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.