Wednesday, January 6, 2021

The Crack Up Boom And Bust

"There is no means of avoiding the final collapse of a boom brought about by credit expansion" - Ludwig Von Mises


The Trump era is over. It officially ends today with Biden's confirmation by Congress. The Founding Fathers would be glad to know that their rule of law prevailed even in the hands of an Idiocracy. It was the ultimate historical test, and one not recommended for any other country. History will say Trump was a known con man tasked with extending the longest expansion in U.S. history forever via massive stimulus and human history's largest asset bubble. His signature policies of robbing the middle class to pay the rich were inherently deflationary, so the bubble grew and grew while the economy imploded. The one thing he got right way back in 2016, is that when interest rates rise, the stock market bubble will come crashing down. Reflation is no longer an option...

One other thing he got right. 






I have said for some time now that credit crisis is the next stop in this debacle. That yes, dollar destruction is inevitable - and just became more of a certainty, but before that happens, we will see human history's largest dollar margin call. When that happens short dollar trades will get monkey hammered, including gold and Bitcoins. The blue wave will be the spark that ignites the Trump bubble. As I write, early on Wednesday, the reflation trades are going late stage parabolic led by Financials. However, as I expected, the Tech trade is getting monkey hammered. I will go out on a limb and say that the Tech bubble is over, with the exception of a few pockets of speculation specifically in green energy. 

Large scale institutions are now rotating massively to cyclicals at what I deem to be the end of the cycle. It's a risky gambit to be sure. The bond markets are already getting monkey hammered as bond yields explode higher. 

This is all very similar to when Trump got elected and promised his big tax cut, except this time it's a blue wave, meaning additional fiscal stimulus is coming much sooner this time around. Some have said that in 2021 the economy will perform better than the stock market. This event makes that outcome far more plausible. Although the bubble explosion will no question affect the economy. 

A back up in yields right now is not really an option, as there has been no deleveraging in this cycle. 2020 saw the largest corporate debt issuance in history.


This is corporate debt as a percentage of GDP:








Gamblers right now believe this is a good time to rotate to Financials and other cyclicals, because they've been told it's the beginning of a new cycle. According to today's Ponzi advisors, this will be the first cycle in U.S. history to begin amid record debt. Sure, whatever. 

AND, in addition, the cycle will kick off with an unprecedented fiscal stimulus and a massive spike in bond yields. It's called "Goldilocks" on crack cocaine. You have to be stoned to believe it. Remember, we were told just two days ago that a blue wave is not priced in and hence would lead to selloff. And yet, this morning the S&P opened down and ripped higher.

No story is too fantastical to believe anymore. Wall Street will never conjure up a narrative in which the future is worse than today, because then they would have to produce price targets with a minus sign.

One would have to be somewhat of an optimist to believe this will continue, when Wall Street soon gets re-regulated now that Democrats are in full control:






The short dollar trade - already the second most crowded trade of 2020, just became overwhelming consensus for 2021. When that reverses, global risk will explode with only the longest cycle in history of warning. 







The Nasdaq is now 100% leveraged to Tesla and the green energy super bubble which kicked off a year ago in January with the ESG/fossil fuel divestment movement. 



















Tuesday, January 5, 2021

This Election Is Rigged. To Explode...

Dollar shorts are making massive (implicit) bets the Democrats win, despite being the long odds. On the other hand, if the Republicans win that would mean Georgian elections are only rigged against Trump. Can you imagine what story these super morons will invent when that happens? It will mean the bipartisan Deep State conspired to keep dumbfucks out of office, having let one accidentally slip by in 2016. Trump's Herculean breaking of the IQ barrier only lasted one cycle...








Ironically if the Democrats do win it will be mostly thanks to Trump. Only McDonald Trump goes to a political rally to sow massive doubt as to the validity of voting:


"Desperate, deluded and dangerous, President Donald Trump drove America deeper into a political abyss on Monday night in his zeal to steal an election he lost and to destroy faith in the democracy that fairly ejected him from office."


From a markets standpoint, bulls will have to be Harry Houdini to get out of this one. Unlike the November election, which saw a sell-off and VIX spike going into the election, this time, volatility is somnolent and bulls are fat and happy.

Here is the set-up going into this all-important election. S&P new highs peaked back in early November, and yet the S&P has continued levitating in this rising wedge, as bulls went ALL IN:





We were informed via Wall Street yesterday, that a "blue wave" is NOT priced into markets. Only the prevailing "Goldilocks" Hunger Games gridlock is priced in to markets. Which means that a true economic recovery is not priced in - only further dramatic monetary multiple expansion is priced in to Disney markets. 

So imagine if the Democrats win, all of a sudden the momentum Tech trade gets monkey hammered deja vu of the vaccine selloff in early November when Pfizer announced their vaccine was 95% effective: The Russell 2000 spiked and the Nasdaq 100 crashed. 

Since the stimulus passed Congress two weeks ago, the ultra-crowded virtual economy Tech trade has been getting monkey hammered. One could argue that a Democrat win will be the last straw:




However, the more likely scenario is a Republican win, which would mean continued deflationary fiscal policy. 

That scenario will monkey hammer the reflation trade and by extension the short dollar carry trade which is now embedded in the most overvalued global markets:


"Rarely, if ever, can a year have started with price levels in emerging markets looking so divorced from the fundamental backdrop"

Developing-nation stocks ended 2020 at the highest level in 13 years while currencies edged closer to their 2018 record"


As it was in 2018, EMs are betting on massive global reflation. For these markets dollar reversal is not an option. Back in 2018, global markets actually believed the Trump tax cut would benefit the middle class. 

What fools. 





So, no matter which way this election goes, someone is about to be very disappointed. If the Democrats win, at least Trump can tell the newly under-employed Mitch McConnell he was right to tell Republicans to avoid the polls, because the election was rigged:

"The Deep State strikes again"

History will not be kind with this experiment of having a mentally challenged president, to give his base a feeling of national inclusion. 


Here is where it gets interesting for Disney markets:

Three years ago this week in 2018, Crypto market cap peaked. Yesterday it reached a new all time high, however, Bitcoin crashed -20% over this past weekend and is now three wave corrective.

The difference between now and 2018 is that three years ago Crypto market cap peaked ahead of stock market speculation, whereas this time it's reversed - stock market speculative indicators peaked two weeks ago. Which means that the crypto surge combined with the EM blow off is marking the end of the global rally:






This next chart shows Nasdaq total volume.

What we notice is that volume tends to rise during selloffs and recede during rallies, however this time - since the November election - volume has been rising to new record highs.

Which means that "Sell" is the new Black Swan event. Because the machines can't handle what comes next.






Then when the machines explode and Bitcoins and Tesla go bidless, and Robinhood goes offline, everyone will realize this is not the beginning of the cycle.

It's the exact other end. The one where the retail bubble newbies rush into markets to become the bagholder of record.

In the Wall Street tradition.






This is Trump helping Republicans in Georgia:











Sunday, January 3, 2021

2021: Everything Is Broken

In 2020, the hairless monkeys got monkey hammered by Mother Nature with a message that the party is over. So what did they do? They doubled down on the last Trump Casino, apparently unaware of what happened to all of the other Trump Casinos. What comes next will be a biblical revelation...

"Then they elected a known con man to make them great again, because no one else was up to the task"






COVID exploded the lies of the Globalized Ponzi economy. For several weeks even central banks were on their back foot. The crisis accelerated the wealth inequality that has been growing inexorably since the Global Financial Crisis. However because the distribution of deleterious impacts were the same as always, the warning was ignored. Millions of marginally attached wage slaves entered Third World status in order to further enrich a handful of wealthy billionaires and their Outer Party managerial class.  

Instead of heeding the warning, COVID was used as the excuse to rinse and repeat the exact same mistakes of the past. The generally accepted global assumption going into 2021 is that the economy was doing fine up until the pandemic, and once it passes it will be shits and giggles all over again. 

Hendry's Iron Law of Disney markets must now be updated from the relatively benign post-2008 version:

"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"


To the new post-apocalyptic reality:
"The more people who go under the bus and enter Third World marginal subsistence, the wealthier the oligarchs and their corporate stooges become"


When a bailout goes on too long - over a decade of non-stop monetary bailout in this case - it becomes no longer an act of benevolence, it becomes an act of economic exploitation, which is the juncture we have now reached. Our policy-makers and the establishment who abide this Ponzi model are the sole beneficiaries of this "system". Which is now conveniently guarded by a brainwashed mob of useful idiots in the Republican party - who are convinced that this is the model that made America great in the first place. Too busy watching hot rods and aliens on the History channel to know the difference.

For their part, the economics establishment, which is a colossal human failure on a biblical scale, is no longer capable of acknowledging their role in this disaster. By giving their imprimatur to this human disaster, they have forfeited all future credibility. No surprise, these people are among the prime beneficiaries of this Madoff-inspired economic model.

The reason that 2021 economic predictions are so far off base from reality, is because these people don't acknowledge that the "economy" is now completely broken and hence fully dependent upon continuing fiscal and monetary stimulus eight ball. 

Their failed economic models are deflationary. Their lagged economic data is deflationary, their overly-optimistic projections are deflationary, and their stock portfolios will be the prime beneficiaries of their continuous failure. So why change now?

This is the problem with the U.S. economy in a nutshell:
Over the past several decades, Globalization, immigration and outsourcing have collapsed U.S. capacity utilization (see chart below). Underemployment is the greatest crisis of our age, and yet you never hear about it:

"People of post-industrial society change their profession and their workplace often. People have to change professions because professions quickly become outdated. People of post-industrial society thus have many careers in a lifetime. The knowledge of an engineer becomes outdated in ten years. People look more and more for temporary jobs."

Temporary, low-paying, marginally attached gig jobs with non-existent benefits. Sound familiar?

Now, looking at this chart, does anyone really believe that "reflation" is the most likely scenario for 2021? 






Not the bond market, that's for sure. Although as we see T-bond shorts have never been more confident:







The worst part of this Third World exploitation scheme is that the sheeple still believe in the American Dream. They still believe that if you work hard and plough your money into stocks, then the dream will become reality. The Japanese learned a long time ago, that a gerontocracy is just one massive inter-generational lie.

The biggest mistake all newbie stock market investors make is trusting facile headlines:









Some think it's "unpatriotic" to bet against the stock market. That being bearish is un-American. I happen to believe that markets that benefit from mass poverty are the real problem. 

History will not be kind to those who believe in this Madoff-inspired exploitation scheme.

And no, Mother Nature will not be denied her due by the hairless monkeys doubled down in Trump Casino. She has them right where she wants them.  













Saturday, January 2, 2021

The Millennial Asset Supernova

Central banksters, investment advisors, economists, and over-lubricated gamblers are of the groupthink mind that no amount of monetary heroin overdose is "bad" for Disney markets. That efficient money printing hypothesis is about to get system tested by a Black Swan event called "Sell". Something not one of them has thought about...


Millennials are throwing themselves at their first ever asset bubble, having never experienced a bear market in their lifetimes. They view their total lack of experience as their secret to being expert money managers. Old time pros who stick to arcane measurements such as valuation know nothing in this new world of pandemic investing. McDonald Trump's only legacy is that he turned being an idiot into a virtue for millions of aspiring followers. He broke down the IQ barrier, so now anyone can be president. A pioneer in his time. 


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






Way back in Y2K when the Dotcom bubble imploded, Tech stocks (Nasdaq) lost -80% of value from high to low in a mere two years. The S&P 500 lost -50%. Now, amid record IPO issuance, record speculative trading volume, and Dotcom valuations, market bulltards are admitting that all signs are as frothy or worse than the Dotcom era, but don't worry, be fat and happy. We have depressionary interest rates to bail us out. What could go wrong?

The main difference between the Dotcom era and now is that during the Dotcom era the recession that resulted from the bursting of the fake wealth bubble was relatively mild. Why? Because the Fed had 6.5% of interest rate cushion and they used most of it to dampen the economic dislocation.


That won't be the case this time around - these same record low interest rates being used to justify infinite valuations, will be like landing on economic pavement when the bubble collapses. 




 


Robert Prechter (EWI) talks about "all one market", meaning that in times of excess speculation all asset classes reach a correlation of 100%. We saw it again in March, when everything crashed at the same time: Stocks, junk bonds, corporate bonds, muni bonds, gold, Bitcoins, even Tesla. It was an everything crash. The Fed as I showed in my prior post, worked hard to get the Treasury bond market under control, because at first even Treasuries got monkey hammered. Everyone was clamoring for "cash" meaning money markets and t-bills.

By creating a far bigger asset bubble than the one that existed prior to COVID, central banks have encouraged Millennials and many others, to throw their precious savings and rent money into junk assets.

The economy that will abide on the other side of the asset explosion will be a depression. The Fed will have no control over that outcome. For many millions of service workers, it is already a depression. However, for the stay-at-home gambling class, this will be their turn to go under the bus.

Under the current deflationary paradigm known as "capitalism", Congress will always be behind the curve on stimulus. It took 7 months to reach a bipartisan agreement on this last stimulus bill, with millions on the brink of starvation.

There is going to have to be serious rioting to get the "system" to change.

So while there are no shortage of cheerleaders right now cheering the fact that Bitcoin keeps going higher, it's only a function of inflows of valuable savings getting thrown away. What is driving Bitcoin right now is a liquidity squeeze and "scarcity". The mantra of Bitcoin cult investors is the same as the mantra of Tesla investors, and for that matter the same for S&P 500 401k buy and holders - one must buy and hold and never sell. As long as you never sell, you never have a (realized) loss. In their view scarcity is what drives the price higher. Underlying valuation has nothing to do with prices. What these people are attempting to do is corner the market for Bitcoins and Tesla stock which has led to the parabolic ascent of both assets.

Unfortunately, these people have no clue how markets work. What some moron pays for an asset yesterday has no bearing on what it will fetch today. Just because someone pays a million dollars for a brick doesn't make all bricks worth a million dollars. 

Scarcity and lack of liquidity cut both ways, which is why large institutions avoid illiquid asset classes. On the way up, illiquidity means that small trades can move the market. However, it works the same way on the way down. Small trades can push prices down very quickly. Lack of liquidity is a lethal proposition for speculative markets. It means that prices are prone to crash. It should come as no surprise that both Tesla and Bitcoin were down -60% in March, almost double the market decline.


"Investment inflows into the world's biggest publicly traded Bitcoin investment trust are pivotal to the price of Bitcoin (BTCUSD), according to a recent report from strategists at JPMorgan"


Whenever inflows are critical to the price of an asset class, you know that it's a Ponzi scheme masquerading as an investment.






"Wood left her closest competitor trailing by 60 percentage points"

She also delivered a total return (income plus appreciation) that is 11 times the gain for the S&P 500"

ARK Genomic Revolution has attracted record monthly inflows in December, bringing the fund's new money total for 2020 to $4.7 billion"


"How does she do it?"













According to the options market, crash risk is the highest since September momentum implosion:






No surprise, Trump's vaccine rollout is a gong show. The entire basis of the fourth quarter melt-up is disintegrating. 


"Romney's statement comes as the federal government's Operation Warp Speed had promised that 20 million doses would be administered before January 1...only 2.79 million have actually been administered."


Jim Jones keeps on stacking up the body count, while his Kool-Aid drinking acolytes cheer his every inaction:





Wednesday, December 30, 2020

What To Expect From The Big, Fat, Ugly Explosion

If Trump being the most admired man in America is not a warning, then there is no warning. For aspiring criminals...

Late last February, the pandemic was escalating, the economy was on lockdown, gamblers were chasing risk, Trump was being an idiot, new highs were not confirming the S&P's new high.

People were saying the bears are wrong again.

What's changed? 







Most gamblers today are obligated to believe in a thing called "The Plunge Protection" team. It's the belief that central banks can bail them out of any risk. These people believe that central banks can both inflate bubbles and keep them from popping. It's an unfortunate fantasy that both the Chinese and Japanese have learned the hard way is not true. 

Even in the U.S., the PPT theory has had several spectacular failures. Most notably in 2008. The Fed's largest balance sheet expansion in history (up until this year) took place in November 2008. The market bottomed four months later, down -40%. 

And as we see below, even the so-called bailout in February and March was an unmitigated gong show:

When global markets went RISK OFF at the end of February, the S&P 500 crashed -10% in one week - the fastest correction in history. On Tuesday March 3rd, in an unscheduled meeting, the Fed cut rates by .5% which many pundits said was a panic move. Unimpressed, the market crashed for a week and a half straight after that meeting. Then on Sunday March 15th, in another unscheduled meeting, the Fed slashed rates by an entire 1% down to 0%. AND they launched a massive $700 billion QE program. Still unimpressed, the casino was limit down that night and Monday was the biggest down day of the entire debacle -13% at the lows. The VIX peaked at 90 on Monday, but the casino bottomed on Friday. 






What I expect this time around is a far more violent and uncontrolled crash. Of course, as it was in Feb/March there will be massive 1-3 day rallies. However, I see the Fed and central banks having even less control this time around. First off, there is no ability to cut interest rates. Secondly, dollar shorts - explicit and even more so implicit - are far more leveraged now than they were in February. The overall reach for risk is far greater this time around (see bubble section below).

People always want to know, what will be the "catalyst" for a crash? The catalyst this time will be the same as last time - rampant stupidity and a financial services industry pushing people further and further into risk, on the belief that central banks can both finance risk and eliminate risk at the same time.

Because who wouldn't believe that three years in a row?

"Looks like the bears are wrong again"






Now, let's review the largest bubbles of the 2020 COVID pandemic gold rush. Below is my list as I see it. I'm sure others have their own list of exploding assets.


#1 Tech stocks. The most crowded trade of 2020

Within the overall Technology space there are many sub bubbles: semiconductors, video game stocks, cloud internets, Fintech, AI/robotics. So on.

Here are a few:






Overall volume on the Nasdaq exploded in 2020:



"8 million people opened new accounts in the first nine months of the year across brokerages including Charles Schwab Corp., E*Trade Financial, TD Ameritrade Holding Corp. and Robinhood Markets Inc., all of which permit a version of free trading."

“I’ve never had so many friends text me asking which beaten-down stocks to buy,” Jessica Rabe, co-founder of DataTrek Research, wrote to clients. “They were not fearful about losing money. They were afraid of missing out on the large snapback.”







Rule #1 of Disaster Capitalism: Never let a good crisis go to waste. 2020 was the biggest pump and dump in history:








Then there is the ESG/Solar/Tesla lunacy:

The largest market cap increase of any stock in the world - half a trillion in market cap.

1200 P/E ratio. Still not profitable making cars.










The 2020 Biotech bubble:








The Bitcoin/Crypto bubble

The only asset class that trades 24 hours a day seven days a week, globally. I have no idea how these people sleep at night.






There can be no question who won in 2020 and it won't be Tesla and Bitcoin gamblers bidding up their own assets while pretending to be wealthy





What do all of these bubbles have in common?

They are all 100% leveraged to rampant criminality, and they will all explode at the same time.












The Trump Era: Age Of Unfettered Criminality

Trump's true believers assume that he got away with the pump and dump of the century. Those who believe in "criminality as usual" will be the ones holding the bag...

"In U.S. financial slang, a bagholder is a shareholder left holding shares of worthless stocks"






The Anti-Christ was just chosen as the most admired man in America. Cheating on his wives and taxes got him elected four years ago, but it was four years of non-stop lying and corruption that put him over the top:





What went wrong? That is the question that historians will be asking decades from now. Especially historians from outside the U.S. attempting to avoid this descent into abject corruption.

We can hope this is America's moral low point, however Banana Republicans have clearly embraced their descent into depravity as the path of least resistance. It's a 50 year tradition going back to Nixon. 

We still don't know if Trump will leave the White House when Biden is inaugurated. Trump laid the groundwork for all of this election criminality four years ago just before the 2016 election. Leading up to the election he was behind Clinton in the polls, so he pre-emptively declared that the election was rigged in case he lost:



"Of course there is large scale voter fraud happening on and before election day."

"Why do Republican leaders deny what is going on? So naive!"


And of course the election WAS rigged by foreign agents from Russia in his favor. However, Trump abandoned all concern over the rigged election the moment he won. 

In other words, Trump had in mind four years ago exactly what he is doing right now. Attempting to destroy democracy in broad daylight. Using Twitter to rain incessant doubt on America's electoral process that has endured over two hundred years. 

And it worked, because Banana Republicans no longer believe in democracy, all they believe in is greed, corruption, and criminality. Trump has pardoned more criminals than any president in U.S. history.

He will go down in history as the criminal president.





But what does this all have to do with Ponzi markets? Good question.

My assertion is that Ponzi markets are inherently fraudulent. And now Ponzi schemes have been legalized. We can look no further than Bitcoin and the Crypto market for examples. One can argue that as a dollar alternative and for buying children on the dark web, Bitcoin will always have utility. However, of the thousands of crypto currencies, most are merely pump and dump schemes. Bitcoin was the first crypto currency therefore it's the most popular one, otherwise it has no differentiating feature.

Bitcoin made a new high overnight, which is appropriate because we are seeing a global manic reach for risk during this Satan rally:





This week, Emerging Markets - another implicit dollar short trade are going parabolic, especially Asian markets.

What's interesting is that in local currency terms, most non-U.S. markets are underperforming the U.S. It's only in suppressed dollar terms where they look spectacular. If you read Zerohedge or any other dedicated purveyor of disinformation, they will say that global stocks are at an all time record high in 2020. Which is lending credibility to this epic con job. 

I suggest however, that most global markets are not making new highs, in local currency. We also see that commodities (black) are languishing below 2009 and 2016 lows. 







What people still don't acknowledge as we cross over from 2020 into 2021, is that America's post-recession recoveries have become more and more fraudulent. Each one requiring more and more stimulus to paper over the cracks in the facade which are now record wide.

For those wondering what effect the $900 billion stimulus will have on GDP in 2021, here we below can see the crater that has been dug. The red line is absolute GDP ($ billions). The stimulus just passed will get GDP roughly back to the 2017 level. The remaining four years of lost GDP must come from the vaccine and re-opening. Bearing in mind that employment is back at 2015 levels.








Meanwhile, cyclicals are now ABOVE the pre-pandemic levels, having already priced in full recovery.








During Trump's four year reign of corruption, there were four rallies and three crashes so far... Each rally lasted on average one year and crested either just before or just after year-end. Each rally and crash was of greater magnitude than the last.  

I call it the Wall Street business cycle. Others call it a broadening top:


"In the broadening top formation five minor reversals are followed by a substantial decline."

It is a common saying that smart money is out of market in such formation and market is out of control.  In its formation, most of the selling is completed in the early stage by big players and the participation is from general public in the later stage."