Reaching The Minsky Moment In Trump Casino

Today's CEOs are as dumb as Trump when it comes to running their businesses into the ground. Corporate debt is the new subprime, aided and abetted by the belief that the longest cycle in U.S. history will go on forever.

Because who wouldn't believe that?

First, on the topic of who won last night's first presidential debate, the answer is no one. Watching a deranged orangutan pummel a senile geezer for ninety minutes straight was impossible to watch. Since Trump got elected, the human race has been the definitive loser. Republicans never know when it's over. Always doubling down on greater rage and venality while pretending to be great again. My question is who comes after Trump? Charles Manson?

Back to the topic at hand: This circus is running on borrowed time and money, because today's CEOs can't seem to accept the fact that the cycle is over. For once, the household sector got the memo ahead of the corporate sector. Households are deleveraging at a frantic pace, as indicated by the record savings rate.

Below is the savings rate going back six decades. As of July, it's still higher than at any time in modern history:

In contrast to households, corporations have been massively loading up on debt. Why? Because they are addicted to stock buybacks to facilitate insider cash outs.

This situation has turned most major U.S. companies into call options on the end of the cycle. Which, they all conveniently deny is NOW. 

"Since the 2008 global financial crisis, American corporations have taken advantage of historically low interest rates to gorge themselves on debt. Then came the pandemic and the sharpest economic downturn in history, which resulted in an odd solution for the companies that did all that borrowing: more debt"

“During a standard recession, and that would include the global financial crisis as well, you would expect to see corporate debt as a percentage of G.D.P. begin to come down”

Investors have been so emboldened by the Fed’s actions that even companies viewed as especially risky are having no problem borrowing heavily"

One of these cycles is not like the others:

Which gets us back to the non-existent stimulus package. At this late hour, it appears that the various sides are still far apart in their negotiating positions. This is the last week before the election recess to hammer out a deal. No matter what they agree upon, it's already too late, because it won't arrive in time to make a difference for the election, and the magnitude will be inadequate in any case. Only the House Democrats seem to comprehend what is needed at this juncture. The GOP has made a colossal and potential fatal mistake in NOT grabbing as much stimulus as possible in front of the election. They are standing firm on their principle of only handing out money to rich people. As usual, throwing the middle class under the bus.

In summary, this circus is running on MAGA glue fumes.

The stock market now mirrors the U.S. economy - ludicrous inequality between the wealthy and everyone else. Amid rampant denial. 

By my reckoning, all hell is about to break loose. 

And time is running out.

The New Permanent Plateau of Delusion

This is the largest misallocation of capital in human history...

I mean easy money:

This podcast/article, below, gives a good summation of the perverse incentives driving money managers to overdose on ludicrously overvalued Tech stocks. I would first point out that it's not their money. I don't normally listen to podcasts, but I found this one quite interesting, as it touches on topics ranging from asset bubbles to economic ideology. It kicks off noting that all risk asset markets have converged upon an identical left to right upward slope. Meaning they are massively correlated. Including so-called safe havens such as gold. Then it asks the critical question, what would it take for the Tech/deflation bubble to implode. Somehow never once wondering if it's imploding right now. Then, the usual historically illiterate question, how long will it take for the economy to float back from China? At which point the discussion segues into the philosophical  question as to whether or not today's monetary assisted robber barons have perverse incentive to keep the central bank spigot attached to their Cayman Island bank accounts permanently.

My answer: Only until the riots get out of hand. 

"These days it seems like all financial markets are the same big trade. A gold chart looks like a Tesla chart, which looks like an Ethereum chart, which looks like a chart of a basket of cloud computing stocks. So why is this? And what could cause that to change? "

Indeed. Let's contemplate this question:

One hypothesis floating around Zerohedge is that investors are TOO bearish ahead of the election, which is putting a floor beneath the casino. Every selloff is met with short-covering or options monetization, the derivative version of short-covering.

I would agree that high amounts of bearishness among institutional investors has kept this gong show going longer than expected. Because other than short covering, there is literally no bullish case for owning stocks right now other than to pray that an even bigger dunce will come along later. A risky bet that many have made but no one has ever collected upon. 

Fortunately, as stocks have now fully decoupled from reality, into this new permanent plateau of economic implosion, Wall Street will continue dumping multi-year record amounts of junk IPOs, until something explodes. Putting some amount of certainty back into this equation:

"At this point, only hermits without WiFi would be unaware that 2020 is the busiest year for IPOs since 2014"

Recall that late September 2014 was when the Alibaba IPO crashed the U.S. market. Now we are waiting for Alibaba's Fintech spinoff "Alipay" aka. Ant Financial will crash Asian markets any day now. In the meantime, Wall Street is front-running the global RISK ON party.

Among the stock market bubbles that have not yet imploded this time around, today Solar/Alternative Energy stocks went late stage parabolic:

Looking at out of the money crash bets, here we see that the September stair step lower has seen crash bets decline, as the weak bears got monetized. 

It's called capitulation. 

The large cap momentum trade is sporting a double a-b-c zig zag on the hourly. Both are Elliott Wave "flats" meaning that the origin for wave c is the same level as wave a, which is highly unusual and extremely weak.

Another interpretation is nested 1s and 2s, implying brick shitting panic is soon to erupt.

Getting back to the article above, the aggregate bond chart below tells the story: What do the wealthy really want, economic deflation or reflation? And then the next question amid 90 year high unemployment: Can they get another decade of easy money gains, out of this exploitation scheme?

As we see, misallocation of capital takes months and months of bullshit whereas re-pricing of risk takes just a few hours of stained underwear. 

MAGA Is A Spent Farce

The U.S can't afford another four years of circus quality "greatness". Trump is running the U.S. government the same way he ran his own businesses, into the ground...

This week we found out why Trump has been refusing to release his tax returns. It turns out that he pays less taxes than the average hot dog stand:

"Donald J. Trump paid $750 in federal income taxes the year he won the presidency. In his first year in the White House, he paid another $750.

He had paid no income taxes at all in 10 of the previous 15 years — largely because he reported losing much more money than he made."

It's no wonder therefore that Trump has absolutely imploded the U.S. budget, he doesn't believe in paying ANY taxes. Imagine that this serial tax scammer is now the "gatekeeper" for all of the fraudulent values of the right. A lifetime con man who pays more for hooker payoffs than he does on taxes. Why does he have to cheat on his wives when he trades them in like used cars? I could never figure that out. He is merely a mirror reflection of the people who elected him. History will say they were a late stage circus of 100% corrupted fake Christian con artists.

Here below, we see U.S. GDP growth adjusted for the deficit. What I call "Honest GDP". The best two years of the post-2008 cycle were under Obama. The economy peaked in 2015. By 2016, the economy was starting to sag, however, Trump's Tax Cut bought it more borrowed time. The massive one-time tax repatriation in 2018 gave the illusion of a semi-functioning economy; however by 2019, the smoke and mirrors had worn off and the full impact of the tax cut looting imploded the overnight "repo" market. COVID is the last nail in the coffin.

 

The U.S. started renting greatness under Ronald Reagan, during the era when the country went from being the World's greatest creditor nation to the World's largest debtor in just one decade. According to Dick Cheney, Reagan proved that deficits don't matter. If you don't mind destroying your own currency, then that is true indeed. The process is well underway. 

It's clear going into this toxic election that the Democrats are not capable of turning the Titanic. Because they can't control fear. And Trump's entire campaign strategy is predicated upon fear. Moreover, the majority of the U.S. is still in massive denial as to how we got here, so it would be better to let the GOP follow Captain Dumbfuck straight to the bottom and THEN take over. Which is how it went down in the 1930s, with FDR coming in at the bottom. Change comes when everyone agrees that the status quo is over. And four years of non-stop MAGA brainwashing has kept that day from arriving. Societal disintegration is the new greatness.

In the age of non-stop monetary bailouts for the rich, Republicans now fear socialism for everyone else. For good reason. Because when the bailout for the middle class arrives, credit markets will explode. The only question on the table is what comes first - inflationary explosion due to too much middle class stimulus or deflationary default due to lack of middle class stimulus. Either way, the result is the same, the credit bubble explodes, and deflation is the end result.

A lot of people have made the big bet on inflation, however, they forget that Banana Republican policies are inherently deflationary. Robbing the middle class to pay the rich. Which is why deflation is rising non-stop and yet they are oblivious to that fact. They see their own fake wealth increasing and they assume it's the same for everyone else. The same way they've been oblivious to rising poverty for forty straight years straight. Republicans believe that poverty is solely a racial issue. Education is coming the hard way.

The payback will come via the fact that the vast majority of today's wealthy "elite" will not successfully navigate this deflationary/inflationary gauntlet. Most will watch their wealth evaporate first due to defaults and then via hyper-inflation.

The bottom line is that profligate tax cuts for the ultra-wealthy, now on steroids under King Donny, have put the dollar on borrowed time and money. At present the U.S. is borrowing 17% of GDP to have a -5% growth rate. A 22% depression by any other name. Had the U.S. still been on the gold standard, the bread lines would be wrapped around every street corner by now, as this level of deficit stimulus would be impossible.

It's a testament to Globalization's scale, that despite unheard of stimulus, the World is STILL falling back into deflation. Of course, in the U.S. given the stimulus lapse, it should come as no surprise to anyone who can fog a mirror. Not many people, to be sure. 

Getting back to Trump Casino, the dreaded month of September is almost over, bringing the month with all of the historically famous crashes.

Looking back on this month, it's clear that the MAGA Cap Tech bubble exploded at the beginning of the month and then bulls and bears fought to a sideways draw for remainder of the month.

Bulls are convinced that the uptrend will resume any day now.

However, the all-important MAGA stocks are floundering, and clearly three wave corrective.

Basically identical to the February high:

Here we see the total options call / put ratio, whereas I usually show the equities-only ratio. Clearly, gamblers are a long way from capitulation:

In summary, notwithstanding several epic bear market rallies, there is no leadership in the stock market.

Which is how I would describe the White House. No leadership.  Just lethal amounts of corruption and bullshit.

Rigged markets and rigged elections. 

As usual.

Disney Markets For The Fall

Never before has traditional investing advice been more lethal than right now...

Any questions?

The cornerstone of today's investing advice is predicated upon data mining the past. Specifically, the past 90 years since the onset of the Great Depression. A period that coincidentally spans world's greatest investor Warren Buffett's entire lifetime. The inherent assumption is that the next 100 years will be the same as the last. Never before has that been a more asinine assumption.

Suze Orman continually tells people that that they need several million dollars to retire, even though she knows full well that the number of people who ever reach that goal is a rounding error. She typifies an entire investment industry that is constantly telling people to skip the double latte each morning in order to retire a millionaire 40 years hence. In other words, don't bother being happy while you're young, wait until you're 65 for life to begin. This ideology puts money ahead of life, as a strategy, making people feel guilty for enjoying the here and now. 

It's crap advice.

To quote Arthur Schopenhauer:

"Money is human happiness in the abstract: (s)he who is no longer capable of enjoying human happiness in the concrete devotes himself utterly to money"

The best investment strategy is the one that lets you sleep at night. Remember sleeping at night? After the DotCom bust AND the housing bubble, I could no longer be a buy and hold investor. I could see where this was all heading and I knew that given enough time in Disney markets eventually my unrealized gains would turn to pixie dust. I couldn't sleep at night. So I became a market timer, which brings it's own set of challenges, but it gives me full control. Arguably the best strategy is to do what Warren Buffett does (not what he tells people to do i.e. buy and hold an index fund). Which is to maintain a core position in stocks, for example 50%, depending upon age. And then increase allocation of stocks into declines and reduce on rallies. Using a fixed set of price targets e.g. each 10% move, allocate or de-allocate 5% of the portfolio into/out of stocks etc. Dollar cost averaging 101 is still the best strategy for risk management. Incidentally, Warren Buffett is sitting on record cash right now, as he does not see "value" in pandemic bubbles.

Nor apparently do corporate insiders:

"A group of investors who correctly timed the stock market’s bottom in March isn’t bargain hunting yet during the current selloff. Instead, they’re stepping up sales, flashing an ominous signal to any dip buyers.

Corporate executives and officers at S&P 500 companies were busy unloading shares of their own firms over the last four weeks. The selling picked up so much versus buying that a measure of insider velocity tracked by Sundial Capital Research pointed to the fastest exit from stocks since 2012."

Who would be better market timers than the CEOs of major companies? They bought their stocks at the bottom and sold them on the way up. 

However, for those playing the trading range, there are reasons to believe that central banks are about to lose control over Disney markets in a way that tests confidence in printed money. As hard to believe as that may seem. At the same time, many of today's major companies are facing potential bankruptcy. Exxon and Boeing just two of the well known companies that are over-extended. Add in all airlines, hotels, chain restaurants, cruise lines, mall REITs, office REITs, and the entire fossil fuel energy sector. All are now potential landmines.

Of course in an S&P 500 index fund one is getting automatic "diversification". Nevertheless, we know that Tech is massively cap over-weighted in the S&P 500. Much worse is the fact that Tech stocks account for ALL of the year-to-date stock market gains. The rest of the market is in a bear market, as one would expect during a pandemic depression:

All of which means that when the Tech bubble final explodes, reality is waiting far below this Disney market. As I write on Friday, Skynet is defending the year-to-date Maginot Line at all costs.

The 50 day moving average was defended with two rallies visible on the daily chart. Each time the February high was resistance. Now the year-to-date breakeven level is in its second rally with the 50 day now resistance:

This is the wave count vis-a-vis Momentum stocks - a double zig zag two weeks in a row. Leaving the momo stocks still overbought (top pane). 

And confounding bulls and bears alike:

I decided a long time ago that I don't want anything to do with con jobs and pump and dump schemes. It's one reason I don't give financial advice, because I don't want to be just another Dave Portnoy monetizing a base of devoted followers. Always informing them how well he's doing. At their expense. For some reason always seeing prices both on the bid and ask that are far better than every johnny-come-lately into the same trade. This week his devoted followers got monkey hammered by a surprise secondary stock offering at their expense.

Speaking of massive pump and dump schemes, it was six years ago this week that Alibaba imploded the stock market with history's largest (over-priced) IPO:

September 22nd, 2014:

For this new IPO of the Ant Fintech subsidiary, instead of listing in the U.S., they are going to dual-list in Shanghai and Hong Kong, the two weakest markets on the planet; the same markets that crashed global stocks in 2015.

Twice.

Good times.

COVID Is The Solution, Not The Problem

The hairless monkeys were never going to change their ways without some inducement from Mother Nature...

As long as our fate was controlled by a segment of the population using their addiction to selfish ignorance as the rationale to do nothing, none of humanity's problems was ever going to get resolved. 

On the alt-right, every human problem is a hoax and every solution is a conspiracy. A conspiracy intended to force them to change their perfect way of life. Heavy assault rifles and gas guzzlers forever. COVID is their latest obsession. We are now told that the entire human race is engaged in a conspiracy that includes everyone, EXCEPT the biggest dumbfucks on the planet. And their denialist saviour, King Donny. 

Right.

The only true conspiracy - believed by everyone except dedicated cave trolls - is the concern for those other than themselves. A friend of my father's, around the same age (80), says that his evangelical son is one of these COVID deniers. He told his father it's all a big hoax. Statistically, for someone over 80, the chance of dying from COVID is 30%. For someone under 50 it's de minimis. What the son is telling his own father is fuck you Dad, I'm ok. The mantra of the entire conservative movement.

Now, if this corporate Idiocracy wasn't so plug stuffed on GMO Frankenfood, and the fattest generation in all of human history, then the lethality from COVID would be far less. The largest risk factors beyond age, are all lifestyle related: smoking, obesity, diabetes, and high blood pressure. Coincidence? I think not. This virus selectively preys upon corporate addiction and ignorance. The very people who believe it's all a hoax, are the ones most at risk. It's natural selection at its finest.

This species, living on the only known habitable planet in the entire universe has a proven unwillingness to change its ways, except in the most dire of circumstances. While the accumulation of centuries of wisdom collects dust on library book shelves, the Idiocracy at large takes its education from South Park, and its news from Sean Hannity.

Laziness, greed, materialism, selfishness. These are instincts endemic to the human condition. Religion was invented to curb humankind's worst instincts, so we would not come to believe that Roman orgies are commonplace. However, Mother Nature is far less forgiving of those who seek to merely recycle their sins every Sunday morning, emerging refreshed for another week of unhinged debauchery. Not that the "system" doesn't have its appeal to those who seek to NEVER change their ways, and yet still get a good night sleep.

All else being equal, the COVID deniers are right about one thing - which is that the derivative impacts of this pandemic lockdown will linger far longer and have far greater human impact than the virus itself. Consider that the current U.S. death toll of 200,000 equates to roughly 11-12 days of average total deaths in the U.S. In true context, it's a small number. However, add in the devastating derivative impacts of mass unemployment, poverty, delayed medical procedures etc., and the secondary impacts will dwarf the direct COVID deaths. In the Third World - already at the margins of existence, the derivative impacts will be multiplied many times over. 

Now however, factor in the longer term outcomes from this forced reset, such as forcing new behaviors around consumption and carbon footprint. Such as a forced examination of the inequalities of Globalization. One can make the case that COVID is saving the human race from itself. Mother Nature is saving the human race from its vast store of idiots. Who have been protected from reality for far too long.

It's the inconvenient truth.

Doubled Down. On The Bigger, Fatter, Uglier Bubble

Gamblers just doubled down on meltdown. Why? Exceptional bullshit, what else?

Let's see:

Y2K Tech wreck

Looming 2008 credit crisis

Economy imploding

Political impasse

Existential election

Sidelined Federal Reserve

IPO pump and dump

What's not to like?

King Donny announced this week that he won't guarantee a peaceful transition of power if he loses the election. He will be emperor for life. Over the past four years, Banana Republicans have wholesale abandoned all principles of democracy and now even the appearance of one.

Either way, Trump's presidency is in its waning days. If the Democrats merely maintain control of the House, his ability to do anything as president will be stymied. If the Democrats win the House and Senate he will be impeached and removed from office. Which is why he is inciting his base to civil war in five weeks. He knows that time is running out for his circus:

 

"Trump's intransigence, included in his latest assault on perfectly legitimate mail-in ballots on Wednesday, posed a grave threat to the democratic continuum that has underpinned nearly 250 years of republican government"

As if to imitate the ongoing political circus, the markets are in their own Twilight Zone of exceptional bullshit right now. 

This article does a very good job of describing the current level of risk: Extreme realized volatility attended by extreme complacency.  

So far...

"By one measure [# of days with 1% move or more], the Nasdaq 100 is having its second most volatile month in 18 years"  

There are other signs that speculative activity remains elevated. The largest exchange-traded fund that tracks the Nasdaq 100 Index saw its total open interest rise to 10 million contracts at the end of last week, the highest since 2007"

In other words, gamblers are loading the truck on the Nasdaq 100 at the fastest pace since the 2007 market high, during the most volatile period since the Dotcom bust.

What could go wrong?

So far this week the BTFD team has been buying every dip, amid an accelerating decline. 

Picture what happens when they actually start selling.

Skynet will explode.

For those who are wondering why this current level is so important, wonder no more:

The Nasdaq has pounded the 50 day moving average (blue line) from the top and now the bottom. What once was support, is now resistance. It's another -10% lower to the next level of support:

Today's rally was compliments of Tesla which bounced off its 50 day moving average for the second time since the early September peak. We saw this same movie back in March. When Tesla broke through the 50 day, the wheels came off the market bus.

Stay-at-home bubble leader Zoom Video posting a double top deja vu of early September:

Trump's primary election strategy is to blame China for all U.S. problems. Having made a lifetime career out of blaming everyone but himself.

It never once occurs to Donny that U.S. stocks are 100% correlated to Chinese stocks, and he needs a strong stock market for this election. Banana Republicans are about to discover the downsides of having a mentally challenged president, from birth:

Small caps deja vu:

The "safest" stocks have the clearest and most lethal wave count. 

Gamblers are leaving Trump Casino. 

Pockets empty.

In summary, we're in a bigger, fatter, uglier bubble.

And it's set to explode.

Feels Like Fall 2008

It's the end of the cycle, which means a 2008-style credit crisis is imminent. Unfortunately, today's criminalized financial pundits can't admit that fact, because that would doom the MAGA Kingdom, and the greatness that derives from following lying circus clowns...

This period of mid-September to mid-October ahead of the 2008 presidential election, was the third wave. Down...

Any questions?

There are only two kinds of people in this world right now, realists and denialists. MAGA fiends of course are not the only denialists, merely the most dedicated. At present, denialists outnumber realists by 100 to 1. Of course things were actually going far better in late September 2008 than they are right now. Never before has so much stimulus been used to hide a depression as right now. A 15% of GDP deficit to achieve -5% GDP growth. Because we have to be in a recovery, otherwise the MAGA Kingdom is doomed. This is our "future", using ludicrous levels of stimulus to pretend that recessions no longer exist. 

The Fed was just as clueless back in September 2008, however they still had ample fire power, which is not the case now.

NY Times

How the Fed misread the 2008 Crisis

"On the morning after Lehman Brothers filed for bankruptcy in 2008 [Sept. 15th, 2008], most Federal Reserve officials still believed that the American economy would keep growing despite the metastasizing financial crisis...the Fed’s policy-making committee voted unanimously against bolstering the economy by cutting interest rates"

Then the wheels came off the bus, and the rest is history.

Historians will never understand the level of complacency taking place right now. Of the many differences between then and now, one key difference is this massive speculative bubble which is unraveling in real-time. Another key difference is the number of weekly jobless claims which has exceeded the maximum 2008/2009 levels EVERY week since March. 

It's insanity. As usual.

Which gets us back to Trump Casino:

Monday early morning (~3am Eastern), the futures had been idling along fairly flat, and then all of a sudden they imploded just prior to the European open. Global banks got pole axed by allegations of widespread money laundering taking place over the past two decades.

Monday's U.S. session gapped down at the open which was followed by the obligatory all day BTFD rally. However, the buying was confined entirely to the Tech sector, as the other 10 out of 11 sectors were all down. Ex-Tech, it was a 90% down day. Desperate speculators are now throwing caution to the wind and piling into the last vestiges of the Tech stay-at-home rally.

I listened to a Tech stock analyst on Bloomberg yesterday who sounded like she was not around in Y2K. From what I could tell, she was in kindergarten. She was recycling the same false platitudes that were deployed in that era to keep the bubble going. Tech is the future, there is no future without Tech, valuations don't matter etc. For those of us around in that era, it was all a massive lie to accompany a massive pump and dump of junk IPOs. Similar to what is taking place right now.

Among the leading stocks yesterday, as usual was Tesla, the continuing leader by far in Nasdaq active dollar volume. However, today is the Tesla shareholder meeting aka. "Battery day". After the close last night Elon Musk tweeted that most of the new innovations are two years away from being monetized. Which is why the stock is selling off pre-market. As we know, Tuesday's are the best day of the week in Trump Casino. So anything can happen. 

That said, WHEN not IF Tesla rolls over hard, it will final implode the Nasdaq:

But here is the big difference between now and Y2K:

In this era, the so-called safe haven stocks are the weakest stocks in the casino. Which means there are no safe havens outside of cash aka. money markets/t-bills. T-bills being the safest on a relative basis.

Here we see on the S&P 500, using February as a guideline, a gap down Monday and then the 200 day was taken out by the end of that week.

This is not a prediction, merely an observation that the casino is heading in the same direction, at the same rate. This time, I doubt the 200 day will hold for as long as last time. We will soon find out.

For those who are wondering how close we are to a bottom so they can play the Ponzi Casino from the long side, I suggest not yet.