Wednesday, December 30, 2020

What To Expect From The Big, Fat, Ugly Explosion

If Trump being the most admired man in America is not a warning, then there is no warning. For aspiring criminals...

Late last February, the pandemic was escalating, the economy was on lockdown, gamblers were chasing risk, Trump was being an idiot, new highs were not confirming the S&P's new high.

People were saying the bears are wrong again.

What's changed? 

Most gamblers today are obligated to believe in a thing called "The Plunge Protection" team. It's the belief that central banks can bail them out of any risk. These people believe that central banks can both inflate bubbles and keep them from popping. It's an unfortunate fantasy that both the Chinese and Japanese have learned the hard way is not true. 

Even in the U.S., the PPT theory has had several spectacular failures. Most notably in 2008. The Fed's largest balance sheet expansion in history (up until this year) took place in November 2008. The market bottomed four months later, down -40%. 

And as we see below, even the so-called bailout in February and March was an unmitigated gong show:

When global markets went RISK OFF at the end of February, the S&P 500 crashed -10% in one week - the fastest correction in history. On Tuesday March 3rd, in an unscheduled meeting, the Fed cut rates by .5% which many pundits said was a panic move. Unimpressed, the market crashed for a week and a half straight after that meeting. Then on Sunday March 15th, in another unscheduled meeting, the Fed slashed rates by an entire 1% down to 0%. AND they launched a massive $700 billion QE program. Still unimpressed, the casino was limit down that night and Monday was the biggest down day of the entire debacle -13% at the lows. The VIX peaked at 90 on Monday, but the casino bottomed on Friday. 

What I expect this time around is a far more violent and uncontrolled crash. Of course, as it was in Feb/March there will be massive 1-3 day rallies. However, I see the Fed and central banks having even less control this time around. First off, there is no ability to cut interest rates. Secondly, dollar shorts - explicit and even more so implicit - are far more leveraged now than they were in February. The overall reach for risk is far greater this time around (see bubble section below).

People always want to know, what will be the "catalyst" for a crash? The catalyst this time will be the same as last time - rampant stupidity and a financial services industry pushing people further and further into risk, on the belief that central banks can both finance risk and eliminate risk at the same time.

Because who wouldn't believe that three years in a row?

"Looks like the bears are wrong again"

Now, let's review the largest bubbles of the 2020 COVID pandemic gold rush. Below is my list as I see it. I'm sure others have their own list of exploding assets.

#1 Tech stocks. The most crowded trade of 2020

Within the overall Technology space there are many sub bubbles: semiconductors, video game stocks, cloud internets, Fintech, AI/robotics. So on.

Here are a few:

Overall volume on the Nasdaq exploded in 2020:

"8 million people opened new accounts in the first nine months of the year across brokerages including Charles Schwab Corp., E*Trade Financial, TD Ameritrade Holding Corp. and Robinhood Markets Inc., all of which permit a version of free trading."

“I’ve never had so many friends text me asking which beaten-down stocks to buy,” Jessica Rabe, co-founder of DataTrek Research, wrote to clients. “They were not fearful about losing money. They were afraid of missing out on the large snapback.”

Rule #1 of Disaster Capitalism: Never let a good crisis go to waste. 2020 was the biggest pump and dump in history:

Then there is the ESG/Solar/Tesla lunacy:

The largest market cap increase of any stock in the world - half a trillion in market cap.

1200 P/E ratio. Still not profitable making cars.

The 2020 Biotech bubble:

The Bitcoin/Crypto bubble

The only asset class that trades 24 hours a day seven days a week, globally. I have no idea how these people sleep at night.

There can be no question who won in 2020 and it won't be Tesla and Bitcoin gamblers bidding up their own assets while pretending to be wealthy

What do all of these bubbles have in common?

They are all 100% leveraged to rampant criminality, and they will all explode at the same time.

The Trump Era: Age Of Unfettered Criminality

Trump's true believers assume that he got away with the pump and dump of the century. Those who believe in "criminality as usual" will be the ones holding the bag...

"In U.S. financial slang, a bagholder is a shareholder left holding shares of worthless stocks"

The Anti-Christ was just chosen as the most admired man in America. Cheating on his wives and taxes got him elected four years ago, but it was four years of non-stop lying and corruption that put him over the top:

What went wrong? That is the question that historians will be asking decades from now. Especially historians from outside the U.S. attempting to avoid this descent into abject corruption.

We can hope this is America's moral low point, however Banana Republicans have clearly embraced their descent into depravity as the path of least resistance. It's a 50 year tradition going back to Nixon. 

We still don't know if Trump will leave the White House when Biden is inaugurated. Trump laid the groundwork for all of this election criminality four years ago just before the 2016 election. Leading up to the election he was behind Clinton in the polls, so he pre-emptively declared that the election was rigged in case he lost:

"Of course there is large scale voter fraud happening on and before election day."

"Why do Republican leaders deny what is going on? So naive!"

And of course the election WAS rigged by foreign agents from Russia in his favor. However, Trump abandoned all concern over the rigged election the moment he won. 

In other words, Trump had in mind four years ago exactly what he is doing right now. Attempting to destroy democracy in broad daylight. Using Twitter to rain incessant doubt on America's electoral process that has endured over two hundred years. 

And it worked, because Banana Republicans no longer believe in democracy, all they believe in is greed, corruption, and criminality. Trump has pardoned more criminals than any president in U.S. history.

He will go down in history as the criminal president.

But what does this all have to do with Ponzi markets? Good question.

My assertion is that Ponzi markets are inherently fraudulent. And now Ponzi schemes have been legalized. We can look no further than Bitcoin and the Crypto market for examples. One can argue that as a dollar alternative and for buying children on the dark web, Bitcoin will always have utility. However, of the thousands of crypto currencies, most are merely pump and dump schemes. Bitcoin was the first crypto currency therefore it's the most popular one, otherwise it has no differentiating feature.

Bitcoin made a new high overnight, which is appropriate because we are seeing a global manic reach for risk during this Satan rally:

This week, Emerging Markets - another implicit dollar short trade are going parabolic, especially Asian markets.

What's interesting is that in local currency terms, most non-U.S. markets are underperforming the U.S. It's only in suppressed dollar terms where they look spectacular. If you read Zerohedge or any other dedicated purveyor of disinformation, they will say that global stocks are at an all time record high in 2020. Which is lending credibility to this epic con job. 

I suggest however, that most global markets are not making new highs, in local currency. We also see that commodities (black) are languishing below 2009 and 2016 lows. 

What people still don't acknowledge as we cross over from 2020 into 2021, is that America's post-recession recoveries have become more and more fraudulent. Each one requiring more and more stimulus to paper over the cracks in the facade which are now record wide.

For those wondering what effect the $900 billion stimulus will have on GDP in 2021, here we below can see the crater that has been dug. The red line is absolute GDP ($ billions). The stimulus just passed will get GDP roughly back to the 2017 level. The remaining four years of lost GDP must come from the vaccine and re-opening. Bearing in mind that employment is back at 2015 levels.

Meanwhile, cyclicals are now ABOVE the pre-pandemic levels, having already priced in full recovery.

During Trump's four year reign of corruption, there were four rallies and three crashes so far... Each rally lasted on average one year and crested either just before or just after year-end. Each rally and crash was of greater magnitude than the last.  

I call it the Wall Street business cycle. Others call it a broadening top:

"In the broadening top formation five minor reversals are followed by a substantial decline."

It is a common saying that smart money is out of market in such formation and market is out of control.  In its formation, most of the selling is completed in the early stage by big players and the participation is from general public in the later stage."

Tuesday, December 29, 2020

All Signs Point To Explosion

The biggest risk gamblers face is the ubiquitous belief in no risk...

“The participation is on a par with 2000, if not greater,” BTIG’s chief equity and derivatives strategist told CNBC’s “Trading Nation” on Monday. “It’s pushed valuations to an equivalent level to where they were in 2000.”

Despite his discouraging comparison, Emanuel believes the current backdrop is more conducive for sustainable gains"

For those who were not around in 2000, this depressionary economy is a pale shadow of the one back then. The late 1990s marked the highest GDP growth rate in three decades, and a government surplus. This year marks the lowest GDP growth in ninety years, despite the largest deficit since World War 2. 15% of 2020 GDP is borrowed money. 

There is another huge difference between this year and Y2K:

In 2020 hindsight, this will be viewed as the year that Tech oligarchs reaped obscene windfalls from a pandemic depression that decimated the main street economy.  Gaining almost a combined trillion dollars in money printed wealth while millions of workers went jobless and homeless. 

This year, Elon Musk saw his wealth grow by 500% from $27 billion to $167 billion. An increase of $140 billion. Jeff Bezos saw his wealth grow by $72 billion. All thanks to COVID lockdowns and central bank money printing.


A parade of con men on Faux News and talk radio continually brainwash useful idiots into believing this is the greatest economic system ever created. The one that must be defended at all costs. Money printed Tech centi-billionaires who garner their wealth directly from central banks, while the people who do all of the actual work are abandoned by a corrupt Politburo of incontinent geezers. These are the values we must protect at all cost. Today's disposable sheeple are totally unaware as to how their "system" has descended into a Third World sweat shop over the course of their lifetimes. 

Going into 2021, all of the various risks have coalesced amid cycle high speculation. This week started with the Trump flip flop, yesterday the House passed $2k stimulus checks, however today McConnell blocked $2k stimulus checks. However this issue is not officially dead and it could come up for another Senate vote later this week. Clearly $2k stimulus would be reflationary, as would be the Democrats taking control of the Senate. 

With all of this reflation shock and awe, it can come as no surprise that the most crowded and popular trade of 2020 - the growth stock virtual economy - is starting to implode. It appears that gamblers are not willing to wait to see what happens next with stimulus. 

Recall that the most crowded trades of 2020 were/are: 1) Tech 2)  Short dollar 3) Bitcoin

Bitcoin and Tech are in the early stages of rolling over. Which leaves the short dollar trade:

"Speculative traders are ending the year doubling down on their bets against the dollar."

Doubling down on the second most crowded trade of 2020, using decade-high leverage. What could go wrong?

The short dollar trade is a global RISK ON trade that implicitly bets that foreign risk assets will outperform the U.S. It's the same trade that blew up in early 2018 when the tax cut went into effect.

Now the stimulus is going into effect next week. 

Despite these risks, gamblers have been convinced that this is the beginning of a new cycle. Which is why small caps are soaring. Usually in a new cycle, small caps outperform larger stocks:

The Russell 2000 is now record overbought on delusion. And the most over-lubricated since the flash crash in 2010:

Here is the way I see things going for this crucial next week through the Georgia Senate runoff next Tuesday. I could be wrong, but as always, I err on the side of explosion. I leave to other mainstream sites to blow smoke up your ass.

If by chance, the Senate passes $2k stimulus, that will lead to accelerated rotation away from Tech stocks into cyclicals. If by some miracle the Democrats win control of the Senate next Tuesday, then the Tech trade will go totally bidless.

On the other hand, if one or both of those reflationary events doesn't happen, then my bet is that we will be at the end of the economic cycle. And therefore cyclicals will join Tech in imploding. 

In summary, long Tech, short dollar, long Bitcoin were the most crowded and profitable trades of 2020. 

Only a fool would bet that continues in 2021. And the people  who are locking in their bonuses for 2020 are not the fools: 

"Some of the year’s most expensive stocks encountered a wave of selling as investors moved to lock in gains in the last week of 2020."

In the first two days of this shortened trading week, the ultra-popular ARK Innovation ETF has already traded DOUBLE the 50 week average volume. 

Monday, December 28, 2020

The Grinch Who Stole Christmas

Getting past Trump's latest petulant Christmas disaster, this scenario is reminiscent of 2008 only far worse. Bear in mind all of my predictions are subject to the vicissitudes of insane nutjobs. I'm doing the best I can under the circumstances...

For once we can be glad that McTrump was only lying as usual. We should know better than to take him at his word. I was too dire to assume that Donny would shutdown government all over again just to get his own way. It seemed like the right bet at the time.  It was Senator Pat Toomey who as we recall embedded the corporate bond time bomb into this newly passed legislation who helped convince Trump to sign the bill:

"The danger is he’ll be remembered for chaos and misery and erratic behavior if he allows this to expire”

Let's see: The decimation of Obamacare, the Muslim ban, Latino kids in cages, rigged elections, the conspiracy bullshit, four years of non-stop lying, record wealth inequality, all culminating with political brinkmanship at Christmas while millions go hungry. Sign this one bill that ruined Christmas a week late and history will forget the past four years of chaos, misery, and erratic behavior. Sure. Whatever his base of historical illiterates will believe. 

Trump's legacy IS four years of chaos, misery, and erratic behavor. However, the brunt of the misery is only getting started. Which gets us back to the 2008 analog. Deja vu of the TARP vote in 2008, this bill is far too little, too late. Too many golf games passed between the first stimulus and the second stimulus.

According to the 2008 analog when Obama faced a hostile Congress, it took a substantial amount of financial dislocation to get the GOP onboard. However, this economy is far weaker than the one in 2008:

Here we see Brent crude oil then and now. It's the same three wave corrective pattern at multiple degrees of bailout. Each fake recovery more pathetic and requiring less IQ in order to believe in it.

Similarly, looking at Treasury reflation expectations, compare the first 12 months of recovery in 2009 versus the past 10 months of this recovery. Despite the two month difference, this recovery benefited from far greater monetary stimulus, and yet has yielded far less economic reflation:

Gold gamblers should be particularly worried as to what the shiny metal is saying about the prospects for reflation. Gold peaked when the first round mega stimulus ran out at the end of July. Since then, non-stop weakening of the dollar has not held gold's bid. Rumours abound that Millennials are selling gold to buy Bitcoins.

Stock market gamblers have been told to look across the valley of COVID death to the vaccine nirvana that lies on the other side. Which means that stocks must maintain the permanent plateau of delusion until the second half of 2021. However, that assumes the current stimulus will be adequate to avoid wholesale small business decimation and mass corporate bankruptcy in the meantime. Which it won't. Most of the stimulus was already "spent" this year in anticipation of a second stimulus bill that arrived seven months late. Which means that spending now exists in the form of overdue bills. Sadly, paying down past due debt is not "GDP". Until COVID subsides, this locked down virtual economy will continue to have an economic multiplier at the limit approaching zero. 

Ironically, this "stimulus" bill contains a ticking time bomb that is about to accelerate financial dislocation. Thanks to Senator Toomey who feared unfettered socialism, this bill just removed the Fed's ability to buy corporate bonds in the secondary market. The Fed put is now gone from the debt market. Removed at the WORST possible time.

"Toomey said this would “preserve Fed independence and prevent Democrats from hijacking these programs for political and social policy purposes.”

Former Fed Chair Ben Bernanke issued a statement over the weekend warning about the potential implications of the GOP’s proposal. He stressed that it is “vital” that the Fed be able to “respond promptly to damaging disruptions in credit markets” and that such ability not be curtailed."

You know what that means. 

No more socialism for the rich:

In summary, the Santa rally is ending. Belief in fake reflation just killed it.

Picture the deflation trade getting monkey hammered just as deflation is about to return with a vengeance. 

All because morons trust criminals.

Sunday, December 27, 2020

BTFD: Buy The Fucking Depression

What happens when newbie Millennials go ALL IN their first ever asset bubble while pretending to be geniuses. And callous geezers throw young people under the economic bus in a weakening economy? You get copious fools bidding up stocks to record valuations in a depression, and no one sees it coming...

Gamblers are now officially over the fiscal cliff:

The premise behind Elliott Wave Theory is quite simple - emotions drive markets: A constant oscillation between greed and fear, with long periods of boredom in between. The EW charting method using numbers and letters merely attempts to codify the repeating fractals that signify bull and bear markets. The problem is that wave counts are only fully formed after the fact. Meaning they are generally not predictive. What appears to be a three wave bear market rally can easily morph into a five wave bull market. Or, as is generally the case, smaller wave counts are nestled within much larger trends. Which is why I seldom use wave counts other than identifying three wave corrective overlaps which tend to be very reliable in identifying a market burning capital and going nowhere.

For example it took banks six months to break through the June high on vaccine and stimulus optimism. Not a good sign. If any sector is sending a loud warning that the economy is not recovering now or in the future, it's banks. Today's gamblers need to stop using Netflix as an economic bellwether. 

The other reason I don't slavishly follow EW Theory is because I believe that there are other factors that move markets. Most specifically central banks. Central banks have essentially reverse engineered social mood, and now they are actively manipulating investors. By artificially suppressing bond yields, they force money managers to onboard more risk. The implicit and delusional bet is that cycle default risk has now been eliminated. It's been a good bet to make for over a decade now. Now featuring the longest expansion in U.S. history in double overtime. This cycle can never "end" because it would obliterate Baby Boomer retirement. Which is why unlimited amounts of Federal debt is now conflated as "GDP" to pave over economic depression. 

But it won't work. Primarily because now that Biden is president, Republicans have re-discovered their fiscal rectitude after four years of obscene profligacy for the rich. Which is why the economy is rolling over into depression. These GOP senators are what is called a "gerontocracy", and they are entirely out of touch with economic reality. What I call "Japanification":

"A gerontocracy is a form of oligarchical rule in which an entity is ruled by leaders who are significantly older than most of the adult population. In many political structures, power within the ruling class accumulates with age, making the oldest the holders of the most power." [And wealth]

"America in its present state of decline increasingly resembles the late Soviet Union, one of the most unsettling parallels is its unmistakable slide into gerontocracy"

The fragility of this gerontocracy has been ruthlessly exposed by the Covid-19 epidemic. The crisis has also shown the damage that can be caused by a ruling class more qualified to be in long-term care than to hold important and intensely demanding positions.

Aside from McDonald Trump never leaving the White House, the greatest economic risk for 2021 as I've said many times is the fact that the GOP Senate is constantly behind the curve on fiscal stimulus. They are totally out of touch with economic reality and their ideology does not include bailing out the middle class. They only bailout rich people. Which is why they are doing nothing to overturn Trump's recalcitrance on this stimulus bill. They are leading this country straight into economic purgatory. 

Given all of these factors, it can come as no surprise that the economy and stocks are now negatively correlated. As the economy implodes, central banks increase liquidity, and stocks go higher. As stocks go higher, gamblers become more giddy, chase risk, and make up stories for why it's justified. Now, all of this financial alchemy has bid stocks to record highs on the precipice of a double dip depression. 

Getting back to social mood, there were several factors that accelerated the manic reach for risk into the end of the year. First off there was the Biden election which gave a false sense of relief. Secondly there was the vaccine trial news in early December which gave another boost to risk appetite, followed by the vaccine rollout two weeks ago, and most recently the stimulus deal this past week. All of which led the various sentiment risk appetite measures to hit cycle highs. 

I am referring to the equity call/put ratio, BofA sell signal, the NAAIM active manager asset allocation, the Rydex bull/bear indicator, the AAII individual investor sentiment. And of course the parabolic rallies in junk stocks and Bitcoins.

Wall Street con artists are having a hard time imagining a lower bonus in 2021:

By the way, there were "no foreseeable risks" right before the pandemic explosion either. Even though the pandemic had been raging worldwide for weeks:

All of which shows just how much social mood plays tricks on people. Bitcoin is in melt-up mode at the exact same time as every other parabolic risk market: Self-driving EVs, Solar/ESG, revenueless Biotechs, work from home Tech stocks etc. And yet we keep hearing all of these reasons why THIS TIME it's different.  The only thing that is different this time around is that Bitcoin is going bonkers at the same time as all other risk markets. Crypto Ponzi schemes have now gone mainstream. Bitcoin being the biggest Ponzi scheme this side of the S&P 500.

Below is Bitcoin as of mid-day on Sunday. We heard the same narrative bullshit back in 2017 that the dollar is going to zero due to money printing. However, the only inflation under the current GOP paradigm is in risk assets. In a deflationary depression, the dollar will be gaining in value. 

Notice the tall wick and daily candle (main panel) and the MACD in the lower panel. It's possible that Bitcoin is reaching its peak now.

For around a decade after the Great Financial Crisis, Millennials eschewed investing in stocks, because they had witnessed the trauma it caused their parents during the 2008 meltdown. However, all of that started to change after Trump got elected. Slowly but surely they got caught up in central bank FOMC: fear of missing crash. It started with forays into cannabis investing - aid to investment acumen presumably, and then moved on to Bitcoin, the Tesla bubble, junk Biotechs, bankrupt rental car companies, Artificial Intelligence and other things only Millennials can understand.

The ultimate irony will come when the massively leveraged Millennials showing up at the end of cycle to be Wall Street's bagholders, while pretending to be investing geniuses, FINAL implode the Baby Boomer retirement bubble. Then all sides will be pissed off. And geezers out on the golf course will find out they are not disconnected from reality at all.

One thing we know for certain, gamblers are ready for the Santa rally, because they've been front-running it for six weeks. The longest streak of the entire year:

Saturday, December 26, 2020

Make Depression Great Again

Trump just made double dip depression the most likely scenario. The full cost of having a con man for president is now due...

All of today's pundits and economists somehow missed the biggest risk to Disney markets - Black Swan Donny. This week Trump made all of them look like absolute idiots. Right up until the bill passed Congress the White House affirmed their support for the bill. Trump even extended the government shutdown deadline TWICE to provide more time for negotiations. Then, when it was finished he trashed the bill and burned all of the bridges that would allow him to sign it. 

Apparently today's pundits don't remember that Trump caused the longest government shutdown in U.S. history two years ago. A 35 day shutdown that started December 22nd, 2018 and lasted until January 25th, 2019. Then, like now, he was having a temper tantrum, at that time over the funding of the border wall. And he will gladly shutdown the government all over again now facing the much more dire prospect of leaving the White House. A scenario that will rubbish all of today's 2021 economic predictions before the year even gets started.

Picture what happens to an already weakening economy when unemployment runs out for millions of people, the entire Federal government shuts down, and millions of businesses lockdown due to accelerating COVID. January is expected to be peak pandemic. 

Depression, that's what happens. In 2020, the U.S. government was 25% of the economy. Now take that GDP offline. 

Even if the Democrats win the Senate via the Georgia runoff (Jan. 5th), that is very unlikely to derail Trump's shutdown plans. It would take a super-majority in both the House and Senate to override a veto. Highly unlikely now that Trump has condemned the current budget bill as a "disgrace". The current budget is radioactive to Republicans. The fact is that Republicans want the economy to fail under Joe Biden. For months McConnell was adamant that no additional stimulus was necessary, UNTIL he realized that the Georgia Senate runoff was at risk. When that event soon passes, he will have no political incentive to pass a major stimulus bill in January.

For their part, today's pundits and economists don't see this coming, because they can't predict the past and the present, much less the future. Back in August 2008, the Fed was still debating whether or not the economy was in recession. It had been in recession for nine months already. Most of today's pundits and economists only care about one thing: monetary euthanasia. To these fools, there is no real economy. 

Meanwhile, junk stock speculators were sniffing glue this past week believing that a $2,000 stimulus bill would actually pass Congress on Thursday morning, when it was nothing more than another Trump con job. When the $900 billion bill passed on Tuesday, cyclicals rolled over, having already priced in the meager life support. Cramer couldn't comprehend the basic fact that the bill that passed was insufficient economic life support:

As it turns out of course, there is NO bridge to the vaccine now. Which means that cyclicals were far TOO optimistic this past week.

And of course Cramer was smoking crack as usual. 

This gridlock clusterfuck is deja vu of winter 2008/09 when Obama won the election. Except of course 10x worse. This will be winter 2009 with expired unemployment benefits and a government shutdown. Featuring a paranoid nutjob rambling around the White House trading conspiracy theories with other alt-idiots. All while the COVID death toll skyrockets.

What a great way to be great again.

Since 2018, banks have been warning that the Trump economy is 100% fraud. Now they will enter third wave down at all degrees of trend.

Buckle up, because monetary euthanized gamblers are about to discover that Go Daddy is no safe haven from depression.

"I bought for the pandemic, but I stayed for the depression"