Tuesday, December 15, 2020

Countdown To Implosion

All of the fraud and corruption of the Trump era is now baked into this Disney market like a ticking time bomb that is about to go off with biblical dislocation...

Trump normalized fraud and corruption to a point that most sheeple no longer have even the slightest clue what is wrong or right. 

As of this week, if the Electoral College is to be believed anymore, the end of the Trump Administration is officially in sight. He will serve out the remaining weeks of his ignominious single term amid record COVID body count and as I predict, cataclysmic financial and economic dislocation. TBD. History will say that Trump and his acolytes foreign and domestic made every attempt to destroy democracy in 2016 and again in 2020. The worst legacy of the Trump Administration was that he normalized crass and repugnant behaviour. His presidency was a four year long ass clown circus. 

In this golden era of fraud we are now immersed in toxic humanity. Trump's base is fully Third World and they are doing everything possible to drag everyone else down with them. Trump's Twitter feed is semi-literate testament to everything that is wrong with the United States right now. 

But what does this have to do with markets? Everything. These Disney markets now embed all of the corruption that has been normalized over the past four years. From the tearing down of Dodd-Frank to the widespread conflict of interest, and of course the specious fairy tales sold by Wall Street. One thing that the majority of today's investment advisors have in common is that they are essentially Madoff-acolyte Ponzi schemers. They have jointly decided that nothing matters except central bank liquidity and market momentum. Listening to Barry Ritholtz on Bloomberg this morning he said (to paraphrase) that it always pays to bet WITH the crowd. He believes that the crowd is usually right. No one in the pre-monetary bailout era would have ever made that statement in the history of markets. Going back a decade, Ritholtz was not a money manager and at that time he was clear-eyed on the perils of bailing out criminals. In 2009 in the aftermath of the Lehman meltdown he wrote a book called Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy. Fast forward to now and in the Trumpian post-truth era, Ritholtz has apparently forgotten that those perils have grown by leaps and bounds in the interim. Since he became a money manager he has become blind to the continual descent into corruption. Comparing now to 2008, there is no comparison. Not only has conflict of interest become normalized, but greed and easy money went into overdrive AFTER the financial crisis, on a scale that makes the housing bubble appear benign by comparison.

Meanwhile, as far as market timing, apparently Ritholtz can't remember that the Wall Street "crowd" got it wrong as recently as  February of this year, and as of this week they are back to record euphoria:  

ZH: Record Wall Street Euphoria Triggers First BofA Sell Signal Since February 2020

What will they say this time around? No one saw it coming? No one knew there was a pandemic? All we know is that they will think of something.

Which is where these next few weeks get interesting going into 2021. As of this week, the vaccine hopium is peaking amid the release of the vaccine. Which leaves the casino hanging on stimulus hopium. A few months ago when the daily stimulus headlines started, the expected fiscal stimulus amount was roughly $2 trillion. Now it's dwindled down to very likely $750 billion, one third of the original proposed amount. We can rest assured that this amount of life support is already "priced in" to GDP at a time when millions of unemployed are struggling under the weight of unpaid bills.

Not to be outdone, the Fed may modify their asset purchase (QE) program slightly to buy more long-dated bonds versus short-term bonds, in order to push mortgage rates down. Or not, no one seems to know. However, what we do know, is that if all of this nominal stimulus is already "priced in", then the dollar will rally and global risk markets will explode as they did in September, June, and of course February:

"Over the past month, the U.S. dollar has fallen steadily to 2.5-year lows against the euro, Swiss franc, Canadian, New Zealand and Australian dollars. 
If the Fed eases, but expresses optimism on the recovery, short covering could drive the deeply oversold U.S. dollar sharply higher."

The asset managers have dropped cash for the first time in close to seven years, as levels are down 4%. Moreover, strategists at Bank of America Corp. now say the most crowded trades are “long tech,” “short USD,” and “long Bitcoin.”

With respect to the ultra-crowded Tech stock bubble, Cramer announced yesterday that it's time to buy the "COVID-19" growth index again due to the impending lockdowns.

Apparently he doesn't remember last February when the first lockdowns exploded the virtual economy bubble, which was minor in scale by comparison to now.

Is it possible he is just going along with the momentum crowd?

Among the growth names, Biotech stocks are already getting shellacked on massive volume, as the vaccine is fully "priced in":

Looking at cyclicals, we can use either June or February as an indication of what comes next, as both the lockdown and the FOMC meeting coincide this week:

Looking back, market historians will say that this entire rally was driven by epic short covering in front of a massive crash.

Deja vu:

ZH: BofA Sell Signal Triggered

"Amid this hopeful cheer where covid is almost a thing of the past, it's hardly a surprise that a record number of respondents say small caps will outperform large caps"