All Aboard Super Cycle Con Job

Three years ago when the tax cut was passed we were told that 2018 would be a booming year for the economy. Of course it was all a massive lie. This last lie the sheeple bought with both hands will be of far greater magnitude and consequence, as it completes the super cycle top...

Jan. 26, 2018:

Dec. 1, 2020

When the tax cut came into effect in February 2018, the market peaked and  crashed. I think we all see where I'm going with this - This latest glue sniffing rally is on borrowed time and money. 

History will say that the tax cut rally was the left shoulder and the vaccine was the right shoulder of a head and shoulders top. 

Central banks have created epic distortions in financial markets by bidding up junk and insolvent assets to unsustainable valuations. Banks give a clearer picture of the underlying economy. Here we see that U.S. growth peaked in 2018 and from that point forward this has been a stimulus driven con job:

The junkiest stocks are now leading the rally while quality has been rolling over for months:

This is the point at which growth and cyclicals roll over at the same time. 

The total call/put option ratio has called every crash and correction for the past two years:

FOMC: Fear Of Missing Crash

When rampant stupidity is the order of the day, there is no "warning" when it's about to end. Unlike most of today's prognosticators, I am not expecting a happily ever after to this widely believed fairy tale...

If you are wondering why we are surrounded by dumbfucks, it's because central banks have been rewarding dumb money for over a decade straight. Gamblers are now convinced that being an idiot is a key prerequisite to making money in markets. Bidding up stocks to record valuations during a pandemic depression just happens to be their latest gambit. I predict a Darwinian outcome to this experiment in rewarding extreme gullibility:

mor·al haz·ard

"lack of incentive to guard against risk where one is protected from its consequences"

This (below) is the popular sentiment on Wall Street today: The "fundamentals" of printed money are driving the market higher:

"The market already had its Santa Claus rally...But it just keeps going up anyways, and no matter how much you try to look at it fundamentally, I think the fact is there is so much liquidity with interest rates so low driving the market higher."

"There are a lot of people who have been left behind...Either they lost their jobs and now are being threatened with possibly losing their unemployment insurance. And then, of course, there are a lot of businesses who barely survived the first and second waves of this pandemic."

Here is another one:

"Canaccord Genuity’s Tony Dwyer is on correction watch due to frothiness in the market. But he isn’t rolling back his overall bull case for stocks. Rather, he’s strengthening it by boosting his EPS or earnings per share targets for this year and next"

”We’re in a pandemic marketplace. We’ve got an infinity Fed"

“You want to attack the weakness instead of fear it"

Yardeni and Dwyer exhibit the type of artificial intelligence that is ubiquitous in this era. This belief that central banks can inflate epic bubbles in an economic depression and then keep them from exploding. The Chinese and Japanese have already learned that this is a fool's errand of the highest order. Nevertheless that hasn't stopped those countries from trying it over and over again, each time expecting a different result. The definition of insanity.

Here is where it gets interesting. The first half of 2020 finished with the strongest quarter since 1987. And the past month of November was the best single month for U.S. stocks since 1987.

Meanwhile, the last time the cyclicals rolled over hard from record overbought was the week of June 8th, which also happened to be an FOMC meeting week (9th, 10th). You don't have to be a genius to realize that a garden variety pullback to the 200 day moving average is now a bear market away:

Looking at parabolic Tech stocks we see the same problem:

Due to central bank alchemy, the dumb money has decided that all they need to do is read the headlines and then buy what every other idiot is buying. That is called a Ponzi scheme. And when the last fool is found, it collapses with extreme dislocation.

For example bidding up Biotechs all the way up to the release of a novel vaccine. If investing was only as easy as reading headlines and throwing money at the exact same crowded trades as everyone else, we would ALL be rich by now. A lesson every generation has to learn the hard way. And some generations have to learn over and over again.

Given this post-election melt-up, the most likely scenario into year end is extreme global market dislocation while central banksters stand around with their dicks in their hands. And then we will see mass panic and a loss of faith in Disney markets. When the public, central banks, and politicians all panic, then that will set up a tradeable 1930-style buying opportunity, especially when the idiots in Washington watching their fake wealth collapse like a cheap tent, get the stimulus back on track.

Sadly, the lesson these people are all about to learn the hardest way possible is that you can't trust a market that rewards rampant idiocy.

 

THIS WEEK IN MAXIMUM RISK EXPOSURE

Mass poverty, mass evictions, no stimulus, no Brexit deal, a 9/11 in COVID deaths every day - good times. This week, gamblers onboarded record speculative exposure in the face of record risk. What comes next will test my hypothesis that these Disney markets can no longer handle RISK OFF.

Any questions?

What any true Idiocracy would do in a pandemic: rush into a monetary fueled asset bubble in stocks benefiting the most from economic obliteration. And then panic buy those same stocks vertically into the vaccine distribution. The virtual economy ended the week at record overbought (top pane) and on record volume (lower pane). The three prior instances at this level of overbought led to two week pullbacks.

This week in record overvalued Virtual Economy issuance can be summarized thusly: 

Profitless Biotechs led this week's manic rush into risk as vaccine fever reached a fevered pitch. 

"The Food and Drug Administration authorized Pfizer’s Covid-19 vaccine for emergency use on Friday, clearing the way for millions of highly vulnerable people to begin receiving the vaccine within days"

"When is the best time to buy these stocks"

"Wait until they start shipping the vaccine"

Continuing uncertainty over stimulus weighed on cyclicals this week. What gamblers seem to forget is that cyclicals rallied INTO the TARP bailout, and when it passed, they final exploded. Which means deal or no deal, the result will be the same. 

"Congressional leaders are barely talking. Renegade centrists are trying to cut a deal that Republicans don’t like. And the president is predominantly focused on overturning an election that he lost"

“Maybe we don’t have enough people in here who have ever been poor”

Indeed. That will change. 

Global gamblers are sanguine in the face of a redux of June 2016 when gamblers were sanguine in the face of the original Brexit clusterfuck. 

"Currency traders who once assumed a deal would be completed before a Brexit transition period ends on January 1 will be nervously watching events over the next 72 hours after British Prime Minister Boris Johnson warned late Thursday that the "deal on the table" was not "right" for the United Kingdom."

"Yes there are insane risks, but we have printed money!!!"

2020 Year Of Living Dangerously

This year the U.S. finalized its long sought transformation into de facto Third World nation, complete with a tinpot dictator who won't leave office. Amid the worst health crisis in modern U.S. history, we are led by a death cult leader who makes Jim Jones seem benevolent by comparison...

We now know who "won" this year, and it wasn't Democrats or Republicans, it was Mother Nature who monkey hammered denialists with biblical wrath. And her worst punishment is still to come.

"Global greenhouse gas emissions plunged by roughly 2.4 billion tons this year, a 7% drop from 2019 and the largest decline on record"

Extreme wealth inequality, exploding poverty, oblivious elites, rampant fraud, debased currency, moral collapse, mass brainwashing, what's not to like? 2020 accelerated America's inexorable decline into Third World status. The election revealed that almost half the country is an illiterate Idiocracy that now believes Faux News is too liberal. They're moving full time to the Conspiracy Channel.

Trump is now a full fledged death cult leader. In the two weeks since Thanksgiving, the death rate has risen 200%. For the past two days, the U.S. daily death count has exceeded 3,000, which is a 9/11 of COVID death each day. 

In the Third World tradition, the U.S. response to this pandemic has been the least competent in the entire developed world. And the incompetence keeps on coming. This week we learned that the U.S. didn't order nearly enough doses:

"Before Pfizer’s coronavirus vaccine was proved highly successful in clinical trials last month, the company offered the Trump administration the chance to lock in supplies beyond the 100 million doses the pharmaceutical maker agreed to sell months ago. But the administration, never made the deal, a choice that now raises questions about whether the United States allowed other countries to take its place in line."

Yes, they did allow other countries to take their place in line. One hundred million doses is only enough for 50 million people which is a mere 15% of the U.S. population. 

Throughout this crisis, the general response among Republican leaders has been to ignore the pandemic, while Democrat leaders have generally ignored the economy. This uniquely incompetent approach was the worst of all possible outcomes - an out of control pandemic and a blighted economy. For their part, Republicans merely confirmed that they don't give a damn about the rest of society. And Democrat leaders confirmed that they have zero understanding of economics. And why should they understand economics, when today's economists are of the belief that the economy consists of a Fed balance sheet and serial asset bubbles? 

This week, the wife of the (second) richest man in the world admitted that their pandemic strategy didn't include any consideration for economic dislocation:

"In a wide-ranging interview in the New York Times, Melinda Gates made the following remarkable statement: “What did surprise us is we hadn’t really thought through the economic impacts.” 

"...as if economics is somehow a peripheral concern to the rest of human life and public health"

The economic benefits of the pandemic are crystal clear, the Technology billionaires got FAR richer, at the expense of everyone else. Merely accelerating a four decade trend. However, I don't consider greed to be a conspiracy per se. It's more of a fundamental American value, and I find it rich that a right wing think tank such as the American Institute of Economic Research would question Gates' motives, when they have been advocates of opportunism for decades.

This most lethal phase of the pandemic promises to showcase all of this incompetence at the same time, both on the economy and the health crisis. Not only is the virus exploding out of control, but Federal policy-makers have held back stimulus even as individual state and localities now go back into self-imposed lockdown mode. In the spring where there was the $2.2t Cares act, paycheck protection loans, and several other small business supports, now there is nothing. This is suicidal for small business and the newly re-unemployed. 

"McConnell’s refusal to authorize further government spending in the midst of this crisis has had — and will continue to have — deadly consequences. 

To quote veteran activist Ralph Nader, McConnell is “a corporation masquerading as a human being.”

Clearly the U.S. can scarcely manage itself much less pretend to be the "leader of the free world". Trump's four year reality TV show made that clear in spades. Therefore, it's long overdue to bring the troops back from 140 countries and deploy the freed up resources to save THIS country while there is still something left to save. 

Amid all of this Third World mismanagement, the stock market merely functions as an exorbitant casino to preoccupy the masses while they get bilked out of their life savings. 

"Both strategists attributed some of that euphoria to the near-zero interest rates expected to stay put over the next three years. The Federal Reserve's plan to hold rates at record lows leaves investors with fewer places to put their money"

 

Ironically, it's depressionary interest rates that has lulled investors into the false belief that valuations no longer matter. Which is how this was always going to end. The sheeple have been told to buy stocks in anticipation of the recovery, so they are buying stocks at the apex of human history's largest bubble going into a massive depression.

In 1929, it took 25 years to break even. In COVID country, not everyone has that kind of time.

Virtual Economy Downgraded To Strong Crash

On Monday I wrote that it doesn't make sense to see the COVID-19 pandemic Tech stocks melting-up at the same time as cyclicals are pricing in the end of the pandemic. Today, JP Morgan downgraded the virtual economy to strong explosion...

In addition to Zoom video, JP Morgan downgraded Crowdstrike, Palo Alto Networks, Okta and several other virtual economy stocks. The analysts are comparing this period to late 2009 early 2010 when the growth stocks started lagging cyclicals:

"The upside potential in Zoom Video is likely limited going forward as mass vaccinations for the COVID-19 virus could put a dent in the firm's business, according to a Wednesday note from JPMorgan"

According to JPMorgan, the environment is ripe for a similar setup seen a decade ago, when the highest multiple stocks at the end of 2009 underperformed in the following year"

Zoom stock peaked over a month ago and is down -30% from its highs. In their most recent quarter, revenue grew 400% year over year, however as one would expect their growth rate has started to slow recently. One would have to be delusional to believe that post-pandemic this stock will continue growing at the pandemic-accelerated growth rate:

"While Zoom expects to keep reporting huge numbers next quarter, there are signs its period of immense and rapid growth is over"

 

This is what we are going to see from all of these pandemic "safe havens". They artificially benefited from the decimation of the real economy. And now, as the vaccine rolls out, these bubble stocks will implode. The pandemic was a one time surge in cannibalized growth.

Which gets us to today's Doordash IPO which finally opened for trading on Wednesday afternoon. The stock gapped up 80% to $182 ($60 billion market cap) at the open from their Tuesday pricing at $102 which was raised from last week's estimated IPO price of $75, which was twice what they priced at in June ($16 billion). Got that? Basically, this company that delivers food in a pandemic has increased 600% in value over the past six months.

This one stock is a poster child for the lethal economic and financial distortions created by this pandemic. While the real economy is imploding and restaurants are shutting down at a record rate, Wall Street accords insane valuations to the companies that are now feeding off the carcass of the real economy. 

"It took a global pandemic to drive the firm's one quarter (ended June 30, 2020) of GAAP profitability. The firm has not been profitable since, and we think it may never be"

The sad irony of this so-called business model is that these delivery apps which take up to a 30% commission are accelerating the demise of restaurants: 

“The fees are just too high. Restaurant profit margins are maybe 5% on average. Then to have a delivery service charge between 20% and 30% is just crazy. And the way they present themselves: ‘You’re going to get so many more orders.’ 1,000 orders at 30% off does not help.”

The new virtual economy is merely the cannibalization of the real economy now at a pandemic accelerated rate. So what to do, accord these stocks ridiculous valuations based on their pandemic-accelerated growth rates.

At least in the Dotcom era we could pretend that the growth rates were long-term. In 2000, we were told that Cisco would growth internet bandwidth revenue at a 30% growth rate for a decade and that the company would be worth trillions of dollars by the end of the decade. Unfortunately, ten years turned into ten months and by the end of December 2000, the party was over.

"Getting in was easy"

This is Wednesday 2pm:

Eager Accomplices To Record Fraud

What we've witnessed over the past decade is greater and greater economic fraud on behalf of an aging society desperate to believe anything except the truth. Now culminating in an end-of-cycle make-believe pandemic recovery, getting bought with record exuberance...

There are 17 trading days left in 2020. In the year of COVID, market manipulation is welcomed and expected, according to the bailout ideology of "Do whatever it takes". My job as a perma-skeptic of Disney markets is to point out where this could all go wrong.

In an aging society with a preference for return on capital over return on labor, whatever manipulates markets higher is welcomed. We've learned this for over a decade straight. What started out as a 2008 bailout turned into non-stop monetary intervention for a decade straight. Followed by a massive end-of-cycle tax cut which bombed in 2018 and then back to monetary bailout in 2019. Now in 2020, combined monetary and fiscal stimulus is over 30% of GDP. The only question on gamblers' minds for the past three months is when do they get more stimulus? Of course, this next bill theoretically coming down the pike, won't be stimulus, it will be life support for millions of people who otherwise will be mass evicted and impoverished at the end of December.

Over on Zerohedge, Wall Street pundits are predicting that the unprecedented level of options manipulation will continue to propel Disney markets higher into monthly options expiration (Dec. 18). Followed by an epic hangover crash thereafter:

"Weaponized short gamma" remains supportive"

Our SPX Sentiment gauge closed last night at 98.9 percentile since 2004"

Here we see active manager three week average positioning. What we note is that these overpaid money managers are not good market timers. They are trend following chimps:

Weaponized short gamma: You had me at hello.

What that means is that the record call options rented by speculators are forcing options market makers to buy the underlying stocks to remain "delta" hedged, meaning market neutral. Dealers buy the stock to offset their short call position. These escalating options rentals have been keeping the market bid all year. This week we are once again seeing record call/put volume:

As we see in the chart above we saw the exact same thing back in February albeit on a much smaller scale, and we know how that worked out, the market melted up into the February crash.

Good times:

February 26th, 2020:

Members of r/WSB believe they’ve discovered a kind of perpetual motion machine in the interplay of stocks with options contracts"

When did the market peak? It peaked the week BEFORE the above article was published. The week of Feb. 24th - 28th, was the most violent "correction" in the market history. Followed by a three day bounce and then super crash. 

What we've seen since the election is a melt-up on an even more ludicrous scale. The Santa Rally came a few weeks early. As far as the melt-up into opex theory, for that we can use June's quad witching melt-up as a potential reference:

Friday, June 5th, 2020:

“The trade into June 19 will be very ‘risk-on’ with stocks up led by economically sensitive cyclicals/beta/small caps"

What happened back in June? The market peaked on June 8th. Today happens to be December 8th.

Suffice to say, there is no guarantee this con job makes it to opex this time either.

Cramer said yesterday that all of these newbie pump and dump artists now represent the future for markets. Because they don't care about valuations and they don't care about fundamentals. They have been raised in the era of Ponzi markets and therefore they don't question them, having never seen a real bear market.

“We’ve got a massive group of individual investors who’ve become in many ways a more powerful collective force than the professionals, and they simply don’t care about the same things as the experts”

I predict that these newfound "experts" will be wiped off the map in this next market crash. And that will be the end of people who buy bankrupt companies while pretending to know more about investing than prior generations. And then what will Cramer say? "Booyah skidaddy!!!" 

I also predict that the vast majority of people will claim that no one saw it coming. Because in a greater fool's market, no one wants to be left behind.

The Virtual Economy Is Reaching Peak Delusion

Having been thoroughly conned by Central banks and Wall Street, it will come as a tremendous surprise to this artificial intelligence Borg, that there is no such thing as a virtual economy...

Recently I have been discussing the real economy and the deflationary impact of lockdowns, social distancing, travel bans, mass unemployment, small business decimation, and dwindling stimulus. However, throughout this eight month pandemic rally, both the virtual economy and economic cyclicals have been rallying in tandem. According to Wall Street we are to believe that the passing of the pandemic will not only benefit the most beaten down cyclicals, but it will also benefit the Cramer COVID-19 virtual economy index as well. Sadly, one of these two narratives has to be wrong. However, it speaks to the power of a central bank super bubble, that the Disney market remains fully unaccountable to the Wall Street fairy tale behind it. Because if we are to believe the cozy economic consensus for 2021, then the deflationary Tech bubble should be on the verge of explosion, having served the purpose of insulating the iPhone Borg from human contact throughout the pandemic. 

Today we will look at why I am calling this critical juncture peak virtual economy. I will go far out on a limb and say we are now witnessing a blow-off top in the stay at home super bubble.

First off, as we know the IPO frenzy is reaching manic proportions this week with the unicorn IPOs of Airbnb and Doordash.

Both Doordash and Airbnb have raised their valuations going into their respective trading debuts on Wednesday and Thursday this week. Both companies have doubled in valuation since before the pandemic. This week Airbnb's valuation stands at $42 billion, which is equal to that of Marriott hotels. Yes, you read that right.

"December is set to be the busiest year-end on record for initial public offerings in the U.S.

IPOs on U.S. exchanges have already raised a record $156 billion this year"

Below we see via the IPO ETF that speculators are clamoring for IPOs exposure. Gamblers are making the bet that the greatest IPO year in history is going to continue for another year. 

Of course, there are many virtual economy bubbles beyond virtual dining and virtual hotels. There is the streaming content bubble, the cloud internet bubble, the video game bubble, the Tesla/clean energy bubble, the crypto currency bubble 2.0, and of course the vaccine Biotech bubble. 

Below I will hit the highlights:

First off, the race for the vaccine has sparked a broad based Biotech bubble, reaching far beyond just those companies developing a cure. 

Here we see the Genomic Biotech sector going late stage parabolic this week:

Virtual car buying became a big fad this year. 

Carvana lets you buy a car from a vending machine, like buying a $20k chocolate bar.

We see via the highly popular Ark Innovation Tech fund that volume has exploded 800% as price goes parabolic.

Semiconductors are at the epicenter of the virtual economy, they power everything from cloud data centers to video games, Bitcoin mining, and of course artificial intelligence - which is rampant in computers and humans alike.  

Next on the bubble list is clean energy/ESG sector, which caught a massive bid this year compliments of the fossil fuel divestment movement. Within the ESG bubble, Tesla has become a full fledged bubble all its own. Constantly topping all other mega cap Tech stocks in dollar volume.

Today we see that Tesla dollar volume exceeded Apple, Amazon, Microsoft, and the Nasdaq 100 ETF in combined dollar volume:

Tesla with its 1200 P/E ratio is the largest company in terms of market cap ever added to the S&P 500. And it's the largest non-profit charity in the index. Outside of carbon credits they still don't make money on their cars. 

In summary, when these bubbles all burst at the exact same time, because they are all correlated to the exact same "virtual economy" ETFs, then the Idiocracy will come to realize that there is no such thing as a virtual economy.

At that point, they will realize forty years too late that every layoff is another "jobless consumer" who is downgrading from Nordstrom, to Sears, to Walmart, to Dollar Store, on their way to tent city and dumpster diving.

#Winning!!!