This Is Going To Be One Hell Of A Crash

The biggest risk to markets right now is toxic politics which Trump has assured us will endure before, during, and after this election...

Gamblers are wondering, what will lead this next rally leg higher - cyclicals or momentum? The answer is neither, we have no leadership in markets or the White House.

I listened to an interesting analyst on Bloomberg this morning (no video sorry) saying that any real stimulus is several months away, given the current political quagmire. She also said that even the Democrat package of $2.2 trillion is inadequate given the rising economic deflation. If Trump wins the election, he becomes a lame duck president who will never pass another tax cut again. If Biden wins he has to wait until inauguration to pass a middle class stimulus package, assuming he can get one through Congress. Which means that best case scenario, real reflation won't come until mid first quarter 2021. 

Pending riots.

As we know, markets always "price in" the future ahead of time. Which is why they are pricing in reflation now, given Biden's massive lead. It appears that many people remember 2016 when Trump and his tax cut got elected and the market ripped higher led by cyclicals, even though the tax cut was over a year away. The difference is that back then the economy was not in a depression and in dire need of middle class stimulus NOW.

Which is why gamblers are taking an asinine risk betting on asset reflation while economic deflation is increasing by the moment. Of course this week yields are backing up as the bond market got sucked in to this new Ponzi reflation rally, caused by the spike in Joe Biden's election chances:

"A victory of Democratic nominee Joe Biden in the U.S. presidential election could herald the start of a rotation toward parts of the equity market that have been left behind by the rally"

However, we've seen this movie before, and each reflationary impulse grows weaker and weaker. The last time yields backed up, cyclicals peaked and crashed back in June. Since then they have been making lower highs:

Could this fake reflation rally go on for a while longer? Sure. But one should note that the equal weight S&P 500 peaked on the third trading day of September. Which is today in October terms. Those two gaps will get filled sooner rather than later.

What this all points to - headlines and algos aside - is a market that is approaching third wave everything down:

Value / cyclicals:

Momentum / Tech:

"Safe havens"

And gold, which peaked back in late July when the stimulus ran out.

Could gold catch a bid at the beginning of a major stock selloff? It did back in March, but it soon joined the downside party.

The COVID Recovery Is A Hoax

Trump from Walter Reed hospital (:55) (paraphrased):

"I just got schooled by COVID. It took a couple hundred thousand dead later, but now I finally understand what the experts were telling me nine months ago. To my legions of devoted hoaxtards, stand back and stand down"

Trump's miracle recovery from COVID is like the economy's miracle recovery. 100% smoke and mirrors. To win the election...

We have no idea if Trump is recovering or not, because he lies constantly. And when he's not lying, he has a base of useful idiots doing it for him. Who knew that greatness required so much lying? What we do know for certain is that Trump is pumped full of massive doses of narco-pharma to give the appearance of a recovery. When he heads back to the White House he will be propped up in the Oval Office like Weekend at Bernie's. 

Likewise, today's Disney markets are pumped full of monetary heroin, to give the appearance of an economic recovery. Incredible deception. Asinine gullibility. Whatever you want to call it, history will call it verifiable Idiocracy. Most Americans STILL trust Trump on the economy more than Biden. Anyone who trusts a known tax evader, bankruptcy artist, and sociopathic liar desperate to win an election is a total fucking moron. 

We've never seen such a massive deception as the one taking place right now. The majority of today's pundits actually believe that we have entered a new recovery cycle. Which implies that the devastating economic effects of COVID had zero lasting impact on financial markets. No credit crisis and zero de-leveraging by the bankrupt corporate sector. We successfully borrowed our way out of depression. The only question is, why didn't we try this sooner?

"It worked"

Facts and data can't compete with a good storyline, massively misallocated capital, and a moron on Twitter. Again, what happens when we are trapped inside an old age home incapable of accepting reality. There is no pride among the incontinent. You have to ask, is there even one Republican who will tell the truth anymore?

This economy is 100% smoke and mirrors, now entirely dependent upon conjoined fiscal and monetary stimulus. Which has run out, hence why the job market is re-imploding. 

Now, heading into the winter lockdown months, today's delusionists believe that the recovery will continue, even as the pandemic remains out of control.

The cost of this election, will be measured in lost trust and credibility in "the system", which is now 100% con job. We are fully on our own now. Not only can we not trust Republicans in government, we can't of course trust Wall Street, and we can't trust the mainstream business media. The next and last thing to go will be any and all trust in today's economists. They will all soon be viewed as Bernie Madoff disciples. 

Barron's this week:

"The rapid jobs recovery in May and June has definitively ended—and may even have started to move into reverse."

To be sure, central banks have done a great job of disguising the looming credit crisis under a tsunami of liquidity. But as usual, they have bailed out the lenders and left the borrowers twisting in the wind. This time it won't work. They've merely postponed the inevitable. Yield-starved investors have once again perceived low interest rates as a reason to onboard more risk. In the process they are ignoring default risk. It was always going to end this way that a recession was seen as a buying opportunity, only it's not a recession, it's a depression.

This is store closures by year:

This is now a fully virtual economy. Global capital is crowded into Tech stocks on the belief that this is the contactless economy of the future. No humans required. Everything every yuppy needs drop shipped to their door. Which is why these denialist investors are ignoring mass unemployment. In their minds, Mad Max is the new normal. Except, these delusionals are ignoring the 17% deficit propping up "GDP". A 747 running on two out of four engines. Meanwhile, state and local governments are now shouldering all of the unemployment costs, however, they are quickly running out of money. Without further stimulus, they will implode.

In summary, this is a 100% smoke and mirrors recovery, in the Trump tradition. This time he has ample help from his legions of lying disciples. Useful idiots who specialize in con jobs at their own expense.

Falling From Grace

Four years ago, Trump was holding massive rallies in crowded stadiums, now he has been laid low by a virus that most of his acolytes still consider a hoax. His campaign is effectively over. Joe Biden has opened up a 14 point lead on Trump, he just needs to stay alive for four more weeks. No guarantees...

Historians often say that history rhymes it doesn't repeat. In reality, it usually repeats quite closely. Why? Because the emotional fragilities of our species are always predominant. It will NEVER be different. The human race is not a thinking species, it's an emotional species. Far worse yet, the leaders of this species tend to be the most extroverted and least inclined to deep thinking. The populace at large, having the IQ of a dead fly demands facile answers to all questions. Charismatic leaders and their gullible populaces are as lethal now as at any time in our history. Those introverts who are the deepest thinkers are not skilled speakers. They think in terms of facts and data which are not easily distilled into soundbites. 

This is an historic moment. A teaching moment. The fragilities of our species are laid bare as we hang between the delusions of the past, and a seemingly non-existent future.

A true leader would be laying out a path right now to a more green and equal future. One in which workers participate in the prosperity of the economy. An economy built around sustainable energy. But instead, we are confronted with short-term solutions and existential fear. Is Nancy Pelosi's job really to dream up bigger and bigger stimulus packages? When will these continuous fire drills ever morph into anything longer term than the next two year election cycle?

Stepping back we can readily view our species from the perspective of a truly intelligent species from another planet, or the Creator herself would see us: Weak, corrupt, venal, lost and leaderless. Ignoring centuries of knowledge, the average human today is far less intelligent now than Socrates was thousands of years ago. This society has packed a human history full of knowledge into a handheld smartphone, bringing unprecedented access to facts and information at the push of a button. So what have we done - outsourced all thinking to the device, freeing up time to play Candy Crush. What else?

How many societies have to rise and fall, before this species takes a good long look in the mirror? Our competitive nature prevents us from seeing ourselves in the truest light, shorn of delusion and fantasy. When I read the missives of a Pat Buchanan or any other hubristic old timer recycling the past, I just shake my head. Blindly arrogant to the very end of their time. Never admitting that their own failed ideas are what have led us to this parlous juncture. This society does not age gracefully. They desire instead to remain cleaved of reality right to the very end. Choosing an ignominious epitaph over one day of contrition. Making it impossible to remember a time when they were anything more than cynical denialists. No thanks. I want to be idealistic to the end. Let young people have their time, as we demanded for ourselves. If they can't handle it, it's not their fault, they had bad parenting. The purpose of parenting is to prepare the next generation to be self-sufficient. Not to be drinking buddies with their kids. A society should not be ordered around the fantastical delusions of people in their last inning of life. Worse yet, people who have proven themselves to be abject failures at leadership. Japan has been down this failed path for decades. Pray we don't waste that much time wandering in the desert of dumbfuck ideas. 

While I'm here, I wanted to give my thoughts on what we have learned of Disney markets over the past decade. 

First and foremost they have become more and more fragile. I expect this impending crash to test the faith of the most dedicated gamblers. This past week, the Japanese Nikkei was offline for an entire day for no known reason. As Japan has been for decades, I expect U.S. stocks to be in a volatile sideways range until we get real leadership. Which as we know, will take a while. At some point, I will take some rentals from the long side. Whenever possible, I will use mutual funds instead of ETFs. Mutual funds are always in synch with their underlying net asset value, whereas ETFs can diverge massively at times.

Overall what we have learned, is that you can rent delusion but you can't own it. 

The record will show vis-a-vis the average stock, that the true bear market started two years ago ahead of the 2018 election. And then it resumed two years later. To quote Trump circa 2016: 

"The only thing that looks good right now is the stock market"

Life After Walmart

This society has perfected self-destruct mode, so it's time to try something different. Step 1, stop worshipping false profits...

 

Having watched this slow motion train wreck known as globalization for my entire lifetime, here at a high level is directionally what I believe is the best way forward. 

The first step will be humility and an acknowledgment of failure. Recognition of the fact that globalized capitalism didn't create broad based prosperity, it destroyed it. We can hope that the impending reset will be sufficiently cataclysmic to instill a sense of contrition in today's morally challenged leadership class.

Second it will require ideological capitulation. Strict adherence to past (failed) ideologies of capitalism, communism, and socialism have been and will continue to be a constraint on building a new economy. The best ideas need to be implemented regardless of ideology. A nascent economy requires greater government intervention in the early stages and less as it matures. Strict ideologists on all sides will reject this type of policy migration, hence these zealots will impede economic progress, leading to more poverty. We will know we're getting back on track when we dispense with the exceptional mythology. 

Third, over time, society needs to wean itself off of stimulus addiction. It never seems to occur to today's stimulus junkies that borrowed GDP aka. "fiscal stimulus" is merely stealing from the future for instant gratification now. Monetary stimulus is the policy of subsidizing debt accumulation, another form of borrowing from the future. These serial stimulus bubbles allow policy-makers to ignore the difficult aspects of economic reform. I predict that all of the current fiat currencies will be destroyed by today's money printing addiction. At first monetary policy was used to control interest rates. After 2008, they added quantitative easing to subsidize government borrowing and inflate risk assets. Now, they are monetizing the entire U.S. deficit which is currently 17% of GDP. The integrity of the U.S. dollar is being systematically destroyed. The concept of a universal basic income only makes "sense" as an act of desperation in a late stage failing economy heading into depression. Eventually it will lead to hyperinflation, and a total lack of investment. In the process it will destroy all incentive to work and to create new businesses. Ultimately it will lead to widespread poverty. Nevertheless, it appears inevitable given the amount of poverty we are about to experience. The only benefit is that it will destroy all debt. 

Today's economists need to acknowledge that top down macroeconomics as a policy has failed. Economies are not created by economists, they are created from the bottom up one business, factory, and industry at a time. The role of government is to set the rules and regulations which create a fertile ecosystem for business. A nascent economy needs as many business startups as possible which requires minimal taxation and minimal regulation. In addition, access to credit and strong bankruptcy protections for borrowers. Again, ideological intransigence will die hard. It's difficult for people to accept that a lifetime of work has failed. And it's difficult for leftist radicals to accept that not everything about the past was wrong or didn't create middle class prosperity.

To deal with these large scale oligopolies that have come to dominate the global economy - Amazon, Walmart, Microsft, Facebook, Google, Apple etc. - the best solution is not to force anti-trust break-up. The best solution is to place expirations on intellectual property patents of five years. After which, all intellectual property becomes public. That will allow startups to compete and overtake larger, less entrepreneurial organizations. They will be creatively destroyed.

Tariffs to protect jobs and the economy need to be made permanent. A permanent moat around the domestic economy to protect against foreign dumping. There is no way to compete against Third World nations that have no labour or environmental standards. The tariff should be high enough to disincentivize corporate industrial arbitrage i.e. building in one country and dumping in another. And yet not so high as to deter all trade and otherwise, prevent competition. 

It may seem odd to hear all this coming from a lay person with a mere Bachelor degree in business. However, it's a testament to these times that most economic pundits today are still solely concerned with fiscal and monetary stimulus. They are stimulus junkies to the core. For them, the idea of economic reform doesn't even exist. Why? Because they have been among the prime beneficiaries of today's failed policies. They have a vested interest in keeping the globalized exploitation scheme in place as long as possible. 

None of the above is communist, capitalist, or socialist. These are commonsense ideas that directionally tell us how close we are to getting back to something approaching a good economy.

But first, there is a good hard lesson to be learned. And if it's one thing we know for certain, these people are not fast learners. 

2020 Hindsight

The world was collapsing under the weight of the failed arrangement known as Globalization. Economically, environmentally, and socially. The World's few thousand billionaires controlled more wealth than two thirds of humanity combined. When the global financial system had exploded in 2008, it was replaced by a proxy economy of non-stop monetary intervention. A band-aid solution that had served to massively widen the gap between the wealthy and the poor. Global deflation was extant, featuring the lowest interest rates in human history. 

Asset bubbles percolated one after another, chased by a hungry populace desperate for any rate of return no matter how ephemeral. The American Dream was morphing into a serial nightmare of reduced wages and benefits, longer hours, and non-existent job security. Companies borrowed as much as possible to fund stock buybacks to facilitate insider cash outs. The smart money was leaving the sinking ship. The fooled populace was left bag-holding a fantasy of retirement predicated upon an ever more insolvent corporate Ponzi scheme.

Disinformation spread unchecked over social media. Conspiracy theories abounded as to why the U.S. and the world were collapsing. It had to be a plan by the elites to take over the world. General IQ had collapsed due to a failed education system and a profoundly lazy population addicted to sports and entertainment. Into this rife environment stepped a well known con man viewed as a saviour from the encroachment of reality. Trump embodied all of the deficiencies of the age: corrupt, cynical, ignorant, crass, and deceptive to the core. If it hadn't been him, it would have been anyone else with the same qualifications. He was skilled at understanding fear and how to manage a gullible populace.

His approach was historically familiar - figure out what the desperate populace wants to hear and work backwards to the message. Place all blame on minorities and foreigners. Create an us versus them paranoid mentality. Lie constantly. 

On the other side of the political spectrum, there was no capable response. Left versus right had become far more important than right versus wrong. The narrow stipulations of corporate politics required that the structural problems of the day remained off the table. What was left were short term gimmicks and false promises.

The corporate media were arguably the most responsible for propagating society's problems. What once had been a reliable source of news had been displaced by a 24 hour chat room of like minded mannequins. Each side of the political spectrum pandering to their own base of brainwashed subscribers.

The other source of problems was the university system which was churning out mindless clones on an industrial scale. At an exorbitant cost. The college degree had morphed from a higher education into an obligatory entrance pass to the corporate country club. Except not all degrees were created equal - most were merely low value facsimiles that guaranteed a lifetime of penury. Out of this system of bypassed higher education, emerged a sociopathic leadership class focused solely upon who you know, not what you know. Having the sole goal in life to control the rest of the population to their own ends. It was all just social stratification in the Third World tradition. 

When the global pandemic struck it was merely the last straw that broke the camel's back. The warning signs had been evident for years and decades. Nevertheless, the lying went into overdrive. The monetary euthanasia went into overdrive. The bubbles went parabolic. And the stoned populace never once questioned "the system" to its last day.

Mother Nature had won. Thank God.

The Age Of The Con Man Is Ending. Badly.

In the same month we learned via Bob Woodward's new book Rage, how much Trump intentionally lied about the virus, Trump gets the virus. That's biblical...

Feb. 7th, 2020: Woodward private interview

"'Pretty amazing. This is more deadly than the flu, maybe five times more so. This is deadly stuff' Trump repeated."

Feb. 20th, 2020: Public press Briefing

"'This is a flu, this is like a regular flu we have flu shots for. And we we'll have a flu shot in a fairly quick manner"

The greater power struck Denialist Donny with the COVID at the worst possible time. The alt-right media is trying to play it down as a mild case, however, the symptoms are always mild at the beginning. If Trump was asymptomatic - which is what these fake pandemic experts are believing - he wouldn't have any symptoms at all. Time will tell if the all Twinkie and Coke diet conveys special healing powers upon the rotund grotesque. If so, the CDC may have to reverse their recovery guidelines from healthy diet and exercise to frankenfood and inertia. Here I had always believed that the Anti-Christ was immune from viruses. Of course this momentous event just caps off four years of non-stop circus spectacle and rampant denial. We will miss this historically ill-fated gong show when it's over, like a convalescent misses bad cancer. At this latent juncture what passes for exceptionalism is monetary euthanasia administered to an aged populace of addicted casino gamblers. While the entire world implodes in real time. 

Still, there is no indication yet that this "Black Swan" event has moved McConnell any closer to a deal. Last night the House Democrats passed a partisan stimulus bill, which leaves Pelosi and McConnell a mere order of magnitude apart: $2.2t versus $300 billion. And yet every rally is attended by the headline that a deal is imminent. 

To paraphrase Jim Cramer this morning, Republicans have circle jerked themselves into the belief that this is a v-shaped recovery and hence no additional stimulus is needed. Especially the kind that falls into enemy hands. Meanwhile, today's jobs report was an abysmal miss, overshadowed by Donny's quarantine. Also this week, word of mass layoffs at major airlines, Walt Disney, Allstate and several other major companies. It appears that quarterly profits can no longer wait for the make-believe v-shaped recovery to never appear. Hence this abysmal jobs report was likely the best we will be seeing for a long time. On the delusional belief that they have the strong hand, Republicans are playing Russian Roulette with a fully loaded gun.

What it all points to is a momentous crash right in front of the election. What we are seeing in Trump Casino is eerily similar to the beginning of September. An IPO led ramp into the end of month crossover. This time of course, instead of being first wave down in social mood, it's third wave down. Gamblers spent the entire month of September buying the dip, and now they will puke it all back into a bidless market in October.

Here we see the all important IPO market with a red candle on the second day of the month. Look familiar?

Wave 1 and 3 are one month apart:

Here is the longer-term version of the chart above.

What we are witnessing is a super cycle top in stocks that is taking a long time to complete - an entire month just for wave 2 - but will nevertheless end in deeply stained underwear. 

For those who trust known con men. 

 

The Grapes Of Wrath 2020

COVID ended Globalized capitalism. What remains now is nothing more than a gambling casino and a class of people wholly incapable of admitting that their exploitation scheme is over...

Their fatal blindspot is not giving a damn about the people who do the heavy lifting in the real economy. Too distracted by their zero sum Ponzi gains. A biblically fitting way for this all to end. 

The politics of this election become more rancid by the day. Driven by existential fear on both sides. The elephant in the room is America's exceptional wealth inequality that grew to 1929 levels under Trump, and has reached Banana Republican levels during COVID.

So far, unrest during the pandemic has been viewed mainly through a racial inequality lens. Which ironically is what has continued to allow the Casino class to ignore impending disaster. The layoffs to date have mostly impacted minorities in the low wage travel and leisure sectors. Furthermore, most wealthy people take their income from their assets, while most working people take their income from their jobs. This bifurcated inequality has grown lethal under the COVID lockdown and its associated central bank asset bubbles. 

Trump has skillfully tapped into the existential fear of "socialism", and he is using it to maximum advantage. However, ahead of the election, his economic recovery has been shut off by GOP resistance to any further middle class stimulus. The GOP is of the belief that blue states need stimulus far more than red states, so they are putting the national economy on freeze ahead of the election. In doing so, they are putting their entire "system" at risk, merely for perceived short-sighted political gain, all in the name of a fake set of "values". Why stop now?

America's mythological exceptionalism relative to the "socialist" nations has always been its free market economy. Now there are people such as Peter Schiff blaming this economic disaster on socialism. There has been no point in Schiff's entire life when U.S. worker pensions, healthcare benefits, and quality of jobs were lower than they are today. Throughout his entire life, workers have been systematically strip-mined of benefits to increase corporate profits and reduce corporate taxes. And yet he calls this entire process "socialism". He also labels central bank subsidization for the rich "socialism" because he wants to ignore this society's real addiction, which is insatiable greed. A diversionary tactic that works great on the GOP's stable of useful idiots. 

Which is where this all gets interesting.

Capitalism exploded in 2008 and was saved by global central banks. Not just in 2008 - continuously since then as well. It's never been off of life support. Japanification gone global. Japanification refers to an aging society that is incapable of accepting any form of change, and is dependent upon ever greater stimulus gimmicks. These serial monetary bailouts, Trump's profligate tax cut, and the COVID collapse have put the entire capitalist system at dire risk of collapse. And yet somehow the Casino class is STILL blithely ignorant to risk ahead of an existential election.

In summary, all of the GOP's exceptional lies are coming to a head at the worst possible time. When Go Daddy rolls over for the last time, I predict a substantial increase in societal acrimony and with it a substantial increase in con men criminals behind bars. I'm not saying Peter Schiff, but people just like him who spin lies to their own advantage. Too many people in this society now believe they are Donald Trump and can tell any self-interested lie and get away with it. Cheating on your wives and taxes, no big deal. There were no prosecutions emanating from the subprime collapse in 2008, which is why we are now overrun by scam artists.

Nevertheless, when the last Trump Casino implodes, it's at that time when the value of thinking for oneself and accepting facts and data at face value will finally provide their return on investment. For the rest who rely solely upon con men and fairy tales there will be only anger and mass confusion.