All Time High On Stimulus Crack

Picture the most brutal crash in history from all time highs that "no one" sees coming. Because that is what is going to happen...

The biggest risk to the casino happens to be the exact same factor that every Wall Street analyst currently uses to rationalize today's bull market - WAY TOO much stimulus. Unfortunately, today's gamblers have happily overdosed on monetary and fiscal crack, and of course lethal doses of bullshit, their other major addiction.

Which is why they have no chance of seeing this coming. 

There exists a belief globally that no amount of stimulus is bad for markets. Every central bank operating independently of every other central bank now believes this to be true. Speculators are merely along for the joy ride. 

Far worse yet, is the fact that every government wants their own currency to be suppressed relative to every other currency. A concept that in aggregate is impossible. Nevertheless, due to the global pandemic depression, there is now a race to the bottom for global currencies. The most common way to suppress a currency is to lower interest rates and flood the markets with new currency aka. Quantitative easing. 

Consider this message yesterday from the Reserve Bank of Australia:

"Reserve Bank of Australia chief Philip Lowe praised the country’s quantitative-easing program and warned it would be premature to consider withdrawing monetary stimulus when global peers are extending theirs"

The RBA extended its bond-buying program Tuesday to avoid a spike in the currency, following in the footsteps of the U.S. and Europe in prolonging stimulus."

Central banks are now locked in a vicious cycle of increasing monetary stimulus in order to keep up with other central banks. All while global asset prices go vertical.

In addition to insane amounts of global monetary stimulus, in the U.S., Democrats are pushing for a second much larger fiscal stimulus coming a little more than a month since the last stimulus was passed. Recall that Tech stocks were stumbling at the end of 2020. However, then the stimulus bill was passed they took off again.

Coincidence?

Early last week, legendary investor Jeremy Grantham warned that this latest stimulus is the cherry on top of the global financial weapon of mass destruction. Since that warning, the plan has been moving forward at light speed:

"He said the "sad truth" about the last federal coronavirus relief package enacted in 2020 was that it didn't increase capital spending and didn't increase real production but certainly flowed into stocks"

Of course Grantham is not the official spokesperson for all of the families that actually needed that money in order to eat. Nevertheless, the point he makes is the same point I make all the time - soon policy-makers will face the hard choice between markets and the economy. If Grantham is right, that choice is near at hand, because this crack up boom is about to go bust.

I put this chart on Twitter today showing that the global Nasdaq just reached a new all time high. These are the riskiest momentum stocks in the world. The index is now 30% above the 200 day moving average, which means that even a garden variety pullback to support would mean a crash. The index has been above the 200 dma for nine months. There has been no major RISK OFF event since the rally started almost one year ago. 

All of which means that global RISK OFF is no longer an option.

Who did this?

My opinion is that last week's mini crash and 60% vol spike was the warning. And gamblers ignored that warning and instead bought the dip. This next leg down will be brutal.

Semiconductors have already left the party. Tech won't get far without semis participating in the rally:

Tony Dwyer of Canaccord lays out the lethal consensus viewpoint that will obliterate gamblers - a "correction" is overdue, but the bull market is just getting started.

“A mistake people could make here is by becoming overly negative in anticipation of a correction,”

He lists monetary and fiscal policies for a positive backdrop and the benefits of low interest rates.

“You want to add exposure into weakness,” Dwyer said. “We’re early in this economic recovery.”

We may be early in this recovery, however, the bubble from the last cycle never popped. The belief that it will keep growing to infinity is a first order fantasy. 

aka. Wall Street consensus

Currencies have likewise rolled over deja vu of last year:

The Global Dow would concur - "correction" has begun:

Appropriately, this delusional market is now being led by pot stocks.

The Last Pump And Dump

Today's gamblers are right about one thing - this is not a bubble, this is a super bubble...

In retrospect this era will be viewed as the biggest pump and dump in history. Nowadays, market manipulation is not just accepted, it's expected. After all, central banks do it all the time. The S&P 500 couldn't have reached this level without them.

Record IPO and SPAC issuance on Wall Street

Record short squeeze pump and dump schemes

Record crypto bubble

Vaccine biotech bubble

Cloud internet/Virtual economy bubble

In Elliott Wave terms, it's no coincidence these bubbles are all taking place at the same time. Because they are all part of the same bubble in social mood. Speculative fever is merely rotating from one asset class to another, leaving a trail of imploded bagholders in their wake. The SEC is too busy scrutinizing trading restrictions to realize the market is already falling apart in real-time. Every day for the past week all of the retail brokerages have been experiencing intermittent outages particularly in the morning. Why? Because of the ludicrous trading volumes.

The media coverage of these various pump and dump schemes invariably focuses on the few winners while assiduously ignoring the multitudes of losers. A bias that helps to fuel the "FOMO" fear of missing out on a pump and dump. The number one rationalization I hear all the time is that yes this is a bubble, but similar to the Dotcom bubble this can go on for years. The people advancing this argument were either not trading during that era, or they have amnesia. Yes, the Dotcom bubble took place over a period of years, however, widespread retail participation by neophyte investors only took place AT THE END of the bubble. At the beginning, most people were skeptical of buying revenueless internet stocks having no real business model. By the end they had contagious FOMO and were valuing companies based upon "eyeballs" aka. monthly active users of free web sites. I remember it well.

This particular everything bubble really took off over a year ago in October 2019 when retail brokers all reduced their commissions to zero. From that point forward, the number of new brokerage accounts accelerated. Then when the pandemic hit, new brokerage accounts exploded. However, this past week new accounts have once again reached new records particularly on Robinhood, which ironically has been experiencing major outages and has levied trading restrictions:

"Robinhood led the industry in app downloads last week by a wide margin, according to JMP Securities’ analysis using SimilarWeb app data. The free stock trading pioneer had more than 600,000 people download its app on Friday, compared with 140,000 on its best day in March during the Covid pandemic-fueled market rout last year."

Robinhood added more accounts this past Friday than all of the other major brokerages added during the entire month of January. Yes, you read that right:

"E-trade had its app downloaded nearly 220,000 times last month, according to SimilarWeb data. TD Ameritrade nabbed nearly 370,000 downloads and Charles Schwab had more than 75,000 downloads. Fidelity had its app downloaded 340,000 times"

Among the various bubbles, Bitcoin peaked back in early January just after Scott Minerd of Guggenheim investments gave it a $400,000 price target. From the January 7th high at $42k, Bitcoin fell -30% and bounced off the 50 day moving average. It appears to be a spent bubble deja vu of late 2017 when Jimmy Altucher predicted Bitcoin would reach $1 million by 2020.

 

Next comes the short squeeze bubble masquerading as populist uprising. What is touted as the masses occupying Wall Street is in fact merely a late cycle short squeeze deja vu of 2008. Gamblers are bidding up heavily shorted left for dead cyclicals under their belief in a fictional recovery. The more the stocks go up, the more they are deluded by their own capital misallocation.

This short squeeze will contribute to the extreme velocity of impending decline. 

Here we see via Gamestop what happens to EVERY short squeeze stock once the shorts have covered. 

Wholesale collapse. It's not just shorts who got burned, it's latecomer longs who got demolished as well.

“With volumes in all the hot stocks collapsing, silver attack met by margin, Robinhood having to seek fresh collateral at a rampant speed, the signals that the retail mania could unravel rapidly are aligning,”

The heavily shorted retail ETF peaked last week and is down 25% this week:

This week the Reddit mob attempted to organize a silver pump and dump, but it imploded after only one day.

Not a good sign for the number of fools left to follow. 

Arguably the biggest bubble of 2020 was the green energy, solar, electric vehicle craze. This bubble kicked off one year ago with the widespread divestment from fossil fuel energy. Then, when Biden got elected this bubble went parabolic.

Looking at the largest Alt-energy stock by market cap, we could make the case that this EV bubble is also running out of gas.

Pun intended.

Then of course there is the Virtual Economy/Technology bubble. This bubble which includes Cloud internets, semiconductors, software stocks, MAGA cap stocks etc. has been extremely persistent. Likely because in terms of total market cap it's the most ubiquitously owned bubble in the S&P 500.

Like every other bubble, it's merely a bubble in asset inflow momentum.

When this bubble explodes, it will be spectacular.

BTFD: Buy The Fucking Depression

In order to fulfill their mission of illusion, central banks NEED investors to ignore all risk and continue to allocate capital as usual. Investors have come to believe that volatility is a buying opportunity. Which is why even as the magnitude of each crash has grown, the increasing dislocations have been assiduously ignored. This blog exists to point out the many obvious ignored reasons why there is no happy ending to this tale of immoral hazard...

mor·al haz·ard

"lack of incentive to guard against risk where one is protected from its consequences"

Here we see the risk adjusted S&P 500 as imputed by price / volatility. In markets, volatility is a proxy for risk. The VIX is always elevated in bear markets, as it is now. However, compliments of the central bank Jedi Mind Trick, we are now in a "bull market" making recent new highs, attended by recession-level volatility. Something we've never seen before. For a reason. Investors are convinced they can get bailed out of any magnitude of crash.

We are about to put that fantasy to the ultimate system test.

"Gambles said this could cause a “systemic event” if brokerages begin to fail, highlighting Robinhood’s trading restrictions in various stocks last week. The commission-free trading app introduced the new controls after receiving a $3 billion security deposit request from the National Securities Clearing Corporation on Thursday, its CEO Vlad Tenev revealed on Monday.

However, Gambles also suggested that there could be a systemic risk from the hedge fund side."

 

What this chart above foretells is the end of the line for monetary euthanasia. The papering over of economic depression using massive amounts of liquidity. Those buying into this con job are happily oblivious to the economic devastation wrought by COVID. Four times as many jobs have been lost globally as were lost during the Great Recession. The S&P / VIX above visibly depicts the unprecedented amount of risk investors are willing to accept due to their lethal faith in central banks. 

“This has been the most severe crisis for the world of work since The Great Depression of the 1930s. Its impact is far greater than that of the global financial crisis of 2009,” said ILO Director-General Guy Ryder. The fallout was almost equally split between reduced work hours and “unprecedented” job losses, he said.

In addition, and more lethally, investors point to depression-level interest rates to justify ludicrous valuations. Stocks can no longer be properly valued in this Disney environment, because forward profit estimates now have the veracity of a Magic 8 ball. Which is why fundamentals no longer matter. All that matters is the daily drip feed of central bank dopium into the arms of monetary heroin addicted momentum chasers.

Unfortunately, zero interest rates - in addition to inducing infinite stock prices, also means that conventional monetary policy has no economic impact. Hence, the erstwhile "economy" is now entirely dependent upon the U.S. Congress, and the weak majority held by Democrats.

When this all explodes unexpectedly, the bailouts that follow will not be market friendly. They will be targeted at the middle class. They will be inflationary, and they will cause a paradigm shift in the investing landscape at a time when the market is scraping rock bottom. At that point, it will be impossible for central banks to both monetize the chasmic deficit aka. "GDP", and lubricate markets back to all time highs. The paradigm shift to middle class reflation won't allow it.

Which means that gamblers will be trapped owning bankrupt stocks in a dead-end stock market, which will be extremely volatile. They will be end-of-cycle bagholders, in the Wall Street tradition.

Over the past three decades, Japan has already amply proven that none of this stimulus chicanery works. They've also proven that central banks buying stocks directly doesn't offset zero economic growth.

December 2020:

 

This is what we can expect when this charade ends - a big sideways chop and many false promises. 

Until such time as policy-makers figure out that there is no such thing as free money.

 

"Which Stonks Should I Buy In A Meltdown?"

This is the type of cogent analysis you won't get anywhere else in Disney markets. While most of the world is focused on the Gamestop pump and dump "revolution", they are ignoring the true Ponzi risks growing by the moment...

However, a few of us understand what is at stake:

"The stock market turned into a spectacle to rival Super Bowl LV this week, as retail investors and hedge funds faced off over GameStop stock. Tom Brady and Patrick Mahomes will have a hard time providing as much entertainment to viewers around the world as this latest step in the gamification of financial markets."

Every bubble is associated with redistribution, and much of the alpha that professional investors boast about is nothing more than timing gains that are redistributions from other parties. The current populist moment in financial markets, like many other populist moments, will only serve to amplify that redistribution toward the rich and informed, all the while suggesting that it is doing the opposite."

This last point can't be overstated. This so-called populist movement to "democratize" markets is merely going to make a handful of early pump and dump specialists extremely wealthy at the expense of the fools that follow. For every one person enriched by these schemes, there will be multiple losers, none of whom will be interviewed by CNBC.

Getting back to the key point of this post, the inevitable meltdown of Disney markets. When this meltdown gets fully underway - which may well be the case already - we won't have time to reflect on the various dislocations. Therefore, we must think about these things ahead of time. I fully expect that most of these predictions will come true, however the timing will be the hard part, which I leave to the reader to discern.

First off, this event will put Disney markets to the ultimate system test, and they will fail. Market structure has been eroding for years, ignored by regulators.  Whereas the casino almost came unglued last Spring, the violence of this decline will break the market. First off, algos will step back from the market, taking liquidity down to zero. Brokerages will go offline. ETFs will implode. Circuit breakers which are meant to slow market decline will prevent traders from selling their positions and therefore prevent markets from clearing. Panic will ensue. At 2:00 pm each day margin clerks will liquidate gamified investors. Selling any positions they can, indiscriminately. Which means that no "stonks" will be safe havens. 

The magnitude and leverage of this bubble will test central banks to the breaking point. It took five weeks for CBs to get the crash under control last March. It will take a matter of several weeks again this time, however, the velocity of this crash will be far faster and far more violent. The market bottomed at -35% last time, this time we should expect a larger drawdown before they get it under control. Unlike last year, the market will not rocket straight back up. I expect some chopping and retest around a bottom as panicked investors sell. Then eventually a slow tentative rally will ensue. Confidence in Disney markets will be destroyed.

We should expect a currency crisis to erupt and spread globally due to the massive dollar carry trade that was set loose by the Federal Reserve promising to keep U.S. interest rates low indefinitely. The record dollar short trade will get monkey hammered. 

Along with a currency crisis will come an end-of-cycle credit crisis. Facing massive losses, over-leveraged lenders will step back from the market. Ponzi borrowers - which were bailed out last Spring will go into eventual default, unable to roll over their debts. The blood will be in the water.

Recall that Republican Senator Pat Toomey demanded that the Fed relinquish its special corporate bailout powers in the last stimulus bill. Which means that this time around the Fed will not have the ability to buy corporate bonds in the secondary market. Which will leave the corporate bond market open to wholesale collapse. 

As the meltdown spreads to the far corners of global assets, no major asset class will be spared. Deflation will be extreme. Policy-makers will respond with more monetized fiscal stimulus, however the effects won't be felt for months. 

The unemployment rate will explode.

Throughout this dislocation, t-bills and money market funds will be safe havens on a relative basis. And gold of course will be the ultimate safe haven, although it too will experience "volatility". I believe gold will go down initially and recover ahead of other asset classes.

Gamble at your own risk.  

Going forward, policy reforms will be market unfriendly - higher taxes on the ultra-wealthy, and the inevitable reregulation of Wall Street. The stock market will trade in a wide trading range for the foreseeable future, as policy focus turns to the long neglected economy.

All that said, from crisis arises opportunity. In the days to come I will be combing through the IBD (Investors Business Daily) innovator 50 list to determine which growth stocks to buy on a "dip". What could be the buying opportunity of a lifetime. Clearly green energy will be a key space for the coming decade, and this pullback may be a golden opportunity. From the ashes of the Dotcom bubble arose many of the Tech leaders of today. Those who bought Amazon at the nadir are long since retired. 

Those who think all this can't happen are ignoring the fact that it is already. Coincidentally, this coming week is the third anniversary of the 2018 Vixplosion, when Trump's tax cut blew up in their faces.

The set-up is identical:

Jan. 26th, 2018: BofA Risk Indicator At Cusp of Sell Signal

Jan. 22nd, 2021: BofA Risk Indicator At Cusp of Sell Signal

Good times.

The Last Jedi Mind Trick

This week, faux Millennial populism jumped the shark from Occupy Wall Street to coordinated pump and dump. While Gamestop and AMC junk stocks captured all of the attention, the REAL risks were ignored. In the SEC tradition...

This week in a nutshell:

"The jump in the rankings for financial apps represents a massive interest among the general population in retail investing through apps like Robinhood or Webull. Reddit’s jump is due to the popularity of the forum Wall Street Bets, where the GameStop boom began"

This is one of the best signs we have yet that the retail boom has gone mainstream."

"It's time"

Occupy Wall Street, indeed. It's times like these when being a bearish blogger is almost entirely pointless. The animal spirits are running rampant, and any amount of risk can be easily explained away. The bullish arguments are so specious that it's pointless to even try to warn people. The level of risk right now is unprecedented in casino history. 

There were multiple outages across all of the major retail brokerage companies this week. The only concern all week surrounded new restrictions on trading junk stocks. There was absolutely no concern over the outages themselves. The SEC is now investigating trading restrictions while ignoring the pump and dump schemes hatched on Reddit. Over on Zerohedge, pump and dump schemes are being compared to populist uprisings. According to this new narrative, "the people" have had enough, and are now taking their revenge by bidding up Gamestop to asinine valuations. Historical parallels to the French Revolution, as depicted on South Park. 

"Life, liberty, and day trading"

Step back for a reality check from the ironic perspective of generational warfare.

For all intents and purposes, the Boomers all but destroyed the economy. Some would say that's too harsh a statement, but intentional or not that's what happened. When measured by the wholesale outsourcing of manufacturing, the degraded quality of jobs, the demolished benefits and job security, the bilking of Social Security to pay for tax cuts, the non-amortizing Federal debt now conflated as GDP, the doomed dollar etc. etc. Voodoo economics. All to bid up the stock market to asinine valuations to provide the illusion of full Boomer retirement. 

So now the fleeced Millennials, facing zero economic upside have exacted their revenge by turning the stock market into the world's largest casino, at the end of the longest cycle in U.S. history. Which has put this entire Ponzinomic enterprise at risk of explosion.

Suffice to say, there will be plenty of pain to go around when the overwhelming majority lament that no one saw it coming. Of course no one saw it coming, it's been coming for so long, these jackasses assumed this unsustainable gambit would continue forever. The more ludicrous it became, the more they believed in it. 

This blog exists solely to inform that this society is cornered by dumbfuck ideas. Unlike Japan, there will be no decades of deception. Monetary asset Ponzi is now a global phenomenon.

It was quite a week in the Casino. The S&P 500 ended the week camped at the 50 day Maginot Line. Bulls will need to pull a rabbit out of their ass to prevent wholesale meltdown next week, as the S&P ended at the lows of the week:

The VIX was up 60% on the week:

"It becomes self-fuelling: the more the Street steps back, the lower the liquidity"

Reddit day traders forced hedge funds to deleverage their portfolios on the short side AND the long side. It's called "grossing down" in portfolio management parlance. The unintended consequence of day trading revolution - Reddit delinquents watching their portfolios self-implode.

"Hedge funds can be forced to sell (long) holdings as losses on shorted stocks mount."

Ten VIP stocks that are hedge-fund holdings include: Fiserv (FISV), Uber Technologies (UBER), Booking (BKNG), Expedia (EXPE), Sea (SE), Caesars Entertainment (CZR), Micron Technology (MU), Pinterest 

Pinterest Inc.(PINS), Carvana (CVNA) and Peloton Interactive (PTON).

Those 10 stocks are down an average of 9.2% over the past five days."

Europe is also camped at critical support:

The Global Dow is going full 2018 deflation mode:

Bueller?

One thing I know for certain as I hedge my bets on NeverNeverLand exploding - the grasshoppers on the other side of this trade can't afford to be wrong. They don't have a plan for when con jobs are no longer sanctioned by the SEC. 

In summary, gamblers were notified a year ago with the COVID outbreak that the status quo is over. But, they wanted one more blow off top in risk seeking Ponzi markets, lubricated with insane amounts of central bank liquidity.

The hangover from which will be brutal.

"What does that reset look like? Schwab and his colleagues are pushing the concept of “stakeholder” capitalism — an approach to business and economic policymaking that looks beyond the interests of shareholders and toward the well-being of society"

At least 225 million jobs disappeared worldwide over the past year — losses that were four times larger than what was exacted by the global financial crisis more than a decade ago"

To the Oligarchs pretending to care about the rest of the world now that their monetary inflated wealth has reached biblical proportions. 

Too late. 

MELTDOWN MANIA

In the U.S. there is now bipartisan support for market imploding pump and dump schemes. How else would this all end?

Joe Biden inherited the worst economy in 90 years, the worst pandemic in 100 years, and the biggest end of cycle asset mania in U.S. history. All compliments of McDonald Trump, the most derelict reality TV president in developed world history. The people who still believe in this government run Ponzi scheme specialize in being idiots. The only thing they won't believe, is the truth.

These Disney markets are a direct reflection of this society. NeverNeverLand is on a vacation from economic reality sponsored by central banks. Back in the Dotcom days, we didn't have any Reddit WallStreetBets forum. We had Yahoo message boards. Which started out with congenial discussion and then quickly descended into a toxic waste dump overrun with anonymous trolls. Which is why I don't take comments on this blog, because it attracts the dregs of humanity. Nothing back in those days was as "sophisticated" as these Reddit bear raids however. That's how Jim Cramer refers to these pump and dumpers, he lauds them as sophisticated. In the same way Bernie Madoff was sophisticated. Sadly, most of the people engaging in these pump and dumps will get wiped out financially. A small few will make massive profits at everyone else's expense. Those leading the attacks will surreptitiously cash in their chips while they are still cultivating the enthusiasm of others. And then, they move on to the next one, and the next one, until there is no one left to follow.

Now Congress is getting involved to protect the rights of the Reddit Mafia, because everyone knows the right to pump and dump stocks and implode brokerage companies is a Constitutional right. According to these bipartisan morons, those of us investors who have been prevented from making trades due to outages caused by group market manipulation have no rights, only the kids manipulating stocks have rights in Disney markets. 

It's abundantly clear these politicians are totally clueless as to the risks posed at this intersection of monetary liquidity overdose, extreme over-valuation, and speculative pump and dumps schemes. Wait until these brokerages go off line for hours at a time, then these bipartisan idiots will realize WHY the brokerages restricted Ponzi gambling. But it will be far too late for that realization. The accumulation of ignored risks and flash crashes has been taking place for over a decade.  

Here we see via the hourly chart, the condition of the last Trump Casino is quite parlous at this juncture. Late yesterday, the lower trendline was tested once again. Today's rally bounced back to retest the upper trendline of the rising wedge channel. And was rejected. A solid break of the lower trend line portends meltdown. 

Here we see that yesterday second derivative volatility was the highest since the last meltdown. VVIX measures the sensitivity of implied options volatility (VIX) to the underlying S&P 500. When VVIX is elevated, it means that small moves in the market create outsized moves in implied volatility, which creates outsized moves in the market, as hedging becomes more expensive. It's a momentum feedback loop in the wrong direction.

Nasdaq total volume is setting new records this week. Usually volume recedes on rallies and rises on selloffs. Not in this meltdown mania.

Picture what happens when the Reddit mob discovers the sell order for the first time. 

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

"Most of the selling is completed in the early stage by big players and the participation is from general public in the later stage"

It is a common saying that smart money is out of market in such formation and market is out of control"

"About 44 circuit-breaker halts were triggered in the first two hours of trading Wednesday amid the rapid ascension of amateur investors armed with Robinhood and their favorite social media platforms"