Tuesday, September 15, 2020

The Last Trump Casino

When the Nasdaq crashed at the fastest rate in history in February, FOMO gamblers viewed it as their last chance to get in to Trump Casino, unfortunately, it was their last chance to get out ahead of margin calls, limit down futures, and trading halts. When the Nasdaq crashed at an even faster rate two weeks ago, gamblers yet again viewed it as their last chance to get in to Trump Casino. Is it just me or is someone not learning their lesson around here?

This Tesla bubble is one for the ages. We've never seen a mega cap stock that commands this much dollar volume and is this volatile. When it final implodes it will lead the rest of the market lower. 2020 brought a confluence of factors that all worked in Tesla's favor. Under the law of unintended buffoonish consequences, Trump's abject climate change denial sparked a grassroots movement towards fossil fuel divestment that has accelerated all year long, amid various public pension funds and university endowments.

It's the death knell for an industry that was already reeling from over-investment, global competition, and of course COVID. This year, Exxon was booted from the Dow after almost 100 years. And now due to years of reckless mismanagement, it's facing an existential debt crisis, having to actually borrow money to pay its dividend. It's an asinine strategy that will soon see this stock in single digits. 

Meanwhile, Tesla and the entire ESG sector (Environmental, Social, Governance) has been leading the Tech bubble rally.

And the retracement, as they did in February/March:

All of the speculative charts I am looking at now sport the same three wave corrective form that we saw in February right before the real crash.

Where it gets interesting - and what I posted on Twitter - is that the Fed held an emergency meeting back on Tuesday March 3rd. Which marked the end of the counter-trend rally.

At this parlous juncture we are still seeing an epic reach for risk and absolutely no risk management or hedging:

“Rather than fear being priced in the options market, there’s fear of missing out. The price of out of the money calls, as was the case throughout August, is still trading at a premium to the price of out of the money puts...That is a very abnormal position.”

“That tells us that the public is still very committed — as are the large institutional investors,”

Of course we saw a very similar pullback in volatility in February ahead of the Fed's emergency meeting:

And we saw monetization of hedges due to FOMC: Fear of Missing Crash:

Of course this RISK ON greedfest dwarfs the one from February - truly a global end-of-cycle 1929 rally.

Into this lethal set-up, Wall Street will now dump year-high IPOs with the largest one coming tomorrow:

What could go wrong?