Wednesday, December 16, 2020

The 2020 Pandemic Depression Hyper Bubble

If prior generations had only been intelligent enough to know that printed money in a pandemic depression is the secret to effortless wealth, we would all be billionaires by now. You have to be brain dead to believe in this Idiocratic fraud, which is why no one questions it. Too many investors have been spared the consequences of a bear market and therefore they believe they have become omnipotent in the face of unprecedented risk. Now featuring human history's largest asset bubble in a pandemic depression...

"The worse the reality of the economy becomes, the more we take on the reflexive belief in further and dramatic monetary expansion and the more attractive the stock market looks"

Below I will discuss the 2020 hyper bubble and all of the various asset classes that have been bid up to asinine and unsustainable levels. But first the background as to how we reached this perilous juncture of believing that printed money is the secret to effortless wealth. 

Going way back to 1997, the Asian Financial crisis was caused by hot money leaving the Asian Tigers and causing a run on the local currencies. It started in Thailand and then spread to the rest of Asia:

"The Asian financial crisis was a period of financial crisis that gripped much of East Asia and Southeast Asia beginning in July 1997 and raised fears of a worldwide economic meltdown due to financial contagion"

The Asian Financial crisis and the ensuing financial dislocation/LTCM debacle forced the Fed to ease monetary policy at a time when they would normally be tightening. That easing combined with the internet gold rush drove the manic Y2K Tech bubble. 

When the Dotcom bubble crashed, the economy fell into recession which was exacerbated by the 9/11 attack. The Fed lowered rates to 1% and sanctioned the subprime lending bubble. The widespread practice of using houses as ATM machines was born. And then of course that corruption crashed in 2008, leading to 0% interest rates and quantitative easing - printed money to saturate the bond market, and encourage asset speculation. To garner the trickle down fake wealth effect.

For the first several years, most pundits and money managers were skeptical of Disney markets. Even in late 2014 when Hendry said he was now taking the blue pill, he lost his hedge fund as large investors balked en masse. For some reason, they were not eager to be among those destroyed by the virtual simulation of prosperity, as he himself described it

"They the enlightened few know that today's central bankers are spinning a falsehood of recovery; they steadfastly refuse to be suckered in by the euphoria of a monetary boom; and they are convinced that they will therefore be spared the consequences of the inevitable crash. Everyone else, currently drugged by the virtual simulation of prosperity and its acolyte QE, will be destroyed"

Of course the free money party continued for several years longer, sucking in every money manager, economist, and pundit on the planet. Notwithstanding a few more global synchronized monetary bailouts along the way. When Trump was elected, the global casino melted up into his tax cut, which we were told was going to be reflationary. Unfortunately, it was the exact opposite - while it may have been reflationary for billionaires, it was deflationary for the middle class via higher interest rates. After all, that's what reflation means, higher inflation expectations due to greater capacity utilization. Econ 101. Under the current debt bubble regime, true reflation is now no longer even an option, because it will implode the bond market, the housing market, the car market, all borrowers and all lenders on the planet. We now have a debt-dependent pseudo-economy predicated upon negative net wealth penury for the vast majority of people and ultra wealth for a micro percentage of super wealthy who lend their money back to the impoverished masses. Most sheeple never question this new "system", because they have fully conflated debt with wealth. Their entire financial/economic existence is now a call option on the cycle. Which is why this cycle can never end. It must be both the longest cycle in U.S. history and the first cycle to never end in U.S. history. Again, you have to be brain dead to believe this shit. Hence it's unquestioned by "experts" and morons alike. 

Which gets us to 2020 and the great pandemic hyper bubble. All of the money printing and fiscal madness of the past decade went on steroids in 2020, to the extent that as of now, global equity markets are pricing in a vastly improved post-pandemic economy than existed pre-pandemic. Sheer asinine money printed lunacy. 

So let's take a look at the biggest bubbles of the year in pandemic hyper bubble, as they stand going into the last weeks of 2020:

This week of course saw the first doses of the new vaccine(s) distributed to healthcare workers, who were the heroes of 2020.

Here we see the Biotech bubble indicating a MASSIVE key reversal on the weekly with two days left in the week.

The IPO bubble appears to have peaked last week featuring the two largest IPOs of 2020, the largest issuance week for IPOs since 2014 (Alibabylon), making 2020 the largest year for IPOs since 2000:

In my last post we saw that short dollar is the second most crowded trade of 2020. The primary beneficiary of dollar outflows has been Emerging markets and Chinese markets in particular.

Here we see Emerging markets deja vu of the January 2018 tax cut melt-up. 

The third most crowded trade currently is Bitcoin, which is also an anti-dollar trade. Got that? The crowded Bitcoin trade is leveraged to the crowded dollar short trade.

What could go wrong?

"It’s not the first time bitcoin (BTC) has been named the most crowded investment of the year. The crypto asset also captured that position back in 2017 in Merrill Lynch’s December global fund manager survey."

According to the BofA Fund Manager Survey, the most crowded trade of 2020 was the Technology "Virtual economy", and it remains the most crowded trade even after the post-election melt-up.

The ESG (Environment, Social, Governance) mega bubble went into melt-up mode throughout 2020, led by Tesla. Tesla is now a mega bubble all of its own. This week (Friday) it enters the S&P 500:

What could go wrong?

Today's economists don't believe that the global economy is still in a recession, because it's actually in a depression. The economic crater from 2020 is so deep, that their customary growth rate metrics are totally meaningless. This so-called recovery is off the lowest level of total output in years. If they were looking at absolute output, they would understand their crucial mistake. Most economists are apparently unaware that if an economy drops by 33%, it requires a 50% increase to recover the prior level. Fifth grade math.

Which is also why this impending stimulus will be dead on arrival. By driving the car forward while looking in the rear view mirror, today's policy-makers are MONTHS behind economic reality.

"Total retail sales decreased 1.1% from the prior month, following a 0.1% October decline, the first drops since March and April. That was worse than all but one economist had forecast in a Bloomberg survey calling for a 0.3% decline, and October’s figure was originally reported as a 0.3% increase"

The last time the market was down in the second half of December and missed the Santa rally was December 2018. Which was the last time we were sold the lie that the economy is recovering, amid the widely believed lie of fake reflation: