Sunday, January 31, 2021

"Which Stonks Should I Buy In A Meltdown?"

This is the type of cogent analysis you won't get anywhere else in Disney markets. While most of the world is focused on the Gamestop pump and dump "revolution", they are ignoring the true Ponzi risks growing by the moment...

However, a few of us understand what is at stake:

"The stock market turned into a spectacle to rival Super Bowl LV this week, as retail investors and hedge funds faced off over GameStop stock. Tom Brady and Patrick Mahomes will have a hard time providing as much entertainment to viewers around the world as this latest step in the gamification of financial markets."

Every bubble is associated with redistribution, and much of the alpha that professional investors boast about is nothing more than timing gains that are redistributions from other parties. The current populist moment in financial markets, like many other populist moments, will only serve to amplify that redistribution toward the rich and informed, all the while suggesting that it is doing the opposite."

This last point can't be overstated. This so-called populist movement to "democratize" markets is merely going to make a handful of early pump and dump specialists extremely wealthy at the expense of the fools that follow. For every one person enriched by these schemes, there will be multiple losers, none of whom will be interviewed by CNBC.

Getting back to the key point of this post, the inevitable meltdown of Disney markets. When this meltdown gets fully underway - which may well be the case already - we won't have time to reflect on the various dislocations. Therefore, we must think about these things ahead of time. I fully expect that most of these predictions will come true, however the timing will be the hard part, which I leave to the reader to discern.

First off, this event will put Disney markets to the ultimate system test, and they will fail. Market structure has been eroding for years, ignored by regulators.  Whereas the casino almost came unglued last Spring, the violence of this decline will break the market. First off, algos will step back from the market, taking liquidity down to zero. Brokerages will go offline. ETFs will implode. Circuit breakers which are meant to slow market decline will prevent traders from selling their positions and therefore prevent markets from clearing. Panic will ensue. At 2:00 pm each day margin clerks will liquidate gamified investors. Selling any positions they can, indiscriminately. Which means that no "stonks" will be safe havens. 

The magnitude and leverage of this bubble will test central banks to the breaking point. It took five weeks for CBs to get the crash under control last March. It will take a matter of several weeks again this time, however, the velocity of this crash will be far faster and far more violent. The market bottomed at -35% last time, this time we should expect a larger drawdown before they get it under control. Unlike last year, the market will not rocket straight back up. I expect some chopping and retest around a bottom as panicked investors sell. Then eventually a slow tentative rally will ensue. Confidence in Disney markets will be destroyed.

We should expect a currency crisis to erupt and spread globally due to the massive dollar carry trade that was set loose by the Federal Reserve promising to keep U.S. interest rates low indefinitely. The record dollar short trade will get monkey hammered. 

Along with a currency crisis will come an end-of-cycle credit crisis. Facing massive losses, over-leveraged lenders will step back from the market. Ponzi borrowers - which were bailed out last Spring will go into eventual default, unable to roll over their debts. The blood will be in the water.

Recall that Republican Senator Pat Toomey demanded that the Fed relinquish its special corporate bailout powers in the last stimulus bill. Which means that this time around the Fed will not have the ability to buy corporate bonds in the secondary market. Which will leave the corporate bond market open to wholesale collapse. 

As the meltdown spreads to the far corners of global assets, no major asset class will be spared. Deflation will be extreme. Policy-makers will respond with more monetized fiscal stimulus, however the effects won't be felt for months. 

The unemployment rate will explode.

Throughout this dislocation, t-bills and money market funds will be safe havens on a relative basis. And gold of course will be the ultimate safe haven, although it too will experience "volatility". I believe gold will go down initially and recover ahead of other asset classes.

Gamble at your own risk.  

Going forward, policy reforms will be market unfriendly - higher taxes on the ultra-wealthy, and the inevitable reregulation of Wall Street. The stock market will trade in a wide trading range for the foreseeable future, as policy focus turns to the long neglected economy.

All that said, from crisis arises opportunity. In the days to come I will be combing through the IBD (Investors Business Daily) innovator 50 list to determine which growth stocks to buy on a "dip". What could be the buying opportunity of a lifetime. Clearly green energy will be a key space for the coming decade, and this pullback may be a golden opportunity. From the ashes of the Dotcom bubble arose many of the Tech leaders of today. Those who bought Amazon at the nadir are long since retired. 

Those who think all this can't happen are ignoring the fact that it is already. Coincidentally, this coming week is the third anniversary of the 2018 Vixplosion, when Trump's tax cut blew up in their faces.

The set-up is identical:

Good times.

Friday, January 29, 2021

The Last Jedi Mind Trick

This week, faux Millennial populism jumped the shark from Occupy Wall Street to coordinated pump and dump. While Gamestop and AMC junk stocks captured all of the attention, the REAL risks were ignored. In the SEC tradition...

This week in a nutshell:

"The jump in the rankings for financial apps represents a massive interest among the general population in retail investing through apps like Robinhood or Webull. Reddit’s jump is due to the popularity of the forum Wall Street Bets, where the GameStop boom began"

This is one of the best signs we have yet that the retail boom has gone mainstream."

"It's time"

Occupy Wall Street, indeed. It's times like these when being a bearish blogger is almost entirely pointless. The animal spirits are running rampant, and any amount of risk can be easily explained away. The bullish arguments are so specious that it's pointless to even try to warn people. The level of risk right now is unprecedented in casino history. 

There were multiple outages across all of the major retail brokerage companies this week. The only concern all week surrounded new restrictions on trading junk stocks. There was absolutely no concern over the outages themselves. The SEC is now investigating trading restrictions while ignoring the pump and dump schemes hatched on Reddit. Over on Zerohedge, pump and dump schemes are being compared to populist uprisings. According to this new narrative, "the people" have had enough, and are now taking their revenge by bidding up Gamestop to asinine valuations. Historical parallels to the French Revolution, as depicted on South Park. 

"Life, liberty, and day trading"

Step back for a reality check from the ironic perspective of generational warfare.

For all intents and purposes, the Boomers all but destroyed the economy. Some would say that's too harsh a statement, but intentional or not that's what happened. When measured by the wholesale outsourcing of manufacturing, the degraded quality of jobs, the demolished benefits and job security, the bilking of Social Security to pay for tax cuts, the non-amortizing Federal debt now conflated as GDP, the doomed dollar etc. etc. Voodoo economics. All to bid up the stock market to asinine valuations to provide the illusion of full Boomer retirement. 

So now the fleeced Millennials, facing zero economic upside have exacted their revenge by turning the stock market into the world's largest casino, at the end of the longest cycle in U.S. history. Which has put this entire Ponzinomic enterprise at risk of explosion.

Suffice to say, there will be plenty of pain to go around when the overwhelming majority lament that no one saw it coming. Of course no one saw it coming, it's been coming for so long, these jackasses assumed this unsustainable gambit would continue forever. The more ludicrous it became, the more they believed in it. 

This blog exists solely to inform that this society is cornered by dumbfuck ideas. Unlike Japan, there will be no decades of deception. Monetary asset Ponzi is now a global phenomenon.

It was quite a week in the Casino. The S&P 500 ended the week camped at the 50 day Maginot Line. Bulls will need to pull a rabbit out of their ass to prevent wholesale meltdown next week, as the S&P ended at the lows of the week:

The VIX was up 60% on the week:

"It becomes self-fuelling: the more the Street steps back, the lower the liquidity"

Reddit day traders forced hedge funds to deleverage their portfolios on the short side AND the long side. It's called "grossing down" in portfolio management parlance. The unintended consequence of day trading revolution - Reddit delinquents watching their portfolios self-implode.

"Hedge funds can be forced to sell (long) holdings as losses on shorted stocks mount."

Ten VIP stocks that are hedge-fund holdings include: Fiserv (FISV), Uber Technologies (UBER), Booking (BKNG), Expedia (EXPE), Sea (SE), Caesars Entertainment (CZR), Micron Technology (MU), Pinterest 
Pinterest Inc.(PINS), Carvana (CVNA) and Peloton Interactive (PTON).

Those 10 stocks are down an average of 9.2% over the past five days."

Europe is also camped at critical support:

The Global Dow is going full 2018 deflation mode:


One thing I know for certain as I hedge my bets on NeverNeverLand exploding - the grasshoppers on the other side of this trade can't afford to be wrong. They don't have a plan for when con jobs are no longer sanctioned by the SEC. 

In summary, gamblers were notified a year ago with the COVID outbreak that the status quo is over. But, they wanted one more blow off top in risk seeking Ponzi markets, lubricated with insane amounts of central bank liquidity.

The hangover from which will be brutal.

"What does that reset look like? Schwab and his colleagues are pushing the concept of “stakeholder” capitalism — an approach to business and economic policymaking that looks beyond the interests of shareholders and toward the well-being of society"

At least 225 million jobs disappeared worldwide over the past year — losses that were four times larger than what was exacted by the global financial crisis more than a decade ago"

To the Oligarchs pretending to care about the rest of the world now that their monetary inflated wealth has reached biblical proportions. 

Too late. 

Thursday, January 28, 2021


In the U.S. there is now bipartisan support for market imploding pump and dump schemes. How else would this all end?

Joe Biden inherited the worst economy in 90 years, the worst pandemic in 100 years, and the biggest end of cycle asset mania in U.S. history. All compliments of McDonald Trump, the most derelict reality TV president in developed world history. The people who still believe in this government run Ponzi scheme specialize in being idiots. The only thing they won't believe, is the truth.

These Disney markets are a direct reflection of this society. NeverNeverLand is on a vacation from economic reality sponsored by central banks. Back in the Dotcom days, we didn't have any Reddit WallStreetBets forum. We had Yahoo message boards. Which started out with congenial discussion and then quickly descended into a toxic waste dump overrun with anonymous trolls. Which is why I don't take comments on this blog, because it attracts the dregs of humanity. Nothing back in those days was as "sophisticated" as these Reddit bear raids however. That's how Jim Cramer refers to these pump and dumpers, he lauds them as sophisticated. In the same way Bernie Madoff was sophisticated. Sadly, most of the people engaging in these pump and dumps will get wiped out financially. A small few will make massive profits at everyone else's expense. Those leading the attacks will surreptitiously cash in their chips while they are still cultivating the enthusiasm of others. And then, they move on to the next one, and the next one, until there is no one left to follow.

Now Congress is getting involved to protect the rights of the Reddit Mafia, because everyone knows the right to pump and dump stocks and implode brokerage companies is a Constitutional right. According to these bipartisan morons, those of us investors who have been prevented from making trades due to outages caused by group market manipulation have no rights, only the kids manipulating stocks have rights in Disney markets. 

It's abundantly clear these politicians are totally clueless as to the risks posed at this intersection of monetary liquidity overdose, extreme over-valuation, and speculative pump and dumps schemes. Wait until these brokerages go off line for hours at a time, then these bipartisan idiots will realize WHY the brokerages restricted Ponzi gambling. But it will be far too late for that realization. The accumulation of ignored risks and flash crashes has been taking place for over a decade.  

Here we see via the hourly chart, the condition of the last Trump Casino is quite parlous at this juncture. Late yesterday, the lower trendline was tested once again. Today's rally bounced back to retest the upper trendline of the rising wedge channel. And was rejected. A solid break of the lower trend line portends meltdown. 

Here we see that yesterday second derivative volatility was the highest since the last meltdown. VVIX measures the sensitivity of implied options volatility (VIX) to the underlying S&P 500. When VVIX is elevated, it means that small moves in the market create outsized moves in implied volatility, which creates outsized moves in the market, as hedging becomes more expensive. It's a momentum feedback loop in the wrong direction.

Nasdaq total volume is setting new records this week. Usually volume recedes on rallies and rises on selloffs. Not in this meltdown mania.

Picture what happens when the Reddit mob discovers the sell order for the first time. 

"In the broadening top formation five minor reversals are followed by a substantial decline"

"Most of the selling is completed in the early stage by big players and the participation is from general public in the later stage"

It is a common saying that smart money is out of market in such formation and market is out of control"

"About 44 circuit-breaker halts were triggered in the first two hours of trading Wednesday amid the rapid ascension of amateur investors armed with Robinhood and their favorite social media platforms"

Wednesday, January 27, 2021

Fools And Their Money. Are Soon Parted.

Making money in an everything up market is the easy part. Keeping it is the hard part. Every generation has to learn the hard way the difference between unrealized and realized gains. In this Idiocracy, some people have to learn more than once. However, I suggest that for most people this will be their final lesson. They have been seduced by Hendry's Iron Law of Disney markets:

"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...amid this falsehood of recovery, those drugged by the virtual simulation of prosperity and its acolyte QE, will be destroyed"

Today, we were once again reminded that making money in stonks is easy. With a one word tweet, Elon Musk doubled Gamestop today, again:

"His one-word comment — "Gamestonk!!" — was all it took to cheer on the the popular Reddit page that's been generating most of the hype around the stock"

That one word tweet was good for another 100% gain in Gamestonk. Now up some 2,000% in four weeks. 

All of which is reminiscent of October 2008 when Volkswagen shares went late stage parabolic in what used to be the most famous short squeeze of all time. That was around the same time that the casino was going into meltdown mode post TARP bailout. 

While Reddit bulls are busy exploding hedge funds left and right, they appear to be ignoring the massive dislocations they themselves are creating in the casino. So far this week on both Monday and Wednesday morning, the casino had a close call with meltdown. On both days multiple retail brokerages had outages. Just a prelude as to what is about to come. Two dinky stocks with the combined market cap of one Tesla up day brought down multiple brokerages on Wednesday:

"TD attributed its app outage to 'unprecedented volumes' of activity"

Add Fidelity (my broker) and Robinhood to the list of sites experiencing intermittent outages today and Monday. Now picture what happens when Tesla implodes, along with Microsoft, Apple, Google, and Amazon. 

So far, all sage warnings have been ignored. Millennials are now searching around for the next set of stocks they can swarm higher. Making money via groupthink social media forums has never been easier.

It's clear that most people gambling today don't remember Y2K or, they were still in diapers during that era. Most people today seem to believe that the biggest losses were suffered in, JDS Uniphase, Ariba, and other shooting stars that never survived that era. However, MOST of the real money was lost in Microsoft, Oracle, Intel, Dell, Cisco, Sun Microsystems and other large cap Tech stocks that were deemed "safe havens" at that time. Which is deja vu of today. 

Here we see the Nasdaq 100 / S&P 500 ratio. 

Of course the only thing easier than a Reddit message board for generating ephemeral wealth is central bank asset inflation. The source of all of today's billionaire fake wealth. For today's Tech billionaires in particular simulated wealth creation has never been easier while the real economy implodes in real time. Per Hendry's iron law of Disney markets. 


Tuesday, January 26, 2021

How To Create A Bidless Market

Central banks and Reddit traders are collaborating to create a bidless market. Millennials are putting Boomer retirement at risk, because they've mistaken the stock market for a casino... 

The biggest stock market rally in the past decade just took place during a pandemic that caused the most economic damage since the Great Depression. COVID accelerated the end of the cycle, but the central bank Jedi Mind Trick made it impossible to see it ending. A generation of financial illiterates with no experience in bear markets, is now convinced they are invincible stock picking geniuses. When volatility explodes, the global margin calls will arrive night and day. It will be the reverse wealth effect, and the margin clerks will be much faster than the central banksters. 

"When do you think we'll get another pandemic?"

Gamestop and the short squeeze story is now all over the financial pages, so I will spare you the details. Suffice to say our Millennial son called us on Friday to say he had banked $25k one day profit on this latest pump and dump. Easy money. Now, the retail Reddit traders are ganging up on hedge funds and options market makers. Jim Cramer sees nothing wrong with the little guy getting even with the big boys. If that was all there is to this I would agree. However, these rampant pump and dump schemes are symptomatic of a massively over-heated market. Picture self-directed retirement plans now 100% correlated to a Las Vegas casino. You get the idea. Millennials have their Robinhood portfolios stacked with GE and Ford stock side by side with Gamestop and Bitcoins. When the margin calls roll in the margin clerks will reach for whichever stock is most liquid. 

And it won't be Gamestop. 

Reddit traders are targeting all heavily shorted stocks, particularly in the retail sector, which is bolstering the delusion of a full recovery:

Move along, nothing to see here:

Just as Reddit traders are bidding up the riskiest stocks, central banks are doing the same thing to the broader market - compressing volatility making hedging totally unprofitable. Which is why last week asset managers reached decade high risk exposure:

As I've shown recently, Asian markets are going similarly bonkers. Hong Kong is playing catch-up with the rest of the world:

"A chill swept through Chinese financial markets after the central bank withdrew cash from the banking system and an official warned about asset bubbles."

The People’s Bank of China drained about $12 billion via open-market operations on Tuesday. The decision was unusual in the weeks before the Lunar New Year holiday, which in 2021 falls in mid-February"

The reaction was particularly brutal in Hong Kong’s stock market, where onshore funds were helping underpin a world-beating rally. Mainland investors bought a net $32 billion worth of Hong Kong stocks this year through Monday, almost 40% of last year’s total"

Five months of inflows in three weeks. 

The pounding in Bitcoin is a warning of what is coming to every other over-heated asset market:

"With a full-blown retail raid targeting their short books, many of the stocks hedge funds are bullish on are suddenly in trouble, too. That has prompted the industry to cut their risk appetite at the fastest pace in more than a year"

In a market where bearish wagers are backfiring like never before, one way to mitigate career risk might be to sell stocks that had previously been working -- even if that means parting with some beloved companies."

The irony that Reddit bulls squeezing hedge funds out of their bear trades could be the catalyst for the casino to come crashing down. Can't be overlooked.

Picture how many hedge funds hold Tesla:

In summary, short covering is providing the illusion of a recovery where there is none. 

Next comes the bidless market deja vu. And then Millennials will enjoy their first bear market wipeout. 

Good times. 

Monday, January 25, 2021

Still Stuck In Deflation

According to today's economic "experts", the cure for wealth inequality is greater wealth inequality. The only way this "system" gets fixed is when all of these "experts" and their dumbfuck ideas explode with extreme dislocation...

The Globalized economic paradigm has always been inherently deflationary - corporations constantly moving production to the lowest cost locales in order to "grow" profits. Leaving a wake of economic devastation behind them. The inevitable end result was global interest rates stuck at the zero bound for over a decade straight. Free trade generated free capital which then further accelerated the automation of jobs, thus creating the beloved COVID-resistant virtual economy. Global central banks have compensated for this depressionary capacity glut by pumping up asset values in the Tech sector, to reward them for obliterating traditional industries at an unprecedented rate. 

What could go wrong?

All of this chicanery so that Boomers could pretend their retirement is still intact. They can ride out a global depression in the most over-valued stock market in history to achieve the linear-extrapolated goals set forth by their investment advisors. Today's advisors and central banks are hardcore acolytes of the Bernie Madoff school of investing: Set a goal and then work backwards to whatever asset misallocation will achieve it. 

We now see that even the "blue wave" has still not changed the predominant deflation paradigm, which by sheer coincidence happens to be very billionaire friendly. It's at this time of year that Oxfam reminds us that global wealth inequality increases every year. This past year however has been one for the record books:

"Nine months. That's how long it took the world's top 1,000 billionaires to recoup their fortunes after the coronavirus pandemic hit.

More than a decade is how long it could take the world's poorest to recover, according to Oxfam International's annual inequality report."

Let's get this straight:
Since 2008, global wealth inequality has been getting worse, and now that abject lack of progress just got set back by another decade? I'm no logic expert, but I'm pretty sure that means there will be no "recovery" for the world's poorest. We were making NO progress before, and now we're another full decade behind in making no progress. Rule #1 of navigation, you can't reach a destination by going in the wrong direction. 

So how to fix a global economic depression in a system that generates mass wealth  inequality? According to today's "experts", you put an asset bubble on steroids. Cure a system terminally corrupted by greed by subsidizing epic amounts of leveraged speculation. 

Only one thing can fix this problem wherein Elon Musk sees his wealth grow by 600% in one year compliments of socialism for the rich. Asset explosion.

And despite all of the talk of "reflation", the locus of risk remains the Tech sector.

The reflation trade:


EMs about to get crushed deja vu of 2020:

Yes, it's FOMC time again

Fear Of Missing Crash:

Thursday, January 21, 2021

Socialism For The Rich Is Doomed

Ponzi markets are priced for perfection in a pandemic depression. What could go wrong? Having neither the fundamentals nor the technicals in their favour, today's gamblers have fallen back on the extant belief that human history's largest asset bubble can always get bigger. While the smart money is betting that the bubble explodes at all time highs, the dumb money is betting that the bubble keeps growing, and should it explode they will be made whole on their collapsed Bitcoins... 

Amid record wealth inequality and a peak pandemic, Biden must now contend with the biggest post-election asset ramp in U.S. history. Trump's legacy of socialism for the rich...

"Looking back historically, the all-time champion for Election Day to Inauguration Day performance had been the one-term Republican President Herbert Hoover"

Beating Hoover's record is a bad omen. The difference is that back in 1928 the stock market was partying at all time highs and the economy was booming. Whereas now, in this Idiocratic economy, the stock market is booming amid the worst unemployment since the 1930s. We have a DotCom bubble in a Great Depression economy. But, fortunately we have unlimited stimulus and a generation that no longer cares about debt. At the current rate, the Fed, BOJ, and ECB are expanding their combined balance sheets at the rate of $6 trillion annualized. Yes, you read that right. This market is over-stimulated, over-valued, and over-heated.

This week, global markets are going late stage parabolic with the swearing in of President Biden. The only people happier than Democrats that Trump is gone, is the entire rest of the world ex-Russia.

Now that Trump is no longer in office, several economic/financial risks have fallen off the ledger: deflation, gridlock, COVID denial, war with China, Twitter buffoonery etc. However, therein lies the problem - this market has priced out all risks. Biden's election triggered global euphoria at the worst possible time in the cycle. A time when investors should be de-risking. Nevertheless, this Obama, Trump, now Biden cycle must never end.

"With markets at these dizzying heights, everything must go right, but pitfalls are everywhere"

It’s not just stock prices that are at extreme levels.

Ed Clissold of Ned Davis Research noted that traders were exhibiting “extreme optimism” and wondered, “Are there any bears left?”

Technical levels are also at extremes. The 200-day moving average for the S&P 500 is a standard metric to measure momentum. The S&P 500 is now 16% above the 200-day moving average, twice the normal levels even in bullish markets. Other technical levels also are flashing overbought."

Chinese markets in particular have been going bonkers this past week. Some would say it's because Old Joe will be easier on China than Trump. He will certainly be more civilized and measured. However, there doesn't appear to be too much thinking going on behind these markets lately, because Chinese stocks have been going up even as Trump levied one sanction after another on Chinese companies. Meanwhile, this week Janet Yellen vowed to keep the heat on China:

Joe Biden, and the unexpected blue wave gifted by Trump on January 5th, have theoretically ushered in true economic reflation. If so, it portends badly that Tech stocks are STILL leading this rally:


Meanwhile, banks are rolling over:

Call central banks because social mood is rolling over and the losses are about to accelerate and spread to other asset classes