Buyer Beware Third World Values

In 2020 the U.S. achieved a fully virtual economy that is solely the fiction of monetary hallucination...

Those of us who have warned of the slippery slope of debased values know that there is now far more at stake now than Ponzi markets. After all, money will come and money will go. Economies can be rebuilt. However, along with this casual attitude towards financial corruption has come a casual and unnoticed moral collapse. Many bloggers rail away at the elites for their plundering of the masses, however these observers never blame the masses themselves for accepting continuous bailouts of billionaires as capitalism. What this era proves is that democracy doesn't work in an Idiocracy. 

 

And why not fight this continual descent into squalor? Because, it was the path of least resistance.

Now, we have a bifurcating society. Those who are regressing towards a Fascist ideology. And those who are regressing towards a Marxist ideology. The center can't hold. There is more at stake here than merely a zero sum game of robbing Peter to pay Paul. Civilization is now at stake. Every person has a responsibility to strive for sanity, perspective, and civility. This is a moral imperative, however it's also a personal imperative. Some people are becoming far too comfortable with the increasingly vicious refugee camp culture of everyone for themselves. America’s signature "we" versus "me" has now reached Third World levels of exploitation. This country only has two major classes of people now - the minority exploiters and the majority exploited.

As long as central banks continue to artificially inflate the wealth of the upper middle class and inner party elites, the silent working class will continue to go under the bus. During the pandemic, the white collar casino class received a free work from home gambling vacation and massively inflated Ponzi wealth. Whereas the working class in the service industry was destituted. What makes a country truly Third World is the ability of the well off to ignore the plight of the silent majority. America’s working class has no political voice aside from a fraudulent con man pretending to be a man of the people while creating the largest wealth divide in US history.

"I love pandemics!!!"

Meanwhile, only in the lamestream media can the exact same recycled bullshit be called "news". I am referring of course to the six month recurring headline that a stimulus deal is imminent. Policy-makers are now months behind the curve on creating the borrowed and monetized “GDP” necessary to stave off widespread destitution. The fiscal cliff is now inevitable even if they pass a $900b bill, most of which is already designated to debt collectors and landlords.

Since the March bottom the casino class has been pricing in an imaginary recovery that is a fictional byproduct of central bank asset inflation - while the economy collapses like a cheap tent. Not one of them bright enough to understand that this is all a liquidity driven Ponzi scheme. They see their asset values rising and they automatically assume that it’s because the economy is improving. They have been fooled by the central bank trickle down fake wealth effect and the virtual simulation of prosperity. Just as they were fooled in 2018 when Trump's "middle class tax cut" turned out to be 2019 tax refunds pulled forward into 2018 by tax withholding sleight of hand.

January 2018:

"The agency is under pressure to take as little as possible so people will see big increases in their take-home pay ahead of this year’s midterm elections. But that would come at a cost: smaller or even nonexistent refunds next year, though millions rely on them to plug holes in their family budgets."

Today’s con artists have overplayed their hand this time around. Markets have now priced in a multi year fictional recovery while depressionary zero interest rates have allowed them to ignore infinite valuations. It's the "I'll have my cake and eat it too" theory of investing. Which is why both the cyclical reflation trade and the virtual economy trade have been rising in tandem. Gamblers conveniently believe the theory of economic reflation while at the same time clinging to the deflationary belief in perpetually suppressed interest rates.

Ironically, it's this newfound belief in a "virtual economy" that is preventing the real economy from recovering. In prior eras it would have been impossible for the white collar class to sit at home and order everything online to be drop shipped to their door. The super Tech bubble has been the direct beneficiary of the implosion of the real economy. One employs silicon chips and the other employs real people. 

When the "reflationary" stimulus finally arrives, I predict that the Tech bubble will final explode. The bidless vaccine-induced implosion in early November was a minor taste of what is about to come. That brief selloff preceded a six week melt-up into this end of year stimulus vote that is now tied to the shutdown of the government.

"Congress bought itself two more days to negotiate a coronavirus package on Friday evening even as lawmakers stumbled in their efforts to seal the deal on a $900 billion relief agreement."

I also predict that cyclicals will open on the highs of the day and close on the lows, leaving no place to hide. And then shared sacrifice will come to America for the first time in decades.

2020: Gambling With Donny

In the era of McDonald Trump, being a total idiot has never been more aggrandizing - conferring presidential authority. However, that is about to change. Under his expert casino-bankrupting guidance the dumb money went ALL IN at the end of the cycle. In the American tradition...

One never knows true risk until they drink the Kool-Aid with the Jim Jones of presidents:

The Millennial trading platform "Robinhood" is in the news this week for charges that it has turned stock market trading into a game. As we all know, Wall Street doesn't like competition. I predict that the Robinhood platform will meltdown during this impending super crash, the majority of their gamblers will be wiped out, and the company will be sued out of existence within a year:

"The complaint cites Robinhood’s “aggressive tactics to attract inexperienced investors, its use of gamification strategies to manipulate customers, and its failure to prevent frequent outages and disruptions on its trading platform.”

The complaint is here. During 2020 through November their platform had 70 outages. Yes, you read that right. 

Robinhood is a private start-up company founded in 2013, that is part of the "new breed" of Fintech companies meant to disrupt the staid business of investing. Their platform targets newbie young investors with various incentives and a "zero fee" commission schedule. It was their zero commission structure that basically forced ALL of the major brokers to adopt zero cost gambling. There is only one problem - there is no such thing as zero cost. This week, the SEC charged Robinhood for misleading investors on this issue:

"Robinhood Financial has been fined $65 million for misleading its stock market customers about how the company makes its revenue from their trades

Robinhood made no mention of payment for order flow...While Robinhood markets its services as "commission free," the SEC claims that customers in reality received inferior trade prices that "in aggregate deprived customers of $34.1 million," despite any savings they received from paying zero in commissions."

The key point is that this new business model is now ubiquitous throughout the trading industry now that "free" commissions have been adopted by every retail broker. Here we see what happened to Nasdaq trading volumes in late 2019, when zero commissions came into effect:

"Robinhood joined the rest of brokerage industry by publishing monthly trading data on Monday. The start-up trounced them all"

“When we look at customer behavior over time, many Robinhood customers use a ‘buy and hold’ strategy,” a Robinhood spokesperson said:

Sure.

Why am I going on about this?

This past week a young buck told me I'm too bearish and I don't know anything about markets. Unlike this individual, I've been through two bear markets (Dotcom, 2008), this punk has never seen a bear market in his life. 

Now, picture all risk asset classes correlated to the Robinhood platform and newbie investors who have now come to believe that all they have to do is scan headlines and throw their money at risk assets. Last week we saw spectacular blowoff volume in the IPO market. Early this week we saw blowoff top volume in the Biotech stocks with the vaccine release. And now we are seeing Bitcoin and everything else melting up into the stimulus passage. Now, everything is correlated due to over-leveraged newbie gamblers who will soon be trapped in their Robinhood iPhone game.

A taste of which we saw in February:

 

Feb. 28th, 2020:

"It is an odd moment for gold to be tumbling. One of the oldest and most-trusted safe havens in times of crises, gold typically rallies amid nasty stock sell-offs like the one that has gripped the world this week...Gold investors don’t want to sell but are forced to cover the losses in other asset classes."

There is only ONE stock broker platform that allows investors to buy Bitcoin directly. It happens to be Robinhood. We now have a situation in which global risk assets are massively correlated to over-leveraged Bitcoin gamblers, which is the third most crowded trade of 2020 after short dollar (2nd) and long Tech (1st).

Three years ago, Jimmy Altucher top ticked the Bitcoin market when he predicted Bitcoin going to $1 million by this year. It appears the Ponzi estimates have come in a bit this time around:

No question Bitcoin is the second biggest Ponzi scheme of our time, after the S&P 500.

All of which is what makes 2020, the year of gambling dangerously.

"Even if Congress gets its act together soon on a new stimulus bill — as is now expected following months of failed negotiations — it has already run out the clock, so much so that millions of unemployed workers will likely still be harmed. It turns out governance via extreme procrastination is not an ideal approach."

Only a super idiot would bet on a GOP bailout for the middle class. 

I am downgrading my market view to brick shitting clusterfuck. 

What I call a Brown Swan event.

One never knows true risk, until they gamble with the Jim Jones of presidents. Four years of non-stop lying is about to come to a biblical finale. 

Manias, Pandemics, And Mother Of All Crashes (MOAC)

This entire stock market crack high now depends on Banana Republicans. If they are too stingy with the impending stimulus bill, the casino will spontaneously explode at high altitude deja vu of the TARP vote in 2008. Ironically, it's the fat and happy stock market that will cause them to underestimate the need for more stimulus. The market has priced in an amount of stimulus that will only come to pass if the market crashes. History will say that the GOP criminals fucked it up all over again, and this time they paid the full price for their signature inhumanity...

The main thing we've learned over the past decade is that bubbles are invisible to those who are buying them with both hands, which happens to be nearly everyone at this juncture.

Normally I don't blog twice in the same day, but this week I am on red alert. As of this writing, most gamblers are positioned for the Santa rally, which technically begins the day after Christmas and continues into early New Year, but this year they've been front-running the Santa rally since Halloween. Every single day they've been expecting a stimulus bailout.

Here we see the S&P 500 in a rising wedge pattern as the algos work overtime to keep this gong show bid into the New Year and hence past Wall Street bonus payout. Last year it worked great - the rally continued into February and then it exploded on everyone else. However, this year we are seeing the same spike in new highs (lower pane) coming two months earlier:

What we are seeing right now is an eerily similar confluence of factors that marked the melt-up on the left shoulder in 2018, this time pulled forward into December. A confluence of factors which if they all ignite at the same time will create the MOAC: Mother of All Crashes. 

Consider these similarities:

Exactly three years ago this week, Bitcoin skyrocketed to an all time high in December 2017, then it crashed. Then, like now, it was one of the most crowded trades of the year. What makes this scenario more lethal however is that this time global stock markets are now highly synchronized to the timing of Bitcoin. Whereas in 2018 stocks continued rallying for another month after the Bitcoin crash, this time they are overbought at the same time.

Whereas Bitcoin made a new all time high this week, here we see that combined Crypto market cap is three wave corrective relative to the December 2017 high:

This software company Microstrategy, just borrowed a massive amount of money to put into Bitcoins, so if you want a safe way to short Bitcoin, you buy put options in this company. This is not a recommendation, merely a suggestion. The company is now a call option on Bitcoin. What could go wrong?

Next, we revisit the BofA sell signal which I wrote about yesterday:

"The surveyed investors were also the most optimistic on equities since January 2018"

Allocation to emerging-market stocks increased 19 percentage points to 55% overweight, highest since 2010, the survey’s most-preferred region"

Of course the key similarity is this fake reflation trade that was on in record size ahead of the tax cut and is now on in more record size ahead of the vaccine and stimulus. Not only are banks signaling a weaker economy than what abided in the 2018 fiasco, but as we see via the various overbought indicators, this fraud is even more overbought than any time prior. And of course, there is the wave count. Three corrective waves in 2019, and three corrective waves in 2020:

Below is a full size view of the equity call/put ratio which has reached an off the charts record:

In summary, here is what this entire fraudulent "stimulus" rally comes down to - if you think that Mitch McConnell is Santa Claus with his puny stimulus bill, then buy this rally. However, if he turns out to be Ebenezer Scrooge and injecting far too little stimulus far too late, then expect end-of-cycle meltdown. The stakes have never been higher, and this meager stimulus is the most priced in event in market history.

"With a week to go until Christmas, the place to get a gift from Santa is Capitol Hill"

"Pinning hopes for a fast and lasting bounce in markets on massive meager stimulus from the government? While no two episodes are the same, that’s not what happened during the financial crisis."

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"