VolPlosion 2.0: Endgame

With the conservative media focused solely on blowing smoke up everyone's asses to rig another election, it falls on us realists to explain how the Trump Super Bubble explodes spectacularly without any warning. As I write, the casino just gapped down due to Coronavirus, as global pandemic presents the latest buying opportunity for the MAGA Kingdom...

"JP Morgan analysts think the coronavirus fears will soon blow over and Wall Street will rush back into stocks"

First, step back for a review: The topping process began two years ago this month with the left shoulder melt-up into VolPlosion 1.0. The circumstances abiding this right shoulder melt-up are eerily reminiscent. Here are the similarities and differences:

Similar:
January melt-up: In 2018 was due to the tax cut, now due to the Fed Repo madness which reached its peak at the end of 2019

VolPlosion positioning: Similar levels of vol shorts, and similar flattening of volatility curve as spot VIX rises faster than the futures

FOMC: Fear of missing collapse. Similar level of extreme positioning and speculation ahead of a Fed meeting

Davos confab featuring money managers talking up risk in the new year

Earnings reports/stock buyback blackout window


Here is what is different:
The rest of the world is lagging, the Global Dow has not confirmed the S&P/Dow highs
In the U.S., the new Dow highs are unconfirmed by Banks, Autos, Transports, Energy, Retail, and Industrials ex-defense, small caps, average U.S. stock, and entire economy
Global growth is slowing, deflation is rising
Central banks are maxed out
Existential MAGA circle jerk featuring unprecedented lying ahead of the election



The key difference from an implosion standpoint however is that whereas in 2018, the reflation trade peaked in October, this time around it already peaked in December 2019. Which is why banks and energy stocks sat out the January rally.

Which is why we are about a week ahead on implosion versus last time. 

As I write early Monday morning post-open, gamblers are still in BTFD mode in the U.S.

However, Emerging Markets are getting annihilated

"BTFD"

No sign of capitulation means the selloff is just getting started...

Breadth worst since August, approaching a 90% down day

Momentum has officially reversed

You know you're an optimist when...

Paradigm Shift: People Before Profits

By not impeaching Trump, the Republican party has forever branded itself the party of Donald Trump. Morally, intellectually, and financially bankrupt. After all, he didn't get himself elected...

Politics comes down to profits versus people. For forty years straight, since the 1980 Reagan revolution, profits have been winning the battle. In the event, Democrats were dragged far to the right as well, as economic McCarthyism became the order of the day. The bastardized term "socialism" has become a useful and yet meaningless pejorative to mean anything that would rebalance the economic equation back to people. Wealth inequality itself is not necessarily bad, UNLESS the system turns into a zero sum game, which the U.S. economy devolved into decades ago. 

Under Trump, the GOP made a whiplash U-turn away from their failed policies of free trade and mass immigration. Both of which have been highly accretive to corporate profit. Now they've become the party of trade wars and closed borders. To be sure, not all factions were onboard. Libertarians and many conservative media outlets found their traditional messaging was now deeply out of synch with the new paradigm. Nevertheless, synthetic prosperity via monetized deficits got them onboard as well.

Of course it was all a scam. The populist president has spent half of his first term eliminating healthcare coverage for working people, and the other half taking wealthy inequality back to 1929 levels by plundering the Treasury. Once again, the GOP successfully figured out how to put profits ahead of people via their Manchurian Candidate.

Be that as it may, we now find ourselves at an interesting juncture in which Bernie Sanders is powering ahead in the polls even as Trump maintains his loyal base. A right-left political divergence unprecedented in U.S. history.

This election will be entirely about putting people before profits. One of these candidates has a proven track record for putting people first, and the other has a track record for putting profits first. Trump's biggest asset is also his biggest liability - human history's biggest mega bubble. Ticking away like a time bomb ahead of the election.

It's interesting that the people who got Trump elected under his fake populist message have not even the slightest clue what it will cost them in the end to believe that delusion. They are after all his greatest supporters. Value voters who are cleft of values and can no longer tell fact from fiction. Which was the ultimate Pyrrhic victory of Faux News, to replace fact with opinion, until such a time as the masses would clamor for opinion over fact. A lethal addiction.

The lesson to put people before profits was overdue a decade ago, but for some reason we had to spend another decade pretending the system works, despite the fact that it had already clearly failed. At this late juncture, Trump's masses are living under the delusion that his Twitter bullshit has fixed the underlying problem. The belief that his soothing lies could repair four decades of criminality by taking criminality to new and unthinkable levels.

America's conservative movement is a spent force, ideologically, politically, and economically. Only they don't understand this. Yet. The fact that they are 90% bought into human history's biggest mega bubble will close the gap on that final conceit.

It's too bad no one could warn them. They don't trust anyone who can be trusted.

They are the party of Trump after all. 

The Promise Of The Joker And The Fool

I decided a long time ago that it's better to be a man before your time than a man after your time. Never more so than in an age of mass insanity. Sadly, in the company of fools, there is no strength in numbers. Today's masses are human call options on Donald Trump...

In an echo chamber of like-minded fools it's very easy to lose one's bearings. Those of us cassandras who've warned of history's largest Ponzi scheme were written off a long time ago. Fair enough. What remains of economic punditry are those who made the conscious decision to go ALL IN on Disney markets and otherwise ignore ALL risk.

Case in point, it seems a lifetime ago that Sunday night futures were tanking on the weekend news that Trump had killed the Iranian commander Soleimani. The (Jan. 6th) Monday morning gap open was the bottom for the week as WWIII got bought with both hands. Two days later, Iran counter-attacked the U.S. base and in the pre-market hours Trump signaled "all clear", at which point the rally accelerated. All of January has been a melt-up ignoring all risk.


The impeachment rally was accelerated by the Iran attack.

The hook is set.

They had a chance to get out, but they remained in the casino for the Keynesian bombing of foreigners

They stayed for the implosion of China.

And smash crash 2.0

They stayed for Y2K 2.0 

And global growth collapse

2008 FinancialPlosion

And 1997 currency crisis

All at the same time. 

People will want to know "how did this happen?". Why didn't anyone see this coming. The fact is that EVERYONE saw it coming. However, ignoring bad news and otherwise being a perma-optimist has become a major feature of this society.

Those of us who still recount risk, were long ago written off as permanent cassandras. Which is how risk has grown unchecked amid rampant complacency. In the age of central bank alchemy, we could not compete. Every fool knows that printed money is the secret to effortless wealth. Combined with an election year, it's no surprise that the truth didn't stand a chance.

World economic uncertainty hit a new record high in the fourth quarter of 2019 just as the RISK ON melt-up was accelerating. What can be more bullish than record uncertainty?

https://worlduncertaintyindex.com/


Today's gamblers are attracted to risk like moths to a flame, because to them it means more monetary dopium: 

This manic reach for risk in the face of record uncertainty can only make sense in the context of moral hazard:

mor·al haz·ard
"lack of incentive to guard against risk where one is protected from its consequences"

Economists are well acquainted with this commonsense concept, nevertheless, it's just one more principle they've wholesale abandoned to their newfound belief in printed money. The extreme irony that central bank induced moral hazard eliminated all consideration for moral hazard, leaves a new definition:

"The incentive to forget moral hazard when one's own assets are being bid up by free money" 



I don't know if this Coronavirus is going to spread worldwide and cause epidemic panic, all I know is that there is no way markets are priced for that risk.

China has been imploding off and on for several years now. This could very well be the final nail in the coffin for that country from an economic perspective. The fact that Trump has made an entire platform out of imploding the second largest economy is risk #1 for global investors. Not only thoroughly ignored, but actively embraced as an economic strategy. His success will be measured by global meltdown.  

Make no mistake, we are living in an insane asylum run by total idiots. It's all just part of the scene to write off cassandras as permanent pessimists. Ignoring risk is just part of being "cool" nowadays. Nevertheless, the grasshoppers will soon learn that risks can be delayed temporarily, but not denied forever. 

Based upon today's record complacency and leverage and record risk, you can fully expect this will be a lesson they will never forget.

I've said the exact same thing for over ten years now - This Ponzi scheme can only end extremely badly. I believe a decade was more than enough time for ANYONE to prepare for the inevitable. 

From a Darwinian standpoint, clearly not everyone was meant to see this coming. 

Freedom is entirely wasted on those who don't think for themselves. Which is why the freedom movement has never caught on politically. We live in a society that is brainwashed for conformity from birth. Unfortunately, when you live in a society of fools, conformity can be lethal.

In the end, no one will believe that they sleepwalked into this much risk. Just going with the flow of mass buffoonery.

Impeached By Implosion

The Trump circle jerk reached a fevered pitch this week, as 89% of Banana Republicans now approve of this unprecedented corruption. They are voting with their wallets as record capital is now leveraged to Trump Casino...

Since Trump's own den of thieves won't remove him from office, it falls on his MMT Financial Weapon of Mass Destruction to do the heavy lifting. Detonation sequence has been initiated. There is now a ubiquitous belief within the Republican Party that non-stop lying has no cost associated with it. We are about to test that hypothesis:

The stakes have never been higher, as Trump has cleaved this country like never before. You either believe this guy is the saviour or the Anti-Christ, there is no middle ground. The fact that this Super Clown is a showcase for ALL that is wrong with America, shows how far down the Road to Perdition the GOP has sprinted behind their beloved pussy grabber.

"The fact that the 10 most polarized years have all occurred in the past 16 years -- affecting both Democratic and Republican presidents -- underscores how politically polarized the nation has become"


89% of Republicans approve of this criminal.

Who can they blame when this all explodes, but the dunce looking back at them in the mirror. What GW Bush couldn't Mission Accomplish, this known fraud will finish. 

In other words, my prediction for 2020 is on track. Panic and rioting the next stop. 

Trump's impeachment circus was only half the usual spectacle this week. Ponzified billionaires in Davos were tripping over themselves extolling the Trump super bubble and the last chance to get in before meltdown. Hedge fund titan Ray Dalio who famously derided cash two years ago at Davos right before VixPlosion 1.0, said the exact same thing all over again this week, "cash is trash". 

Of course, the "Black swan" event of the week was the burgeoning Coronavirus in China. Now spreading worldwide. Emerging Markets and in particular Chinese stocks led the way down. All of which comes at a bad time for markets, as the Chinese Lunar New Year begins this week. The worst performing stocks cross-listed in U.S. markets, will now be bidless. 

Over in the UK, Boris Johnson signed the articles of Brexit and declared a fantastic moment for disintegration. Judging by his dishevelment it couldn't have come a minute too soon.

Getting back to Trump Casino, gamblers were finally reminded this week that one-way markets go down sometimes. The headline on Friday morning indicated the longest overbought stretch in almost FIVE DECADES:

"FOREX.com looked at how many times the S&P 500 has closed below its 10-day moving average over the past 70 days, a time frame used because it entails the time since the Federal Reserve started expanding the bond holdings on its balance sheet.

The result is that the index has had just five such closings over the period, the lowest going back to 1972, or some 48 years"

Which is where this gets interesting, because the Fed balance sheet had a major drawdown this week. Picture record extreme positioning, 48-year overbought condition, Fed balance sheet withdrawal, and stock buyback blackout all at the same time. Because that's what we are seeing now. Speculators are piled into a casino with no exit:

All of which means that the level of risk right now is ludicrous, however because the party of fraud must propagate non-stop delusion, the masses remain wholly ignorant.

Banks got pounded this week, as the reflation trade rolled over hard.

Bond yields imploded...

Big Pharma rolling over

Global Dow has gone nowhere since the last VixPlosion:

A moonshot in Intel saved Tech from implosion, however semiconductors rolled over this week:

My supposition is that the epic short-covering that attends the end of the cycle, is now over. The great "value rotation" won't survive lower bond yields and recession.

The fact that Utilities led this week should not be taken as a positive sign. It's the final rotation.

The Fed sponsored two risk on rallies in the past year. First via their interest rate "pivot" in early 2019, which ran out of steam in the second quarter, and the second rally began with their Trump repo bailout. We can clearly see the two rallies via banks. The bond market never believed any of it.

Something about tax cuts for the rich is not reflationary, which we learned the hard way in late 2018. Something about monetized tax cuts for the rich that is also not reflationary.

A lesson that will be learned right now. 

"Alarm bells are sounding in volatility markets amid a set-up that traders warn has some resemblance to the period preceding the February 2018 risk rout"

“This January VIX settlement is looking similar to January 2018 in that the new front month VIX spread between February and March is going to dramatically shrink the level of contango"

Bueller?

In summary, you can be ignorant or you can be arrogant. But you can't be both, on a biblical scale.

Davos 2020: Record Global Fraud

The masses have been led to believe that everything is going fine economically, sadly nothing could be further from the  inconvenient truth. Trump has weaponized financial markets against the masses, in order to fabricate the illusion of synthetic prosperity. In the process creating the biggest and most explosive bubble in human history...

I am sure that today's "elite" gathered at Davos are more than happy to switch the conversation to climate inaction, in order to avoid discussing inaction on economic inequality, which is solely to their benefit: 

Global corporations are the source of ALL global deflation. 

Every time corporations swap out a high wage worker for a low wage worker they create underemployment, which is deflationary. Underemployment is the biggest economic crisis of our age, but it's never discussed. Today's politicians and economists eager to show progress where there is none, constantly tout the lowest-ever unemployment rate, which conveniently only includes people who are actively seeking work. Underemployment includes those who are working part-time because they can't get full time work, those who have been laid off and forced to take a low wage job, and those who graduate but can't get a job in their chosen field - educated baristas. The underemployment problem has been rampant since 2008. And totally ignored, by everyone. 


Labor share of the economy:

Unfortunately, there are no shortage of low wage workers on this planet. Which is why on a global basis, there has never been anything approaching "full employment". Which is also why wages have collapsed in recent decades and will remain collapsed until this problem stops being ignored. Corporations can easily arbitrage one worker against another, one country against another. They do it every day. 

Central banks can't create these record low interest rates in a vacuum. Those who would blame central banks for this crisis, ignore the underlying cause of deflation, which is underemployment. They ignore the root cause, for political reasons, and of course ideological reasons. They can't bring themselves to blame the private sector for this epic disaster. Uncontrolled greed, the root cause. The number of people who benefit from this model has steadily decreased, and now they can all fit into a small town in Switzerland. where they can pretend to be fixing problems. When in fact they are the sole beneficiary of NOT fixing the problems. 

Central banks have followed corporate deflation lower, essentially monetizing poverty. This poverty capital has now been over-invested in every industry on the planet. A ticking time bomb, that when it explodes, will reveal the true cost of 2008. Cheap poverty capital has created more debt and has automated more jobs. It's not the solution, it's the problem. It's a deflationary death spiral. While the quantity of jobs has never been higher, the quality of jobs has never been lower.

Corporations have systematically strip-mined wages, pensions, and now healthcare to continuously increase profit. What appears to work "great" at the individual company level, is a total disaster economically, on an aggregate basis. Companies are cannibalizing their own customer base through underemployment. 

The elimination of pensions has placed all expectations of retirement on an historically overvalued stock market. Which is why this society has invented so many fraudulent gimmicks to keep stock prices artificially inflated. First off by engaging in record debt-financed stock buybacks to reduce share count and give the illusion of growth. Secondly of course via central bank liquidity programs. Sadly, none of these short-term gimmicks will work longer-term. This is all just an epic fraud. The current mega bubble masks the underlying collapse in sustainable aggregate profits. Which peaked in 2014 on an aggregate basis.

All of this fraud has culminated in the Trump Super Bubble - the largest combined fiscal and monetary financial weapon of mass destruction in human history. Bought with both hands by brain-washed masses, in the prospect of early retirement, which is forthcoming far sooner than expected.

Trump has now weaponized financial markets against the masses. Human history's biggest asset bubble has artificially inflated his approval rating. In this mega financial bubble, Trump is listened to and cheered, no matter what. Human history's biggest Jedi Mind Trick:

In summary, as interest rates fall in lockstep with underemployment, the stock market is now levitating at the expense of the economy. Accelerating its melt-up as the economy marches steadily towards recession, as predicted:

"The worse the reality of the economy becomes, the more we take on the reflexive belief in further and dramatic monetary expansion and the more attractive the stock market looks"


When this final bubble bursts "unexpectedly", policy-makers and the herd at large will have to make an inevitable choice, to choose the economy over stocks. At that point real "valuations" will converge with economic reality. Which means that even "cyclically-adjusted" earnings projections today, are not anywhere near the realm of reality.

This is not the end of another cycle, this is the end of a fraudulent way of life.

Just remember one thing, "No one saw it coming".

FOMC: Fear Of Missing Crash

Gamblers are super lubricated for what comes next. Because now EVERYONE knows that printed money is the secret to effortless wealth...

First, some perspective:

Emerging Markets are imploding deja vu of VixPlosion 1.0: 

The leading (5g) semiconductor stocks are rolling over...

Biotech is imploding, on the right shoulder of the two year market top.

Social mood is done.

Recession stocks are leading

Oil is getting shellacked:

Speculators are ALL IN

Goldman is bullish

Volatility specs are leveraged up:

"A breed of systematic trader acutely sensitive to volatility is charging into U.S. stocks at the kind of pace last seen before “volmageddon” rocked Wall Street almost two years ago."

“If any unpredictable but tiny shock causes a correction in the upward momentum of a U.S. stock price index like the S&P 500, systematic trend-followers are likely to rush into exiting from their current bullish trades simultaneously,”


"It was a tiny yet unpredictable Black Swan event"

New extreme level in crash ratio:

All systems go

A Party To Fraud

Today's grasshoppers are reveling in the zeitgeist of mass insanity. Seeking strength in numbers. What happens when you get to the end of the road and you have nothing left to believe in - No truth and no reality? Fear, that's what happens. Today's "value voters" are about to find out, some things should never be sold...

The GOP has thrown it ALL away on Trump. All that's left is a circle jerk of rampant stupidity, which will forever define this era. The "system" based upon using people up, had to use EVERYONE just to pretend it wasn't broken.

This impeachment was the last chance to save the Party. However, epic greed and asinine hubris prevented them from considering that option. Now, they've bolted the Party to an out-of-control megalomaniac...

This impeachment farce is now running entirely along party lines. Which is making a mockery of a Constitutional process. No witnesses, hence no real trial. History will say it was a Third World Kangaroo court. Nevertheless, it has had the fatal effect of directing all attention away from the real world and putting the spotlight on Circus Trump. 

Few if any Republicans seem to understand what is now at stake. From a markets perspective, stocks are ginned up beyond all control to create fake pre-election hype. Secondly from a system perspective, now the entire U.S. capitalist system is leveraged to explosion, as never before in history. And third, arguably most importantly from an ideological perspective - all conservative principles have been wholesale abandoned to keep a known con man in power.

I used to be a hardcore libertarian, before I recognized that right wing principles were being weaponized against the U.S. workforce. After that, I wanted no part in the ongoing liquidation of the middle class to fatten offshore bank accounts. I certainly didn't want my own stated principles to be abused for evil intent. 

That gambit got the GOP as far as 2008 and global financial collapse.  

Now, the party has gone all the way and abandoned ALL of its former principles, merely to keep a known con man in power. They never knew when to stop begging for power. Now, all democratic principles have been abandoned. All fiscal principles abandoned. And all monetary principles now in the hands of a bankruptcy expert. In other words, in order to win a battle they lost the war. They squandered their credibility and ideals in every direction. All just to make bailout queens richer, at the expense of the middle class.  

To say that history will not be kind is a ludicrous understatement. Today's fools in the Senate have not even the slightest sense of history or perspective on how this will look in retrospect. Today's masses are reveling in the zeitgeist of mass insanity.

The Republican Senate in 1974 made a shrewd calculation that paid off - to impeach Nixon and excise the cancer from the GOP. This current band of idiots just bolted themselves to a known con man. 

For eternity.

The abandonment of principles however, is where it will really hurt the Libertarian movement. Now those ideals have been hijacked by con men and weaponized against the populace. When this all explodes, those "freedom" values will be associated with rampant criminality. Which points to the root cause of ALL problems: Selling credibility to the highest bidder. Those who truly value freedom should never have worshipped the false idol of self-interest at ALL costs. Some amount of moderation should have been in order for a festival of greed that history will regard as being nothing more than an epic Roman Orgy.