Thursday, December 3, 2020

The Golden Age Of Fraud

Since 2008, the largest frauds were the ones that were fully legal and taking place in broad daylight. Beginning with the Wall Street free money bailout in exchange for collapsing the global financial system. All of the bailout gimmicks invented during the past decade are now being combined to fabricate this late cycle super delusion. In 2020, infinite amounts of monetary heroin bid up risk assets to the permanent plateau of deception. Now for 2021, Wall Street is building their new Disney market estimates on top of the 2020 house of cards. Fraud on top of deception. In doing so, they are pulling forward at least five years of fictional recovery into 2021, in order to justify their imaginary earnings estimates. There have been a lonely too few of us who would do anything to avoid being complicit in mass fraud. And it has not been easy. However, the sheeple at large are willing accomplices in this golden age of fraud. They wouldn't have it any other way...

McDonald Trump's sendoff to early retirement is ready for takeoff.

It's that time of year when Wall Street pulls out their Magic 8 ball and fabricates their Voodoo Economic estimates for the coming year. These people all consider themselves "fundamental" analysts which means they eschew charts and technicals for clues as to market direction. They prefer to guess where the economy and earnings will be one year from now, by drawing a straight line from where they are today and applying a crowd-appealing growth factor. Most of the time this "technique" works. However, when it counts the most, at the end of the cycle, this method fails catastrophically with 100% track record. Fundamental analysts are nothing more than the marketing department for Wall Street.

Which is how magically every year at this time, the forward estimates always increase through good times, financial crises, and pandemics.

We are now to believe that the 2021 post-pandemic economy will be even better than the pre-pandemic economy and thereby justify higher stock prices. You would have to be brain dead to believe that, which is why no one is questioning it.

This is Goldman Sachs' 2021 price estimate for the S&P 500:

What could go wrong?

The problem with Wall Street's extrapolation approach this time around, is that unlike every other down cycle in U.S. history, this time the stock market never priced in the economic impacts of the pandemic. Central banks conveniently papered right over millions of unemployed and the wholesale decimation of the small business sector. So what to do, Wall Street analysts merely extrapolated their S&P price targets from the 2020 permanent plateau of deception.

Which means that the 2021 estimates are fraud on top of deception. Worse yet, these fools are assuming an ongoing stimulus bonanza which in 2020 was solely a function of the election. We already see now that this gridlocked government is going to be extremely deflationary. 

"Brian Belski, chief investment strategist at BMO Capital Markets is betting massive fiscal and monetary support will keep coming"

We already know that it's NOT coming. We learned today that McConnell is warming up to a stimulus package that will likely be in the $700-$900 billion range. Which, at the low end is a mere 1/3rd of the Pelosi proposed package. I think we will see a deal in this lower range (700-900) by next week prior to the government shutdown deadline. However, one need not think of this as stimulus, because it's merely life support for cratered GDP and an impending onslaught of additional layoffs.

So to summarize, for 2021, record COVID deaths don't matter, market valuations don't matter, the economy doesn't matter, dwindling stimulus doesn't matter, a massive debt overhang is no problem, all that matters is monetary heroin overdose.

Wealthy short-seller Jim Chanos calls this era, the "golden age of fraud". And I couldn't agree more.

However, he finally capitulated on Tesla this week, which means the stock will likely crash sooner rather than later. Although I have no position, nor would I short that widow maker. Goldman just upgraded the stock to +infinity. And of course this month it will be the largest stock ever to be added to the S&P 500.

"Short interest has declined by 63% this year"

2020 was the year of Tesla, which currently sports an 1100 P/E ratio, but as we know, in the golden age of fraud, valuations don't matter. 

Now we know why the dollar has been getting shellacked. It's been getting dumped to buy much riskier EM assets:

“We are recording the strongest pace of non-resident portfolio flows to EM in many years,”

If December keeps the pace since October, the fourth quarter could see the highest level of net EM debt issuance ever, according to IIF’s data."

In the golden age of fraud, record debt expansion is now bullish. From a global perspective, this period is very much deja vu of the tax cut. A big RISK ON party into the tax cut. Followed by a massive deflationary hangover.

Which is why my prediction for 2021 is a MASSIVE crash any day now, followed by extreme deflation.

All of which can only come as a total shock in the golden age of fraud.

"Goldman Sachs has been one of the top Dow performers over the past month, rallying more than 20%"