Con Man's Paradise

On the East Coast we are having an infestation of locusts. Last year plague, this year locusts, move along nothing to see here...

Back in paradise, bilking the public out of their life savings is now the new "economy". There are so many assholes competing to bilk the public right now that I started to make a list but I ran out of time. Needless to say, when this all explodes totally unexpectedly, the amount of rage will make the Capitol Riot seem like a picnic.

In a zero sum game, it's all about who can get over on the most number of people. This society sees nothing wrong with it. Which is why this year crypto went mainstream. Bitcoin saw major institutional adoption. Now it just crashed 50% in one week because Elon Musk finally realized Bitcoin can't scale without destroying the planet. What kind of "asset class" can fall 50% in one week and still be considered investable? 

One thing crypto shows is that social mood is finally rolling over hard. Below we see that Bitcoin peaked in mid-April on the day of the Coinbase IPO which was also the day Bernie Madoff died. You can't make this shit up. Then it fell and rallied back to a lower high last week. Then Musk announced that Tesla was reversing its recent decision to accept Bitcoin. At the nadir yesterday, crypto currencies had lost almost $1 trillion in market cap. So then Musk changed his mind again, which is totally meaningless since Tesla still won't accept Bitcoin. Now we see that it's currently backtesting the 200 dma.

And we also learn that the institutions that just piled into Bitcoin, are already dumping it for gold:

May 19th, 2021

JPMorgan: Institutions Dumping BitCoin for Gold

 

Yesterday, the Fed put a nail in the coffin of this free money experiment when the Fed Minutes showed they are ready to tighten policy sooner than expected:

May 19th, 2021

Which is perfect timing because the Economic Surprise Index is crashing:

May 20th, 2021

BBG: Citigroup Economic Surprise Index Close to Going Negative

"Citi’s Economic Surprise Index — which measures the degree to which economic data is either beating or missing expectations — is at its lowest level in nearly a year. And if we have a few more disappointments, it could go negative."

Taking together the Fed Minutes and the crashing economic reality, it can come as no surprise that the reflation trade is getting monkey hammered this week, albeit still above the 50 dma and a bear market away from the 200 dma:

Which is fitting because we also learned this week that fund managers are record long the big "Boom":

"Exhibit 1: All Time High In Boom Expectations"

Indeed.

Can it come as any surprise that the Dow, crypto market cap, and "inflation" expectations are all peaking at the same time?

They are all part of the exact same fraud being perpetrated on the public:

This would be the first cycle in U.S. history in which inflation expectations peaked at the beginning of the cycle.

IF it were the beginning of the cycle. 

Outside of the U.S., this chart in particular stood out this week:

In summary, gamblers are record positioned for a big boom.

And that is exactly what they are going to get.

What they deserve.

May 18th, 2021

Margin Debt Hits Zoo Has Gone Nuts Level

7.5 Billion Morons Can't Be Wrong

Psychedelics are the new bull market. Because when vodka, marijuana, and opioids can no longer drive the bull market, it's time for the hallucinogens...

Jerome Powell and Janet Yellen meeting to discuss monetization of the debt:

It wouldn't be tax day if I didn't show a chart of the deficit over tax receipts. As of the end of 2020, the deficit is 60% larger than tax receipts. For those conservatives who are constantly bitching about taxes, it could be a lot worse.

The good news is that per the rules of Japanification, deficits no longer matter. Therefore I have no idea when today's fiat currencies will implode since Japan has been doing this for three decades straight. 

If I were to guess, I would say that the world will not escape the paradigm of deflation until there is a global middle class. And currently we are headed in the opposite direction, so don't hold your breath.

Which gets us to the usual "inflation" hysteria. It seems that in May the hysteria has reached new heights as we see via Google trends. The inflationists have "won" the war of words and therefore the inflation trade is a one-sided trade now.

Cyclicals have closed above the 50 day moving average every day since the election, and the streak continues as more and more money piles into this one sided trade.

The obligatory delusion is that a post-pandemic economy will be far more robust than the pre-pandemic economy. You have to be brain dead to believe it, hence it's a consensus trade particularly on Wall Street. 

I made note of the fact on Twitter that gold miners are making new monthly highs which follows the same pattern from last year. They lagged, and then they played catch up at the end of the repo bailout rally. 

One year ago, as the pandemic was raging across the world, gamblers were betting that central banks could save markets  and therefore their ONLY concern was "inflation". 

And then they imploded because it was all a delusion.

The same as it is now. 

Which gets us to Tech stonks which are essentially bidless aside from recurring short covering rallies. Betting that Cathie Wood will implode is a very crowded trade and Elon Musk appears to be on the side of the bears. 

Recall that May is the month when the Momentum "Factor" trade will swap out Tech stocks for cyclicals. What fools call "Momentum Value", which happens to be an oxymoron, appropriately.

The definition of insanity is betting on bigger and bigger asset bubbles, each time expecting them not to explode. In addition, betting that a post-pandemic economy will be better than a pre-pandemic economy, while growth stocks go bidless.

Put it all together and it's a recipe for totally "unforeseen" disaster.

In summary, the fake inflation trade is massively overbought and overbelieved. At its epicenter is the belief that cryptocurrencies are a safe haven from central bank money printing. The same cryptos that were 100% correlated to stocks one year ago in the March crash. Either today's gamblers were not around a year ago, or they are serial idiots.

Or maybe they just want to con a bunch of fools into a well known Ponzi scheme.

Again. 

In all fairness, today's crypto speculators are merely the logical next step for a society determined to achieve effortless wealth. They are one step beyond the monetary inflated Dow Jones Illusional Average.

Can over-leveraged Ponzi schemers in a $2 trillion weaponized crypto explosion initiate the larger global $200 trillion thermonuclear asset meltdown?

They will try. 

Margin Call On Denial

“You know I hate, detest, and can't bear a lie, not because I am straighter than the rest of us, but simply because it appals me. There is a taint of death, a flavour of mortality in lies - which is exactly what I hate and detest in the world - what I want to forget.”

― Joseph Conrad, Heart of Darkness

Those of us who believed the idiocy ended in November were shocked to learn it was only getting started. The pandemic hid the end of the cycle, so upon reaching their false dawn the euphoric masses went ALL IN the modern lifestyle - competitive self-destruction. 

We regained our sanity back in November, until we realized Circus Donny was only a symptom of the problem. Self-destructionism is now a way of life. Squalor the path of least resistance. Throughout this time, there has been only one choice - to capitulate to widely embraced madness under the belief that if enough fools believe the same lie, it must be true OR to repudiate the modern way of life and its competitive debasement of humanity. Those who doubled down on this two dimensional virtual reality have no idea how to survive the reality that's coming.

They are spoiled assholes. 

This era represents the Pyrrhic victory of opinionated bullshit over reality. The first coming of Trump should have been a stark warning as to the extreme denial of truth that this society is capable of fabricating. 

Those who embrace this patriotic self-destruction are blissfully unaware as to the extent that American life has been eroded by corporations over the past several decades. From the GMO-riddled food supply, to the junk jobs, junk culture, and junk higher education that the hordes are bankrupting themselves to obtain. The Millennials are an embodiment of a generation attempting to maintain a social media fabricated lifestyle while at the same time keeping the underlying reality from imploding. They are busier than a one legged man in an ass kicking contest and it's taking a drastic toll on their mental health. The chasmic gap between fantasy and reality keeps getting wider and wider  while their Google-enabled wisdom gap leads them down a blind alley. Most of them can't get out of their own neighbourhood without GPS. 

Millennials may well embody the problem, but they are far from responsible for creating it. They were handed a Potemkin economy by the older generations which are incapable of accepting the fact that anything has changed when in fact everything has been drastically eroded. Kurt Anderson calls it "Fantasyland":

"America was created by true believers and passionate dreamers, by hucksters and their suckers—which over the course of four centuries has made us susceptible to fantasy...In other words: mix epic individualism with extreme religion; mix show business with everything else; let all that steep and simmer for a few centuries; run it through the anything-goes 1960s and the Internet age; the result is the America we inhabit today, where reality and fantasy are weirdly and dangerously blurred and commingled"

Those seeking reprieve from vodka, cannabis, opioids, and reality will find their salvation in psychedelics. The new bull market:

The premise of this post is to say that we are reaching the rapturous endgame for this Fantasyland vacation from reality which has gained force steadily since the jarring nadir of 2008. 

We are staring at a margin call on rampant stupidity. One that for obvious reasons the vast majority of people can't see coming. 

"Few things evoke fear in equity markets like a margin call. On Wednesday that fear turned into panic in Taiwan, offering another warning for the world on what can happen when leverage unwinds."

For months, bull market skeptics around the world have warned that surging leverage is making equity markets riskier -- and the blowup of Archegos Capital Management in March served as a reminder of that.

In the U.S., margin debt topped $822 billion by the end of March -- the latest available data. That’s up 72% year on year."

On a smaller scale, the same happened in Taiwan"

What we are witnessing in the U.S. is the compression of volatility by using ever-increasing leverage. It's a circle jerk of morons who believe there is strength in numbers. 

A turn down in the Rydex ratio has coincided and/or preceded every volatility event in the past three years:

This vacation from reality is an exorbitant delusion that is coming apart at the seams.

Either this delusion explodes, or every moron you ever met is right. 

Suffice to say, they can't afford to be wrong.

Again.

In summary, those assholes who are proponents of cutting ancillary benefits to the unemployed, will soon be finding out THEY are the ones who need them.

Because this time the used car salesmen conned themselves.

An Inconvenient Explosion

The definition of a clusterfuck is when half the country refuses to get vaccinated and refuses to wear a mask. While the other half of the country is vaccinated and refuses to stop wearing a mask. The one thing they all have in common is that they will be shocked when this half assed "recovery" explodes...

Any questions?

What if by any chance a market crash is not good news. This is the question I will attempt to answer.

This week, all of the inflation trades are starting to implode due to inflation. You can't make this shit up. All of the speculative commodity inflation finally showed up in the lagged CPI and what happens, the speculative commodity trade explodes.

This is where it gets interesting: The last time lumber spiked to this level of overbought was late last summer, which coincided with a top in the S&P 500, Nasdaq, and global Dow. That marked the end of the pre-election rally which lasted five months. The post-election rally began early November and ran through April which is six months. May has been a little choppy for global markets so far. Keep this September turning point in mind, because I will be discussing it further below:

Writing after Thursday close, Transports are down -1.5% on the week - their first down week following a record 14 up weeks in a row. In other words, deja vu of 2010, the May curse MAY be striking again.

Switching to Tech stonks, they too are having a rough week. Yesterday, Elon Musk founder of the largest EV company in the world said that Tesla will no longer receive payment in Bitcoin, because he just learned that it's not eco-friendly. In other words, the guy who has been cheerleading crypto currencies these past several months just dropped them like a rock. And his stock got dropped like a rock as well. 

In addition, Jim Cramer told his fan base that the Tech trade is dead now that the CDC is saying masks don't need to be used indoors for people who are vaccinated. Apparently no one in my area got the memo because they're all vaccinated and yet they seem to enjoy operating incognito.

All of these factors have combined to make the Ark ETFs bidless on what will likely be record weekly volume, depending upon tomorrow's action. You will also notice that the % of Nasdaq above the 50 dma is right at the September level, so we know what the bulls would say - this is September deja vu and a rally is imminent. Except we see in the upper pane, that this is nothing like September. Back then, Tech stocks had been rallying for five months and suffered two weeks of correction. In this timeframe, the lockdown stonks have suffered nine down weeks in the past three months on MASSIVE volume. 

So let's take a look at Nasdaq volume momentum. It's significantly below the September lows:

Turning to sentiment, we notice that weekly AAII bears are still in hibernation.

On the other hand, active manager positioning is at the lowest level of 2021. They got rinsed by the fake new Nasdaq high but now they're back to RISK OFF. 

In summary, the market is oversold, especially the Nasdaq, which is why we could see more one day robo rallies such as today. However, my assertion that this is the beginning of the end-of-cycle crash remains my base case scenario.

The largest one year rally to an all time high is running on glue fumes and the probability that it continues is:

"Never happened before"

Those who say that I should use a log scale chart, don't understand that the percentages (lower pane) won't change.

The New Widowmaker Trade

Bulls have been panic buying the reflation trades out of a fear of rising inflation. Now that their own asset inflation is showing up in the lagged economic data they are freaking out over "inflation". The irony can't be overlooked. Too bad no one can warn them they are victims of a hoax perpetrated on themselves.

Again.

Betting against deflation in Japan is called the widowmaker trade. And now it's a widowmaker in the U.S. and Europe as well. 

For over 30 years various speculators have bet that all of the stimulus gimmicks deployed in Japan would create inflation and blow up the JGB market. They were wrong, and the speculators were the ones who exploded, not the Japanese bond market. Not only has the JGB yield stayed pinned to 0% despite debt over 200% of GDP, but the Yen is STILL regarded as the world's safest currency. Every time global markets implode, the Yen rallies. That has much to do with the fact that the Yen carry trade is a very popular RISK ON currency swap - borrow in Japan at 0% and buy higher yielding currencies with massive leverage. Then, when markets go RISK OFF, those high yield currencies get monkey hammered sending capital flying back to Japan to make the margin call. The same thing will happen to the U.S. dollar. It's now a ticking time bomb.

It's clear that most investors and pundits are in denial that the U.S. is now in Japanification. Which is why they are betting it all on reflation trades. They are engaged in the new widowmaker trade.

It speaks to tremendous arrogance to follow the exact same path as Japan and yet to expect a different result. It's no wonder Japan has been stuck in deflation for three decades. The World is constantly inundated with the deflationary forces emanating from China and the other Asian tigers all competing for the exact same commodified manufacturing work. Worse yet, COVID accelerated the virtualization of the economy. The trends that were in motion due to Globalization were put on steroids during the pandemic - working from home, shopping online, contactless payments etc. We now have the economy that futurists predicted decades ago - one that needs far fewer people. Underemployment is going to be with us for an indefinite amount of time. Our policy-makers have no solution for it, other than to provide a basic income stipend to the unemployed.

In addition to structural deflation, there is the fact that record U.S. debt now precludes any strong inflation impulse. A true spike in inflation would collapse the bond market and ignite another credit crisis, which would be extremely deflationary.  During the 1970s stagflationary period, the U.S. was the world's largest creditor nation. Now, decades of trade deficits later, the U.S. is the world's largest debtor nation. All of this debt would need to be wiped out before a sustained inflation could take place.

What things will look like on the other side of the impending rioting is another question. The crystal ball doesn't see that far. However, needless to say, that when the sheeple realize they got massively conned again. There will be a truly fundamental paradigm shift in economic ideology in the United States. And it won't be friendly to capital. Those who believe otherwise are now engaged in the widowmaker trade. The first of many false dawns to come.

The crowded trade of 2021 is assuming this line will go up forever:

Lehman Deja Vu

This is the golden age of bullshit because there has been no accountability for lying assholes for far too long. Unlike 2008, I predict the rampant con men in this era won't be seeing another bailout...

The greatest lie the masses have been told in this era is that the shortest bear market in history, 16 days, corrected the longest bull market in history, 11 years. Hence this is an all new bull market. In order to believe that asinine lie we must also believe that decade high inflation is attending the beginning of a new cycle. Apparently some people can't remember back as far as 2008 when we were told the same lies. 

Then as now, this will be a lethal delusion.

May 12, 2021:

"The increase in the headline CPI rate was the fastest since September 2008"

September 2008 of course was the Lehman collapse. Up until that time, despite all of the collapsing dominoes (Bear Stearns, Fannie/Freddy, WashMu, Merrill Lynch etc.) everyone thought the Fed had everything under control. Even the Fed thought everything was under control. But of course it was merely an illusion that had been brought about by the ample stimulus they were providing to markets. They were artificially suppressing volatility and then it exploded at a time when "inflation" was cycle high driven by the Fed's own policy:

Back then there was plenty of inflation hysteria but nothing like what we are seeing now. This year's high CPI numbers have been amplified by the "base effects" of last year's low price readings. Which is why when we look at the chart above, the oil price at $140 in 2008 had only slightly more "inflation" impact than the $65 oil price today. The CPI reading under these post-lockdown conditions is extremely misleading.  As we see above, one year ago in April crude oil dipped negative for the first time in history. On a closing basis, the price is up almost 1,000% year over year from the daily closing lows. 

Copper recently hit a new all time high, which garnered significant media attention. However, when we look at the price of copper divided by the CPI we see that it's far more subdued than it was a decade ago. Which indicates that this recovery is weaker than the post financial crisis recovery. 

In addition, it's already rolling over because the CPI is lagged whereas the copper price has been skyrocketing lately. As the CPI data catches up with recent prices this indicator will roll over even faster:

We are very likely seeing peak "reflation" now:

The Gold / CPI ratio is another indicator calling bullshit on this entire fraud.

Just as it did in 2008 when inflation hysteria was at a cycle high:

There are those who have a vested interest in having everyone believe that prices are going to sky-rocket aka. salesmen trying to convince people to buy now instead of later.

What we have witnessed over the past year is a rotating buying panic from toilet paper to Tesla stock, to Ark ETFs, to cryptos, to reflation trades, and now of course commodities. On the East Coast there is currently a buying frenzy at gas stations due to the pipeline outage. Deja vu of the toilet paper shortage last year, which of course was temporary.

Much of this inflation hysteria of course is politically motivated, to discredit Biden's economic policies. However, it's all going to backfire when these reflation trades explode with extreme dislocation.

We live in the golden age of bullshit. And it's going to end exactly as it should - amid mass surprise and soiled underwear, followed by biblical rage at the asshole class who believe it's their right to lie constantly.

In summary, is this a good time to be long cyclicals?

Not really.

License To Explode

The weak unemployment report was taken as a clear sign for gamblers to keep the pedal to the metal, because that's what the Fed will be doing - cramming markets with monetary dopium until they explode...

There have been four Hindenburg Omens in the past two months. Three in March, one last Thursday and very likely one today although we won't know until tomorrow. I said there were three so far on Twitter, but it's actually four. This pattern is very similar to last year where there was an early cluster and then a late cluster right before the wheels came off the bus. The Hindenburg Omen means there are a significant (>100) number of new daily highs and lows at the same time indicating pockets of speculation in a disintegrating market. Many pundits are dismissive of the Hindenburg Omen. The assholes who dismissed it last year were quickly entreated to a -35% shellacking. But this time will be a ground and pound they will never forget. What they deserve for being pump and dump pimps who never learn their lesson. 

The question on the table: is this third wave down for Tech/Momentum stonks? Because if it is, then it's about to get interesting.

Step back for some economic perspective:

This is the headline that facilitated the Dow's new all time high Monday morning:

It should be abundantly clear to everyone that Fed policy is only lubricating markets and doing nothing for the actual economy. How today's gamblers arrive at a conclusion of inflation when the job market is no longer functioning is a tale of greed over logic. The $300 /week Federal unemployment stipend is at the core of the delusion. It's the equivalent of $7 per hour. Granted, it's enough to disincentivize a low wage worker from returning to McDonald's, but for anyone who makes the median wage, it's a pay cut when combined with the state UI benefit. In other words, contrary to popular belief there won't be any hyperinflation coming from a $300 per week unemployment stipend. 

Due to these record monetary distortions it appears that bond yields are now becoming inversely correlated to the economy which is something we've never seen before. Since the jobs report was released on Friday, the bond market has been selling off whereas normally it would be rallying. We can infer this means that the bond market fears this narrative of "inflation"  as well - inflation that is now inversely correlated to the economy. Today's pundits will say this points to "stagflation" similar to the 1970s. However, back in that era, capacity utilization and employment were at all time highs. Now, they are at all time lows. What it all points to is an over-sensitivity to minor price movements in the economy, which is causing outsized moves in asset markets. Where even the whiff of price increase sends the cyclicals soaring far beyond what the underlying fundamentals would suggest. Led of course by the commodity sector. 

In other words, the Fed sees a weak economy, so they are hell bent on increasing stimulus. Speculators see the massive stimulus and assume it's having a massive effect on the economy so they bid up asset prices far beyond reasonable valuations. In the meantime, the real economy is languishing due to all of the various re-opening bottlenecks that are preventing full recovery.

So no surprise as bonds sold off the cyclical trade went parabolic again today, but then it rolled over later in the day. The question on the table is this the long awaited reversal of fortune?

If so, then hardcore believers in free money will soon learn the meaning of careful what you wish for, because the Fed warned them last week they have license to explode. And it would be awfully embarassing if they tried to pretend they didn't know. There's no  Black Swan" event for idiots to hide behind this time:

In summary, all of the GOP governors who are now canceling jobless benefits for unemployed workers, should be sounding the alarm about this sham recovery and the monetary euthanasia, instead. 

But since they are all monetary addicted bailout whores themselves they will instead learn the hard way.

Last year was just the warning. What comes next will be the lesson of a lifetime.