Friday, December 31, 2021

The New All Time Crack High

This is my last blog post of 2021 - a year that will forever be known for maximum smoke and mirrors. Recently, I realized why I don't read fiction anymore, it's because I get more than enough fiction during the day from business news. Beyond that I have no appetite for creative fantasy. Unfortunately, this society is now addicted to fiction. Fact and truth can in no way compete. Therefore, it's totally appropriate that 2021 embedded the largest breadth divergences since 2007. And more recently, holiday collapsed volume and volatility are hiding the largest divergences of 2021. Every Ponzi scheme has paper millionaires bidding up their own ephemeral wealth. Unfortunately, when this asset bubble explodes, this Idiocracy will realize that in Ponzi schemes there is no strength in numbers...

No fact or truth can penetrate the complacent malaise that permeates this society at their new permanent plateau of mass deception. Just as ever-widening wealth inequality has been ignored for decades, it's only fitting that cycle-wide market risks are assiduously ignored now. The masses seek consensus from like-minded fools, and they all take comfort from their strength in numbers. As I've pointed out recently, many bubbles have already burst in 2021. Just not the biggest one - the one that involves central bank coordinated market manipulation. Which is why we're seeing chasmic market divergences. It was the same way back in Y2K. First the junk stocks imploded. Then investors told ourselves that the mega cap Tech stocks were safe havens, because they had real revenues. The fact that they were record overvalued didn't matter. It turns out, it DID matter.

For example, Cisco made its all time high back in Y2K and STILL hasn't recovered. At the peak over twenty years ago it was the world's most valuable company at $550 billion. Today's market cap is HALF that amount.

Most of the money lost in that era was lost in the mega caps that were perceived safe havens. It's shocking how many people who lived through that debacle have already forgotten that fact. 

In a recent survey of which wealthy investors plan to dump stocks in the New Year to lock in gains (and avoid taxes 2021 taxes), Millennials are at the top at 90% and Boomers are at the bottom at 29%. Which is the exact opposite of what should happen. It appears that the older generations have completely forgotten the lessons of the past two bubbles. Call it amnesia or dementia, it will have the same outcome.

Another shocking fact is that no pundits are mentioning the chasmic divergences in market breadth attending this latest "all time high". As of yet, neither the NYSE composite NOR the Nasdaq composite have confirmed this latest S&P high. Which is the longest stretch of non-confirmation of 2021.

Here we see the last two times the divergence reached this duration, the S&P rolled over. In October 2018, it imploded -20% into the end of the year.

Far worse yet, is the latent leadership by recession stocks. Even mega cap Tech stocks are not confirming this latest high. And notice the number of daily Omicron cases which is spiking after Christmas. It will spike even more after New Year's. 

It's only a matter of time before the old age home shits a brick deja vu of March 2020.

Can you imagine if this crash starts off the exact same way as the last one? And yet they will say no one saw it coming. 

There are many historical analogs for today's bifurcated market. None of them however embed ALL of the risks of this all time crack high. However, going into the 2022, the 2015/2016 analog is now the closest. Back then as now the market was highly volatile during the late summer and Fall. In December the Fed tightened but markets kept it together until the new year arrived, and then they exploded. 

Yet again the rest of the world is just waiting for the U.S. crack high to wear off:

This chart shows the combined breadth of the Nasdaq and NYSE. This level of divergence has also not been seen since 2015, right before the August crash. Before that, there is no precedent for this amount of divergence from an S&P 500 all time high. 

The Rydex asset ratio has been extremely erratic throughout this year but always ending at a new all time high. RISK OFF is not even a consideration. So it's altogether fitting that it's ending the year at a new all time crack high.

Today's fat and happy bulls bidding up their own assets have to learn the hard way the difference between realized and unrealized gains.

And when they do, they will realize there is no strength in numbers. 

This song seems the most appropriate for 2021 even though it's not from this era. This is the first year of my entire life I don't recognize one song that's popular. Either I'm getting old or the music today is total dog shit.

Happy New Year!!!