Systemic risk is record high right now because gamblers have been assured it's low, so they were given free money to leverage up to infinity in a "risk free" market. Bueller?
"Leverage is the use of debt (borrowed capital) in order to undertake an investment or project. The result is to multiply the potential returns from a project. At the same time, leverage will also multiply the potential downside risk in case the investment does not pan out"
Way back in 2008 as the banking dominoes fell one by one, corrupt policy-makers jailed Bernie Madoff for his collapsing Ponzi scheme at the exact same time as they were bailing out Wall Street for imploding the global financial system. It was a reward for corruption that would spawn an ensuing decade+ of ever-increasing decadence that will cost today's true believers in criminality far more than they can afford...
We got news today that Madoff died after serving time in jail for a crime that is now commonplace in today's markets. By today's standards, Madoff was a pioneer in Ponzi markets. A man before his time.
Step back and realize that it's no one's job to predict when it's the end of the cycle. Economists are always wrong in real-time which is why they always back date recessions after the fact. They are always driving the car forward by looking in the rear view mirror of stale data. When they finally realize the economy is off a cliff, it's far too late. Wall Street is even worse. Money managers don't get paid to sit in cash. They are not paid to time the market, so they don't. Which means they will never reach a consensus to sell everything. Or anything for that matter. That's the "buy side". The sell side of course is far worse, since they get paid to sell stonks and bonds to their clients. So their research is riddled with conflict of interest. Therefore what do all of these "experts" do? They ALWAYS assume we are in an expansion and a bull market. Because most of the time they will be right, and if they happen to be wrong, they will all claim that it was a Black Swan event. Nassim Taleb's theory of Black Swan events has been used to exonerate Wall Street from rampant malfeasance time and again. All of which means that home gamers are blissfully clueless. They eagerly believe the eternally bullish forecasts they are fed, because don't want to believe anything else.
What this means is that anyone who wants to REALLY know what is going on in the economy has to do their own research and form their own viewpoint, based upon logic, facts, and history.
The lies that have piled up since 2008 have become ever larger and more ludicrous. Each resulting crash has been more sudden and brutal than the last. The epicenter of today's big lie is very similar to the one perpetrated in late 2008. A fake recovery attended by a failed bailout. As the financial dominoes fell in late 2007 and early 2008, policy-makers remained optimistic that the financial crisis was under control. Even after Lehman declared bankruptcy (Sept. 15th 2008), policy-makers, banksters, and investors were optimistic that the risk was contained. The massive monetary and fiscal bailout had worked and therefore the dreaded end-of-cycle de-leveraging was avoided. Except the bailout hadn't worked, because there had been no real de-leveraging in the mortgage market, in the corporate debt market, and of course in the stock market.
Sound familiar?
Fed Chief Jay Powell was on Sixty Minutes Sunday Night:
SCOTT PELLEY: "The chances of a systemic breakdown like in 2008 are what today?"
JEROME POWELL: "The chances that we would have a breakdown that looked anything like that where you had banks making terrible loans and investment decisions -- and having low levels of liquidity and weak capital positions, and thus needed a government bailout, the chances of that are very, very low. Very low."
There are many extreme risks being ignored right now. I posted them on my Twitter feed this week, here they are again.
However, suffice to say that by assuring investors there are no risks and then by inoculating them from losses and providing infinite leverage, the Fed itself is by far the biggest risk.
"We’ve had many more inquiries over the past year than we would normally about people wanting to utilize their assets to get transactions"
In a bull market, share pledging can make the bets more lucrative...But the risks are also doubling when the market turns volatile"
Fortunately, central banks have dampened volatility and given everyone a false sense of low risk.
On the topic of fraudulent recovery, yesterday we got consumer inflation data and based upon the headlines one would assume the U.S. is becoming Zimbabwe. This latest "surge" in inflation leaves the CPI 4% lower than it was in 2008 right before the Lehman crash.
Somehow serial inflation fearmongers have never once been right, but they still assume they know what they're doing. As always, arrogance and ignorance are a bad combination.
What we notice is that even though the CPI is 4% lower than it was in 2008, the concern over inflation via Google Trends (lower pane) is higher today. This is what happens when you impoverish the middle class, even small price increases seem like a big deal. Wages and prices can go lower but they can never go higher.
Today I had a major epiphany that the Nasdaq and momentum stocks are now 100% driven by the monthly options expiration cycle. Which explains why these tops keep occurring four weeks apart.
The massive call option buying by the Reddit gang is literally pushing the market higher into opex week. And then the "gamma" lift runs out of gas and then reverses creating a gamma crash. Gamma is the variable hedging factor that market makers use to hedge their call option (delta) exposure arising from selling call options. As these options head towards expiration, the amount of stock that market makers must hold to offset their short call position declines with option decay, so they sell. Essentially option gamblers are renting capital to manipulate the market. All of this Reddit-driven market manipulation is of course widely accepted and widely ignored.
What happens at 'c' is TBD.
This week combined crypto market cap surpassed $2 trillion up from $1 trillion at the start of the year. Up 1,000% year over year.
There are thousands of cryptos now and they are all predicated upon the greater fool theory.
Looking back on this era, historians will say that ironically the week Bernie Madoff died, is the week that Ponzi schemes became widely accepted.
According to the New York Times:
"Digital currency, once mocked as a tool for criminals and reckless speculators, is sliding into the mainstream"
Traditional banks are helping investors put their money into cryptocurrency funds"
On Wednesday, digital or cryptocurrencies took their biggest step yet toward wider acceptance when Coinbase, a start-up that allows people to buy and sell cryptocurrencies, went public"
Got that? A late cycle tool for criminals and speculators is sliding into the mainstream facilitated by the very first criminals who were legitimized in this cycle.
You can't make this shit up.
