Slowly At First. Then Sumamabitch!!!

Picture the March market meltdown, but this time with the economy pre-imploded, no fiscal stimulus, and no Tech stock "safe havens". Because that's what's coming...

The best case scenario for today's capitalist stimulus whores, post election, is three months of lame duck inaction deja vu of 2000 and 2008. The worst case scenario is civil war.

As always, the burden of proof is on us skeptics of denial. 

History will say that after 2008 the world went full Japanification - the overuse and abuse of monetary policy to offset extreme economic deflation, in the absence of real economic growth. The increasing use of debt to paper over the deflationary impacts of too much debt. Because who wouldn't believe we could borrow our way out of a debt crisis? It was all running out of gas four years ago in 2016 when Trump did what every Ponzi economist had been recommending for a long time - he jacked up the fiscal stimulus to level '11'. Reflation soared for a while in 2017, but then the sugar high wore off and was replaced by the higher interest rates Trump himself had predicted, but before he became president. Net of the one time tax repatriation gimmick in 2018, Trump's tax cut had a negative economic multiplier due to the higher interest rates. In the fourth quarter of 2018 the economy lapsed back into deflation and the market crashed. Then the Fed pivoted in early 2019 back to easing mode. Once again, reflation expectations soared and then crashed towards the end of the year. Since 2008, with each iteration of stimulus driven "reflation", the Tech bubble grew in magnitude as the real economy disintegrated. Each rotation saw a larger migration of market cap towards the "virtual economy". For a few of us realists this term "virtual economy" is merely a clever play on words. For most people today, it's the core of their portfolios.

Then of course COVID came along and accelerated all of the trends that had been growing since 2008. After the March COVID crash, the virtual economy trade sky-rocketed. For a while, the reflation trade played catch-up but then it imploded in June when the stimulus ran dry. At that point the virtual economy trade went into melt-up mode into September. Then it crashed. Shorts moved in for the kill as Nasdaq futures short interest sky-rocketed. Then the blue wave fantasy took hold and the fake reflation trade was revived one last time. Every day for almost a month Pelosi and Mnuchin told us a stimulus deal was imminent. It was never going to happen. The work from home trade made one last blow-off peak in mid-October amid record call option speculation.

All of which means that central bank managed social mood is finally rolling over hard in front of the election.

The worst possible time for King Donny:

Bears got rinsed at the bottom in September, and bulls got rinsed at the top in October:

All of the above points to the fact that after over a decade of rotation, the virtual economy and the real economy trades are finally on the exact same footing: Bidless.

Visa has been a key beneficiary of the COVID cashless virtual economy. And yet that stock exploded back down to March levels this week, due to its exposure to the travel sector:

This past week, stocks had their worst week since March, as ALL of the MAGA Tech stocks reported earnings. Despite exceeding Wall Street's massaged "expectations", they all tanked, except Google which gapped up to the highs of the day and sold off all day on massive volume.

We have now seen peak Tech:

As far as the continuing stimulus impasse now several months old, Nouriel Roubini does a great job summarizing all of the dirty tricks Republicans will employ next week to subvert democracy. None of which will be "market friendly". Unlike Al Gore in 2000, we can be assured that Trump will not graciously concede for the good of the nation. He will fight on tooth and nail until he is either in the White House or jail.

As far as the pandemic goes, we are now entering the parabolic phase of the virus. Cases are expected to peak in November and the death rate will peak in December:

"The top five records in daily cases have all been reported within the last eight days, according to Hopkins data"

In summary, we are entering a period that will feature extreme political dysfunction/stimulus impasse, record pandemic impact, and an exploding Tech bubble. All while the economy implodes without stimulus.

Right now, there is no bullish case. There is only record amounts of bullshit. Hanging by a thread of well-cultivated delusion. 

Buckle up.

Soon everyone who didn't see this coming is going to be pissed off. Meaning everyone we know.

Gambling Through Civil War

Having been burned by being too cautious in 2016, gamblers are front-running civil war to buy stocks...

What could go wrong?

The three largest power shifts during the past twenty years took place in 2000, 2008, and of course 2016. We all know what happened in 2016. Circus Donny got elected with assistance from the Russians (No collusion ;-), the FBI, Facebook, voter suppression, gerrymandering, Faux News, and human history's biggest Idiocracy. 

Good times. 

Now let's war game the major scenarios for this election. First off, unlike past elections, we can presume that all of the gridlock scenarios shown above will be viewed as highly deflationary, as they will reduce the likelihood of massive fiscal stimulus. In that case, reflation expectations will implode, as will the RECORD Treasury shorts betting on reflation. With bond yields collapsing, the $USDJPY carry trade will go RISK OFF globally. At that point four years of MAGA will turn back into a pumpkin.

Four years of deflationary supply side criminality for the rich. At a cost of $6 trillion combined monetary and fiscal profligacy in 2020 alone. 

Will explode. 

Next, let's consider the contested election scenario with Trump winning. For that we need look no further than the year 2000 when George W. Bush stole the election from Al Gore. Gore won the popular vote, but the entire election came down to a handful of contested votes in Florida. By sheer coincidence, GWB's brother was the governor of Florida at the time. No collusion! 

Before we get to the casino, imagine the world today if Gore had won that election instead of Bush: no Iraq blunder, no Middle East implosion, no de-regulated Wall Street, no tax cut for the rich, no mass outsourcing to China, no global financial crisis, and a green revolution to repair climate change. 

If this (below) hadn't happened, Trump would have been avoided as well:

Where it gets more interesting, is that the Y2K contested election also came during an imploding Tech bubble. If Trump wins next week we can be assured that deja vu of 2000, it will come down to a handful of contested votes and a re-count process that drags on for days if not weeks. 

Here we see the Y2K chart:

Stocks fell almost 25% after the election, making their lows in March of 2001:

Lastly, let's consider what is actually fully priced into markets, which is the blue wave scenario. It just so happens that 2008 was a blue wave that took place during an economic meltdown as well:

"But in the end, as far as climate change, it didn't matter who won the election, because Mother Nature imploded the entire oil sector with a virus that forced video conferencing from home. Tech billionaires made hundreds of billions under Trump, while fossil fuel executives went bankrupt"

"Exxon is confronting one of its biggest crises since Saudi Arabia began nationalizing its oilfields in the 1970s. If the company takes the full $30 billion impairment, it will be the industry’s worst in more than a decade, according to Bloomberg data."

In summary, we are in a big, fat, dumbfuck bubble.

Which is why no one sees it coming.

September, 2016:

Party Like It's 1929

No, they don't see it coming. They have a perfect track record to maintain, and easy money to count on...

Watching Fast Money tonight, one of the guests was Tony Dwyer of Cannacord Genuity. He enumerated all of the unprecedented risks - the raging pandemic, existential election, stimulus impasse, geopolitical rancor, but he forgot a few things: the imploded economy, record jobless claims, record Federal debt explosion, technology bubble, global deflation, looming credit crisis, and the bear market in the average stock. Which is why he's still bullish. Because to offset all of those ludicrous risks, he believes the Fed can support the market through it all. Free money. That's it. The Fed versus $350 trillion in misallocated capital in a 1930s economy. He got no pushback from the Fast Money traders.

Over on Marketwatch, behind their new paywall which I have yet to sponsor, this is one of the top headlines:

First off, this is the type of headline for some reason I would never publish. It's called tempting fate to destroy all future credibility. Secondly, it's patently not true, as indicated by current level of bullish active manager positioning (NAAIM), the Barron's October Big Money poll, record call option buying, Rydex bullish asset positioning, the Ameritrade Investor positioning index, and then there is the CBOE Skew index itself which was created specifically to measure crash risk sentiment:

CBOE SKEW:

"Prior to the stock market crash of October 1987, investors were not sensitive to tail risk and the curve of S&P 500 implied volatilities had the shape of a smile. Post-crash, investors started to hedge their exposure to tail risk by purchasing S&P 500 puts with low strike prices. This shift in demand bid up the prices of these puts relative to their value under a normal distribution. Black Scholes implied volatilities calculated from their prices therefore increased and transformed the implied volatility smile to a skew. When investors become more concerned about the potential for a market decline, SKEW increases and the implied volatility curve tends to steepen"

In other words, when skew is high, it means that gamblers are actually positioned for a crash. What they say in a sentiment poll, is another matter.

The current skew is not high. The highest level was two years ago in October 2018 right before the mid-term election, when the market tanked -20%.

Apparently, risks have receded in the meantime.

On the side of not seeing it coming, is history's largest IPO and Alibaba fintech spinoff "Ant Group", now scheduled for right after the election:

What could go wrong?

The locus of thermonuclear detonation will be the well conditioned rampant denial over the economy. No matter how bad the economy becomes, Republicans never stop believing that reflation is right around the corner. After all, their portfolio balances reflated months ago.

This past week we got news that net bearish Treasury bond shorts reached a new record. These people have been wrong for two years straight, as deflation has been continuous since the tax cut. Now in the depths of an accelerating pandemic, they've decided to go ALL IN on a position that exploded after the election in 2008.

Suicidal.

Sadly, the Fed can't bail out everyone. 

And when the riots start they won't. 

One more reason to buy stocks:

Civil war

“Maybe I’m just looking at the news too much, but there are hints of civil war depending on who wins,” Ms. Johnson said

Just Another Trump And Dump

Trump has been lying about the economy for four years straight, why stop now? 

The bankruptcy artist known as Donald J. Trump became president at the happy moment in 244 years of U.S. history when the continuously dumbed down populace finally began to believe that debt is GDP. Coincidence? I don't think so.

"As a businessman, Donald Trump ran 6 businesses that declared bankruptcy because they couldn’t pay their bills. As the president running for a second term, Trump is repeating some of the mistakes he made as a businessman and risking the downfall of yet another venture: his own political operation."

Today, Trump took credit for the bounce back in GDP following the black hole GDP implosion created by COVID. He seized on the largest ever one quarter increase as a sign of his economic prowess:

It's clear that the Wharton graduate in the White House doesn't understand 5th grade math. Because a 33% decrease in GDP requires a 50% increase to get back to break-even, as explained by one of his unimpressed commentators:

A one quarter bounce back in GDP from depressionary levels is meaningless when looked at from the perspective of the entire year 2020. The IMF currently estimates full year U.S. full year GDP growth at -4.3%. Meanwhile, we see below via the Fed database that the U.S. debt has grown a staggering +27% of GDP in the past four quarters. Something we have heard nowhere in the Financial press. 

It's clear that the U.S. debt is now totally out of control due to the three GOP tax cuts under Reagan, Bush Jr., and Trump. Note that the debt is now growing far faster than indicated by the operating deficit (below). Meaning that the deficit is no longer capturing the complete Ponzi borrowing predicament; however directionally one gets the idea of where things are headed:

Another disaster Trump took full credit for today was a de minimis drop in jobless claims from apocalyptic levels. 

The four week moving average of claims, also via the Fed database shows that this "recovery" remains worse than at any time during 2008:

When the populace at large is so dumbfucked that they would approve of this level of criminality, then they fully deserve the final implosion that's coming.

Which gets us to Trump Casino:

So far this week, there have been two 90% down days, meaning 90% of stocks were down on the day, all sectors down. Nowhere to hide.

Today (Thursday), "safe havens" are backtesting the last line of support.

The almighty Dow, which peaked back in February, and is now in a bear market, is on the ropes. As the fake reflation trade has now officially turned into pixie dust:

I shit you not:

"A nine-year-old video communication software provider is now worth more than an oil giant that can trace its founding back to John D. Rockefeller's 1870 formation of Standard Oil."

Just seven years ago Exxon was the largest market cap company in the world, when oil peaked in this cycle above $100/bbl.

"And then the work from home bubble exploded"

Tonight, four of the largest Tech giants are releasing earnings: Apple, Amazon, Google, and Facebook. The stocks are rallying into the event, having been hammered earlier in the week. 

Tech companies were on the hot seat yesterday in Washington, attempting to explain to Democrats why they allow so many dumbfuck conspiracy theories on their platforms. While trying to explain to Republicans why they don't allow enough conspiracy theories on their platforms. It's called a no-win situation, and highly indicative of what is going on in the MAGA Kingdom right now:

“Democrats often say that we don’t remove enough content, and Republicans often say we remove too much,” Zuckerberg said in his opening remarks.

Nevertheless, these wouldn't be true Disney markets, if these stocks were not the last ones making new highs this week. I think we all see where I'm going with this:

Outside of the MAGA Kingdom, there is now a renewed fear of a repeat of the March lockdown implosion:

"Europe's COVID-19 outbreak is rapidly resurging, prompting a flurry of new lockdowns like those seen in the spring."

Dr. Anthony Fauci, the country's top epidemiologist, told CNBC on Wednesday: "If things do not change ... there's gonna be a whole lot of pain in this country with regard to additional cases and hospitalizations, and deaths."

"What does he know?"

In summary:

Bueller?

2020 Rich Man's Panic

Today's billionaires are nothing more than monetary welfare queens and Treasury thieves. Those who go along with "the system" are their disposable accomplices. For over a decade straight being a consensus idiot has been highly lucrative. When central banks lose control over their Jedi Mind Trick for weak minded fools, consensus opinion will be lethal. Few people will successfully navigate the deflationary/inflationary gauntlet we are about to experience, considering that not one of them even knows it's coming...

What has been missing for 12 years straight is a reality check to rein in the excesses. Central banks have sponsored a bubble of delusion that has grown ever more manic since 2008. That bubble has sponsored mass corruption and mass denial on a biblical scale. It has created ephemeral paper gains massively leveraged to ignorance and arrogance, while it ridiculed any semblance of caution.

There has been zero accountability since the DotCom era prosecutions of Worldcom, Enron, and Global Crossing. During the Global Financial Crisis, regulators jailed Bernie Madoff for his miniature Ponzi scheme while they were bailing out Wall Street for imploding the global economy.

Fast forward more than a decade of moral hazard and now, insanity has been normalized. To question this Bonfire of the Sanities is strictly anti-social. The sheeple at large are fully euthanized by ludicrous amounts of fiscal and monetary stimulus. Which is why arrogance always snaps back immediately once the monetary dopium starts flowing. Back in February, there was a fleeting moment of fear as markets reached their nadir, but as soon as the momentum reversed, the fear dissipated and back came the buffoonish arrogance with a vengeance.

Which is also why there is always the same fall back on inequality. The GOP can't possibly solve inequality, because exploiting inequality is the very basis of their capitalist "system".  The system that has been on emergency monetary life support continuously since 2008. Fortunately for today's bailout junkies, they have a base of useful idiots who keep voting for their own demise, in order to protect the sacred system - which is now 100% con job at their expense. 

The worst part of all of this of course is the river of toxic bullshit that flows incessantly from Faux News and its various NewsMax copycats, out to the demented hillbillies who propagate it in every spam email and every family get together.

The solution to all of this denial and buffoonery is fear and lots of it. The central bank veil of invincibility is finally about to be pierced once and for all. The bubble of delusion is about to collapse like a cheap tent. And when it does, the revelation of fraud and criminality will bring rage and fear. And ultimately, humility where now there is only Roman Circus equivalent hubris. When the Kool-Aid drinkers realize they've been conned by their own trusted con men, they will finally begin to question "the system".

At that point, they will demand accountability and incarceration. The ad-sponsored bullshit will be silenced, along with the purveyors of non-stop lying.

And then will come the middle class bailout. Following the 2008 analog - likely sometime in the Spring timeframe. When that happens, the dollar's days as a "store of value" will be numbered. Today's sheeple will become convinced that cash is king, right at the point it becomes lethal. 

But, there's a lot of (asset) deflation between now and then, as over a decade of criminal rots gets exposed. 

"While few could have foreseen the pandemic’s toll on the economy, the depth of investors’ pain from corporate distress was all too predictable. Desperate to generate higher returns during a decade of rock-bottom interest rates, money managers bargained away legal protections, accepted ever-widening loopholes, and turned a blind eye to questionable earnings projections. Corporations, for their part, took full advantage and gorged on astronomical amounts of debt that many now cannot repay or refinance"

Corporate Debt, % of GDP

The Walls Are Closing In On Donny

Trump's reign will be remembered as a non-stop circus of arrogant bullshit. His time in office will cost his true believers everything: Their health, their wealth, and their fraudulent way of life. Sanctimonious hypocrites got their Supreme Court nomination, now they are going to pay with their lives...

Regardless of who gets elected next week, Trump's presidency is effectively over, duly monkey hammered by COVID, and his incompetent response to the crisis. Trump's entire presidency can be summed up by his chaotic and ultimately lethal approach to this pandemic. At first he was in signature denial. We now know via Bob Woodward that Trump knew COVID was far more deadly than the regular flu, and yet he insisted it was the same as the regular flu. Then, when seniors started to get worried, he panicked and ordered a nationwide shutdown in early March. When markets crashed, he panicked and ordered a nationwide re-opening in April.

As the pandemic wore on, he ignored the advice of ALL experts, preferring to rely upon his own totally uninformed opinion. Like most of his mentally challenged followers, he considers himself an expert in every subject through sheer ignorance and wishful thinking. Over the summer, Goldman Sachs studied the benefits of widespread mask usage and concluded that they save lives and they could have saved the economy as well:

"Goldman Sachs found that a face mask mandate could potentially substitute for lockdowns that would otherwise subtract nearly 5% from GDP"

A national mask mandate could save an estimated 130,000 lives by February. 

Trump completely ignored the mask advice and ended up getting COVID for himself and his family, but he was cured thanks to a multi-million dollar treatment regimen at taxpayer expense. All while he was plotting to take healthcare away from millions of Americans during a pandemic. This week, in the confirmation of Amy Coney Barrett to the Supreme Court, he took a major step forward in that direction:

"While it’s hard to say exactly how Barrett will rule, it’s possible the ACA might be completely overturned, which could leave more than 20 million Americans uninsured"

Republicans have made over 70 unsuccessful attempts to repeal Obamacare"

Here we are in late 2020 with the Fed printing trillions of dollars to prop up billionaires, while the GOP is figuring out how to take healthcare away from people who no longer have jobs. During a pandemic. History will say that Republicans were godless criminals to the very end. Nothing more nothing less.

CNBC: 10/26

U.S. On Verge Of Exponential Increase In COVID Cases

Getting back to Trump Casino, the illusion of Tech invincibility is beginning to crumble. It started with Cisco back in August. Now in this latest quarter, Intel, IBM, and yesterday SAP was the latest Tech bellwether to report a disappointing forecast:

"In a surprise release late Sunday, SAP, one of Europe’s largest tech companies, cut its revenue forecast for the full year and said it expected the fresh wave of Covid-19 lockdowns to hurt demand through the first half of 2021. The results caused shares to fall the most ever in a single day, according to data compiled by Bloomberg since 1989."

Enterprise software:

Networking:

Semiconductors:

After hours on Tuesday:

"Microsoft shares moved 2% lower in extended trading on Tuesday after the company reported quarterly revenue guidance that fell short of analysts’ expectations"

So far, the frogs in boiling water are buying the 1929 pre-crash dip.

Notice the difference in volume for the Tech sector in September versus now. Back in September gamblers sold hard and then got near record short the Nasdaq futures. Now in the third wave down, there is nothing but complacency, camped at the 50 day moving average: 

The reflation trade is also imploding ahead of the election as Trump admitted today that any deal is dead. 

He is now promising to cut a deal from his jail cell:

"Putting off votes on a stimulus package until after the election raises the risk that the Trump administration will be less inclined or able to push a package through the GOP Senate. If Trump loses to Democrat Joe Biden and Republicans lose their Senate majority — it would mean that any stimulus package for the pandemic-stricken U.S. economy would be delayed until late January, at the earliest."

Here on the hourly chart we see the Tech/deflation trade above the cyclical / reflation trade. Notice there is a similar pattern between September and October. When Tech weakened in September, cyclicals rallied, but then they both rolled over late in the month. The same thing is happening now:

For the first time since March, the volatility term structure is in backwardation, meaning the spot Vix is above the futures. This indicates that large hedgers are getting nervous ahead of the election.

The MAGA Kingdom will be remembered as human history's biggest circus. And its true believers nothing but clowns.