Stuck In A Third World Deflation Crisis

The only inflation is in hyperbolic bullshit, which is now half the economy. Those who don't see this coming, were not meant to see this coming. To them mass exploitation is the "system" and they are the beneficiaries. Therefore it never occurs to them that it's their turn to go under the bus...

 

Why are "prices" going up? Did I miss something, did the middle class float back from China? Did we finally bailout workers and restore their standard of living back to what it was forty years ago? Of course not. That narrative is for useful idiots. The reason why prices are rising is because yet again during COVID we bailed out the rich and therefore asset speculation is rampant. It's the exact opposite of what the Idiocracy believes. The Trump era proved that checking facts is not their priority. Believing ignorant and arrogant bullshit is the order of the day. The price to be paid for being a true believer didn't come in November.

It's coming now...

Contrary to popular belief, this is a Third World deflation crisis. Not only is the debt market hyper-sensitive to interest rate increases, but the commodity market is hyper-sensitive to balance sheet expansion. The Fed is using the wrong tool. Their approach to inflating the assets of the wealthy will always collapse back in on itself as Ponzi inflation expands and then crashes. As long as they continue with this approach, they will always fail. The only beneficiaries will be the corporate insiders cashing out at public expense. 

At 0% interest rates monetary policy no longer has ANY effect upon the middle class standard of living. It's over. The Fed can bid up billionaire portfolios, but all they're doing is creating greater wealth inequality. The debt penury expansion game has ended at the zero bound, amid stagnant incomes. These commodity-fueled price increases only add insult to injury. Throw in another stock bubble, another housing bubble,  and another crypto bubble for maximum pain. Ten losers for every "winner". 

Every pump and dump cycle leaves more middle class carnage. Every Wall Street "recovery" leaves more people behind. This is the activity rate (labour participation rate) going back to 1960:

Underemployment is the economic crisis of our time, and yet economists ignore it. Only when they themselves are mass unemployed will they realize it's a problem.

Too late.

All markets have been gamified now. This populace is addicted to gambling so they haven't yet noticed that the house always wins. They are always eager to return to Vegas. 

Gold is warning what's coming and it's not inflation:

Here is what happens next. The new bull market will be in cash. Post-crash, cash will gain in relationship to everything that can be bought and sold. The Fed will pin the long-term bond yield to zero and everything else will implode. 

From panic buying to panic selling. 

How long that continues is anyone's guess, because now the 'economy' is beholden to a fractured Congress. Which means that those who are living large beyond their means are about to see a massive forced downsizing in lifestyle.

The house will be moving like a rummage sale.

Those who are bullshitting us about inflation, are the same ones who can't admit that the past forty years has come at the expense of the middle class. To reverse that obliteration will take first a change in ideology from supply side to demand side. And second it will take an actual change in policy. Don't hold your breath. 

Meanwhile, the rest of the world will be worse off, which portends competitive devaluation. The dollar will sky-rocket and that will again make everything cheaper still. Cash will go up in value every day.

Last year, these morons didn't get the memo that the competitive self-destruction lifestyle is over. It's lethal to mental and physical health. It's lethal to the environment. And now it will be lethal to financial health as well.

This bubble is running solely upon asshole inflation. And despite their overwhelming superiority in numbers, they are going up against hardcore reality. 

And this time the table stakes are $Everything, no refunds.

In summary, how many times can these people be conned?

Every time.

But when they're selling down their load of accumulated junk, even the biggest moron will come to realize that prices are not going up. 

A panic buying bubble ahead of a record asset crash is by far the worst case scenario for true believers in bullshit. 

Rational Self-Destruction

What happens when selfish assholes seek validation from other selfish assholes? Alienation, loneliness, rage, mental health breakdown, suicide, overdose, mass shootings...

Let's see, political civil war, militant activism, record wealth inequality, rampant anxiety, what's not to like?

There is only one "cure" for all of this insanity, which is to reject the modern way of life. To reject debt penury and otherwise stop trying to keep up with the Kardashians. However, the Millennials are just now experiencing their first pump and dump cycle, so they think this is all going just fine. They've never seen a bear market, nor a housing bubble, nor a Tech bubble. So now they will experience all three at the same time.

At the dawn of 2015, China was experiencing their slowest GDP in decades, so the PBOC decided to bid up the stock market to get the speculative juices flowing. Extolling the invincibility of central banks, Hedge fund manager Hugh Hendry called it "imagined realities" and he was all set to jump onboard: 

Dec. 2014:

Hugh Hendry Is Taking The Blue Pill Now

"China is set to record its weakest growth in GDP in 25 years. Yet it seems to have entered a bull market and may be where we deploy much more of our risk capital next year. That’s because the recent exuberant run up in onshore Chinese equities seems to me to amply demonstrate the power of imagined realities"

As we see it was a straight up, straight down pump and dump that exploded global markets in August of 2015. All caused by excess monetary liquidity. That event of course marked China's introduction to Japanification. Wherein markets begin trading in a wide sideways range. Which is what they've been doing ever since. Now currently at the February 2018 VixPlosion level:

If we go by the Chinese experience in 2015, the Fed will get this all under control after a -60% decline. Back then the PBOC did everything possible to stop the crash - including banning short selling, then they banned institutions from selling altogether. Next they shut down the market for days a time. Nothing worked. The market had to clear. 

Now whose turn is it?

According to the post-pandemic investment hypothesis, we are to believe that the post-pandemic economy will be far better than the pre-pandemic economy. 

This Wall Street recovery is America's imagined reality. Lockdown, re-open. Get rich quick. Why didn't anyone think of this sooner?

This was another lesson from Hendry:

"The worse the reality of the economy becomes, the more we take on the reflexive belief in further and dramatic monetary expansion and the more attractive the stock market looks"

There has been no sign of capitulation in this Tech decline.

BTFD all the way down.

And now the noose is tight.

In summary, this is called rented prosperity. The Japanese learned the hard way. The Chinese learned the hard way. And now the U.S. has to learn the hard way. 

There is no such thing as effortless wealth.

We Have Now Entered The No Bailout Zone

When the shit goes down deja vu of 2008, Warren Buffett will pick up his hotline to the White House only to find Elizabeth Warren at the other end of the line. And then the underwear will be mighty stained...

I was a conservative most of my life, until I realized it was always going to be about enriching billionaires at the expense of the middle class. And then I wanted nothing to do with it. I don't do continual descent into squalor.

Today's fair-weather friends of capitalism are destined to have their faith system tested by fair-weather algos. Both will fail simultaneously in a cataclysmic fashion. This time when the "capitalists" come begging for a bailout, they will be met with epic rage instead. At that point the age of unfettered hubris will end. 

The right wing is pounding the table on this fake "inflation" theme. They see it as Biden's Achilles heel. They have bought their own delusion hook, line, and sinker. They're locked in a circle jerk of link-minded dunces with no way out. Too bad no one could warn them - not a net 5 IQ in total when you include the negatives. What happened to honesty and integrity? Did that go out the window along with democracy? When the entire fake news formula is predicated upon expanding the base of useful idiots, there is no ground floor for buffoonery, there is only  a death spiral lower. 

One thing we know vis-a-vis the late 2018 debacle, is that the Fed won't reach for the bailout switch until at least -20% lower. Which is deep in marginal call obliteration territory. At that point ~$1 trillion of leveraged Tech stonks will get dumped into a no bid market.

Picture GameStop x 20.

"We have come dangerously close to the collapse of the entire system and the public seems to be completely unaware of that, including Congress and the regulators"

At the same time, or likely sooner, what remains of the crypto bubble will be exploding amid rampant outages the likes of which we got a taste of last week.

“Coinbase always goes down”

“It’s kind of funny, it’s a forced hodling by these exchanges because you can’t sell” 

Hodling is not a typo, it's what drunk Bitcoiners call holding until bankrupt. And if they can't sell Bitcoins, they will sell something else, like Tech stonks and Grandma's china.

Suffice to say, all of this dislocation won't be limited to one time zone. It will be a 24 hour rolling event.

And then there will be the Emerging Market currencies imploding vis-a-vis the sky-rocketing dollar. It's at that time that the inflationists will implode spectacularly.

Commodities will be limit down.

"Lumber futures did something remarkable yesterday. Trading in the benchmark “random length” contract for July delivery was halted twice on the Chicago Mercantile Exchange (CME), once for a limit down move, then for a limit up. For those like me with a trader’s mindset, that is an interesting little tidbit, but the significance of yesterday’s trading in lumber doesn’t end there. The recent moves in that market are indicative of what is going on elsewhere, and what happens in lumber from here may well give an early indication of what we can expect in the stock market in coming weeks"

Collapsing Treasury yields will implode the Cyclical bubble

Picture what happens to these stonks sans bailout

In summary, a wealth "tax" is coming and it's called 

#NoBailouts#

A Fatal Addiction To Bullshit

Disinformation is rampant, because monetizing idiots is the last business model. No matter how ludicrous asset prices become this perpetual growth model will always demand "more". And therefore the false narratives must become more ludicrous in lockstep. Fortunately, the collapse in average IQ is front-running these ever-more asinine narratives we are sold...

Today's ubiquitous belief is that central banks control inflation and deflation. Unfortunately, nothing could be further from the truth.  What they control is asset inflation. Even at peak asset prices, they have no control over global deflation. When history's largest asset bubble explodes, even the biggest moron will figure it out. Far too late unfortunately:

This society is addicted to deflation because it's the secret sauce that boosts asset prices at the expense of the economy and wages. Which is why every time prices rise a small amount the deflation mongers cry "inflation", despite the fact that the only inflation is feeding back into the economy via the risk asset bubble itself. 

Heading into the Memorial Day long weekend and the unofficial start to summer, both volume and volatility have collapsed. Which is why speculators are loading up on risk and otherwise manipulating markets with impunity.

Case in point, we are to believe that movie theaters which have been in decline for years were somehow rescued by the pandemic. Everyone get off of Netflix and go pay $30 to see a movie. Popcorn and sugar water are nominal commodities until you go to the theater where they command a 100x profit margin. 

Over in Tech stonk land here we see the Ark ETF is back-testing the 200 dma while the Nasdaq is the most overbought it's been since the February top:

But what could go wrong amid record stock margin?

According to this week's AAII retail investor survey, bears remain in hibernation:

Outside the U.S. we see that the Nikkei is rolling over hard. So far, the Nikkei timed three for three global RISK OFF events. 

We are to presume this time will be different:

The 2021 Crypto Conference "Consensus" ended today and Bitcoin is making what appears to be a right shoulder on the weekly ahead of the long weekend:

Crashed Tech stonks, crashed cryptos, maximum margin leverage, extreme complacency, which just leaves the record overbought end of cycle reflation trade:

In summary, I call today's "inflation" Ponzi inflation. Which is what happens when a bunch of assholes bid up their own assets and then begin to fear that central banks will end their party early because someone gets paid a living wage. 

There are far too many assholes running amok and they need to discover the joys of living in subsistence. 

The Systemic Risk Rally

Never before has this much capital been exposed to this much risk. Which has put the entire system at risk. We can thank de-regulated corruption...

Since the Anti-Christ left the White House I've been avoiding politics. Nowadays both sides believe that every election is an existential ideological battle. One side wants to return to the glory of the past by recycling the exact same mistakes that led down the path of squalor. The other side, "the progressives", want to cancel the past entirely, while ignoring the fact that economically the past was better for the majority of people. There is no ideology of compromise. All of which means this new permanent plateau of Wall Street Utopia will have to explode before anything gets better.

It's my own opinion that we will be worse off if conservative values are entirely destroyed in this impending meltdown. I'm not talking about these scam-riddled corrosive values that are destroying society. I am talking about old fashioned conservative values of honesty and thrift which were supplanted by base opportunism years and decades ago. Social Justice Warriors will never admit that unless the economy is reformed to provide a broad-based path forward for socioeconomic self-improvement, then no amount of protests and transfer payments will make a lasting difference. What they could do however is create a permanent underclass subjugated by economic rules that will always be biased towards the wealthy, regardless of color. Without substantial economic reforms the scheme for buying off the past will backfire. 

So from an historical standpoint we know what will happen next: When this experiment in maximum idiocy explodes, we will go too far to the left, which will not be accretive to profit. What we've witnessed for the past four decades is the ascendancy of capital over labor. Now, that will go in reverse. Therefore we are witnessing peak corporate profit of our lifetime.  

Going forward, we can expect that wages will become a larger share of GDP, and profits will become a smaller share of GDP. We can expect that corporate taxes will be higher, and personal taxes on the wealthy will be higher as well. We can expect substantial re-regulation of Wall Street and financial institutions, reducing their profitability. We can likely expect stock buybacks to become illegal again. IPOs and SPACs will be re-regulated making capital less abundant to start-ups. In addition, Globalization will collapse along with "free markets". Meaning trade wars, tariffs, and economic nationalism will be the new world order. The WTO need not apply. And of course a corporate debt crisis is in no way priced into today's markets. Despite the fact that corporate debt is at a record (% of GDP) and lending standards have collapsed over the past year. 

In other words, fair value for the S&P 500 will be somewhere in the range of 50-75% lower than these current levels. Throw in the high potential for much higher interest rates and the 75% haircut becomes the realistic figure.

How do I arrive at my drawdown figures? Suffice to say this is not a scientific process, and neither are Wall Street's forward earnings estimates. However, here in this chart we can see the valuation premium on the S&P 500:

Here is the stock market divided by Federal debt to give an idea of the sustainability of mass layoffs covered up with massive Federal stimulus:

 

Not to say this is the end of the world. However, one must factor all of this into their "buy the dip" strategy. 

What COVID did was it put the system at risk. Why? Because the usual psychopaths took full advantage of the monetary-induced stock market recovery to con the masses into believing this was an entirely new cycle.

In summary, the lack of a true conservative movement threw conservative values of honesty and thrift under the bus. In the process the land of opportunity became the land of opportunism. Many alt-right pundits will blame the left for what comes next, but history will say they should be blaming themselves for de-regulating corruption every chance they got.

Until it all exploded totally unexpectedly. 

A Lethal Consensus Of Idiots

It's fitting that the all time high in global risk markets is attended by a level of stupidity that is asinine even by today's standards of Artificial Intelligence. This is what happens when central banks manipulate markets for over a decade straight. The masses start to believe in magic money. And the people who should know better, can't let a good opportunity pass them by...

Fittingly, this week features a crypto conference fatefully called "Consensus", headlined by several of the biggest pump and dump assholes of our time. Elon Musk and Dave Portnoy couldn't take time away from market manipulation to join the conference. The primary topic will be how everyone can create fake wealth out of hot air. A skill that currently only today's top scam artists possess:

Having studied central banks since 2008, the crypto industry has figured out how to branch off from centralized Ponzi asset levitation to de-centralized Ponzi asset levitation. The main theory is that eventually everyone will have their own cryptocurrency which they will bid up using their own life savings. Everyone will be their own central bank and hold FOMC meetings every six weeks to determine the appropriate "difficulty" on the network. Then, they will wait until everyone else jumps onboard their unique token. Key skills taught at the conference will include how to convince other people to buy your ShitCoin. The goal is that everyone comes out a multi-millionaire.

“In real terms, the home prices have never been so high. My data goes back over 100 years, so this is something,”

Here we see the DogeCoin pump and dump cycle which was amplified by tweets from Mark Cuban and Elon Musk. This week, Mark Cuban who endorsed DogeCoin just a few weeks ago, now says the rally is over.

It all started when Cuban said he was teaching his son how to "invest":

What crypto is in a nutshell is a massive con job masquerading as a pseudo-intellectual technology breakthrough. Speaking as someone with 25 years of IT experience - 15 as a programmer - I'm not impressed by the argument that I don't understand this new financial revolution. Especially when I'm told this by people with ZERO technical background. 

The people who've embraced this new alchemy have invented their own techno-babble. The theory behind it is that the more ludicrously asinine it sounds, the more adherents it will attract. Which happens to be the Zerohedge formula stolen from Faux News. Given the overall collapse in IQ over the past decades, it's guaranteed to be highly profitable.

Today we learned the PancakeSwap crashed the Bunny market:

"The attack is the latest in a series of exploits on decentralized finance protocols operating on the Binance Smart Chain"

This is the perfect way for human history's biggest asset bubble to end. The losses that are about to take place will be cataclysmic to true believers in Globalized Ponzi schemes. 

Central banks in league with other scam artists have ensured that the vast majority are on the same side of the risk boat. Stock market short interest is at a RECORD LOW. 

Hedging via the options market has been made impossible due to continuous volatility compression. 

The market is 100% casino now as Jack Bogle warned it would become many years ago. 

"The gains on the S&P 500 over the past decade equal about 12% a year above the level of inflation. But historically U.S. stocks have only produced about half that"

after tax corporate profits account for about 10% of GDP—about twice what they did during the Reagan administration"

Record price earnings multiple. Record profits as share of the economy. Peak Baby Boomer retirement.

Recipe for "unforeseen" disaster, wherein the two largest generations have colluded in order to agree on one thing - this MUST go on forever.

However when it explodes unexpectedly, I predict record lawsuits and record jail time for today's record scam artists.

GAMBLE AT YOUR OWN RISK.

The Moment Of Fear Is Approaching

This society has become extremely lazy about managing risk at peak valuations. A lethal combination for capital...

What this market has lacked for the majority of the past decade is fear. That is about to change. Those who don't see it coming will be on the side of panic and wealth implosion. Those who do see it coming will be on the side of opportunity. Going forward, there will be no return on ignorance.

In Fooled by Randomness Nassim Taleb describes a novice trader who finds early success in a bull market. This trader, beguiled by the broad based uptrend, starts to believe he's a genius speculator and therefore he doubles down on every bet. Then the risk cycle ends and he explodes spectacularly. What Taleb described is pretty much everyone in this market right now. How Taleb gets from that idiot to the concept of an unforeseeable Black Swan event is something only a PhD statistician could explain. The likelihood of a market crash occurring on any random single day is de minimis. The likelihood of a market crash over a prolonged period of record speculation, is INEVITABLE. Which is the opposite of unforeseeable. 

Central banks have sponsored excessively promiscuous behaviour in markets. Complacency reigns supreme. In April margin debt hit a new record high. Perma bulls inform us that margin debt tracks the stock market and therefore it's a trailing indicator. However, history informs us that it's not the absolute level of margin debt that matters, it's the rate of change that predicts market tops.

MW: Margin Debt Tracks the Market

  

What we see above about margin debt is that it "tracks" the market directionally, but not at the same rate of change. 

To best see this divergence we can divide the S&P by the level of margin debt.

What we notice is that the S&P's levered performance peaked in early 2020 as margin debt was declining. However, in the past year, margin debt accelerated even faster than the market. Which means this past year was a very expensive borrowed illusion:

Despite only a moderate decline in the market these past few weeks, the Rydex asset allocation ratio is plummeting as the "reflation" investment hypothesis turns back into a pumpkin:

The major earnings story of the past week was Retail earnings which "exceeded" expectations despite being lower than 2019 figures.

May 21st, 2021

Retail Earnings To Moderate Going Forward:

"Department stores and apparel retailers should see continued growth through 2021, although Fitch expects overall sales to remain below 2019 levels"

Autos and parts are coming in for a reality check

This new permanent plateau of delusion is running on glue fumes:

What's my point?

My point is that auto-pilot mode is ending. This driverless market is racing off a cliff. Up until now intelligence has been a hindrance in markets. There has been no ROI - return on intelligence. There has only been an unprecedented return on ignorance. Going forward that will change. There will be a lot of questions and ZERO answers. Soon trading against the crowd will be the only viable strategy. Those who don't think for themselves will be at the continuing monetization of dedicated con men. 

Until they finally realize, their strategy of ignorance was a dead end. 

The de-regulation of Finance will soon be regarded as the biggest mistake in market history. However, that realization will arrive far too late for the vast majority of true believers in unfettered corruption.

The *New* Economy: Mass Corruption

The losses from this epic con job won't be measured in dollars, they will be measured in decades. In the meantime, what a waste to allow the most corrupt era in U.S. history pass by without cashing in...

"If you're playing poker and you don't know who the sucker is, it's you" - Warren Buffett

Every investor should be asking themselves why is it that Warren Buffett recommends index investing for the general public whereas for himself he is currently sitting on record cash? Because he knows that a market that is extreme overvalued is a zero sum game.

The "Buffett Indicator": Market cap / GDP

A Scary Time To Retire:

"Stock market cap is now at 195% of the most recent nominal GDP, whereas this ratio was 141% in 2000"

"2000 to 2009 is known as the lost decade because the most bench-marked equity index, the S&P 500 (SPX), lost nearly 1% each year during this period on average. People who retired near the height of the tech bubble were not able to make money from equity holdings in their portfolio"

The largest stock bubble in human history has arrived at peak Baby Boomer retirement:

It's at times like these when insiders are cashing out at public expense using stock buybacks to cover their tracks. 

Once upon a time stock buybacks were illegal:

Forbes, May 2020:

"It is worth noting that until 1982, stock buybacks were illegal—deemed as market manipulation. But since then, they have become the irresistible opioid of the financial world...this buyback bubble is really the ultimate expression of that philosophy, which has turned the stock market into a casino and our corporate board rooms into parlors for rigged betting" 

Market manipulation indeed. What record stock buybacks are hiding is massive share dilution and the fact that aggregate profits are not increasing, only per share profits have been increasing over the past decade. Why? Lack of investment in the real economy. All "investment" is in financial alchemy.

The article above blames the Fed for keeping interest rates low for the past two decades. However, the global economy has been in a state of extreme deflation since China joined the WTO in 2000. The Fed had no choice on interest rates. Does the author also believe that mercantilist Japan and Germany chose the same policy? Of course not. And yet they all arrived at the exact same destination.

The U.S. is the tallest midget in the circus:

 

The stock buyback alchemy however WAS turbocharged by the Fed's quantitative easing which kept a bid under equity prices while insiders cashed out. Socialism for the rich. Put it all together and what do you get? The largest leveraged buyout in human history as insiders cash out at public expense.

One of these "recessions" is not like the others:

In addition of course are the record cash outs by Silicon Valley via the IPO and SPAC market.

This past week, 2021 officially became the largest IPO issuance year on record in terms of number of IPOs. 

Five months being the new "year". 

Millennials seeing this epic con job playing out at their parent's expense, chose to try their luck in the crypto Ponzi market instead. The next logical step for a society desperately seeking effortless wealth in a zero sum game where everyone believes that someone else is losing.

As I pointed out on Twitter, Bitcoin unlike most of the other thousands of "ShitCoins" has a finite supply of coins that can be produced. Which means that in terms of carbon footprint it can't scale. And every time it makes a new high and a new crash, it wipes out more newbie speculators. 

Nevertheless, today's con men optimistically assume a limitless supply of useful idiots at their disposal, so they never stop hustling.

In summary, there's a sucker born every minute, and it would be a shame to allow the most corrupt era in U.S. history pass by without taking full advantage. Because when the rioting begins, we can be sure that the *new* economy consisting of bilking investors will be over.

And then the sheeple will realize to their chagrin, the cost of this widely accepted fraud is not measured in dollars, it's measured in decades. And not everyone has that kind of time.