Sunday, February 28, 2021

Brace For Rampant Deflation

So many fools today are worried what happens if yields keep rising, that they are ignoring the real risk - what if they don't keep rising? While copious dullards are on the lookout for inflation, they are about to get trucked by deflation. Starting with asset deflation which will bring about uncontrolled economic deflation. Central banks will be powerless to stop it...

I wrote this article in response to this Zerohedge post:

Brace For Rampant Inflation

Most pundits today believe that all it takes to create inflation is Fed balance sheet expansion. If that were true then Japan would have extreme hyperinflation by now. The Yen would be worthless. However, despite having the most aggressive QE program in history Japan has been mired in deflation for over thirty years. In addition, the BOJ is Japan's largest stockholder. And yet, the Yen is STILL viewed as the ultimate safe haven, safer than the U.S. dollar. Globalization is inherently deflationary. It's not meant to create middle class wealth, it's intended to monetize the middle class to mint new billionaires. A dubious "capability" that reached record wealth inequality over the past year, in what can only be called the biggest billionaire bailout in history. And yet they STILL don't see the inherent deflation risk in this "system". Nothwithstanding this deflationary track record for forty years straight, deflation remains the least expected outcome on Wall Street.

Once again, the reflation trade is the most crowded trade on Wall Street right now. As we see via the graphic above, the consensus belief currently is that the vaccine rollout is leading to inevitable recovery which will accelerate in Q2. In the meantime, the ongoing stimulus is "building a bridge" to full recovery. The reflation narrative assumes that the record asset bubble continues growing unchecked, to infinity. However, in my view the asset bubble is the biggest risk to this fairy tale. When the Dotcom bubble exploded in March 2000, the Fed had 6% of interest rate buffer to cut to offset recession. They used 4.5% of it. This time, the Fed has zero % interest rate buffer. Which means that "stimulus" is entirely dependent upon a fractured Congress who can't agree on anything. Even within the Democrat party, fault lines are now appearing between fiscal moderates and the radical left.

The pandemic has made economic reflation far less possible than it was one year ago before the crash. Post-pandemic, we now face too much unemployment, too much debt, too much corporate insolvency and of course far too much asset speculation. Central banks have ALREADY lost control of risk asset markets, which have been levitating vertically towards a lethally overbought condition. A correlation of "1" in which all unhedged speculators are on the same side of the ultra crowded reflation trade - across stocks, bonds, and currencies. Fittingly, by pushing asset valuations to unprecedented levels, speculators have made their expected outcome far less likely to occur.  

Today's pundits who make the least sense are the ones who acknowledge the insane asset bubble AND who predict imminent hyperinflation. Do they not understand what inflation does to interest rates and bond markets? It explodes them. It ends the economic cycle as it has every other time in U.S. history. As it's doing now - reflation continues just long enough to create a credit crisis:

Of course the current back up in yields is minor compared to what we have seen in the past. Only now, yields are back to December 2019 levels, after $7 trillion of combined monetary and fiscal stimulus aka. 30% of the economy.

Here we see the oil market as a proxy for global recovery aka. lack thereof. 

The fact that central banks no longer have control over risk markets will soon be evident to even the most stoned of gamblers. They have been fully willing to ignore the risk as long as overall markets were marching higher. When it all explodes lower, they will not be quite as complacent. What took five weeks one year ago to get markets under control will likely take even longer this time. However, the real problem will be economic, as policy-makers won't have the ability to adequately stimulate the over-leveraged economy.

Given all of these risk factors, I currently don't see any serious prospect for sustained reflation on the horizon at this time. 

Gold is confirming what I see right now - stoned gamblers chasing risk in the biggest bubble in human history while making up stories about economic reflation to justify asinine valuations. They are reaching for maximum leverage going into an economic depression.

A lot of hot air, just waiting to explode. 

Friday, February 26, 2021

The Age Of Fraud Is Imploding

In the spirit of the times, the burden of truth remains on those of us who still believe in the truth. For those who are massively leveraged to more, there is only more fraud, more corruption, and more self-delusion, ending in unforeseen collapse...

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.

Rewind exactly one month to the end of January. The Gamestop debacle had monkey hammered the casino on massive volume. Growth stocks got pounded. On the last trading day of January which also happened to be a Friday, the casino was likewise camped perilously at the 50 day moving average. Here is what I wrote:

"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"

In other words, this week was literally identical to the last week of January. And of course back then bulls DID pull a rabbit out of their ass.

I know what you are thinking. I must have learned my lesson by now and seen the error in my ways. Based on the above identical technical set-up I must assume the market will ramp higher from this level. No thanks. I will NEVER trust Disney markets. Nevertheless, one must respect the fact that these algos will do everything possible to hold that 50 day moving average.

So now we must look around for what divergences attend this precarious scenario versus one month ago. First off, we should recall that this week is the anniversary of last year's meltdown. Only this time around, the preceding melt-up was far larger. 

Exhibit B shows individual investor bearishness now versus one year ago. Back then, and this year as well, bears pressed their bets into the first selloff, but then they reversed course during the ensuing melt-up. Looking closer from a month over month perspective notice that last month with the S&P at the 50 dma bears were much higher (Jan. 25th). This week, they let their guard down. Which makes this set-up similar to last year - a bull trap followed by a trap door. 

That's the good news for bulls - a set-up deja vu of last month with the possibility of one last bounce to get out through a very narrow and crowded exit. 

The bad news is that the smart money already left the building. And now there is massive technical damage on a scale we never saw one month ago:

Here we see the massive (weekly) volume in the World's most popular ETF, the Ark Innovation Fund. Note that in terms of price, the past two weeks erased year to date gains:

Similarly (large cap) Momentum Factor is negative on the year, and broke the trend-line going back to last March.

Tesla - the world's most overbought and overowned Tech stock is below the 50 dma for the first time since last March:

Outside of Tech, safe havens are bidless due to the bond market implosion this week. Stocks can no longer compete with soaring bond yields:

What about cyclicals? Surely the most crowded trade of 2021 must still be working? Glad you asked. 

This week, cyclicals rolled over deja vu of June:

Yields have likely peaked for this cycle. And now the dollar is getting set to rip. 

In summary, the February rally was a bull trap, and judging by the AAII bears above, it worked fantastic. 

Which means buckle up, because this March is very likely going to make last March seem like a picnic.

Wednesday, February 24, 2021

The Last And Most Lethal Bubble: Economic Delusion

Of all of the frauds and Ponzi schemes operating under the hood of this central bank sponsored vacation from reality, all pale in comparison to the economic recovery fraud taking place in broad daylight. Twelve years of post-2008 monetary bailout is now reaching its logical conclusion - a super asset bubble masking economic depression. Pump and dump schemes have been officially normalized...

This week Fed Chairman Jay Powell painted a bleak picture of the economy in his testimony to Congress. He also pledged to keep monetary policy on full throttle until the economy improves. Therein lies the problem, his own policies have created the biggest divergence between fantasy and reality in U.S. history. His stark view of the economy could not be more at odds with the opinion of the markets he has assiduously over-lubricated, which have now priced in a better economy than what abided pre-pandemic.

Cyclicals at the end of the cycle is where money goes to die:

"Fundstrat Global Advisors’ Tom Lee sees a major market shift underway in which Big Tech starts to greatly underperform economically sensitive stocks."

“We’re two months into something that could be playing out over the next 10 to 20 years.”

The market bottomed on March 24th, 2020, which means we are now eleven months into mass delusion on a biblical scale:

The other massive disconnect the Fed has created is between the working class and the casino class. Wealth inequality has exploded to record highs during the past year as service sector workers were laid off en masse while white collar workers enjoyed a paid staycation, spent online gambling. COVID accelerated all of the built in inequities of the U.S. economy, and in signature form, the beneficiaries of this "system" are ignorant as to the plight of the working class. They are judging the "economy" based upon their own unrealized casino gains, while ignoring the five years of job loss that has yet to be repaired.

The fact remains that today's policy-makers have no clue how to fix the economy. Today's economists are money printing experts and financial alchemists. This generation knows how to outsource an economy but they have not even the slightest clue how to get one back. The engineer CEOs of yesteryear have long been supplanted by overpaid marketing and finance Mad Men. All of which portends ongoing stimulus dependency for the foreseeable future. Each round larger and more dramatic. 

However, among the many distortions caused by printed free money, a massive stock market bubble is only one of the deleterious side effects waiting to implode. This week, the bond market is getting annihilated by the prospect of infinite stimulus. The efficient "free money" hypothesis is getting tested in the bond market, and it's failing:

The irony can't be overlooked:

Feb. 24th, 2020:

By not raising short-term rates, the Fed is pushing inflation expectations and long-term rates higher:

In their infinite bureaucratic wisdom, global central banks have decided that printed money is a proxy for a real recovery. Today's momentum chasing gamblers - themselves economically illiterate - have been easily seduced by the asset sugar high. Fully believing that the stock market actually reflects economic fundamentals, when nothing could be further from the truth.

An intentional delusion that central banks have been cultivating since 2008.

This week laggard Energy stocks are leading the market. Today, the XLE finally filled its open crash gap from last February. As we see manic stimulus expectations peaked in June and are overbought again now:

“The epicenter of the epicenter is the energy sector"

What awaits those who have bought into this entire fraud hook line and sinker is a sudden and very unexpected downsizing in lifestyle. One that will serve to collapse the massive gap between the wealthy and everyone else. In this way policy-makers will be successful in fixing inequality. 

Just not in the way that anyone expected.

After all, we are "early" in the cycle of criminality:

Tuesday, February 23, 2021

Meltdown 2.0: In Progress

The amount of rot and fraud under the hood of this Fed sponsored pump and dump is unprecedented in U.S. history. When it all explodes "without warning", the Idiocracy will be shocked at how much criminality they enjoyed while it was working in their favor...

On the anniversary of Meltdown 1.0, ALL of the COVID bubbles are imploding at the exact same time: Bitcoin, EV/Tesla, SPACs, MAGA cap Tech, Work from home, pot stocks, biotechs, and EM Tech...

Sadly, the usual bagholders have no possible way of knowing that the party is already over. One of the downsides of being addicted to bullshit.  

Last year during the first week of meltdown, I noted that the BTFD impulse had conditioned gamblers to calmly self-implode. The slow motion implosion was a surreal moment, as it is right now. The perma-bullish financial media will take a few days or weeks to catch on to the fact that the party is over, because their audience is in no mood to believe it. By the time they figure it out, it will be far too late. Over the past week there have been four overnight selloffs that led to morning crashes in the U.S. - each one of a larger magnitude, and yet each one got bought. 

Then as now, post-opex the Nasdaq 100 crashed into its 50 day moving average and backtested it from the underside. By Friday of that first week, the 200 dma was the first level of support. Which is another 10% lower from current levels.

The World's most popular ETF traded 600% of average volume today.

The largest holding of the Ark Funds is of course Tesla, which has now entered a bear market along with BitCasino. Two Ponzi schemes tied together to see if they'll float:

"Tesla shares have fallen into a bear market, down over 20% from the recent high, and some analysts suggest the company's ties to bitcoin are to blame as the currency takes a beating"

Ark Web's two largest holdings are Bitcoins and Tesla

I read a message board comment recently saying that Cathie Wood is the only Boomer who trades like a Millennial.

100% pump and dump and proud of it.

Speaking of which, Nasdaq selling pressure is at March 2020 levels of distribution. The smart money is hitting the dumb money bid.

Today, one of the most high profile SPAC deals revealed itself to be another pump and dump at home gamer expense. Shocking as that may sound. These unregulated private equity vehicles are a con man's paradise. 

"Amateur investors have crowded into Klein’s SPAC in the hope of backing the next Tesla Inc. They did so before knowing the terms of the proposed transaction or the state of Lucid’s finances. Gambling doesn’t always pay. 

The big winner here is Lucid’s principal shareholder, the Public Investment Fund of Saudi Arabia"

Despite the widening overnight gaps, so far, the algos are keeping options volatility compressed. However, as we see below, last year volatility shorts were reducing their positions into the event, whereas this year they have been pressing their bets.

The potential for volatility explosion is far greater this time around: 

Of course we never saw this much delusion a year ago:

There is an algo driven pattern to these Disney markets that is intended to monetize as many people as possible in both directions. Which means that when the bubble final explodes, most home gamers will be wiped out.

And then there will be nothing left to show for the virtual simulation of prosperity, and its acolyte QE, except for an enraged populace. Bilked by the usual psychopaths. 


Monday, February 22, 2021

Lowering The Boom On Bullshit

Somehow these amnesiacs STILL haven't learned that the good times are only for the ultra-wealthy. When the economy booms, the party is over...

The deflation trade is getting obliterated while the fake reflation trade goes late stage parabolic, corralling bulls into the riskiest stocks at the end of the cycle. A necessary and sufficient event for full explosion.

They are about to get a boom, just not the kind they are expecting:

New York Times, Feb. 22nd, 2021:


Below, this is the Wall Street consensus now: Excessive stimulus and skyrocketing interest rates are good for value stocks and hence good for the overall market. The Y2K Tech bubble will now explode without any consequence:

"As reflation occurs with excessive fiscal stimulus, rising money supply lifts commodities, a positive for value versus growth"

Recall that Tesla now has a greater market cap than the entire energy sector, so how is a rotation to commodity stocks that leaves the largest cap stocks bidless, going to forestall casino explosion?

It won't. 

Tesla just closed below the 50 day moving average for the first time since the March meltdown. Another bubble bursting:

In addition, commodity and energy stocks always rally late in the cycle, which should be a warning to today's over-stimulated risk junkies. There is no such thing as "value" in this market. Traditional value stocks e.g. energy, financials, retailers, airlines, hotels, etc. have zero earnings visibility and are trading based upon Magic 8 ball derived forward earnings estimates. These stocks also have far too much debt and weak balance sheets. They are not value companies, they are value traps, and as I showed in my prior post most are already in a bear market. 

Below we see the CPI relative to 2008 - the last time we saw a late cycle headfake commodity rally. In that event, oil crashed 70% in a matter of weeks. Quite painful for those who bought into the asinine idea that inflation was coming in August of 2008. They believed this exact same fairy tale nine months into a recession on the eve of Lehman, so why wouldn't they believe it now?

All they have to believe now is that amid the worst unemployment in 90 years, a locked down economy, and a deficit at WWII levels, reflation is imminent. Clearly, reflation expectations have been ratcheted down over the past decade to Japanified levels of non-existent growth, and oil demand at a decade low. 

What will it take to create real inflation? It will take a paradigm shift away from bailing out the rich to bailing out the middle class. So far these "stimmy" packages have been too little too late. At best they are merely stopgaps to fill in the chasmic hole left by mass unemployment and a locked down economy.

In any event, the reflation argument is already self-destructing. Higher inflation portends higher interest rates which are lethal in the largest credit bubble in human history. As I've said before, interest rates will rise just long enough to explode the debt bubble at which point headfake reflation will be monkey hammered by a deflationary credit crisis:

Bonds and bond-like product are already imploding:

The safest stocks have left the building:

Tech stocks are going bidless.

Today was another record day for down volume in the world's most popular Tech ETF:

On my Twitter feed I made note of the fact that this current overbought bailout rally is literally almost identical to the 2019 Fed bailout. 

Then as now, running on glue fumes and rampant bullshit. 

Sunday, February 21, 2021


When the sheeple realize they got conned into human history's biggest one way pump and dump and obliterated on the eve of global economic depression, I predict there will be considerable societal "acrimony". The only benefit of imploding in human history's biggest moron bubble is being able to claim no one saw it coming...

Historians won't understand how the worst global pandemic in 100 years spawned the biggest asset bubble in human history. After all it's a well known fact that the economic dislocations from the pandemic are four times worse than the global financial crisis, however stoned gamblers have been fully euthanized by central bank monetary heroin. This manic RISK ON party only makes sense in the context of the non-stop monetary bailouts since 2008. Dopium stoned gamblers have been conditioned to believe that the decimation of the economy is "good news" for stocks. The hangover from this final delusion will be brutal. 

“This has been the most severe crisis for the world of work since The Great Depression of the 1930s. Its impact is far greater than that of the global financial crisis of 2009”

One year later from the beginning of the 2020 meltdown and gamblers are celebrating mass unemployment and record debt accumulation by bidding up stocks to insane valuations. 

Depressionary interest rates and "free money" are the cat nip fueling this manic rally. There is no concern for the fact that these same 0% interest rates portend economic obliteration on the other side of global margin call.

Such is the overwhelming belief in free money that the "experts" on Wall Street can't think of anything to worry about right now. One minor pump and dump in Gamestop three weeks ago almost brought down the entire financial system, and yet professional money managers are too high on monetary crack to realize their careers will soon be ending.

"Up 75% from March, the S&P 500’s gain dwarfs all previous bull markets at this stage of the cycle since the 1930s"

“Whether it’s herd mentality, or fear of being left behind, that’s what you’re seeing.”

Dated from the last bear-market bottom, the boom cycle is young -- 11 months, versus five years for the median bull market...a majority of money managers in a Bank of America poll this month viewed the current bull market as being in a late stage"

Got that? According to today's "experts", this is a young bull market that is in its latter stages, so they are buying it with both hands. With that kind of logic it's clear they owe their careers to central banks. The inconvenient truth is that this was all just a headfake rally in a bear market that started one year ago. This was always how it was going to end. Money managers ALL IN at the top. Clearly when it explodes they will all look like fools, however the stampeding herd always believes there is strength in numbers. 

I keep a chart list of what I call the "COVID implosion" stocks. These are the industries that have been blighted by this virus. What we notice is that they are all three wave corrective, which means they are in a bear market:

Energy stocks have been the worst performers since the March low. This overlapping correction shows wave 'c' is barely above wave 'a' which ended last June. 

Among the most beaten down cyclicals, regional banks have enjoyed the deepest retracement

History will show that this COVID rally was the blow-off top in the risk rally that began back in 2008. Useful idiots bought the story that last year was late cycle, and the blowoff top was early cycle. You have to be brain dead to believe this shit, which is why few people questioned it. 

They got conned by the usual psychopaths. What's new?

Friday, February 19, 2021

Ponzi Schemes Are The Hottest Asset Class

One year on from the biggest meltdown since 2008 and global central banks have happily sponsored human history's biggest pump and dump. While D.C. regulators were busy interrogating Robinhood for their pissant Candy Crush trading game, they were ignoring the true Madoff acolytes down the street in the Marriner Eccles (Federal Reserve) building. The ones who have enticed record amounts of capital into a zero sum Ponzi scheme known as the Dow Jones Illusional Average. What we are witnessing now in global markets is ludicrous insanity that will end with the majority of investors wiped out in every risk asset class...

This was the headline that attended the S&P 500's all time high this week:

"Business borrowing “now stands near historic highs,” the U.S. central bank said in the report. Even though large cash balances, low interest rates, and renewed economic growth may dampen problems in the near term, “insolvency risks at small and medium-sized firms, as well as at some large firms, remain considerable."

Got that? The Fed sees considerable risk of business failures, so the solution is excess liquidity to inflate an asset bubble in the riskiest companies. The smallest and riskiest companies have been outperforming the overall market massively. Year to date, the S&P 500 is up 4%, micro caps are up 27%. Since the election, micro caps are up 55%.

The junkiest stock are leading the "market":

All week I read that Bitcoin is now replacing gold as a safe haven asset. 

You can't make this shit up. Even formerly intelligent people such as Jeff Gundlach was saying he prefers Bitcoin over gold. Suffice to say, like all billionaires Gundlach owes 90% of his wealth to central banks and taxpayer funded bailouts. So it's entirely understandable why he has forgotten how markets used to work.

I'm not saying gold is a safe haven from impending meltdown, but I have to believe it will be safer than a digital Ponzi scheme.

"Gundlach tweeted he’d been a long-term gold bull and U.S. dollar bear, but has turned neutral on both. Bitcoin may well be “the stimulus asset”"

Bitcoin is winning over institutional money managers and possibly siphoning cash from the gold market"

It only took over a decade and a price increase from under a dollar to $55,000 per Bitcoin to get the Idiocracy on Wall Street to believe that this virtual currency is a better safe haven than gold. Too many monetary bailouts have turned today's money managers into momentum chasing idiots. I predict that just as Bitcoin and crypto led on the way up in terms of performance, they will also lead on the way down in terms of meltdown. In other words, the exact same fate that has attended EVERY other pump and dump we've seen in the past decade, including Bitcoin itself three years ago in 2018. Recall it was the creation of Bitcoin futures on the CBOE and CME that fueled its melt-up and subsequent meltdown. This Idiocracy is the only society that has fallen for the exact same con job in the same cycle. It's a dubious accomplishment to be sure. Most pump and dumps that lost 80% of their value are dead money for decades. 

As I said on Twitter it was a cliffhanger of a week deja vu of options expiration one year ago. Algos kept the casino pinned to the all time high on Friday, but then the next week all hell broke loose.

Time will tell.

As interest rates soared on the back of rising inflation expectations, cyclicals were the story of the week. 

Gold is sending a clear signal - there is no reflation in fake reflation.

There is only a looming credit crisis temporarily obscured by human history's largest asset bubble

What do I call these people? 

Stoned gamblers:

"Barstool Sports founder Dave Portnoy believes there is opportunity in so-called "sin stocks...I'm very familiar with that space"

'People love to gamble and the retail trading shows it'


Unfortunately, like Gamestop three weeks ago, pot stocks are a spent fraud:

Rest assured, Wall Street will keep dumping junk into this market, until it explodes. This is the new subprime:

"With filings by blank-companies flooding in at a record pace, one new listing captures the spirit of the surge...Just Another Acquisition seeks trade on the Nasdaq Capital Market under the symbol JAAC."

Thirty trading days into the year, 145 new special purpose acquisition companies, or SPACs, have gone public in the U.S. -- an average of 4.8 per day.

At this pace, it will take less than a month for the volume to surpass last year’s $83 billion, which is more than the previous decade combined"

Today's Ponzi gamblers don't have to worry about getting out.

They won't.