Tuesday, June 1, 2021

All Aboard The Fraud Supernova

There is a level of widely accepted fraud in this era that is far beyond anything we've seen in our lifetimes. It's amazing what criminality people will ignore when markets are rising. And what they shockingly discover when they fall...

Back in 2016 prior to the election, Trump predicted that Obama's "Big, Fat, Ugly Bubble" would explode when Obama left office. But when that didn't happen, Trump got to work making it much bigger. Then it exploded on his watch in 2018.

We can see via the Global Dow that the Trump bubble peaked in 2018 after a 14 month rally. The peak coincided with the implementation of his tax cut. While the S&P 500 made a new high in September of 2018, global markets essentially went down the entire year. Then the S&P imploded and met them at the bottom in Q4, until Trump demanded a Fed bailout. 

Acquiescing to Trump's demands, 2019 marked a Fed easing of policy - three rate cuts and a $trillion in quantitative easing to quell the repo crisis caused by the tax cut and resulting deficit. All of which led up to the pandemic implosion. Now, Biden's post-election rally equals Trump's post-election rally in magnitude, but in half the time. 

In four years Trump tweeted over 150 times about the stock market. Biden never talks about the stock market, because he knows it's a bad idea. 

Looking at the chart above, we see that Trump built upon the Obama rally and now Biden is building onto the Trump rally. In the meantime, leverage and risk have continued to grow. In 2018, Trump killed the Fiduciary Rule which requires investment advisors to disclose conflict of interest and otherwise steer their investors towards responsible investments. Once they were off the hook from taking into account their client's best interest the fraud genie was out of the bottle and has grown inexorably since that time. 
Now we live in an age wherein Reddit pump and dump schemes are defended in Congress as democratization of markets. Crypto currency schemes are going mainstream. And SPAC issuance is out of control and riddled with fraud. Unlike IPO's SPACs are lightly regulated which is why they are ideal for con artists looking to take advantage of the public:

“In a traditional IPO you can’t show a [financial] forecast and you can’t talk about the future of how you want to do things, you’re just not allowed … Because the SPAC is a merger of companies, you’re all of a sudden allowed to talk about the future … when you do that, you have a better chance of being more fully valued.”

Then there are today's pump and dump celebrities: Cathie Wood, Elon Musk, Mark Cuban, Chamath Palihapitiya, Dave Portnoy. These are people with massive followings who use Twitter to drive all of the various pump and dump scams. 

In a sign of the times, this week, Miami is hosting the largest crypto conference in history. Over 50,000 attendees are expected. 

"Miami is hosting the largest-ever cryptocurrency conference this week in a sign that what was once dismissed as a passing fad is now going mainstream"

This chart shows that the losses in crypto equal 10 years of market cap gains:

In a zero yield, zero sum game, fund managers unshackled from Fiduciary duty, are now seeking yield by taking ever greater risk. After all, they need to make money in every type of market, and over-valuation is not THEIR problem. 

We can be certain that there is a level of shadow leverage beneath the casino that will make 2008 seem minor by comparison.

The latest trend is to turn insurance companies into massively levered hedge funds:

“There are some people out there who take these assets, they assume the insurance regulators won’t pay that much attention to them. And they swing for the fences"

In summary, the Millennials who were protesting Wall Street one decade ago, are now massively levered to record Wall Street  fraud and criminality.

You can't make this shit up.