Sunday, March 7, 2021

A Generational Meltdown

Millennials have turned the stock market into a massive casino. The results will be catastrophic for those who are now betting their retirement on the market equivalent of the Wynn Las Vegas. Multiple generations are now competing for reckless abdication of responsibility...

First, some long-term perspective, in which the worst pandemic since 1918 facilitated the shortest bear market in U.S. history (one month), following the longest bull market in U.S. history, eleven years. 

Or, a supercycle blowoff top: 

In talking to the Millennials in my life, one thing remains clear - the old man doesn't know what he's talking about. 
Those of us who still remember the painful Dotcom boom and bust and the more painful 2008 meltdown, are unfortunately few and far between. One must be old enough to have experienced it first hand, and still young enough to avoid mental infirmity. The Millennials who were in diapers during the first bust, and elementary school during the second, have absolutely no recollection. For educational purposes, they will now be entreated to a combination Dotcom style Tech implosion, 2008 style credit crisis, and 1930s style unemployment, all at the same time.  None of which they see coming. 

The asinine level of this entire delusion can only be considered in the context of market history. We are to believe that the shortest bear market in U.S. history - a mere one month - corrected the longest bull market in history of eleven years. You have to be brain dead to believe this shit, or just one of today's typical market pundits.

The only way to view this ludicrous fantasy is to compare the length of each historical bear market (since WWII) relative to the preceding bull market:

As I write, the latest stimulus bill just passed the Senate on Saturday, leaving one more vote in the House on Tuesday. Which means that we should be seeing peak reflation expectations priced into markets in the coming week.

This recovery is a true Millennial recovery because it's 100% smoke and mirrors. Including this latest stimulus bill, the 2021 deficit will be 20% of GDP. Debt is the new GDP. It's clear that this society is now stimulus addicted. In the spirit of full Japanification, there is no cogent plan for how to replace the five years of jobs lost during the pandemic. Were it not for the impending meltdown, all of this printed money would be hyperinflationary. Unfortunately, the massively bloated credit market can't take more than a wafer thin mint of reflation before it explodes - a process that is underway already. 

As always, Oil and Energy stocks are leading this late cycle charade, and as we see below, their three wave correction is perfectly symmetrical from the March low:

As always, some long-term context is in order:

In addition, this week is the anniversary of the Dotcom bubble explosion. And as we know, Tech stocks have been down three weeks in a row, for the first time since March Madness 2020. So what to do? Double down on risk:   

Going into this week, we are informed that the Reddit gang has been doubling down on imploding Tech stocks. Because they have what they call "diamond hands", meaning they are invincible to risk:

"Since the market peaked a few weeks ago, retail traders have plowed cash into U.S. stocks at a rate 40% higher than they did in 2020, which was a record year. They’re opting for parts of the market that have suffered the most, doubling down in arguably risky ways with triple-leveraged tech funds and options galore."

Got that? They've been doubling down on the parts of the market most exposed to inflation risk in order to front-run the THIRD massive fiscal stimulus package in the past year. Apparently they don't remember last December when stimmy 2.0 tanked Tech stocks in late December. 

Cathie Wood aka. "The Money Tree" is the 65 year old CEO of Ark Funds - the world's most popular Tech ETFs. Some observers have said that she is the Baby Boomer who invests like a Millennial.

"Based on the firm's daily trading activity, Ark Invest was consistently selling large-cap names like Apple and Amazon to fund purchases of riskier companies like Tesla and Palantir"

Buckle up, because an entire generation - and those who invest like them - are about to get the lesson of a lifetime, at the point in history when they can all least afford it.

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

It is a common saying that smart money is out of market in such formation and market is out of control. In its formation, most of the selling is completed in the early stage by big players and the participation is from general public in the later stage."

The dumb money always comes in at the end. Why break with tradition?