Tuesday, December 8, 2020

Eager Accomplices To Record Fraud

What we've witnessed over the past decade is greater and greater economic fraud on behalf of an aging society desperate to believe anything except the truth. Now culminating in an end-of-cycle make-believe pandemic recovery, getting bought with record exuberance...

There are 17 trading days left in 2020. In the year of COVID, market manipulation is welcomed and expected, according to the bailout ideology of "Do whatever it takes". My job as a perma-skeptic of Disney markets is to point out where this could all go wrong.

In an aging society with a preference for return on capital over return on labor, whatever manipulates markets higher is welcomed. We've learned this for over a decade straight. What started out as a 2008 bailout turned into non-stop monetary intervention for a decade straight. Followed by a massive end-of-cycle tax cut which bombed in 2018 and then back to monetary bailout in 2019. Now in 2020, combined monetary and fiscal stimulus is over 30% of GDP. The only question on gamblers' minds for the past three months is when do they get more stimulus? Of course, this next bill theoretically coming down the pike, won't be stimulus, it will be life support for millions of people who otherwise will be mass evicted and impoverished at the end of December.

Over on Zerohedge, Wall Street pundits are predicting that the unprecedented level of options manipulation will continue to propel Disney markets higher into monthly options expiration (Dec. 18). Followed by an epic hangover crash thereafter:

"Weaponized short gamma" remains supportive"

Our SPX Sentiment gauge closed last night at 98.9 percentile since 2004"

Here we see active manager three week average positioning. What we note is that these overpaid money managers are not good market timers. They are trend following chimps:

Weaponized short gamma: You had me at hello.

What that means is that the record call options rented by speculators are forcing options market makers to buy the underlying stocks to remain "delta" hedged, meaning market neutral. Dealers buy the stock to offset their short call position. These escalating options rentals have been keeping the market bid all year. This week we are once again seeing record call/put volume:

As we see in the chart above we saw the exact same thing back in February albeit on a much smaller scale, and we know how that worked out, the market melted up into the February crash.

Good times:

February 26th, 2020:

Members of r/WSB believe they’ve discovered a kind of perpetual motion machine in the interplay of stocks with options contracts"

When did the market peak? It peaked the week BEFORE the above article was published. The week of Feb. 24th - 28th, was the most violent "correction" in the market history. Followed by a three day bounce and then super crash. 

What we've seen since the election is a melt-up on an even more ludicrous scale. The Santa Rally came a few weeks early. As far as the melt-up into opex theory, for that we can use June's quad witching melt-up as a potential reference:

Friday, June 5th, 2020:

The trade into June 19 will be very ‘risk-on’ with stocks up led by economically sensitive cyclicals/beta/small caps"

What happened back in June? The market peaked on June 8th. Today happens to be December 8th.

Suffice to say, there is no guarantee this con job makes it to opex this time either.

Cramer said yesterday that all of these newbie pump and dump artists now represent the future for markets. Because they don't care about valuations and they don't care about fundamentals. They have been raised in the era of Ponzi markets and therefore they don't question them, having never seen a real bear market.

“We’ve got a massive group of individual investors who’ve become in many ways a more powerful collective force than the professionals, and they simply don’t care about the same things as the experts

I predict that these newfound "experts" will be wiped off the map in this next market crash. And that will be the end of people who buy bankrupt companies while pretending to know more about investing than prior generations. And then what will Cramer say? "Booyah skidaddy!!!" 

I also predict that the vast majority of people will claim that no one saw it coming. Because in a greater fool's market, no one wants to be left behind.