Sunday, August 16, 2020

The Big, Fat, Moron Bubble

Never before have so many been conned by a well known con man. Trump's big, fat, ugly bubble is by far the biggest bubble in human history without any comparison...

‘Never before have I seen a market so highly valued in the face of overwhelming uncertainty’

The GMO investor said that only the Great Financial Crisis of 2008-09 represents a parallel to the so-called V-shaped, fast and potent, bounce higher that we have observed in the market."

I suggest that is not actually true. The only "V-shaped recovery" was in Tech stocks

Here we see banks are three wave corrective at multiple degrees of trend:

Put it this way, there is so much uncertainty, we don't even have a clue how overvalued the market is right now. Currently, Wall Street analysts are tripping over themselves to raise price and earnings estimates in a vacuum of suspended forward earnings guidance and economic information.

For those who don't understand Ponzinomics, here is how it works, however don't be surprised if you still don't understand it, because you would need a PhD in economics in order to comprehend something this stupid.

When the economy is fully imploding as it was in early March, investors panic sell risk assets causing massive financial and economic dislocation. As the selloff progresses, it becomes incumbent upon central banks to buy up Treasury bonds in the secondary market in order to provide surplus market liquidity. That bond buying forces the sellers of said T-bonds to ripple further out onto the risk curve into municipal bonds, junk bonds, dividend stocks, S&P futures and eventually high flying junk stocks. The goal of the central bank is to reverse the capital flows out of markets and push capital back INTO markets. All while the economy implodes in real-time.

Here we see that the gambit worked fantastic:

Full Retard asset managers who sold at the bottom are now fully back to locked and loaded at the top again. Don't let anyone tell you that fund flows don't matter - they do. When everyone is hitting the bid or heading for the exits at the same time, that moves markets. To extremes. 

Let's step back to the economy for a moment. We now know that the vaccine won't work on fat people which is about 80% of the U.S., ballpark estimate. Throw in the anti-vaxxers who are 1/3rd of the country, i.e. every Faux News viewer. Throw in young people who won't get vaccinated, don't respond to polls, and don't believe in forced celibacy. Which means I (unscientifically) estimate that only a small subset of the population will be vaccinated and/or immune one year from now. Which means the forced economic lockdown will continue. 

In addition, summertime is peak economic activity in the travel and leisure parts of the economy. Bars and restaurants have the use of outdoor patios to further distance their customer load. However now we are going back into the dark months amid a virus spike and sans a viable vaccine. You don't have to be a genius to figure out that this economic implosion is going to continue for at least another year. 

Meanwhile, policy-makers are still FAR behind the curve on providing adequate fiscal stimulus to keep the economy afloat. And even if they eventually do, under the current lockdown regime what part of the small business service economy exists one year from now, is unthinkable. 

All of which is highly deflationary, and explains the chasmic divergence between stocks and bonds.

One of these is not like the others:

There are far too many economic divergences to list, think Energy stocks, airlines, banks (shown above), hotels, restaurants, mall retail etc. 

However, one of the largest divergences between economic and financial reality has opened up in the housing market:

Here we see collapsed housing starts and parabolic homebuilder stocks. Which used to be highly correlated:

Here is the short-term view of homebuilders.

Any questions?