Pandemic Melt-up aka. Lehman Moment

This last stage pandemic rally is fueled by capitulating bears getting trampled by idiots rushing into the riskiest stocks in Trump casino. It feels like China's Lehman Moment has arrived...

Four Hindenburg Omens on the NYSE and two on the Nasdaq in the past two weeks:

Many people forget that stocks rallied after the Lehman event. Why? Because the Fed shit a brick and came in with massive liquidity. This sparked a MASSIVE short-covering rally. Sound familiar?

Once the shorts had covered, the casino fell like a brick.

Good times.

The events at this juncture are eerily familiar. A ludicrous amount of risk, global dominoes falling, and yet a last minute surge into the riskiest stocks. Speculators unwilling to leave the casino. Unwilling to admit the party is over.

And it's been one hell of a party, featuring a blowoff top in momentum stocks driven by fear of missing out. For their part, fund managers are chasing the averages into melt-up. After all, it's not their money, it's "OPM". 

Other People's Money.

Hedge funds have converged on the most overbought large cap stock in the market. As it was twenty years ago at the height of the last Tech bubble:

"Two decades after it first peaked as the dominant leader of a dazzling bull market, Microsoft is once again Wall Street’s indispensable stock."

In the past 12 months, Microsoft has added $600 billion in market capitalization — equivalent to the company’s peak value in high-tech heyday of the late 1990s."

Microsoft is now the very top holding in its Hedge Fund VIP basket"


Hedge funds are the new dumb money:

Just as this past Monday's pandemic gap down was a bear trap, this last stage of the rally is a bull trap: The running of the stops set above the prior high, reached when the pandemic hit two weeks ago. A headfake new all time high, compliments of weak bears evincing the conviction of a five year old in a candy store.

Last week I ran down the pantheon of prior historical market crashes. The best known ones were stair steps lower over a period of weeks culminating in a crash. 1929, 1987 etc. I have often surmised that this Disney market would be the first one in history to crash directly from all time highs, with ZERO prior notice. Aside from a decade of denial. 

That prediction is coming more true by the minute, as more and more money crowds into fewer and fewer massively overbought Tech stocks:

The pandemic contagion is spreading globally both from an illness standpoint and from an economic standpoint. This week, the locus of implosion - China - shot their wad propping up global risk markets. Aided and abetted by short-covering and Tesla gamblers. Nevertheless, Emerging Markets are rolling over, the same way they did last week at this time, and the week before:

You know you're an optimist when:

Institutions were hitting the PBOC bid all this week, which is why this rally is now running on Tesla glue fumes heading into the end of the week.

The last time we saw this, the S&P was down -20% in the fourth quarter of 2018:

All of which means that come early next week, gamblers are going to need a much bigger bazooka. 

Or shit gets biblical.

At "all time highs"

Stocks Are 100% Correlated To Collapse

The age of central banks has inverted the relationship between asset prices and GDP for the first time in world history. As global growth slows, the rise in stock prices accelerates towards the Minsky Moment. Per the iron law of Disney markets, gamblers are attracted to cheap money like moths to a flame...

I don't know anything new or interesting about this Coronavirus, I just know that I'm not worried about getting it. My belief is that the panic over the spread of the virus is going to cause far more economic dislocation and global distress than the sickness itself.

The global economy was already extremely weak going into this event and can ill afford a massive supply shock centered in China of all places. The central supply hub for the entire planet. Critical shortages of food and supplies are already evident in China and will be spreading worldwide during the coming week. The global supply chain is complex and fragile.

Ironically, most of us market bears - what few remain - have been far less alarmist about this illness than today's policy-makers shutting down borders over what could turn out to be nothing worse than the seasonal flu. They have no idea what domino effect of supply disruption could ensue. In other words, their panicked response is likely to be far worse for markets and human health than the virus itself. And is this our future? A virus kills a few hundred people out of 7.5 billion - a nominal event - and the world shits a brick?

On average 7,500 people die every day in the United States of various causes. Mostly from McDonald's and related addictions. Coca Cola probably one of the most lethal enterprises in human history. And yet, we've become a fragile society incapable of reality, truth, adversity and now minor flu events.

Global central banks have happily sponsored this bubble in complacency by systematically euthanizing the populace in the face of any and all economic risk. So far, it has worked. This is the first endless economic cycle in world history. However in doing so they have lethally inverted the positive correlation between GDP and asset prices. Per Hendry's iron law of Disney markets:

"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."

Nowhere do we see this more clearly than in Australia. The Aussie dollar is a bellwether for global economic activity. Highly correlated to real economic output via the commodity markets. This week we see it breaking down to new cycle lows. And yet, at the same time, Aussie stocks hit a new melt-up high.

The age of central bank alchemy literally inverted the correlation between asset prices and global output. Can you imagine how high stock prices will be when the global economy grinds to a halt?

The locus of implosion is the oil market which was already under duress from over-supply and weakening global demand:

There have been three major coordinated central bank bailouts in the past decade. As we see via the crude oil market, each one has had less impact on global economic output:

Central banks' only capability right now is to inflate asset prices in the face of declining economic output. In the process, creating an unprecedented divergence between fantasy and reality. While at the same time euthanizing the populace from risk. 

The Minsky Moment arrives when global gamblers believe that global economic shutdown is an ALL IN buying opportunity.

"Looking into 2020, Ford said it sees 2020 earnings in the region of $5.6 billion to $6 billion, well shy of the Street consensus of between $7.3 billion and $7.6 billion, and cautioned that it was too early to quantify the impact of the spreading coronavirus on its worldwide operations."

In summary, the U.S. is now run by total idiots. Who have embraced global collapse with 100% enthusiasm. 

Enjoy the end of the show.

"Stuart Varney said stocks "moved down this morning because with such a strong report on jobs, the Federal Reserve is not likely to cut rates, and I think a lot of investors were hoping for a rate cut"

The 2020 Election Is Rigged. To Explode.

Since the Roman Senate just acquitted Trump, the GOP is now going to learn the hard way about the true cost of rigging elections. The Republican circle jerk has reached manic proportions. Gamblers are record lubricated for what comes next. The sum total of Trump's 2020 election rigging strategy is now coming to fruition...

Only 5% of the GOP still has a functioning brain:

Republicans are now using global recession as a cause for celebrating "good news" about the U.S. economy. This week, we learned that the trade deficit is shrinking for the first time in six years, which Faux News has attributed to Trump's "successful" trade war. The inconvenient reality is that the trade deficit always shrinks during U.S. and global recession.

"For decades, China has taken advantage of the United States. Now, we have changed that," Trump said Tuesday night during his State of the Union address."

The trade deficit improved in 2019 because imports fell more sharply than exports – which isn't necessarily improvement for the right reasons"

The inconvenient truth is that Trump's trade war and tax cut WIDENED the trade deficit, and now he's taking credit for a recession. Why? Because he's a fucking moron, and his followers are even dumber than him. 

Here we see the Cass freight index imploding. People have forgotten that China is the world's second largest economy and when their economy implodes, the entire world implodes.

"The intensifying coronavirus outbreak constitutes a large negative economic shock to China that will ripple through the global economy"

This data is from BEFORE the virus:

"Great news, we imploded China"
"Awesome, dude"

Manic reach for risk is reaching a crescendo this week due to monetary stimulus overload, Trump acquittal, and of course the total clusterfuck in Iowa for the Democrats, which I will discuss in a moment. As the economy moves closer to recession, euphoria is increasing in lockstep, as Hugh Hendry 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."


Here we see the level of speculation substantially exceeds the 2018 melt-up:

Speculators are crowding into the riskiest stocks. Outside of Tesla, we see blow-off tops:

In Fintech:

NextGen internet

IPO junk

This week, Wall Street is trying to get the pump and dump back on track after it exploded last Fall. It might not work.

"Casper ended up pricing its IPO on Wednesday evening at $12 per share, giving the company a market value of $476 million. That’s dramatically lower than the $1.1 billion valuation from its latest round of private funding"

Getting back to rigging elections, this latest GOP gambit has backfired, because the impeachment scandal collapsed Biden's chances of winning the overall Democratic primary, while exponentially increasing Sanders'. Now Sanders' odds exceed all others COMBINED. The numbers don't add up to 100% because apparently there's still a chance that some dark horse will join the race. An unknown candidate who is now favored above every other candidate except Bernie. Sure, whatever.

In other words:

"It worked. Again"

Joe Biden was imploded by Trump's latest election-rigging gambit:

https://projects.fivethirtyeight.com/2020-primary-forecast/

In other words, when the Trump bubble explodes with extreme dislocation. We know what is going to happen in November.

And we know what WON'T happen.

No bailouts for criminals. And no socialism for the rich.

Prepare for hardest landing. 

Tech Super Wreck

Amid the new permanent crack high of delusion and crash risk coalescing at record highs, it falls on us still-sane "perma-bears" to explain why liquidity-driven melt-ups into expanding pandemics are not buying opportunities. Everyone else has been thoroughly lubricated by the virtual simulation of prosperity and its acolyte QE. I hope they understand how all this is going to look after-the-fact; because like table dancing drunk naked, these things always make a lot more sense at the time...

"I never thought Trump would lie about the economy just to get re-elected and stay out of jail. Selfish bastard"

If one is to believe that the riskiest stocks are safe havens from global pandemic, this all makes perfect sense.

Let's begin with the drugs being served at this party:

"Risk appetite recovered in a big way Tuesday, as global equities surged amid more signs the PBoC is prepared to do what it takes to inoculate China’s economy and financial markets from the Wuhan outbreak."

In other words, gamblers now believe that central banks can inoculate society against viruses.

From the casino perspective, recall that last week the entire reflation trade crashed amid a rotation to Tesla, the new safe haven. Which set-up the "fifth wave" blow-off top in risk which accelerated early this week with the China bailout.

Now, that Tech blowoff top is beginning to reverse, led by Tesla:

Today, Tesla was down -25% from yesterday's high. Once again this stock led all others in dollar volume by a wide margin.

Here we see the mother of all key reversals on the weekly chart. Gains are measured from the bottom up, whereas losses are measured from the top down. At the current level, the stock is now up 315% in 7 months:

The other stock of interest is Microsoft. When the Coronavirus hit, money rotated to software which was viewed as a safe haven during the trade war as well. Since the virus outbreak, gaining 15%:

A major reversal today:

Here we see the software sector deja vu of August:

On the other hand, here we see that semiconductors peaked over a week ago on Friday January 24th, crashed last week, and rallied to a lower peak today.

I've noticed that liquidity is peaking mid-week and then collapsing into the end of the week recently. Which indicates distribution by institutions. The two big red candles are the past two Fridays:

Which leaves us with what is driving this late stage melt-up in the S&P futures:

Here we see fracking stocks having the best day in months:

Banks having the best day in weeks

Of course in China, this Coronavirus selloff has been going on for two weeks now. Here again, we see that liquidity is peaking mid-week lately:

In summary, too many bears were expecting meltdown to occur this past Monday when Chinese markets came back from Lunar New Year, however, the PBOC came in with the bazooka and blew them up. In the event, the PBOC sponsored a monster short-covering rally featuring three massive gaps below this current level, which the algos will gladly fill sooner rather than later.

Below those gaps is nothing but blue sky and stained underwear...

All of which sets up you know what...

Everyone Is Drinking The Kool-Aid

In an insane asylum, to question insanity is highly anti-social...

In retrospect, people will realize that everyone saw the obvious risk but no one wanted to speak out about it, so they just went along for the ride. Because to do otherwise would seem stupid.

Even these two who mention today's lunatic levels of risk-taking are very circumspect in their comments.

"Repeat after me, there is no such thing as Coronavirus"

The Trump bubble has grown so large now that no one wants to be seen as questioning insanity. It's groupthink on steroids, driven entirely by misallocated capital. People are balls deep now in the MAGA Kingdom whether through stocks, or real estate, or their political view. 

Which is why this new permanent plateau of delusion has silenced all critics. Faith in central bank god-like powers is complete. Now they're out there inoculating us against viruses.

When this faith gets broken, you can assume panic on a scale never seen before. There is no safety net now.

I was just chatting with an older friend who was asking for financial advice. I told him I don't give financial advice. He told me he believes his financial advisors are putting him in far too much risk. So I showed him the clip above and explained that people are drinking the Kool-Aid in record size right now.

I also told him that his financial advisors have no fiduciary duty to consider his best interest, because Trump killed the Fiduciary rule. He was shocked beyond belief. Picture how many old people out there are being preyed upon right now by unfettered criminals. This is a con man's paradise:

Make no mistake, we live in an age of unprecedented criminality. We are witnessing a level of everyday fraud and corruption we've never seen before. The fact most people can't see it taking place, is because most people base their perception of what's normal, upon what other people view as normal. 

Especially when it comes to markets. 

If everyone pretends that this Trump super bubble is business as usual, then people would feel stupid to come and out say that it's not normal. Most people have no clue what is normal or irregular when it comes to markets, particularly now after a decade of non-stop financial alchemy.

Bernie Madoff just took a look around and wondered, "why the hell am I still in jail? Everything I did is now business as usual"

My older friend asked me point blank why are none of today's academics or business leaders speaking out against this insane level of risk taking? My answer is, I don't know, except to say that they bought into it a long time ago. Ignoring valuations is now merely commonplace across every asset market.

Markets are now priced solely based upon what the next fool will pay. We are in a greater fool's market across the board, and when the music stops, not everyone will have a seat.

Nevertheless, in an insane asylum, to question insanity is highly anti-social.

Turning a blind eye to rampant corruption is about to become very unaffordable.

"Buy "stocks", Tech overweight is at record highs"