Human History's Biggest Margin Call

According to the principles of DisneyNomics, central banks pump ludicrous amounts of liquidity into government bond markets, and from there it flows outward into the riskiest assets, entirely bypassing the economy. As the economy implodes in real-time, gamblers recklessly pursue these bubbles, bidding up their own assets, until they self-explode. Why they keep doing this is not for me to say...

Due to record global stimulus emanating from the COVID crisis, it should come as no surprise that we are now witnessing record asset bubbles. Below, I will show the status of each bubble, and its current state of euphoria or implosion. 

We can start with the famous Cramer COVID-19 index. A group of stocks that Cramer identified early on in the pandemic as being the prime beneficiaries of economic implosion. Here is what he had to say this week about these deflating bubbles:

“As we get closer to a vaccine, this market’s increasingly dominated by one question: What’s the post-Covid future gonna look like?”

“If the market’s turned against your favorite Covid names, you can’t expect them to come back any time soon”

Then he goes down his list of faves, however, I maintain a much broader list of stocks and sectors that have been the prime beneficiaries of COVID pandemonium. These will ALL crash, before the casino finds it eventual bottom.

Let's start with the largest bubble with respect to market cap, the MAGA Tech stocks. 

Apple at its peak last month reached $2 trillion dollars in market cap. The first stock in world history to reach that valuation. From the COVID lows, the stock gained 150% and then it lost -25% of its total value. It's also of course at the epicenter of the dumbphone bubble.

Dead money.

Here I show Amazon, also part of the MAGA quartet, and epicenter of the shop-at-home craze that took hold during the pandemic. The stock gained 100% during the COVID rally. 

Head and shoulder top, and three wave correction deja vu of February:

Also in Tech is the semiconductor/5g bubble and the video game bubble. Here I show Nvidia which is at the intersection of both of these bubbles:

The stock gained 225% from the COVID low:

Also in Tech, is the streaming bubble (Netflix/Roku). Not shown.

The Tech workout from home bubble (Peloton etc.). Not shown. 

And then of course the cloud stock bubble (Salesforce, Workday etc). The poster child for lockdown is cloud stock Zoom video, which gained 400% and remains well bid:

The IPO pump and dump bubble which is still well underway. Not shown.

And of course, the other mega bubble, the Tesla/ESG/Clean energy bubble:

Then of course there was the Biotech/vaccine bubble, featuring the top performing stock in the entire casino, Novavax:

Also in Tech, the FinTech bubble, which will soon feature history's largest IPO, the Ant Group Alibaba spinoff.

And, then there is the gold bubble.

Peter Schiff was out this week explaining that mass poverty is due to socialism. What a load of bullshit. The largest wealth disparity in human history is a consequence of socialism. Greed played no part in it. According to these experts, we haven't seen true capitalism since the 1800s. Meaning long before these morally challenged con men were blowing smoke up everyone's asses.

Fortunately, the Zerohedge/Schiff dumbfucks are the next to duly explode.

 

And then of course there is the bond bubble. I am not referring to Treasury bonds, which are the domain of the Fed. Japan has proved that the central bank can suppress yields for decades at a time. TBD pending middle class bailout.

I am instead referring to corporate bonds, muni bonds, EM bonds, and other "spread" product. Meaning they have a yield premium over Treasuries.

And they have imminent default risk.

In summary, when all of the bubble chasers discover the "Sell" order for the first time, then human history's largest bubble will explode.

October 2020 In Trump Casino

The economy is imploded, but gambling is alive and well in Trump Casino. It was the first down month since March, which means it was another victory for the bulls...

First, let's recap September in Trump Casino:

Late August ended with a massive melt-up compliments of the Republican National Convention. The casino peaked on Wednesday September 2nd. Then it imploded into end of week options expiration. Then it rallied into FOMC Wednesday Sept. 16th and imploded AGAIN into weekly opex. Then it rallied into the end of the month to nicely paint the tape at the end of the third quarter. By total coincidence similar to August. It was the first down month since March, yet volatility peaked at the beginning of the month, as gamblers bought the dip with both hands. 

The Nasdaq went nowhere for the past three weeks as breadth imploded:

Gamblers kept Momentum Tech well bid, continuing to use options to manipulate the market:

Weak bears capitulated. A necessary and sufficient condition for a crash:

Chinese stocks imploded deja vu of February/March:

Solar stocks went late stage parabolic, as the ESG movement picked up steam amid widespread fossil fuel divestment. 

The IPO pump and dump accelerated into month end, as economic cyclicals imploded

Safe havens pre-imploded

So, let's compare today's market relative to the 2018 mid-term elections:

Back then, the casino peaked in late September and then fell the entire month of October leading up to the election. 

This time, the casino peaked in early September, putting it at a weaker position going into October.

What could go wrong?

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.