a Tech bubble:

Today BOTH Apple and Tesla stocks split, and to celebrate both rallied massively. While the broader market rolled over.

Tesla traded 2 x Apple in dollar volume, and 10 x Microsoft in dollar volume, despite the fact that Microsoft is 3x larger in market cap.

Tesla is no longer a bubble, it's a runaway super bubble that will take down the entire market.

This stock has been manipulated higher by options speculators, creating a momentum vortex as options sellers and short sellers get squeezed mercilessly.

See: Massive Call Option Volume Driving Tesla Higher

This $400+ billion market cap stock is not profitable from operations. Only by selling their excess electric vehicle credits to other car makers do they achieve "profitability". It's the largest unprofitable company in human history.

"This puts the S&P committee in charge of adding names to the 500 in a real bind, because while to the letter of their 'law' Tesla qualifies for inclusion this is purely due to regulatory arbitrage," Colas said, adding that "even a modest downturn in demand" could push Tesla "into the red again."

Zooming out to the broader Tech bubble, here we see that the Nasdaq has been record overbought since that key FOMC meeting in June. Why was that meeting key? Because as we see in the equal weight chart above that is when the broader market imploded lower and that is when Tech exploded higher.

Increasing DEFLATION was the fulcrum for a three month melt-up in the "work-from-home" gambling bubble:

Now, let's overlay Treasury bond yields onto the equal weight chart to understand why June was significant. 

Here we see that fake reflation peaked at that pivotal June meeting, AND it also lower peaked last week at Jackson Hole:

Etc. etc.

I put this chart on Twitter earlier this afternoon. It shows the volatility futures having the highest correlation to the S&P 500 since VixPlosion 1.0 (2018).

As I said on the weekend, what I expect is a mega clusterfuck, not a minor one. Not to say that trading will be impossible but at times may be difficult depending on one's broker. Gamble at your own risk.

Central banks have lost control over this Frankenmonster bubble so the impending declines and rallies will be massive.

By the end of the roller coaster ride the public will have lost all confidence in Wall Street, central banks, and Disney markets.

What happens to Trump's approval rating will depend on the degree of rioting and whether or not the masses enjoy watching Running Man on TV. So far they seem to be loving it.

Here we see that what used to be the ceiling for volatility is now the floor.  

Here is the chart I didn't show, yet.

The S&P 500 is the most overbought since VixPlosion as well. All of which is an indication that reach for risk is the same now at the end of the Big Top as it was at the beginning two years ago:

In summary, contrary to UBIQUITOUS belief, deflation has already won the battle. The only inflation is in Ponzified brokerage accounts.

A middle class bailout is coming eventually, however, there will be major dislocation between now and then.

This event is going to get EVERYONE on the same page regarding America's exceptional inequality problem.

And the fact that color of one's skin has nothing to do with it.