'Tis The Season For Global Asset Super Crash

You don't have to be a genius to see where all of this is heading, but you do have to be able to fog a mirror...

Global asset super bubble in a pandemic depression: as always in Disney World the burden of truth is on those who still believe in such a quaint idea.

Amid the impending holidays and lack of liquidity, all of the year's risks are coalescing in the final weeks of the year. The locus of risk emanating from the central bank manufactured global pseudo-recovery is the implicit dollar short trade that is underwriting this entire delusion. Going back as recently as 2016 and the "Shanghai Accord", global central banks decided they had a perfect formula for suppressing risk and creating the all important virtual simulation of prosperity. All they had to do was keep the dollar down. It all worked great until the tax cut came into effect and then the fairy dust wore off and deflation returned with a vengeance.

Now as we see below, they are doing it again during the pandemic depression. Every time the dollar is artificially suppressed by central bank coordinated magic, speculators decide that the dollar is heading to zero, so they bid up their favourite alt-currency Bitcoin.

"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."

As it was in 2017 when Jimmy Altucher predicted Bitcoin would reach $1 million by this year, the price predictions are now reaching the stratosphere:

"Guggenheim Partners CIO Scott Minerd told TV hosts last night that bitcoin was heading for $400,000...this has certainly captivated investors. And where do these sky-high bitcoin price predictions even come from?"

They come straight out of his ass.

I'm not saying that Bitcoin is going to zero, but just as it did in December 2017, it's going to explode spectacularly and wipe out most speculators.

Bitcoin of course was not the only beneficiary of central bank largesse and dollar suppression.

"Bofa strategists and Michael Hartnett detailed in the December survey that ever since fund managers exited cash positions, they jumped on emerging-markets and technology stocks."

Emerging markets are a clear beneficiary of dollar suppression, however when those massive fund flows reverse, there is risk of currency crisis:

I don't know if there is a connection between the dollar short trade and Technology stocks, however, I do know that Tech is a global asset bubble. The largest Tech stocks are bought and sold around the clock globally. 

This is why most/all pundits don't see it coming. They think that the economy is improving when it's merely seeing a bounce off of depressionary lows. Driving the car forward by looking in the rear view mirror:

In 2020, 15% of GDP was Federally borrowed money.

"It's a recovery!!!"

Next week, is seasonally one of the strongest weeks of the year. The mythical Santa Rally. However, if global markets go RISK OFF this week into next, then today's bad actors will be having a Santa Crash instead. 

Deja vu of the one in December 2018 after the mid-term election.

What I see over the holidays is a dollar reversal that monkey hammers risk in every time zone, including the ones that are not trading. All of that risk will accumulate off hours and greet traders at the open. It will be like skipping the foreplay in February and going straight into March meltdown.

As if the rally in 2020 had never even happened. 

In summary, the biggest risk we face and the lesson NOT learned from 2008, is this universal belief that we can always borrow our way out of a debt crisis.

The solution to a $1 trillion deficit last year that wreaked havoc in overnight lending markets, was a $3 trillion deficit this year:

December 23rd, 2019:

"Trading in stocks and bonds can become difficult. It can also pinch lending to businesses and consumers and, if the disruption is prolonged...September’s funding strains did not spread to other markets. However, a prolonged disturbance or a weak economy would increase the risks of contagion."

"Fixed"

Naughty Or Nice?

I think we all see where I'm going with this...

'Tis NOT the season to throw fellow citizens under the economic bus while doubling down on Ponzi markets. So far the casino is concluding that the so-called "stimulus" is a lump of coal in the Christmas stocking:

Writing late afternoon on Monday, the anticipated super crash appears to be underway, however shorts are covering ahead of the all important stimulus vote. As I wrote way back on Monday February 24th: "Buy The Fucking Crash", the very start of the meltdown back then was also met with the standard BTFD. Little did they know that they were buying at the top of a -35% crash.

No, I did not expect a new mutant virus to monkey hammer Europe overnight. However, if you think of the denial around COVID in general, was it really so hard to predict? None of today's risks are unknown, they've merely been ignored: COVID, Brexit, lockdowns, economic collapse. It's amazing when stock prices are going higher what can be ignored.

I will try not get too fancy with my prediction for what happens next, only to say that it should be more explosive than the decline in March. Writing ahead of the stimulus vote, so far, we are seeing the "two way" volatility I predicted over the weekend. If the bill passes, I still expect cyclicals to get monkey hammered, as this bill is too little too late. However, if it doesn't pass, the casino will spontaneously explode. In other words TARP 2.0. 

So far, cyclicals are going the way of June, however, they've been rallying all day since the morning crash, in anticipation of the all important stimulus vote:

Here we see the complacency versus June:

The Fed banking stress test concluded on Friday, which included the approval to resume returning capital to shareholders. Because what else to do in a pandemic depression?

Which is why banks are actually up on the day. I suspect this will conclude their wave 'c' rally:

Where the comparison with June ends is with this last rotation to the virtual economy stocks. As Cramer recommended last week amid nascent lockdowns, it's time to rotate back to the most obscenely overvalued stocks in human history's largest asset super bubble. Because these are the safe havens from economic meltdown. Think Tesla with a 1500 P/E ratio.

You have to be delusional to believe this rotation will work out as well as it did back in June:

The true safe havens have left the building

In summary, some people have to learn the hard way that Go Daddy is not a safe haven. And Fed bailouts only start working AFTER margin calls.

You know, the people who don't know a bear market when they are buying one with both hands. 

The Big Short 2021

The GOP just paved the way for a massive credit crisis in 2021. Which will be the primary economic theme of the year, along with the rise of the Occupy Wall Street movement to ensure there are no more bailouts for criminals. I suggest that the "elites" are not going to have as good a time of "the reset" as so  many seem to believe...

Recall my pre-election war-gaming scenarios below. Unlike Wall Street, I predicted that a divided Congress would not be a "Goldilocks" fairty tale ending, it would be a deflationary clusterfuck.

So far, my prediction is 100% on track, while Wall Street is STILL telling fairy tales to trapped gamblers.

Election scenarios:

Word is that after seven months of non-stop hyper-partisan gridlock, Congress is finally approaching a stimulus agreement. Short-term we should expect two-way volatility as the market "prices in" this event. Knowing that any economic benefit will be pulled forward into 2020 and have little impact on 2021. The pull forward effect will be a function of the starving unemployed using their benefits to pay down debt and to begin repaying landlords for the accumulated back rent. 

Which is why you would have to be seriously deluded to believe that in 2021 GDP will be anything near 2020 levels when the amount of direct fiscal stimulus was just cut in half from $2 trillion to $1 trillion. And on top of that, five years of jobs has been lost.

Where will all of this extra demand come from?

Looking at nominal GDP, we can see what 2021 will look like with $1 trillion less stimulus, assuming a 1:1 multiplier which is a major assumption. Most of this delayed "stimulus" is merely life support. 

But won't the vaccine help? Of course, but it won't repair five years' equivalent job loss. The virtual economy has proven that we don't really need people in this economy after all. And small business will take years to recover.

“We have known there is a large number of people who don’t have $400 to pay for an emergency for a long time, and now the problems that families had before are on steroids,”

Policy responses have primarily focused on temporary measures to get through the current crisis, but unequal labor market benefits and the shortage of affordable child care will persist beyond it"

What it comes down to is that the GOP wants Biden to fail, which is why they are being extremely stingy on stimulus. Arguably this bill only passed because of the impending runoff election in Georgia in early January. However, they made a major mistake which will come back to haunt them personally. One of the major hang-ups in the past week of negotiations was caused by Pennsylvania Republican Senator Pat Toomey who demanded that all of the Fed special powers be rescinded:

"Toomey, a longtime skeptic of the Fed’s power, wants to make sure the CARES Act-related lending programs are permanently ended, because he and other Republicans worry Democrats will give “overly generous loans” to businesses, cities, and states. Republicans want to make sure the programs are ended now to block incoming Treasury Secretary Janet Yellen (assuming she’s confirmed) from using other funds to restart the programs."

Former Fed Chair Ben Bernanke issued a statement over the weekend warning about the potential implications of the GOP’s proposal. He stressed that it is “vital” that the Fed be able to “respond promptly to damaging disruptions in credit markets” and that such ability not be curtailed"

One of the programs that will now be ended is the Fed's ability to buy secondary bond ETFs which is what shored up the corporate bond market last spring. That implicit "bid" under the market set loose unprecedented bond issuance.

I think we all see where I'm going with this - the corporate debt bubble is about to pop, as there is no more implicit central bank bid below the market

Corporate debt, % of GDP:

Pat Toomey may as well be working for Bill Ackman:

November 11th, 2020:

"Bill Ackman just placed another big bet against the credit markets as coronavirus cases surge nationwide. The billionaire investor said he has bought $8 million worth of insurance that will pay off if companies start defaulting on their debts like they did when the virus shut down the economy in the spring."

“We’re in a treacherous time generally and what’s fascinating is the same bet we put on eight months ago is available on the same terms as if there had never been a fire and on the probability that the world is going to be fine.”

Ackman said he made his new hedge on the day that Pfizer announced its promising new COVID-19 vaccine. Pfizer’s announcement was “actually bearish,” Ackman said, predicting that it will prompt Americans to grow complacent about mask-wearing, allowing the deadly virus to spread even more widely."

We already know that Ackman was right about the downside of the vaccine causing mass complacency. Of course he was assisted by those on the right who still believe this virus is a Democrat hoax. Now we will find out if removing the corporate bond bid at the end of the credit cycle, is a good idea.

Or not.

The Fed Bought 16 Bond ETFs

One thing for certain, the GOP sequesters a lot of carbon

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."