One year ago in late February, central banks were easing heavily, gamblers were partying hard, risks were growing exponentially, and then the bottom fell out with "no warning"...
What has changed in the interim? Last year gamblers were ignoring the pandemic, this year they are ignoring the pandemic's aftermath. The only other thing that has changed is that leverage has increased astronomically. In the spirit of Fooled By Randomness, central banks have created a cabal of over-leveraged morons who believe they are gambling geniuses.
Which is why the revelation that they are not, will be a "Black Swan" event. A large cataclysmic event unforeseen by those who have their heads up their own asses.
The headlines from January and February 2020 are interchangeable with the ones we are seeing right now:
Jan. 28, 2020
2020 Is Shaping Up To Be a Strong Year For IPOs
2020 was indeed the strongest year ever, but first the market crashed and margined gamblers were wiped out. Minor detail.
In 2021, the market for IPOs is far frothier. As of the end of March, 2021 has already surpassed the entire year 2000 in total IPOs:
4/1/2021:
Options speculation hit records early last year, but this year's surge makes last year's look miniscule by comparison:
Feb. 13th, 2020
As the month of February 2020 wore on and the pandemic grew worse, there was this warning:
Feb. 19th, 2020
Mania Has Taken Over The Market, There Is No Respect For Risk
And then "out of nowhere". Kaboom. The worst high to low crash in market history.
Fast forward one year and Bill Hwang's story is straight out of Nassim Taleb's Fooled By Randomness. An arrogant cocky trader finds early success in the markets, so he keeps doubling down and parlaying his gains into ever larger bets, until he explodes spectacularly.
He lost his entire net worth of $20 billion in two days.
There are now untold numbers of Bill Hwang's in these markets. Newbies who now think they are investing geniuses. They've been bailed out by central banks so many times, they believe they are invincible.
However the other deja vu story that keeps getting ignored is the fact that corporate debt markets were already on the ropes last year. And ironically, the COVID pandemic saved the Ponzi market, by making it far bigger.
Jan. 22, 2020
Today 50 percent of the investment-grade market is rated BBB, and in 2007 it was 35 percent"
Got that? The end of cycle zombies were on the ropes, but they got refinanced one more time thanks to a pandemic. Now the Fed no longer has magical abilities to buy corporate bonds in the secondary market, and the LQD bond ETF just experienced record outflows. What the central banks did was kicked the debt can one more time.
However we are to believe that the pandemic "fixed" the corporate debt problem by making it far larger. Only zombies would believe such a thing:
In summary, the glue fumes from this latest central bank asset recovery are wearing off, so they need a new excuse to intervene in markets.
In the meantime, the margin clerks will be showing today's newbies how to sell stonks. Because they apparently didn't learn that lesson last year.
When they get wiped out, central banks will come back in to buy the dip again.
The machines are about to get Bill Hwang'd x 100 and Skynet will be offline by the end of it all.
Position accordingly.
