The Fiscal Cliff

The stock market has now priced in a level of stimulus that will only take place if the stock market crashes...

An event that has now become self-fulfilling:

"CNBC’s Jim Cramer said Tuesday that some of the stock gains in the market are “insane,” with investors recently buying certain names from Tesla to Royal Caribbean seemingly without regard for fundamentals or the state of the coronavirus pandemic and holding onto them."

Cramer questioned how this type of buying can continue, pointing out that in the past such speculation has been met with a big sell-off"

Imagine if every other generation in U.S. history had childishly decided that they never wanted the cycle to end and never go through recession, so what they did was borrow and print unlimited amounts of money. What would have happened? First off, over-stimulated investors would have had no clue when the actual cycle was ending, because the insane amount of stimulus would give the illusion of false recovery. Which is what we are seeing right now. Secondly, on a longer term basis the country would go bankrupt and the dollar would go to zero. An event which this year took a gargantuan step towards inevitable.

Due to the massive COVID stimulus, gamblers don't know where we are in the cycle, which is why they are going ALL IN at the end of the longest cycle in U.S. history:

Which has driven the largest parabolic rally at an all time high, during a pandemic depression:

Today we got an update on Q3 GDP through September, which showed the largest one quarter increase in U.S. history. Following the largest one quarter decrease in U.S. history. All economists and pundits are of the mind that the worst is over and the recovery is well underway. Investors are sniffing the same glue and bidding up cyclicals to asinine levels. Having lagged all year until the election, the equal weight S&P 500 is now record overbought:

Whether they know it or not (clearly they don't), gamblers are now implicitly betting that the record stimulus that was brought to bear in 2020 will be repeated in 2021. Because without that level of fiscal (monetary) support, the economy will crash at the end December when the stimulus runs out. 

Here we see annualized GDP showing the net impact of the gargantuan 2020 stimulus. The red stimulus is the $2 trillion Cares act (and a few smaller bills) passed back in March:

The employment-population ratio is now at the lowest level in modern history. Back at levels not seen since women joined the workforce en masse:

Not only do these over-lubricated gamblers need to cross COVID death valley to get to their promised land next year, they also have to pray that the political tone in Washington improves, and pray that the grim reaper of corporate insolvency does not pay their favourite companies a visit in the meantime. 

Sadly for them, the Cares Act passed in March which was uncharacteristically generous for the GOP, was intended merely to rig the election for McDonald Trump. However, now the GOP is in no mood to bolster Joe Biden's collapsing economy. Which is why political rancor and GOP intransigence will be what collapses the economy and markets.

“If you told me in January, your distribution is going to increase 145% and you’ll be reaching 900,000 people per month by the fall, I would have said, ‘I don’t think so,’” Flood said.

“But that’s what’s happened.”

“We’re fearful that a lot of folks are going will lose a significant part of their support if Congress doesn’t act to extend them or do something,”

In summary, most people are of the mind that the worst is over. However, the inconvenient truth is that the worst hasn't even started. Yet.

The largest rallies are always in bear markets. 

Black Friday Coming Up

The iron clad rule of bubbles is that they only become obvious to those throwing their money at them, when they explode spectacularly. This largest and most popular bubble in human history is no exception...

Black Friday is the day historically when U.S. retailers finally turn a profit for the year. For retailers the Christmas season is crucial to profitability. Which is why this massive COVID spike is catastrophic for brick and mortar retailers. And yet these are the stocks that have been leading this end-of-cycle short-covering mania.

After hours on Tuesday, Gap reported worse than "expected" collapsed earnings:

"The San Francisco-based retailer reported a net income of $95 million, or 25 cents per share, for the three months ended Oct. 31, down from a profit of $140 million, or 37 cents per share, a year earlier"

Profit is down -33% year over year. The stock is up 60% year over year. Meanwhile, COVID hospitalizations (lower pane) reached 88,000 today. This one stock shows everything that's fucked up in Disney markets. Nevertheless, it's clear that capitulating bears are fueling this last phase of the melt-up.

Let's say that a large number of Americans ignore the CDC recommendations and decide to stack and pack themselves into airports and homes this week, as is occurring at this very moment. Then, that will bring about the "stunning number of deaths" Dr. Fauci is now predicting:

That will bring a super spike in COVID on top of the parabolic increase we are seeing now. We will know the full result about two weeks from now, which is peak shopping season.

So what to do, shoppers will of course just switch to online, which they seem to prefer now anyways. The only problem is that the vaccine distribution is gearing up in December:

"FedEx and United Parcel Service could make space for those shipments on cargo planes by bumping off packages from Amazon.com, Walmart, Target and other retailers."

In other words the online retail bubble is about to get imploded by global vaccine distribution. Where will consumers get all their junk for presents this year? I have no idea, maybe their own basement, there is plenty of junk down there. 

Moving right along...

On a weekly basis small cap value stocks are now record overbought:

One of my predictions is already coming true. And yes I have a position in this asset class, and it's not long.

The overthrow of the 2011 all time gold high was a headfake. A bull trap that was attended by record gold ETF inflows during 2020. The gold volatility index is in the lower pane. If this is record inflows, imagine what record outflows will look like:

Moving on to the other invisible bubbles. None is larger than the green energy ESG movement. This week we are seeing massive volume as that bubble goes supernova:

On the topic of overnight holiday risk, Emerging Markets have now reached the same level of overbought that attended VixPlosion 2018:

The almighty Dow finally reached 30k today. An event that Trump called "sacred" in a bizarre one minute press conference to celebrate human history's biggest bubble. Who would know better than the Anti-Christ?

“The stock market’s just broken 30,000 — never been broken, that number. That’s a sacred number, 30,000, and nobody thought they’d ever see it,” Trump said."

All it took was the largest combined stimulus in human history. Next time they should just hand out the money instead. Would take a fraction of the time. 

Trump is now officially an illegal squatter in the White House. And why not, he is getting free food, free limos, free plane rides, free golf, all paid for by American tax payers. He loves his reality TV show and he doesn't want it to end. Trump's golfing alone has cost taxpayers $140 million. Yes, you read that right.  

"President Donald Trump has played golf or visited one of his 17 owned-or-operated golf properties on approximately 22 percent of the days he has been in office, dating back to Jan. 20, 2017"

Trump's golf rounds cost the American taxpayer approximately $600,000 on average."

Nevertheless, Trump's own eviction moratorium ceases December 31st, which means he is about to get the same treatment he has imposed on millions of Americans. 

He is right about one thing: 

   

A Manic Depression aka. Buyer Beware

Morons are buying up stocks in a global economic depression. Because no one told them it was a bad idea. For today's bailout junkies, monetary euthanasia was better than facing reality...

Everything these Disney people believe is a lethal fabrication designed to enrich corporations. Until these people graduate from high school and stop emulating what every other dumbfuck is doing, nothing will change. They are trapped in a groupthink Borg of like-minded dunces, because everyone knows there is strength in numbers. 

https://money.cnn.com/data/fear-and-greed/

Which gives us a very clear wave count:

What we are witnessing right now is the full extent of Wall Street's criminality. They are luring fools into epic risk during a worsening economic depression. As gamblers bid up their own stocks they are giving themselves the false impression of a recovery, as evidenced by the melt-up in cyclical stocks. 

It speaks to the alchemy of economics that if the economy collapsed to zero and then started growing again from a zero baseline, economists would say the recession was over. Which is where we find ourselves now:

Economists are ignoring the decimation of small business and jobs in order to claim that the economy is in standard recovery mode. When nothing could be further from the truth.

Unemployment today is still worse than at any point during the 2009 Great Recession: 

When Trump de-regulated Wall Street, this endgame criminality became inevitable:

It should come as no surprise that Wall Street brokers are skyrocketing to all time highs amid this record deception:

I started watching the documentary The Social Dilemma on Netflix which discusses the deleterious effects of social media on society.

As someone who spent 25 years in the IT industry, I was neither shocked nor amazed at the gimmicks these mega Tech companies use to entice users. We used to call it the technology "hype cycle". Meaning every few years a new technology comes along that promises to change the world for the better. Only to find out it's merely a step modification from something we had already been doing. 

In the case of social media, the user became the product, and the advertiser became the customer. Addicted users willingly pour their entire lives into the master control system in order to get signed up to the Borg. A process that is a step function away from the old fashioned boob tube and childhood brainwashing to eat sugar cereals. The Tech geeks who described this "dilemma" were all very earnest and concerned. Imagine if a bunch of Philip Morris employees had banded together to explain how tobacco companies were surreptitiously seeking to addict smokers. Or if McDonald's employees came out and warned of the perils of junk food. Years ago we were told that marijuana is the gateway to heroin. Come to find out the local pharmacy is the gateway to heroin, except their version is much cheaper and kills far more people. These concerned geeks think this is all something new, when it's as old as the hills. Corporations have been killing people for decades. It's the American way. 

In many ways social media merely perfected the model of micro-targeting advertising to a gullible society. Our entire lives are now controlled by corporations. On the way to warning us incessantly over the perils of big government, conservatives gladly sold their souls to mega corporations. Which is why any change to the model would be "socialism".

Using data from the Fed database, I constructed this model showing labor share of U.S. GDP versus profits as % of GDP. As we see, labor share of the economy has been falling for fifty years straight, since 1970. That occurred despite the massive increase in women in the workforce. We also see that profits shot up twice - after 9/11 and again after the global financial crisis:

By far the biggest addiction this society has is to denial and ignorance. These people think they can spend their entire lives watching sports and entertainment while the world implodes all around them. They believe that the political duopoly actually represents their interests, when it has been bought and sold by corporate interests. 

The bottom line is that this brain dead Borg needs to wake the fuck up and start seeing the world for how it really is rather than how they like to see it on Netflix or CNN or Faux News. 

Or, just keep taking the easy way out.

For these comfort seekers, monetary heroin overdose at the hands of known psychopaths was inevitable.

MAGA: License To Explode

It's fitting that human history's biggest circle jerk is ending amid biblical denial...

Many people are now comparing Trump to a cult leader, fearing that his following will continue after he leaves office. They need not fear, because Trump is the Jim Jones of presidents, which means his following will not be intact by the time he gets escorted out of the building by his own fractured party. Nixon style...

"Who's next?"

"Bernie Madoff, Gary Busey, Charles Manson"

"Flawed individuals, but they share our values"

Club Orlov: License To Kill

"As the endgame approaches, those still nominally in charge of the collapsing empire resort to all sorts of desperate measures—all except one: they will refuse to ever consider the fact that their imperial superpower is at an end, and that they should change their ways accordingly"

MAGA was the definition of desperation. From the beginning, the MAGA movement was a late stage fairy tale of denial. Going back to 2016 we had the shock Brexit vote in the summer followed by the shock Trump election in November. Nationalism was on the rise globally. What ensued of course was tax cut and de-regulatory insanity that kept the longest cycle in history going for another four years. 2017 saw a massive capital rotation to cyclicals which ginned markets up to the February 2018 crash. Then 2018 saw the largest one-time tax repatriation in U.S. history which ginned markets up to the October 2018 crash. By 2019 deflation had returned with a vengeance, so the Fed ginned markets up to the February 2020 crash. Starting in 2019, net of the chasmic deficit, the economy was already in recession pre-Covid. So it all makes perfect "sense" that this COVID Ponzi bubble is attended by a lethal overdose of combined fiscal and monetary heroin.

I have said many times that this super bubble is what prevents the GOP from passing additional stimulus. Why? Because THEIR economy is doing just fine according to the Dow Jones Industrial Average. Ironically, it's this myopia that will be their final undoing. Over the past 24 hours we've been getting conflicting headlines stating that Biden would cave to McConnell's pressure and agree to pass a mini stimulus before the end of the year. This is the headline that gave the casino a large blastoff Monday morning:

"Advisers to President-elect Joseph R. Biden Jr. are planning for the increasing likelihood that the United States economy is headed for a “double-dip” recession early next year. They are pushing for Democratic leaders in Congress to reach a quick stimulus deal with Senate Republicans, even if it falls short of the larger package Democrats have been seeking"

Several Republicans have expressed wariness about spending much more, revisiting concerns about the national debt and insisting that the economy is improving"

Democrats have rejected multiple Senate Republican proposals — the latest at about $500 billion — as insufficient...Mr. Zandi said that such a package “maybe barely gets you through to a vaccine” but risks running out when the economy still needs help.

Monday morning the market ignored the part about recession and focused instead on the prospects for an insufficient mini deal.

Next we got this conflicting headline Monday morning:

"President-elect Joe Biden's transition team on Monday pushed back on a report that he would favor a quicker economic relief deal, even if it meant ceding ground on some Democratic demands"

Here is my take on this lethal brinkmanship:

First off, Republicans have just newly re-discovered fiscal propriety having lost all fiscal continence over the past four years. We've seen this movie many times before - deficits are only bad when Democrats are in office. Bailouts are only bad for people who are starving, as opposed to billionaires. We are seeing their true stripes emerge once again. 

There are now three potential near-term stimulus outcomes prior to inauguration:

No deal, which is arguably most likely.

Secondly, some sort of mini deal which will be wholly inadequate.

Or three the Pelosi bill which is the amount that is needed, and  is least likely to occur.

In other words, a double dip recession is now the by far the most likely outcome, even if some mini deal is passed. 

Given that a double dip recession just became the most likely scenario, why are cyclical stocks making new all time parabolic highs today? It's because as we've seen throughout the entire MAGA delusion, markets will believe the Republican fantasy narrative no matter how delusional or denialistic it may be. It's groupthink on steroids. And if you listen to the people who propagate it, it's always the "Goldilocks" scenario. Not too hot and not too cold. The MAGA fairy tale was always doomed to end amid lethal denial. And we are now watching it happen. In real-time.

No wonder Trump Country doesn't like Fox News anymore. Now that Biden got elected, Fox News finally discovered the truth. So it's time to find a new source of fantasy:

"A vaccine is likely to be available to frontline health care and other essential workers and at-risk populations by the spring and to everyone else in the second half of 2021, giving a “meaningful support to growth” by the middle of the year"

In summary, it's very appropriate that a massive fairy tale end at the height of fantasy:

A Ponzi Pandemic

All of the Jedi Mind tricks and gimmicks that central banks have honed over the past decade were brought to bear to give this illusion of a pandemic recovery. They were aided and abetted by a gullible populace who will believe anything and anyone, including McDonald Trump. When the MAGA bubble final explodes, all that will be left of "greatness" are the dregs of corruption...

Speaking of which, yesterday Trump was too busy golfing to attend the G20 discussion over how to contain the skyrocketing pandemic. It's only a matter of time before he starts bragging about his world's greatest body count:

"Donald Trump skipped the G20 summit’s “Pandemic Preparedness” event to visit one of his golf clubs on the same day that a record 195,500 new Covid-19 infections were reported in a 24-hour period in the United States, according to Johns Hopkins.

The summit, attended by world leaders from across the globe, is being held virtually this year because of the Covid-19 pandemic, which has now killed more than 250,000 Americans – by far the largest total in the world."

Getting back to Ponzi markets, Elliott Wave Theory posits that social mood - greed and fear - drives the stock market. According to that model, "fundamentals" - revenue, earnings, the economy, are the byproduct of investment and consumer sentiment. However, in this unprecedented cycle, global central banks have been actively managing social mood via massive injections of liquidity. Whenever markets are sagging, they inject more liquidity. So it should come as no surprise that markets are now record diverging from the underlying economy in way that we've never seen before.

Coming into the COVID pandemic, global markets were skyrocketing due to the Fed liquidity injections to manage the 2019 Repo crisis, caused by Trump's tax cut mega deficit. The Fed was monetizing a trillion dollar deficit. And the PBOC was easing massively due to the COVID outbreak. Nevertheless, out of "nowhere" markets crashed in late February 2020. 

Subsequently there began a manic rotation out of cyclical stocks into technology stocks, viewed as safe havens from the virus lockdown orders. One can view this rotation as the blowoff top in the post-2008 Technology bubble. Led by semiconductors, which have continued to power to new highs while the Nasdaq 100 peaked almost three months ago in early September:

As the year drew to a close, concerns over the election, the virus, and the lack of fiscal stimulus began to weigh on markets again.  However, central banks kept the liquidity flowing to keep markets from collapsing. Post-election, Biden's victory combined with news of an effective vaccine trial caused a massive rotation to cyclicals. Markets were beginning to price in the end of the COVID pandemic. While pricing in none of the after-effects of a record debt binge coming at the end of a decade-long debt binge.

"A new cycle has begun!"

Corporate debt, annual $ change:

A familiar story we were told at the end of the last cycle. 

All of which explains how the longest cycle in U.S. history has never ended. A virtual economy Tech bubble and unfathomable borrowing bridged the gap between COVID economic implosion and a non-existent economy now entirely dependent upon fiscal stimulus. Now, fiscal stimulus IS the economy.

The only price to pay was millions of jobs, the entire small business sector, record corporate debt, and record Federal debt which exploded +30% in one year. This is the fantasy that abides Disney markets at this latent juncture. Now, the Tech bubble is stalling out as money rotates into the cyclical sectors. Meanwhile, the economy is beginning to roll over again, as fiscal stimulus crashes. 

What's been missing in this entire cycle - thanks to central banks - is any sense of fear towards asinine risk-taking in markets. Which is why the lowest quality stocks have continued to outperform the best quality stocks. Led by junk IPOs, many of which are profitless.

Central banks have rewarded stupidity and excess greed, on a scale never before witnessed in human history.

Bitcoin is the ultimate Ponzi asset of this era, and hence the ultimate indicator of global social mood.

As Bitcoin re-approaches its December 2017 high of $20k, we are once again entreated to the same bullshit about Bitcoin going to infinity. Recall three years ago, Jimmy Altucher predicted Bitcoin going to $1 million. That was the all time high:

Nov. 29, 2017:

Yesterday's headline via Bloomberg:

"Bitcoin mania is back and with it, the return of sky-high predictions from celebrity crypto fund managers to Wall Street stalwarts of where it can go next."

The entire crypto space would be the largest pump and dump of this entire era if it weren't for the S&P 500, which is far and away human history's biggest Ponzi scheme.

History will say that the liberal media had propagated the lie of Globalization for far too long. And into that largest of all time lies walked a well known con man, telling an infinite number of smaller lies. Were it not Trump, it would be someone else pre-disposed to continuous lying. However, like Madoff in 2008, Trump is merely a symptom of a morally compromised society. Note how Bloomberg can spot the Bitcoin bubble with ease, while completely ignoring the stock market bubble which is the entire source of their revenue.

All of which is why in 2008, regulators jailed the pissant Madoff while bailing out the people who crashed the global financial system.

Because the regulators themselves were infinitely corrupt, and part of the overall Ponzi scheme. 

Nevertheless, those who believe that there is a happy ending to this story of epic greed and corruption, are in for the surprise of an entire lifetime. Because just as night follows day, so too fear follows greed.

Contrary to ubiquitous belief, printed money is not the secret to effortless wealth. However, it can serve to delay and amplify the magnitude of the bubble, until such time as the inevitable crash becomes entirely uncontrollable.

Survival Of The Fittest

The cult of McDonald Trump is reaching a suicidal zenith, as we enter COVID winter. The Kool-Aid is flowing like a river. The GOP will forever be remembered for their infinite ability to exploit their own base of useful idiots. In the fullness of time, COVID will sequester more carbon than any climate conference ever imagined...

As fate would have it, the three biggest superspreader events of 2020 all fall during the last two months of the year. Heading into the darkest depths of winter: The election, Thanksgiving, and Christmas. In Trump country, all of the mitigating steps taken at the beginning of the virus have all been abandoned in favor of conspiracy theories as COVID cases, hospitalizations, and deaths skyrocket. Which can only mean one thing. 

RISK ON.

Back in February when the pandemic was just getting started there was a White House task force, a massive Federal stimulus program, a national lockdown order, and widespread concern over the virus. Now, entering the worst part of the pandemic we have none of that. Trump is preoccupied with subverting democracy, and this week Mnuchin rescinded the remaining stimulus money. A petulant political move that will be catastrophic for the economy:

"Treasury Secretary Steven Mnuchin on Thursday said he would not extend most of the emergency lending programs run in tandem with the Federal Reserve, a move the central bank immediately criticized, citing the fragile recovery."

All indications at this juncture suggest that the toxic politics of this era will prevent any major new stimulus bill from getting passed prior to inauguration. We can thank the stock market super bubble for convincing the Casino Class that any further stimulus is unnecessary. Which has been McConnell's stance for months. Clearly it will take a massive stock market crash for GOP criminals to take notice of the collapsed real economy and the imploded middle class.

At this point calling these fiscal programs "stimulus" is entirely inaccurate. That terminology gives the misleading impression that the economy is recovering and just needs a bit of a boost to continue. At this point, given the collapse in employment and skyrocketing pandemic, fiscal spending is now LIFE SUPPORT for the economy. Without new massive fiscal injection, the economy will collapse.

Amid this new pandemic surge, no surprise new jobless claims are rising again. And bond yields are imploding, as expected.

This is the part where bond shorts get annihilated. Again.

This week, compliments of Tesla's addition to the S&P 500, the clean energy trade went late stage parabolic. The clean energy bubble has eclipsed the wholesale collapse in the oil and gas sector:

Also this week, the Rydex Bullish/Bearish asset ratio reached a new all time record high:

Thanksgiving is the biggest travel week of the entire year. The CDC is urging people not to travel during the holidays, so the morons on Fox News today were mocking the CDC warning. Which is why fifty million people are still expected to travel during Thanksgiving. All of which will make this week the biggest superspreader event of the year.

In summary, the medical profession has learned a lot about this virus over the past year. They've clearly figured out how to reduce the fatality rate relative to the number of cases. However, one thing they haven't learned is how to prevent morons from being morons.

Which leaves that job to natural selection.