Thursday, March 4, 2021

Denialistic Self-Implosion Is A Consensus Trade

Exactly one year from the COVID meltdown and gamblers have converged on the lethal consensus that the pandemic is over and a new cycle of delusion has begun...

The all things Tech "work from home" trade is officially over. Cramer said so himself just today. Unfortunately, the world's most overbought and overowned Tech fund is already in a bear market. Wednesday's close triggered the first Nasdaq Hindenburg Omen since February 2020:

"A rise in the 10-year Treasury note yield to around 1.47% on Wednesday has underpinned the rotation out of tech and tech-related companies and into energy and financials, which are expected to perform better as the economy recovers from the COVID-19 pandemic"

Wood told CNBC recently that she’s not perturbed by yields and is anticipating a pullback, vowing to double down on some bets"

This chart is a reminder as to what ALWAYS happens to over-crowded consensus dumbfuck trades. They work great on the way up, and then they give up three months of gains in two weeks on the elevator ride down. You can see via volume by price (side green/red bars) where most of the dumb money is trapped. At the top:

This chart below shows how quickly the Nasdaq morphed from record overbought back to one year oversold. The last time breadth was this weak was the first week in March 2020, just before the wheels came off the bus. 

Good times.

Whereas Technology stocks were officially the most crowded trade of 2020, the most crowded trade of 2021 is of course the reflation trade and economic cyclicals - retail, banks, industrials, hotels, airlines, and of course energy stocks. Energy was the worst performing sector in 2020 and so far in 2021 it is the best performing sector. 

There are several seminal reflationary events taking place this week. First off, Fed chief Jerome Powell is speaking today which is always good for boosting inflation expectations - he did not disappoint: 

"Powell did acknowledge the rapid rise in rates recently caught his attention, but said the Fed would need to see a broader increase across the rate spectrum before considering any action"

In other words, the Fed is going to let inflation run hot, and in the meantime Tech stocks and other deflation trades will spontaneously implode. Which includes the bond market of course. 

The second major event this week was the OPEC meeting which just concluded with a decision to maintain current output levels. This is the best news possible for oil and energy stocks, meaning that the best case scenario is now getting priced into the best performing sector of 2021:

In addition, there is the Biden stimulus package which is now heading for the Senate. The goal is to have it passed and signed by the end of next week. All indications are that it will pass.

Next, there is the monthly jobs report for February which is Friday morning. All of which is setting up a no win situation. More reflation expectation implodes the Tech trade, bonds, and Emerging Markets. A weak jobs report implodes the most crowded consensus trade of 2021. 

"Emerging-market bonds are becoming increasingly vulnerable as Treasury yields climb with the level of 2% on the U.S. 10-year note likely to trigger major outflows"

The velocity of the moves in U.S. Treasury yields are now intensifying at a time when both hard currency and local emerging-market bonds are more vulnerable to such a move,” 

In summary, the risks of this ALL IN gambit, now extend across global stocks, bonds, and currencies. 

Fittingly, amid all of this ludicrous amount of risk, this week is the debut of a new Reddit-driven pump and dump ETF. 

You can't make this shit up:

“The product is a little mind-blowing,” said Tyler Gellasch, executive director of Healthy Markets. Gellasch thinks that the ETF “appears to be capitalizing on what could very well be determined by SEC and FINRA to be market manipulation,”

What could go wrong?