Saturday, October 31, 2020

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.