The 2020 Pandemic Depression Hyper Bubble

If prior generations had only been intelligent enough to know that printed money in a pandemic depression is the secret to effortless wealth, we would all be billionaires by now. You have to be brain dead to believe in this Idiocratic fraud, which is why no one questions it. Too many investors have been spared the consequences of a bear market and therefore they believe they have become omnipotent in the face of unprecedented risk. Now featuring human history's largest asset bubble in a pandemic depression...

Hendry's Iron Law Of Disney Markets:

"The worse the reality of the economy becomes, the more we take on the reflexive belief in further and dramatic monetary expansion and the more attractive the stock market looks"

Below I will discuss the 2020 hyper bubble and all of the various asset classes that have been bid up to asinine and unsustainable levels. But first the background as to how we reached this perilous juncture of believing that printed money is the secret to effortless wealth. 

Going way back to 1997, the Asian Financial crisis was caused by hot money leaving the Asian Tigers and causing a run on the local currencies. It started in Thailand and then spread to the rest of Asia:

"The Asian financial crisis was a period of financial crisis that gripped much of East Asia and Southeast Asia beginning in July 1997 and raised fears of a worldwide economic meltdown due to financial contagion"

The Asian Financial crisis and the ensuing financial dislocation/LTCM debacle forced the Fed to ease monetary policy at a time when they would normally be tightening. That easing combined with the internet gold rush drove the manic Y2K Tech bubble. 

When the Dotcom bubble crashed, the economy fell into recession which was exacerbated by the 9/11 attack. The Fed lowered rates to 1% and sanctioned the subprime lending bubble. The widespread practice of using houses as ATM machines was born. And then of course that corruption crashed in 2008, leading to 0% interest rates and quantitative easing - printed money to saturate the bond market, and encourage asset speculation. To garner the trickle down fake wealth effect.

For the first several years, most pundits and money managers were skeptical of Disney markets. Even in late 2014 when Hendry said he was now taking the blue pill, he lost his hedge fund as large investors balked en masse. For some reason, they were not eager to be among those destroyed by the virtual simulation of prosperity, as he himself described it: 

"They the enlightened few know that today's central bankers are spinning a falsehood of recovery; they steadfastly refuse to be suckered in by the euphoria of a monetary boom; and they are convinced that they will therefore be spared the consequences of the inevitable crash. Everyone else, currently drugged by the virtual simulation of prosperity and its acolyte QE, will be destroyed"

Of course the free money party continued for several years longer, sucking in every money manager, economist, and pundit on the planet. Notwithstanding a few more global synchronized monetary bailouts along the way. When Trump was elected, the global casino melted up into his tax cut, which we were told was going to be reflationary. Unfortunately, it was the exact opposite - while it may have been reflationary for billionaires, it was deflationary for the middle class via higher interest rates. After all, that's what reflation means, higher inflation expectations due to greater capacity utilization. Econ 101. Under the current debt bubble regime, true reflation is now no longer even an option, because it will implode the bond market, the housing market, the car market, all borrowers and all lenders on the planet. We now have a debt-dependent pseudo-economy predicated upon negative net wealth penury for the vast majority of people and ultra wealth for a micro percentage of super wealthy who lend their money back to the impoverished masses. Most sheeple never question this new "system", because they have fully conflated debt with wealth. Their entire financial/economic existence is now a call option on the cycle. Which is why this cycle can never end. It must be both the longest cycle in U.S. history and the first cycle to never end in U.S. history. Again, you have to be brain dead to believe this shit. Hence it's unquestioned by "experts" and morons alike. 

Which gets us to 2020 and the great pandemic hyper bubble. All of the money printing and fiscal madness of the past decade went on steroids in 2020, to the extent that as of now, global equity markets are pricing in a vastly improved post-pandemic economy than existed pre-pandemic. Sheer asinine money printed lunacy. 

So let's take a look at the biggest bubbles of the year in pandemic hyper bubble, as they stand going into the last weeks of 2020:

This week of course saw the first doses of the new vaccine(s) distributed to healthcare workers, who were the heroes of 2020.

Here we see the Biotech bubble indicating a MASSIVE key reversal on the weekly with two days left in the week.

The IPO bubble appears to have peaked last week featuring the two largest IPOs of 2020, the largest issuance week for IPOs since 2014 (Alibabylon), making 2020 the largest year for IPOs since 2000:

In my last post we saw that short dollar is the second most crowded trade of 2020. The primary beneficiary of dollar outflows has been Emerging markets and Chinese markets in particular.

Here we see Emerging markets deja vu of the January 2018 tax cut melt-up. 

The third most crowded trade currently is Bitcoin, which is also an anti-dollar trade. Got that? The crowded Bitcoin trade is leveraged to the crowded dollar short trade.

What could go wrong?

"It’s not the first time bitcoin (BTC) has been named the most crowded investment of the year. The crypto asset also captured that position back in 2017 in Merrill Lynch’s December global fund manager survey."

According to the BofA Fund Manager Survey, the most crowded trade of 2020 was the Technology "Virtual economy", and it remains the most crowded trade even after the post-election melt-up.

The ESG (Environment, Social, Governance) mega bubble went into melt-up mode throughout 2020, led by Tesla. Tesla is now a mega bubble all of its own. This week (Friday) it enters the S&P 500:

What could go wrong?

Today's economists don't believe that the global economy is still in a recession, because it's actually in a depression. The economic crater from 2020 is so deep, that their customary growth rate metrics are totally meaningless. This so-called recovery is off the lowest level of total output in years. If they were looking at absolute output, they would understand their crucial mistake. Most economists are apparently unaware that if an economy drops by 33%, it requires a 50% increase to recover the prior level. Fifth grade math.

Which is also why this impending stimulus will be dead on arrival. By driving the car forward while looking in the rear view mirror, today's policy-makers are MONTHS behind economic reality.

"Total retail sales decreased 1.1% from the prior month, following a 0.1% October decline, the first drops since March and April. That was worse than all but one economist had forecast in a Bloomberg survey calling for a 0.3% decline, and October’s figure was originally reported as a 0.3% increase"

The last time the market was down in the second half of December and missed the Santa rally was December 2018. Which was the last time we were sold the lie that the economy is recovering, amid the widely believed lie of fake reflation:

Countdown To Implosion

All of the fraud and corruption of the Trump era is now baked into this Disney market like a ticking time bomb that is about to go off with biblical dislocation...

Trump normalized fraud and corruption to a point that most sheeple no longer have even the slightest clue what is wrong or right. 

As of this week, if the Electoral College is to be believed anymore, the end of the Trump Administration is officially in sight. He will serve out the remaining weeks of his ignominious single term amid record COVID body count and as I predict, cataclysmic financial and economic dislocation. TBD. History will say that Trump and his acolytes foreign and domestic made every attempt to destroy democracy in 2016 and again in 2020. The worst legacy of the Trump Administration was that he normalized crass and repugnant behaviour. His presidency was a four year long ass clown circus. 

In this golden era of fraud we are now immersed in toxic humanity. Trump's base is fully Third World and they are doing everything possible to drag everyone else down with them. Trump's Twitter feed is semi-literate testament to everything that is wrong with the United States right now. 

But what does this have to do with markets? Everything. These Disney markets now embed all of the corruption that has been normalized over the past four years. From the tearing down of Dodd-Frank to the widespread conflict of interest, and of course the specious fairy tales sold by Wall Street. One thing that the majority of today's investment advisors have in common is that they are essentially Madoff-acolyte Ponzi schemers. They have jointly decided that nothing matters except central bank liquidity and market momentum. Listening to Barry Ritholtz on Bloomberg this morning he said (to paraphrase) that it always pays to bet WITH the crowd. He believes that the crowd is usually right. No one in the pre-monetary bailout era would have ever made that statement in the history of markets. Going back a decade, Ritholtz was not a money manager and at that time he was clear-eyed on the perils of bailing out criminals. In 2009 in the aftermath of the Lehman meltdown he wrote a book called Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy. Fast forward to now and in the Trumpian post-truth era, Ritholtz has apparently forgotten that those perils have grown by leaps and bounds in the interim. Since he became a money manager he has become blind to the continual descent into corruption. Comparing now to 2008, there is no comparison. Not only has conflict of interest become normalized, but greed and easy money went into overdrive AFTER the financial crisis, on a scale that makes the housing bubble appear benign by comparison.

Meanwhile, as far as market timing, apparently Ritholtz can't remember that the Wall Street "crowd" got it wrong as recently as  February of this year, and as of this week they are back to record euphoria:  

ZH: Record Wall Street Euphoria Triggers First BofA Sell Signal Since February 2020

What will they say this time around? No one saw it coming? No one knew there was a pandemic? All we know is that they will think of something.

Which is where these next few weeks get interesting going into 2021. As of this week, the vaccine hopium is peaking amid the release of the vaccine. Which leaves the casino hanging on stimulus hopium. A few months ago when the daily stimulus headlines started, the expected fiscal stimulus amount was roughly $2 trillion. Now it's dwindled down to very likely $750 billion, one third of the original proposed amount. We can rest assured that this amount of life support is already "priced in" to GDP at a time when millions of unemployed are struggling under the weight of unpaid bills.

Not to be outdone, the Fed may modify their asset purchase (QE) program slightly to buy more long-dated bonds versus short-term bonds, in order to push mortgage rates down. Or not, no one seems to know. However, what we do know, is that if all of this nominal stimulus is already "priced in", then the dollar will rally and global risk markets will explode as they did in September, June, and of course February:

"Over the past month, the U.S. dollar has fallen steadily to 2.5-year lows against the euro, Swiss franc, Canadian, New Zealand and Australian dollars. If the Fed eases, but expresses optimism on the recovery, short covering could drive the deeply oversold U.S. dollar sharply higher."

The asset managers have dropped cash for the first time in close to seven years, as levels are down 4%. Moreover, strategists at Bank of America Corp. now say the most crowded trades are “long tech,” “short USD,” and “long Bitcoin.”

With respect to the ultra-crowded Tech stock bubble, Cramer announced yesterday that it's time to buy the "COVID-19" growth index again due to the impending lockdowns.

Apparently he doesn't remember last February when the first lockdowns exploded the virtual economy bubble, which was minor in scale by comparison to now.

Is it possible he is just going along with the momentum crowd?

Among the growth names, Biotech stocks are already getting shellacked on massive volume, as the vaccine is fully "priced in":

Looking at cyclicals, we can use either June or February as an indication of what comes next, as both the lockdown and the FOMC meeting coincide this week:

Looking back, market historians will say that this entire rally was driven by epic short covering in front of a massive crash.

Deja vu:

ZH: BofA Sell Signal Triggered

"Amid this hopeful cheer where covid is almost a thing of the past, it's hardly a surprise that a record number of respondents say small caps will outperform large caps"

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: