Front-Running Collapse

Global markets are 100% Ponzi now. See the idiot bubble, or be the idiot bubble...

Interesting call out of Wall Street firm Nomura via Zerohedge, indicating the deflation trade is over and the reflation trade will now lead the market higher. They base this primarily off of the nascent rotation out of Tech/Momentum and into cyclicals. The Zerohedge article indicates that a spike in Treasury bond yields is imminent. Unfortunately for that delusion, below we see that since the glue fumes from the March mega stimulus wore off,  bond yields haven't bought into ANY part of this reflationary circle jerk.

Meanwhile, cyclical stocks are front-running the second stimulus bill, which will be substantially smaller:

There are three scenarios on the table right now: One, Tech/Momo is merely taking a breather and about to sprint higher. The second scenario is the Nomura rotation, which according to them will see cyclicals lead the market higher. Or three, my scenario, in which everything explodes at the same time. 

Here we see the first scenario via Momo Tech is hanging by a thread and it's along way down to the 200 dma:

As far as the second sceario goes, I suggest it is merely a rotational headfake due to the NFP report and the impending stimulus plink.

Here we see small caps now as overbought (RSI top pane) as they were on Monday June 8th, the day after the NFP (Non-Farm Payrolls) report.

Bueller?

My hypothesis is that the reason we didn't see epic volatility in March is because during that major selloff, there was a massive rotation from cyclicals to growth/momentum stocks. 

Specifically, the stay-at-home bubble.

I suggest that when the four largest MAGA Tech stocks which now account for a record share of S&P 500 gains year to date, go bidless, that event won't be accretive to market returns. 

Meaning, I don't see Dave Portnoy's airline stocks leading the market higher.

In the spirit of maximum Ponzi, the gambling stocks are all going late stage parabolic.

The question on the table is when did we last see the entire market go bidless at the same time. And the answer was during the run up to the tax cut in 2018. When the tax cut went into effect, the momo stocks AND the cyclicals imploded at the same time.

What this would mean from a market sentiment standpoint at this juncture, is third wave down at all degrees of Ponzi trend. 

What I am trying to say is that this is the final rotation.

And, more importantly, THERE ARE NO SAFE HAVENS in risk assets. Shiny or otherwise.

Cash is king.

History' s Biggest Collapse. Will Be Deflationary

Hard to believe, I know...

The stay-at-home deflation bubble is now competing with the hyper-inflation bubble. The one thing they both have in common is that they are both about to explode.

In the spirit of Hugh Hendry, Disney markets fully lived up to their reputation this past week. Providing all comfort-seeking denialists exactly what they paid for with their own misallocated capital. 

Disney's earnings are a case study for how Wall Street manipulates investor expectations. Earnings down, stock up:

"The Burbank entertainment giant posted a net loss of $4.72 billion for the three months that ended in June, Disney said Tuesday. That’s compared with the $1.43 billion in net income the company reported for the same period in 2019. However, the media and entertainment titan did better in terms of profit than analysts expected"

Any questions?

Note that the last time Disney popped - in June - the market rolled over. This entire rally in cyclicals is all short-covering by bears who think that bad news for the company should be bad news for the stock:

That explains why cyclicals are rallying. As I said at the top of this post, the hyper-deflationary stay-at-home bubble is competing with the hyper-inflation precious metals rally for supremacy.

BOTH will lose.

THIS was the week in which extended unemployment benefits officially ran out, leaving millions of families in the lurch. So it's very fitting that both of this era's dumbfuck bubbles went parabolic this past week. Apparently they are all of the mind that when household finances collapse, that's bullish for risk assets.

On Thursday in my last post I noted that consumption sentiment had collapsed in July and the U.S. misery index took the largest leap of any country. Consider that was BEFORE the extended unemployment ran out.

Care to guess what those figures would look like now?

On Friday we got the official jobs report which was painted with a happy spin because it was "better than expected". And yet zooming out to the big picture, here we see that the number of jobs lost still substantially outnumbers the jobs gained back since re-opening. 

Massive job losses AND declining unemployment benefits. All very inflationary, I know:

The dollar destruction theory hyped constantly on Zerohedge is a groupthink delusion of lethal proportions. Most of the world's debt is priced in dollars, which makes all dollar borrowers implicitly short dollars. Imagine what happens when the debt collectors come calling? Human history's biggest asset fire sale will take place as over-leveraged borrowers scramble for cash.

This week we learned that for some reason Euro bets reached a record high against the dollar.

In addition, silver officially joined the fake reflation rally.

Below we see silver on the 15 year chart vis-a-vis all commodities. We note that silver is decade overbought via MACD (top pane). We note that silver, which is considered also to be an industrial metal, is far outpacing regular commodities.

All delusion.

Of course, ground zero for delusion is the stay-at-home Tech bubble. Which ran into some problems late in the week:

In summary:

Super Dunce is about to collapse his Super Bubble and the crash will be biblical in scale and divine intervention

Human History's Biggest Circle Jerk

This fake reflation rally is human history's biggest circle jerk without any comparison. The stock market is now inversely correlated to the economy...


The S&P 500 has now round-tripped back within 2% of the February highs, while consumer confidence is at the pandemic lows:

"Americans grew more worried about the economy toward the end of July after a fresh outbreak of coronavirus cases chipped away at the recovery and cast doubt on how quickly the U.S. will rebound from the worst health-care crisis in a century."

The level of sentiment is now barely above the pandemic low, erasing most of the momentum gained in late May and June as large swaths of the economy reopened."

Forward inflation expectations as imputed via Treasury Inflation Protected bonds have been soaring as investors have been flocking to the TIPs en masse. An advent that has ironically caused the inflation premium to become artificially bid up thereby collapsing real yields (Nominal rates - inflation). 

Not everyone is buying it:

"Treasury Inflation-Protected Securities (TIPS) and gold have lured investors, who reckon unprecedented monetary and fiscal stimulus will eventually produce higher prices. In June alone, investors poured a record $6 billion into TIPS"

“There is a fear that the Fed expanding its balance sheet is going to create an inflationary impulse...I structurally don’t see that right now.”

Basically what is happening is that gold investors and TIPs investors are locked in a happy circle jerk. The more TIPs get bought, the more market-imputed real yields collapse and the more gold investors bid up gold. Why? Because real yields are falling, don't you know?

All in the expectation of another Stimulus package, which if it comes at all will be a pale shadow of the first one.

Here we see that as it was in February, TIPs and gold are 100% correlated and TIPs are more overbought than they were in February:

Which gets us back to what is really going to happen outside of the happy circle jerk:

First, the stimulus-driven sugar high will crash with extreme dislocation. Worse than February. 

Next, defaults and insolvencies will soar, as will mass layoffs.

Collapsed consumer confidence will final implode.

Societal acrimony will rise.

None of which is inflationary.

Soon, even the biggest morons among us will realize Trump is unfit to lead. 

Any questions?

"The US is projected to undergo the biggest increase in economic misery across 60 countries as the nation grapples with heightened unemployment and fresh coronavirus hotspots."

The US was hit by both plunging inflation expectations and spiking joblessness. Economists expect near-term inflation to slide below 1% in the US as a drop in consumer spending drives steady disinflation"

As I said above, the bond market is officially clueless:

Getting back to Trump Casino, tomorrow is the monthly jobs report so who knows which way the algos will push Disney markets short-term. However, into this jobs report and the imminent Stimulus 2.0, shorts have been getting crushed, as everyone who doesn't believe in fairy tale endings gets universally punished. All of which is a necessary and sufficient condition for final explosion.

Who remembers that VIXPlosion 1.0 followed the FOMC meeting, corporate earnings, and the jobs report?

I do.

Move along, nothing to see here:

And the chart of the week is this one. It appears that not everyone will be surprised by what comes next. 

https://www.fbi.gov/services/cjis/nics#Reports-%20Statistics

In Idiots We Trust

We are witnessing the inevitable endgame for four decades of Supply Side Ponzinomics - monetary-stoned gamblers piled into risk assets while the economy implodes in real-time. As predicted by Hendry:

"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"

 

Supply Side Economics is inherently deflationary, a fact that has been amply proven during four decades of non-stop middle class obliteration. Trump even based his 2016 campaign on economic disenfranchisement - the famous "deaths of despair" campaign strategy. However once elected, he instantly reverted back to the standard playbook of robbing the poor to give to the rich, which happens to be inherently deflationary. 

Fortunately, we have central banks to paper over this deflation with printed money injected straight into risk assets. Which generates the all-important trickle down fake wealth effect. Another key aspect of Supply Side Ponzinomics. 

At this latent juncture, we have never before seen such a chasmic gap between economic reality and the stock market. Now led by the junkiest and riskiest stocks in the market. The very stocks that "benefit" from economic implosion aka. The CNBC/Cramer COVID-19 index. The celebration of economic implosion of the real economy to the benefit of the virtual economy has now reached manic ludicrous levels as exemplified by the online retail stocks:

Here we see the largest mall operator in the U.S. - Simon Property Group - hanging on for dear life.

As we see, Trump's policies have been a disaster for the middle class from the day he took office. Trump-o-nomics accelerated economic implosion.

Make drilling great again? Didn't happen. The U.S. energy sector is now on life support, monkey hammered by COVID:

All of which is why today, economic acumen has been fully supplanted by gambling acumen, and not so much of that either. What we have are serial amnesiacs who never seem to remember how every bubble ends.

The overriding belief now is that the U.S. dollar is imploding because bond yields are collapsing along with the economy - all of which is good for "stocks". Per Finance 101, every idiot knows that lower interest rates axiomatically means higher net present value. Right? 

For some reason, the world famous discount cash flow model never seems to accurately predict when in the cycle cash flows collapse to zero or worse go negative. Because Excel lacks the feature called "accurately predict the future". So what we are left with is Wall Street analysts competing to keep their Magic 8 ball derived earnings predictions ahead of S&P 500 melt-up. 

This firmly entrenched view that economic implosion is ALWAYS good for stocks is now going to come under its greatest test in history, as gamblers go late stage manic on risk assets into a greater depression:

"Hiring slowed markedly in July as a renewed spike in coronavirus cases prompted some states and companies to roll back reopenings, data released on Wednesday shows. It is the latest sign that the U.S. economic recovery is at risk of reversing."

Payroll provider ADP said companies added 167,000 jobs in July, far short of the 1.2 million economists polled by FactSet expected...the July reading versus expectations is by far the largest disappointment in ADP history"

As far as the dollar goes, I suggest via this chart below that gamblers who are piled into Trump Casino are soon going to find it significantly more difficult getting out, than it was getting in. Because when the dollar reverses, cross-asset volatility is going to explode.

Here is a little known fact that today's denialists STILL haven't figured out yet: When the Fed prints money, yields RISE, and so does the dollar. The worst part of the March decline took place when the Fed primed the pump and sent the dollar soaring. They monkey hammered global assets. 

 

Building The Perfect Beast

Four years ago Trump warned that Fed policy had created a bubble that was primed to burst. Hindsight being 2020, we now know that the Obama bubble was child's play compared to the Big, Fat, Ugly Super Bubble that the Casino-Bankrupter-in-Chief has spent four years creating. All true believers will be duly obliterated by it...

Most gamblers seem to forget that central banks including the Fed and PBOC were lubricating markets massively ahead of the first COVID crash in March of this year. The Fed was busy monetizing Trump's massive Treasury issuance in order to keep the overnight repo market under control. Remember the repo crisis? That started exactly one year ago in August 2019. It was caused by the financing of Trump's massive tax cut deficit which was crowding out the sovereign credit market and otherwise imploding global liquidity. Until the Fed stepped in to monetize the deficit. Which drove the FOMO bubble into the February highs.

Good times. 

Fast forward to now, and the amount of central bank lubrication is beyond any prior comparison. Which is why this bubble is reminiscent of the February melt-up except on an even larger scale. 

Central banks have once again succeeded in creating a one-way market. One in which the only asset class is momentum. This last bubble is running on MAGA glue fumes and attendant mythology. The primary myth being that the GOP will agree to bailout the middle class ahead of the election. An asinine fantasy if there ever was one. Which is why, amid a de facto collapse in stimulus, gamblers are STILL hanging their massively leveraged bets on further dramatic monetary and fiscal stimulus. An outcome that ironically has been made far less likely due to the front-running of central banks into risk assets.

Here we see corporate bonds have now exceeded their February highs:

ESG - alternative energy, solar, environmentally sustainable funds - are another bubble going parabolic:

For their part, money managers have no choice but to believe in this delusion. Performance anxiety requires them to believe whatever fraudulent narrative is on offer, no matter how specious. They are as a group, merely trend following chimps. Closet indexers.

On the subject of gold, we are told that gold is at a new all time high. Below we see gold adjusted for inflation. What we notice is that not only is gold NOT at an all time high, but it's also three wave corrective. We also notice via the lower pane that Fed balance sheet expansion does not always correlate with rising gold prices. Note the expansion in 2012 during which gold had its largest decline in decades.

Those of us who predicted the repo bubble would burst spectacularly, were not disappointed. It was the largest and fastest drawdown from a market top in U.S. history. Nevetheless, the scale of this  COVID bubble makes that one look miniscule by comparison.

And of course, the stakes are much higher this time around, given that central banks are now ALL IN. And given that the global economy has been pre-imploded.

Fed Chief Jerome Powell has previously admitted that the Fed is essentially "short volatility". Meaning they are actively encouraging the suppression of risk premia to give the illusion of a low risk financial environment.

This volatility suppression strategy is what creates a binary market. Volatility is artificially suppressed until such time as capital accumulates maximum risk. 

And then it all explodes out of control.

In the meantime - which as we have learned can take quite some time - epic lies are bought and sold at the behest of those who traffic in financial chicanery.

They don't have the facts or reality on their side, however, given enough misallocated capital they can rent prosperity for a while.

Move along, nothing to see here:

What history will say about this MAGA larceny:

Dash For Crash

It appears that the vast majority of today's gamblers don't know a Tech bubble in a bear market when they are buying one with both hands. And why would they? After all, there is an election to rig...

The casino class is well lubricated for what comes next.

This fraudulent rally serves several purposes. First and foremost, it keeps the Idiocracy fat and happy while the real economy implodes in real-time. What I call Monetary Euthanasia, which is now being used on a biblical scale. 

"In the broadening top formation five minor reversals are followed by a substantial decline."

It is a common saying that smart money is out of market in such formation and market is out of control."

Outside of the Tech bubble, this is the third lower high for the equal weight S&P 500:

The second purpose served by this fraudulent rally is that it allows insiders to cash out in near record size:

"The ratio of companies with insider buying compared to insider selling is at 0.27 in July, the lowest level since at least 2000"


Third, it allows major companies to raise MASSIVE amounts of new capital. Meaning that while corporate insiders were leveraging their companies to the maximum extent possible during the COVID depression, they were also selling their stock to useful idiots en masse.

Note the difference between 2008 and now in corporate debt ($ change, quarterly):

Fourth, as I always say, the casino only exists for Wall Street pump and dump. And in this cycle we are seeing a dash for trash on an epic scale:

"The traffic at the U.S. Securities and Exchange Commission’s filing window last week looked like the last turn in a NASCAR race. Sixteen new IPO filings (S-1s and F-1s) rolled in"


To chum the waters for this massive influx of new IPOs, the Wall Street algos are sending Tech stocks into the stratosphere. Not only the MAGA cap dumb money stocks, but also the junkiest crap in the market.

For example, recent IPO Fastly, living up to its name having rallied 1,000% since March:

Part of Cramer's proprietary COVID-19 index:

Docusign, another high flyer on the COVID 19 stay at home implosion bubble

Wayfair didn't make Cramer's list, but it's part of the whole shop-at-home ecommerce bubble:

The bottom line in all of this unhinged speculation is that global RISK OFF, is no longer an option. Because the machines can't handle what comes next.

Going back five years ago to August 2015, we recall that the Chinese tried a similar feat of bidding up a stock market bubble to generate fake wealth. Which I called Shanghai Surprise. They tried everything to stop it from imploding. They finally succeeded -60% lower.

FULL Disclosure: Not everyone has bought into this last pump and dump