Here Comes Satan Claus

The man-child having a temper tantrum in the White House is now by far the greatest market risk. He created this signature moron bubble, it's his right to explode it with extreme dislocation...

Wall Street:

"We upgrade the moron bubble to strong bonus"

Trump's Twitter feed these days is indicative of a mad man becoming more and more unhinged by the day. As his failed presidency sputters to an ignominious ending, Trump wants to somehow avoid looking like a "loser". No easy feat, for someone who just got trounced by a substantial margin: 

Trump is not a loser, he is a sore loser with the morality of a nine year old crack addict. Which is why he has now become very dangerous. 

Sorting through multiple articles on this stimulus impasse, it's impossible for me to see an easy way out of this newly created Trump disaster. And unfortunately, U.S. politicians only specialize in finding easy ways out. In his shock and awe video criticism of the budget and stimulus, Trump broke ranks with his own party both on the size of the budget (too large) and the size of the stimulus (too small). Leaving aside the fact that Trump has happily signed off on several identical porky budgets in the past, the fact is that paring the budget down to whatever fictional budget Trump doesn't have in mind, would take weeks, and surely cross over into the next session of Congress (January 3rd). Which takes that option essentially off the table. What Trump wanted to do with his entire rant was to send a message to his own party that he is pissed off they didn't make him emperor for life.

It's very hard to placate that type of ambition. 

As far as the larger one time stimulus check demand, Trump has across the board support from Democrats and zero support from Republicans in either the House nor the Senate. So that larger stimulus check is nothing more than a fantasy which is now putting at risk the real stimulus bill that passed. Trump's own party won't override him because they are afraid of him, especially House Republicans who now view the current budget as being politically radioactive. Meanwhile, McConnell is treading carefully ahead of the Georgia Senate runoff, because any further incitement of Trump will put the Roman Senate at risk.

This venn diagram depicts the current quagmire. There is more agreement between Democrats and Trump and Democrats and Republicans than there is agreement between Trump and his own party:

All of which means that the most likely scenario is that there will be NO stimulus until the market crashes a sufficient magnitude to inform today's ubiquitous Madoff-acolytes that there is more to an economy than Ponzi markets chased by a society of groupthink idiots. Which makes this TARP 2.0, except this time around the bailout in question is for the middle class. Many people seem to forget that the first TARP vote failed, then the market crashed and the second vote passed. However, much to the surprise and consternation of everyone involved, after a few days' vertical short covering rally, the wheels came off the bus for real.

TARP 2.0:

Unfortunately, as I warned in my 2021 prediction, the other massive risk is the Disney Casino itself. It is overrun with newbie investors who are massively over-leveraged to the junkiest stocks in the casino. 

They are of the unified belief that their abject lack of knowledge makes them invincible:

"Portnoy, who took up day trading this year and has seen some positive results, told FOX Business that "he's never heard of Chris Sacca" but added, "He sounds like a sour loser and an idiot."

"I have as much experience in this trading climate as they [experienced investors] do. And maybe the very fact that I’m not burdened with their history has allowed me to see this market for what it is, while they have failed miserably."

In other words, newbie day trader Portnoy has as much experience with gambling in pandemic super bubbles as everyone else. Furthermore, he is not burdened with the knowledge of what happened to every other idiot who believed they were not burdened by knowledge. To be fair, back in March 2000 I was unburdened by knowledge as well. And then I became unburdened with capital shortly thereafter.

Good times.

I noticed that in November cyclicals went vertical, however, in the past four weeks, gamble-from-home Tech stocks have gone parabolic. 

You have to wonder, who is behind it all?

"Making money in stocks is easy, all you do is click, click, click"

This is a key reversal of fortune on the weekly, featuring mega volume spread over 3.5 holiday trading days chasing junk stocks: 

"Stick around for the Santa rally"

"No doubt"

This week, Fintech saw the largest key reversal since September, except far larger in terms of volume:

News that Apple is entering the self-driving car space sent robotics and autonomous technology stocks parabolic:

"I’m not burdened with their history which has allowed me to see this market for what it is"

Sure, but can you see yourself for who you really are?

2020: Year Of The False Profit

Trump will forever be known as the Jim Jones of presidents. A Kool-Aid serving false prophet hell bent on burying his true believers...

Anyone who falls for his fake concern for the middle class is a useful idiot, who is in for the lesson of a lifetime.

The net result of COVID-2020 was to increase U.S. wealth inequality to Banana Republican levels, as the rich were continuously bailed out by central banks while working people went under the bus.

"Why didn't anyone think of this sooner?"

The stunt that Trump just pulled with this surprise stimulus pushback is emblematic of his entire presidency: Abject ignorance, self-absorption, extreme arrogance, followed by knee jerk incompetence. Of course $2,000 per person is a great idea - The Democrats have been in favor of it all along. The only problem is that it took seven months of relentless haggling to reach the mini stimulus that is currently on the table. McConnell was dead set against any more one time stimulus checks until he realized that the Georgia Senate runoff was at risk. Trump is now at war with his own uncharitable party. Republicans only believe in bailouts for rich people, not bailouts for people who actually need money. By pulling this stunt, Trump could delay or cancel all stimulus whatsoever and cause extreme economic hardship in the depths of COVID winter. There was no room to maneuver for this type of last minute political grandstanding.

As usual, Jim Jones just threw millions of people under the bus:

"President Donald Trump’s last-second opposition to a coronavirus relief and federal funding bill already passed by Congress threatens to torch jobless benefits for millions of Americans and shut down the government during a deadly public health crisis"

A federal eviction moratorium — which the legislation would extend through Jan. 31 — would expire at the end of the year. Tens of millions of people could face the threat of losing their homes if the measure lapses."

The president could kill the legislation through a so-called pocket veto if it does not get to him until Thursday or later"

“If you think he cares about the size of the checks, I’ve got a bridge to sell you. All this is is a middle finger to America on his way out the door.”

Recall that two years ago this month, Trump pulled the exact same stunt - he blocked the passage of the annual budget over border wall funding, leading to the longest government shutdown in U.S. history:

"On December 11, President Trump held a televised meeting with Speaker-designate Nancy Pelosi and Senate Minority Leader Chuck Schumer in the Oval Office and asked them to support an appropriation of $5.7 billion for funding of a border wall along the U.S. southern border with Mexico. They refused, resulting in an argument between Trump and both Congressional leaders. During the contentious discussion, Trump remarked, "I am proud to shut down the government for border security ... I will be the one to shut [the government] down. I'm not going to blame you for it ... I will take the mantle. I will be the one to shut it down."

S&P 500 2018:

"Merry Christmas!"

What happens next? I have no idea. Hopefully checks go out ASAP to families in need - in any amount. From an economic standpoint, the amount won't matter, because the economic impact will last probably a week at most. Most of this money will be spent on food, credit card bills, and rent. It's impossible to "stimulate" an economy that is on lockdown mode. The current Keynesian multiplier is the limit approaching zero. The sectors that need this money the most, won't see any of it.  

From a markets standpoint, this asinine gambit has no upside either. Beyond short covering, the sugar high won't last more than a few hours or days. The risks of Trump's ever-increasing time bomb are as extreme now as they were before he pulled this stunt.

This chart basically sums it up:

MAGA has been one massive crack high of ever-increasing stimulus:

Deja vu of the tax cut, global markets are starting to price in renewed deflation which contrary to every economic prediction - is inevitable in the post-pandemic world.

"Using the greenback to finance carry trades is a relatively recent phenomenon, reflecting the depreciating pressure of the Fed’s easing measures after years of dollar strength. But with speculative and real money accounts betting against the currency, any bounce higher by the greenback could lead to short covering and a potentially painful squeeze."

This blow-off top is in its sixth up week in a row - a streak we haven't seen ALL year. Up 50% since the election, on mega volume. 

"All you do is scan headlines and buy what everyone else is buying"

"I can do that"

In summary, 2020 was the biggest pump and dump in human history:

"In a year that saw a pandemic upend financial markets and economies around the globe, U.S. companies and their largest shareholders raised a record $435 billion with stock sales."

'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