Saturday, December 18, 2021


History will say that today's pundits stood by and watched an entire generation get monetized, and said NOTHING...

What we learn is that in a state of denial amplified 10x by record greed, investors will never reduce risk allocation, they will only increase their ignorance of growing risk. Now, at this latent juncture, the investor class is solely concerned with economic inflation, while at the same time racing to buy asset inflation at a pace equal to the past 20 years COMBINED. What they are all assiduously ignoring is the extreme bifurcation of the economy driven by central bank sponsored asset speculation. During 2021, the working class has seen ALL of their pandemic supports removed and their spending power HALVED, while the Casino class has seen their bubble wealth soar and their spending power DOUBLED.

How could this possibly end with anything less than biblical dislocation?

Record Americans Won't Be Buying Gifts This Year

"The lower income group is spending almost half of what they used to spend. And the higher income group is almost double what they used to spend two years ago"

"Big spenders mask those not spending"

What today's investors view as a strong economy is merely themselves staring back in the mirror. They're fat and happy, so they assume everyone else must feel the same way. 

Of course in aggregate all of this RECORD newly issued junk stock must be owned by some bagholder. Therefore, it's impossible for everyone to rebalance to cash at the exact same time while teetering at the new permanent plateau of human history's largest asset bubble. So instead, we see denial and ignorance of risk reaching a new all time high with every passing day. For the vast majority of people, believing this could all end badly is not even in the realm of possibility since they are massively levered to this super asset bubble in every direction. Their very REAL liabilities have increased in lockstep with their very ephemeral asset values.  

Which is why today's pundits now routinely ignore the largest critical coalescing risks:

Millennial margin call in progress

EM/carry trade unwind in progress

Liquidity/system risk in progress

Tech bubble collapse in progress

Cycle risk in progress, due to ubiquitous inflation assumption

Then there are the widely known and FULLY accepted risks that are routinely rationalized away with scant concern.

Record margin, record option speculation

Record bubbles across every asset class

Record cash out by insiders and ultra-wealthy

Record IPO/SPAC issuance and Wall Street profit

Record wealth inequality

Record breadth divergences

The year got off to a fast start last January with Millennials lured in record size by the Gamestop pump and dump scheme. New broker account openings hit records across every retail platform, led by Robinhood. In retrospect that turned out to be the peak of fools rushing into the Casino. Subsequent Nasdaq peaks have been met with ever-widening breadth divergences as more and more Millennials get silently margined out. The major indices are now held up by a mere handful of massively overvalued mega cap stocks. The Russell small cap growth index has been carving out a ONE YEAR top in the making.

Still, we already know that rampant morons will claim that no one saw it coming. If for no other reason than legal defense.

Q4 has seen the highest number of Nasdaq new lows attending a Nasdaq all time high (+/- 5%) in history. And the next highest number was the top in 2007. 

As they were just prior to the COVID meltdown, recession stocks are now "leading" the market. Today's investors won't admit this is the end of the cycle, because it would conflict with their "inflation" hypothesis. They will come around eventually. The longer it takes, the more pain they will endure in the meantime.

Cycle denial will be exorbitantly expensive.

This week the Hang Seng was the first major global index to approach the COVID lows. By no means the last.

Throughout the year we saw new ETFs introduced for Bitcoins and Social Media pump and dump schemes. In addition, this year saw both the widely awaited Coinbase IPO and the Robinhood IPO. The real Robin Hood of old stole from the rich to give to the poor. The Robinhood gamified broker app is a gamified front-end to Citadel HFT dark pools designed to lure newbie investors into day-trading themselves into penury. It has efficiently monetized an entire generation. And yet not one pundit today sees anything wrong with this massive zero sum fraud. History will say they won the war of words by losing the war on reality. Convinced that central bank imagined reality would bail them out indefinitely.

Fast forward to this week and now global central banks are tripping over themselves to unwind excess liquidity. In other words, the year of Ponzi is ending amid cycle high extreme risk AND the explicit removal of central bank support. 

Just perfect.