Thursday, November 4, 2021

The Last Pump And Dump

It was inevitable that central banks would create a bubble of such magnitude that no bailout would be possible. Here we are...

2021 will forever be known as the year of Bernie Madoff. Back in 2008 as markets were melting down due to Wall Street's malfeasance, regulators arrested Madoff for his pissant Ponzi scheme. While at the exact same time they were arranging a free money bailout for the instigators of the crash on Wall Street. Which kicked off over a decade of non-stop monetary bailouts for the ultra wealthy. In the process they normalized corruption. At the lows of the cycle, Millennials were protesting Wall Street, now at the end they are ALL IN. Because if you can't beat 'em, join 'em...

The Free Money cargo cult is spamming me constantly on Twitter begging me to join their circle jerk of mass delusion. So I created a new game called "Whack-a-Troll". I'm getting pretty good at it. One troll said I am in the "pessimistic" camp. No I'm not, I'm actually on the optimistic side of what's really about to happen. The entire bull case is predicated upon amnesia, which is the standard formula for denial. As long as we forget the past and the mistakes we made getting here, we can make up any story we want. As of this writing, the S&P 500 is enjoying its largest rally in over 75 years and the Dow is up the most since 1987. Meanwhile, the Fed's financial stress index is the lowest since 2007 meaning complacency is rampant.

The bull case at this juncture can be summarized as "And they lived happily ever after". 

Here we see the stress index at the 2007 lows. Meanwhile, Rydex cash balances are at an all time low, meaning gamblers are now trapped by their own circle jerk of delusion. They don't have to worry about getting out, because they won't.  Too many of today's bulls don't know the difference between realized and unrealized gains. That will be a very painful lesson they are all about to learn the hard way. 

The divergence between Financials and NYSE new highs is also at 2007 levels in this last all time lie:

In 2021, pump and dump schemes have been fully normalized. When the Gamestop debacle took place back in January, the only question regulators wanted to know is why brokers prevented everyone from fully participating. They had no qualms with the fact that these were pump and dump schemes organized in Reddit chat rooms. This society doesn't understand what is corruption anymore. It's fully desensitized to malfeasance. There is so much capital circling the globe looking for any type of yield that now there's no difference between parking money in a Squid Game fly-by-night crypto and a record over-valued S&P index fund. They are BOTH a zero sum game in which the likelihood of return is predicated solely upon how many fools will follow.

The Biden post-election rally is officially one years old this week. Here we see cyclicals have gained 100% in the past year. Which happens to be DOUBLE Trump's rally in half the time. 

Unfortunately, it is a high octane rocket ride without a safety net. 

In summary, it was inevitable that central banks would create a bubble of such magnitude that no bailout would be possible. Here we are.

Legendary investor Jeremy Grantham likens this time to a more lethal version of 1929. Back then, the markets were partying into the all time high and then the bottom fell out into the Great Depression. This will be similar, except the insane amounts of leverage and over-reliance on computerized trading will make it far worse. The fake stagflation trade has ensured that the most overbought cyclical sectors will be bidless. I predict most Millennials will be margined out limit down never having  been taught the existence of the sell order.

Once that happens and a generation watches their fake wealth vanish overnight, societal acrimony will increase substantially. The comatose sheeple now partying like it's 1929 will finally wake up to the fact that U.S. wealth inequality has now reached Third World levels of insanity. At that point, the days of bailed out oligarchs dodging taxes will be over. I suggest there will be few alt-criminal apologists for greed at that lethal juncture.

We have officially entered the no bailout zone.