Wednesday, July 7, 2021

The Most Obvious Crash In History

Looking back, today's financial pundits will be embarrassed that they missed the warning signs leading to this inevitable super crash. Unfortunately, they were too busy monetizing useful idiots. This era marks the period when the dumb money rushed off the sidelines 12 years after 2008 in order to buy a pandemic driven asset bubble at the end of the economic cycle. What finally drew them in? The gamification of markets. You can't make this shit up...

Fittingly, Robinhood finally filed for its long-awaited IPO this past week. The company grew its number of accounts 150% over the past year. Robinhood pioneered the zero commission trading model which was adopted by all of the other brokers in late 2019 just before the pandemic started. Since that time, recreational trading has skyrocketed. It's like a new pastime or hobby.

This new gambling fetish gave rise to the Dave Portnification of markets. Inexperienced buffoons who discovered markets late in life and decided they were trading geniuses. Aided and abetted by the largest central bank injections in world history. As they say, timing is everything. In Nassim Taleb's "Fooled by Randomness", he describes a rube trader who finds early success in a bull market and comes to believe he's a trading savant. So he doubles down on every trade until he blows himself up. Basically describing the Portnoy army of traders. 

All of this excessive gambling is highly reminiscent of Y2K, only today's gamblers are 100% confident that central banks won't let them down. Nevertheless, already the Fed is moving towards tapering their asset purchases which is why bond yields are falling every day now.

Sentiment Trader notes that the correlation between growth and value is now at a record low. Which is why the number of stonks holding up this gong show is also reaching record divergences in breadth. Last week I showed that the % of stocks BELOW the 50 dma at an all time high on the S&P 500 was at a multi decade high. Yesterday the same thing happened on the Nasdaq - except this is an all time high divergence: 

What we notice via sentiment is that active managers keep getting rinsed by this robo market. They have one foot out the door but then they get dragged back in which is ironically fueling the market higher.

A similar dynamic took place in 2018 and then the wheels came off the bus. It's only a matter of time. Most money managers won't see it coming. They're the reason this is taking so long.


On the retail side we just learned that the Ameritrade Investor Movement Index reached a new all time high in June. This indicator shows investor risk allocations in markets. We can assume via this index that record margin balances expanded again in June:

Fittingly, is making a new all time high this week. No stock epitomizes the insanity of this era better than Amazon. Today's full Idiocracy now has 100% confidence in the virtual economy. Because no one told them there is no such thing.

No surprise, Amazon is one of the top stocks manipulated on social media.


In summary, we have now achieved the full Ponzification of society. An army of Bernie Madoffs running amok figuring out their next pump and dump scheme. 

For their part, today's financial pundits realized a long time ago that there was no money to be made from intelligent discourse. The addressable audience is far too small. So they are now all competing to monetize the vast base of useful idiots.

Which is why they don't have time to focus on other matters, such as obvious risk.