Wednesday, December 30, 2020

What To Expect From The Big, Fat, Ugly Explosion

If Trump being the most admired man in America is not a warning, then there is no warning. For aspiring criminals...

Late last February, the pandemic was escalating, the economy was on lockdown, gamblers were chasing risk, Trump was being an idiot, new highs were not confirming the S&P's new high.

People were saying the bears are wrong again.

What's changed? 

Most gamblers today are obligated to believe in a thing called "The Plunge Protection" team. It's the belief that central banks can bail them out of any risk. These people believe that central banks can both inflate bubbles and keep them from popping. It's an unfortunate fantasy that both the Chinese and Japanese have learned the hard way is not true. 

Even in the U.S., the PPT theory has had several spectacular failures. Most notably in 2008. The Fed's largest balance sheet expansion in history (up until this year) took place in November 2008. The market bottomed four months later, down -40%. 

And as we see below, even the so-called bailout in February and March was an unmitigated gong show:

When global markets went RISK OFF at the end of February, the S&P 500 crashed -10% in one week - the fastest correction in history. On Tuesday March 3rd, in an unscheduled meeting, the Fed cut rates by .5% which many pundits said was a panic move. Unimpressed, the market crashed for a week and a half straight after that meeting. Then on Sunday March 15th, in another unscheduled meeting, the Fed slashed rates by an entire 1% down to 0%. AND they launched a massive $700 billion QE program. Still unimpressed, the casino was limit down that night and Monday was the biggest down day of the entire debacle -13% at the lows. The VIX peaked at 90 on Monday, but the casino bottomed on Friday. 

What I expect this time around is a far more violent and uncontrolled crash. Of course, as it was in Feb/March there will be massive 1-3 day rallies. However, I see the Fed and central banks having even less control this time around. First off, there is no ability to cut interest rates. Secondly, dollar shorts - explicit and even more so implicit - are far more leveraged now than they were in February. The overall reach for risk is far greater this time around (see bubble section below).

People always want to know, what will be the "catalyst" for a crash? The catalyst this time will be the same as last time - rampant stupidity and a financial services industry pushing people further and further into risk, on the belief that central banks can both finance risk and eliminate risk at the same time.

Because who wouldn't believe that three years in a row?

"Looks like the bears are wrong again"

Now, let's review the largest bubbles of the 2020 COVID pandemic gold rush. Below is my list as I see it. I'm sure others have their own list of exploding assets.

#1 Tech stocks. The most crowded trade of 2020

Within the overall Technology space there are many sub bubbles: semiconductors, video game stocks, cloud internets, Fintech, AI/robotics. So on.

Here are a few:

Overall volume on the Nasdaq exploded in 2020:

"8 million people opened new accounts in the first nine months of the year across brokerages including Charles Schwab Corp., E*Trade Financial, TD Ameritrade Holding Corp. and Robinhood Markets Inc., all of which permit a version of free trading."

“I’ve never had so many friends text me asking which beaten-down stocks to buy,” Jessica Rabe, co-founder of DataTrek Research, wrote to clients. “They were not fearful about losing money. They were afraid of missing out on the large snapback.”

Rule #1 of Disaster Capitalism: Never let a good crisis go to waste. 2020 was the biggest pump and dump in history:

Then there is the ESG/Solar/Tesla lunacy:

The largest market cap increase of any stock in the world - half a trillion in market cap.

1200 P/E ratio. Still not profitable making cars.

The 2020 Biotech bubble:

The Bitcoin/Crypto bubble

The only asset class that trades 24 hours a day seven days a week, globally. I have no idea how these people sleep at night.

There can be no question who won in 2020 and it won't be Tesla and Bitcoin gamblers bidding up their own assets while pretending to be wealthy

What do all of these bubbles have in common?

They are all 100% leveraged to rampant criminality, and they will all explode at the same time.