The Pump And Dump Cycle Is Ending

This week - February 19th - marks the one year anniversary from the COVID pre-crash all time high. We are told by today's psychopathic financial experts that we are in the "early cycle" of recovery. Unfortunately, with respect to pump and dump we are in the glue sniffing end of the cycle...

Today marked the longest rally streak in almost two decades:

What could go wrong?

What could go wrong indeed. If you ask Wall Street, there is nothing to worry about. A pandemic depression papered over with insane levels of debt equals zero risk by today's dumbfuck standards. 

"Institutional investors aren’t finding much to be bearish about these days, according to the latest Bank of America (BofA) survey of global fund managers, an important gauge of sentiment on Wall Street"

The survey, which polled 225 investors with $645 billion in assets under management between Feb. 5 to 11, showed cash levels are down at an 8-year low, while allocations to stocks and equities are the highest since 2011. What’s more, very few see a stock market bubble presently and the firm’s so-called Bull & Bear Indicator “remains anchored at a bullish 7.7.”

These are by far the riskiest markets we've faced in our lifetimes and yet these overpaid zombies can't find any reason for concern. Mass unemployment and exploding Federal debt doesn't meet their definition of risk. Record valuations and rampant speculation, not a risk. Zero monetary interest rate cushion, no risk. 

Reduced money printing, now THAT would be a risk.

All of which deliberate denial and conflict of interest leaves to those of us who don't get paid to implode other people's assets, to determine the true level of risk at this lethal juncture. 

Needless to say, the greatest near term market risk is the fact that the people who should know better don't see any risk and are therefore taking far TOO MUCH risk. Which is a clear indication of where we are in the pump and dump cycle. 

One of the consequences of continual monetary bailouts is that the stock market is now a critical part of the "economy" due to the trickle down fake wealth effect. The prevailing wisdom has it that we are now in the early cycle of a global recovery. However, there has never been a time in human history when speculative reach for risk was at its greatest at the early part of a new cycle. 

Which is why this "early cycle" delusion is just a new lie built on top of the house of cards that has yet to explode.   

Recall that 2020 was the greatest year for IPO, SPAC, and corporate equity issuance on record. 

Below we see how 2020 compared with prior years. Notice that the low point was 2003 which was - 18 years ago. Which means that today marked the longest rally streak since the beginning of the housing bubble cycle.

Also notice the difference in equity issuance from 2003 versus now. We are to believe this is all just getting started.

Sure.

I am now of the belief that looking back, SPACs will be viewed as the subprime of this era. Not only are we witnessing ludicrous levels of SPAC issuance reminiscent of the late stage Dotcom bubble, but these largely unregulated investment vehicles are now likely hiding insane amounts of fraud:

"SPACs are essentially a pile of money with no set strategic plan beyond 'find something to buy before time runs out'"

"[Historically] SPACs were strongly associated with the world of penny stocks and pump-and-dump schemes. More recently, however, they have grown immensely in size"

Where the bottom of the barrel is and when it will be reached is hard to say, but investors should approach SPACs with the same caution they would if these entities were still dealing primarily in penny stocks"

In summary, no they don't see it coming. They are still of the belief that we are in the early stages of a new Ponzi cycle.

Unfortunately instead of getting started, this is all just melting up into a massive explosion deja vu of March 2000. Only this time, the Fed doesn't have 5.5% of interest rate cushion to prevent a severe recession. This time they have 0%, and hence gamblers will be skydiving into economic pavement. The "catalyst" for implosion will be too much junk issuance dumped into a euphoric market. 

Therefore, overall the biggest risk these markets face, is the fact that people today are idiots who will believe anything. They are call options on a doomed Idiocracy. 

Who are running out of time and money.

The Buffett Indicator:

U.S. stocks / GDP

What To Buy In A Meltdown. Part I

Ammunition?

Fortunately, my apocalyptic paranoia peaked when the orange Anti-Christ left office. The old age home on both sides of the political spectrum was very disapproving of the sacking of the Capitol. Which cues up Stephen King's Running Man - a locked down populace watching anarchy spectacle on television for entertainment purposes. Every potential miscreant now in a NSA database for rapid retrieval. All of which gets us back to the real risk - what happens in the Capitol when the politicians are in session...

I will discuss reflation (lack thereof) further down in the post, but I think we all see where I stand on the topic:

SentimentTrader has some mind boggling charts on their Twitter feed depicting this manic melt-up. They are almost as bearish as I am. Record stock inflows, record volumes, record valuations, record SPAC junk issuance, record economic risk, really what's not to like?

Aside from the ubiquitous belief in free money, the belief among bullish denialists is that all of this speculation is confined to a relatively small part of the market. Hence, it won't have any impact on the S&P 500. This is the consensus view on Wall Street and therefore what misinforms today's mass complacency:

“Pockets of the market have recently demonstrated investor behavior consistent with bubble-like sentiment,” Goldman chief U.S. equity strategist David Kostin told clients. “But these excesses present low systemic risk to the broader market given their modest share of market cap.”

Recall that the same week that article was written, multiple hedge funds imploded and the overall stock market tanked due to the Gamestop pump and dump. According to Goldman, we are to believe that the only exposure hedge funds have to the Millennials is via their short book? 

Which means that the bet now is that an entire generation can get margined out on Robinhood and that will have no effect on the overall market. What if we add in Fintech, Cloud stocks, Semiconductors, Emerging Markets, Work From Home darlings, Biotech stocks, the Russell 2000 small cap index, does that up the ante any?

Better yet, throw in big cap Tech:

Below is an index of the largest cap U.S. momentum stocks - Tesla, Apple, Microsoft, Amazon, Google, Nvidia, Paypal are the largest holdings.

What we see is that this index has now rallied three times off of the same level. Each rally is roughly one year in duration, each rally has been twice as manic as the prior one, compliments of ever-increasing stimulus dopium. Now this index is as overbought (top pane) as it was three years ago in 2018, and again in September of 2020. Which brings up a great quote from Doug Kass this week:

"No longer is the market hostage to the real economy or sales and profit growth – stuff I have spent four decades analyzing. Instead, liquidity is seen as an overriding influence, actually it has become the sine quo non. As such, historical valuations become increasingly irrelevant, and price momentum is the lodestar.“

The entire market has been turned into Gamestop - a momentum short squeeze on the way to explosion. Regulators' only concern is making sure everyone has equal access to self-implode.

The warning for how this all ends came two weeks ago when Goldman ignored systemic risk taking place in broad daylight. Record volumes were causing outages at every major retail broker. Now, they will experience far greater volumes, limit down moves, circuit breakers and offline brokers. The machines can't handle what's coming.

This week, CEOs of several companies associated with the Gamestop debacle will be testifying before Congress.

"The House Committee on Financial Services will hold the hearing on February 18, and will focus on “short selling, online trading platforms, gamification and their systemic impact on our capital markets and retail investors"

The focus of this scrutiny will primarily be on the "predatory" short sellers and the Robinhood brokerage which limited trading (buying) in Gamestop at the height of the madness. One could make the case that they saved investors huge amounts of money by preventing the stampede of newbie gamblers from buying into the Ponzi scheme. Nevertheless, the Reddit-organized pump and dump schemes at the center of this disaster have garnered the least concern and attention. Payment for order flow and the cozy relationship between Citadel and Robinhood is viewed as the greatest risk. Which means that while all eyes are focused on market makers scalping pennies in front of gamblers bidding up the junkiest stocks in the market - gamblers will be getting wiped off the map in pot stocks and penny stocks in broad daylight. 

Which of these will be the greater systemic risk during meltdown? We already know the answer to that question. Because we are now seeing record down volume in a record overbought market. And we are seeing more broker outages now than we saw a year ago during the meltdown.

Which gets us back to the Goldman Sachs hypothesis regarding systemic risk - how is this a problem for the broader market? It's a problem, because all of this speculative volume is saturating trading platforms and making it harder to trade. When trades don't execute on a timely basis then gamblers will turn to market orders out of desperation which will increase volatility in a down market. Or they will use limit orders below the market to increase the odds of execution. Either way it will be a total gong show.

It's very clear now that Robinhood is nothing more than Candy Crush slapped on top of a Citadel dark pool. It was designed to attract as many new and assiduously uninformed young investors as possible. The parts of the plumbing that are missing are backoffice settlement which became the issue during the Gamestop debacle - they didn't have the working capital to fund two day settlement for the massive number of trades; but far more importantly what is missing is platform SCALABILITY from a technical perspective. Now, in the past several weeks they've increased their user base massively. This platform was not designed to handle the type of user traffic they are now generating. If they are still in business by the end of this year, I will be very surprised. The whole application is a time bomb waiting to explode. 

In summary, what is being cast as a "populist" uprising of small investors is really just a late cycle rush into risk by the usual bagholders, while regulators do everything possible to ensure it happens as efficiently as possible.

As far as the real risk posed to markets, regulators have been asleep at the wheel for a year now:

February 2020:

"The do-it-yourself traders of r/WSB are waging a kind of guerrilla warfare in the markets, trying to exploit what they see as weaknesses in the system to move prices where they want them"

“This bull market is not going to end until the public falls in love with stocks, and that process may just be beginning”

The forum’s zest for call options is a key force behind a broad market trend"

So, what to buy in a wholesale meltdown? This will be a recurring topic as the meltdown unfolds. 

Initially of course, nothing. Stand back and watch the fireworks. When the smoke clears it will be a trader's market for some time to come - weeks, possibly months. Which means buy the dips and sell the rips in whichever trading vehicle one feels they can trust not to implode. 

It took five weeks one year ago for central banks to get the stock market under control. Interestingly, gold was only down one week of that time, but it was a major dip. I am of course referring to paper gold - ETFs and futures. 

As far as stocks go, unfortunately the bull market leaders of this era are highly overbought and overowned. When the Nasdaq crashed back in 2000, the index lost 80% of its value in two years, however there were some massive rallies along the way. This time, central banks will ensure that the trip lower is not a straight line. Nevertheless the leaders in the prior bull market rarely if ever lead again in the next bull market. 

As far as inflation risks, I see a lot of articles recently predicting imminent inflation. I am not in that camp. I believe we will see extreme deflation on the other side of the crash. I also believe it will take several quarters before policy-makers generate enough combined fiscal and monetary stimulus to get prices moving. Of course, the vaccine and virus will be major factors as well. Initially, in the everything glut, prices will fall substantially. Cash will be king for quite a while longer, as human history's largest margin call runs its course. 

I don't think that inflation is a major 2021 risk. 2022 maybe. I suspect the Fed will own the Treasury bond market the same way the BOJ owns the JGB market - by the end of this year.  

Gamble at your own risk. 

The Dumb Money Always Comes In At The End

While the Reddit horde is busy "democratizing" markets one pump and dump at a time, in the tradition of the bagholder, they are the ones buying out the hated "elites", at the very top...

Almost exactly one year later from the COVID meltdown and market conditions are even more dire than they were at the beginning of lockdown. 

This market has more red flags than a Chinese parade.

One of the basic concepts taught by William J. O'Neill in the seminal book "How To Make Money In Stocks" is the concept of distribution. Institutions require high volume and liquidity to move money around, otherwise they move the market. So whenever they see newbies bidding up the market to asinine valuations, they raise cash. Which is conveniently always at the top. O'Neill calls this risk transfer mechanism "distribution". 

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

"Over the last 20 days, an average 15.8 billion shares have traded each day on all U.S. exchanges, according to data compiled by Bloomberg. That’s just below the 16.1 billion average hit on March 25, which was the highest in at least over a decade, the data show"

“We’re seeing so many signs of frenzied speculation...This is part of the retail trader explosion.”

Indeed.

Millennial newbies who have never seen a bear market have been Portnoyed into believing their studied ignorance is the key to success. Which is why they are ignoring all of the warning signs. 

There has been no better time in history for institutions to dump record amounts of stock:

"The “Buffett Indicator” is a simple ratio: The total market capitalization of U.S. stocks divided by the total dollar value of the nation’s gross domestic product."

With U.S. market cap more than double the level of estimated GDP for the current quarter, the ratio has surged to the highest-ever reading above its long-term trend"

“It highlights the remarkable mania we are witnessing in the U.S. equity market”

The assiduous belief of the day that valuations don't matter is running into the brick wall of institutions dumping record stock on ignorant bagholders.

Recall several months ago Dave Portnoy claimed that he is a far greater investor than Warren Buffett. Now he has competition from another pump and dump leader:

 

"As a leader in the ongoing SPAC surge and Reddit trader movement, the founder of the VC firm Social Capital has been the talk of the markets lately."

It's ok, most people didn't listen to Buffett in 2000 either when he eschewed Tech stocks. Value investing is dead. Fundamentals don't matter. Buffett had the last laugh. Those who ignored him got obliterated.

Speaking of the SPAC surge, it's literally off the charts. Including this week's latest listings, 2021 has already eclipsed the 2020 record for SPAC issuance. As it was in early 2000, Wall Street is taking full advantage of this market frenzy to dump massive amounts of junk:

Mike Santoli of CNBC penned this article articulating all of the insane risks that abide this Ponzi market and then he rationalizes them away with the now standard argument that record crazy can always get crazier.

"For all the unprecedented events and unforeseen consequences of the past year, market conditions today rhyme rather closely with those of mid-February 2020, when stocks peaked right before the Covid crash."

Some of this energy was already starting to flow a year ago, but it hadn’t gained nearly as much momentum or taken on as much of a viral character...trading volumes are surging even with the indexes rallying – the reverse of the typical pattern and harkening back to a similar pattern from the late 1990s.  Equity inflows in the latest week set a new record."

Let’s be clear that noting the similar market set-up now is not remotely to predict anything like a repeat of the market collapse"

And they lived happily ever after.

The record will show that February 2021 was a fifth wave blow-off top in global risk assets.

Crypto market cap is up 50% in two weeks. To put that into perspective it took all of 2020 to achieve the same increase in market cap that took place in the past two weeks:

 

Pot stocks were up 100% in eight trading days this month, and are now imploding:

Weak bears just got rinsed deja vu of last year. What they get for ignoring this blog.

What has truly changed from one year ago, is that this is the end of the cycle and central banks are ALL IN along with stoned gamblers - ALL of whom believe that printed money is the secret to effortless wealth.

ALL Aboard Mainstream Ponzi Schemes

This era will forever be known as the time when Ponzi schemes went mainstream. Bernie Madoff is wondering why he is still in jail...

The fates have allowed for one more post prior to the end of the week.

It's a timely moment to reflect on the fact that ALL asset melt-ups end badly. There have been no exceptions in human history. Asset bubbles form slowly and imperceptibly, however as they continue they become more and more asymptotic aka. vertical. Along the way they attract more leveraged momentum capital - short-term speculators looking for a quick buck at everyone else's expense. By the end there is far too much leveraged capital chasing glue fumes. When the momentum reverses the leverage unwinds, painfully. Hot money is what implodes asset bubbles. 

In every bubble there are of course the true believers. The buy and holders who believe the underlying narrative driving the bubble. These are the people who get demolished by the inevitable bubble implosion. Most bubbles turn out to be ephemeral, however, a handful go on to become the household names of our time - Microsoft, Amazon, Apple etc. Nevertheless each of those aforementioned stocks during their time has exploded and lost the majority of their value. In the curious case of Apple, that company went from being the most successful personal computer company of all time (early 1980s), to being crushed by Microsoft (late 1980s), to $3.56/share and bailout from Bill Gates (1997), and now back to the most valuable company in human history with a market cap of $2.25 trillion. For Microsoft the last major wipeout was Y2K when at all time peak revenue and earnings growth the stock went vertical and exploded in 2000, losing 70% of value in one year. The most profitable company in history that everyone assumed could never go down, was dead money for 15 years. Yes, you read that right. The Y2K high was finally eclipsed in 2015. That is the best case scenario - a software monopoly having the largest profit margins in U.S. history. For every other asset bubble it goes downhill from there. In a market such as this one, most of today's bubbles are merely call options on the cycle. At the moment they have unlimited access to cheap capital to fund their profitless ambitions. What today's newbies call "total addressable market" (TAM), which is code word for no revenue and no earnings. In this environment it is widely believed that fundamentals do not matter. However, when the cycle ends and the credit markets slam shut, companies with a high cash burn will implode. That is the fate that met most Dotcom companies. This time however, the capital lockdown will be far more brutal.

The last time we saw a spike in the Russell / Dow ratio on this magnitude, was the last time the credit markets slammed shut:

Fittingly, Bitcoin which creates absolutely zero value, has become the locus of this global everything bubble. Bitcoin is up 175% since the election - from $13,000 to $49,000 - making it the most overbought asset class on the planet. However, in addition it is now massively over-owned, as hedge funds have belatedly jumped on board the runaway train. In addition, Square and Paypal are now allowing their users to buy Bitcoin directly through their mainstream Fintech platforms. One analyst stated last Fall that Square and Paypal are now the largest buyers of Bitcoin. However, more recently, other analysts have claimed that the Bitcoin trust has become the largest buyer. And who is the largest buyer of the Bitcoin trust? It's the Ark Funds Web ETF run by the "Money Tree" Cathie Wood, head of the fund family that has garnered the largest asset flows since the pandemic began. And then of course Tesla now owns Bitcoins. 

The three largest holdings within the Ark Web ETF are now levered to Bitcoin:

There is now a Ponzi Bitcoin, inside a Ponzi Bitcoin trust, inside a Ponzi ETF, all of which are seeing record fund flows:

As with all bubble narratives, there is a grain of truth at the center of the Bitcoin bubble. Gamblers now believe that all of this stimulus will lead to hyperinflation and dollar debasement, and of course it very likely will in the fullness of time. However, to believe that the dollar is a greater risk than a Ponzi asset class with a past history of crashing 80%, is a fool's gambit of the highest order. It's jumping out of the pan into the fire. Long before we get to hyperinflation, the asset bubble fueled in no small part by front-running hyperinflation, will explode. An event that will lead to hyper-deflation.

The $.9 trillion in stimulus that was passed less than two months ago is already wearing off. Apparently a trillion dollars doesn't go as far as it used to.

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

Today's newbie gamblers can be forgiven for never having experienced a Dotcom bubble or a housing bubble. They have no idea how much fun it can be when it all explodes "without warning". Nevertheless, they are making up for lost time in this everything bubble. 

When everything explodes at the exact same time, they will catch up fast. 

Gold knows what's coming, which is why I still believe it will bottom first.

So the question on the table, will Bitcoin be the wafer thin mint that explodes the pyramid asset bubble?

We will soon find out, in any time zone.

But is Bitcoin the world's biggest Ponzi scheme?

Of course not.

A Fatal Bubble

The asinine arguments being used to justify this unprecedented bubble will be fatal to those who believe them. Only an abject fool uses a global depression to rationalize high stock prices. On the other side of this "event", it will be cold comfort to claim that "no one saw it coming". Contrary to ubiquitous belief, when it comes to mass delusion, there is no strength in numbers...

The same argument is used over and over again by every Wall Street analyst - interest rates are low and central banks are pumping money. These groupthink analysts are driven by their need to crowd their investors into this lethal bubble before it gets larger. Another ludicrous rationalization they share is to use the Dotcom bubble as a basis to justify ludicrous valuations. Interest rates are lower now, whereas the Fed was tightening back then, and of course today we have fiscal stimulus. Everything is better right? They are comparing record profligacy in a pandemic depression now, to the strongest economy in decades during Y2K, in order to rationalize an epic asset bubble. The Dotcom bubble came amidst a booming economy and a Federal government surplus. It was the best economy since the 1950s and nothing anything like it has been seen since - the closest being the peak of the housing bubble. Somehow these fools actually believe that the inverse of the best ever economy is a superior environment for owning stocks. The weakest economy in 90 years, zero percent interest rates, and of course epic money printing.

All of which means no economic safety net. 

When the Dotcom bubble exploded, the Fed took rates down 5.5% to buffer the economy, which is why the recession of 2001 was relatively light. This time, the Fed will be able to cut rates 0%. Which means that the pending $1.9 trillion fiscal stimulus equal to 10% of GDP, will be wholly inadequate compared to what is going to be needed. Today's economists, market pundits, financial advisors, and CNBC media mannequins have all lost their minds. In doing so, they have put the entire system at risk. On the other side of this explosion, the sheeple will lose all faith in central banks, economists, financial advisors, and markets.

The average person may have an excuse to believe "the experts", however those make-believe experts who are abetting this epic disaster have no excuse. 

For those readers who are making their buy list of what to pick up on the cheap post-explosion, be careful not to catch a falling knife. Too many companies onboarded debt during the pandemic under the ubiquitous belief that a new cycle was beginning. They assumed they would delever their balance sheets post-pandemic. When that recovery is replaced by human history's largest margin call, those companies will be dead money. I am of course referring to cyclicals such as hotels, retailers, and airlines. Some will survive but the majority won't. The ones that survive will be extremely valuation challenged until capacity comes out of their respective markets. On the other side of this meltdown, there will be a glut of everything - retailers, shopping malls, aircraft, hotels, condos, Bitcoin rigs, and anything else that can be sold to raise cash.

Below is a chart of revenue passenger miles going back to year 2000. After 9/11, every major U.S. airline went bankrupt (Chapter 11) except American. However, after 2008, American was the only airline that went bankrupt. Why? Because unlike the other carriers they never delevered after 9/11. They were the sole survivor but they were a zombie company, that got wiped out by Lehman. Until American Airlines came out of bankruptcy in 2011, the other airline stocks were dead money, because there was too much capacity in the industry. When American re-structured and reduced capacity, airline ticket prices took off and the stocks went along for the ride.

Now they are all zombie companies once again. And this time the plunge in passenger miles makes 9/11 look like a picnic:

Barring imminent meltdown this may be my last post before the long weekend in the U.S., as Monday is a market holiday. 

Suffice to say, I am epic bearish right now.

All of these seemingly unrelated "events" taking place in markets are sending a blizzard of red flags.

Looking at risk exposure, we see that the Rydex ratio just hit a new all time high today:

 

Nasdaq down volume just hit a two day record in an up market. 

We've never seen that before.

Momo Tech continues to defy gravity. For now.

Stacking these indicators against the global Nasdaq shows a reach for risk we've never seen before. In the middle pane at the bottom is the market breadth indicator showing the manic reach for micro cap junk stocks.

The event that will end all of this insanity is called "sell". And no one caught up in this manic everything bubble sees it coming.

The one thing they all have in common, they all believe they can get bailed out from their own epic stupidity.

A delusion the Japanese have been recycling for thirty years.

Race Into Risk

There exist no superlatives that are sufficient to describe the level of risk at this lethal juncture. Newbie gamblers are convinced it's their abject lack of knowledge that gives them an edge over staid investors. They will be surprised to learn that's not how this works...

Recently I was updating my checklist of the risks that await unsuspecting gamblers on the other side of this manic melt-up, none of which are factored into current economic projections:

Impending currency crisis

Impending credit crisis

Mass unemployment

Monetary depletion

Over-capacity/everything glut

Loss of confidence in central banks

COVID mutation

Financial re-regulation

Stimulus dependency

Today's gamblers have been assiduously brainwashed into believing that this fake recovery is real. When it's only a stimulus driven illusion aided and abetted by their own misallocation of capital.

Of all of the February highs, this pandemic driven melt-up is by far the least sound from an economic perspective.

Here we see the ten day moving average at each of the key February turning points:

Recall that the Dotcom bubble experienced its final melt-up into early March, 2000. Then as now when the New Year struck, markets went late stage parabolic. Aside from epic greed, clearly central bank over-stimulus and Biden's election are key factors in this global melt-up. Another factor I mentioned in my last post is Chinese New Year. It appears that Asian gamblers have been front-running the New Year knowing that there would be five trading days when they would be offline, starting this Thursday in Asia (tonight in the U.S.) through next Wednesday.

Year to date, Chinese internet stocks are the top performing country-specific ETF traded on U.S. exchanges. Picture what happens when there is no one around to keep these stocks going vertical. Last year it didn't go so well:

There are other non-country specific sectors of course that are even hotter, specifically Bitcoins and pot stocks, now up 200% year to date on epic volume:

But how to explain this rampant pump and dump mentality that is now driving markets? Suffice to say, if Bernie Madoff was still in business today he would be a renowned financial celebrity almost as dangerous as Suze Orman. 

Dave Portnoy is one of the most widely followed celebrity pump and dump leaders of this era. His day job is running Barstool Bets which is an online sports betting company that was acquired by Penn National Gambling early last year. Using his newly acquired wealth, he re-invented himself as an expert investor during the pandemic when all of the sporting events were cancelled. Portnoy evinces a simplistic sports betting view of markets that has now taken over markets - you bet on the Buccaneers, you win, bet on the Chiefs, you lose. Unfortunately, in markets it doesn't work that way. Those who follow Portnoy into his stock bets are bidding up his returns at their own expense. His portfolio is the beneficiary of his large following, each of whom will experience a diminished level of returns, most of which will be negative. This simplistic idea of bidding up one's own returns is now endemic to markets - evident in everything from Bitcoins to pot stocks. The Reddit gang has decided they've discovered the secret to effortless wealth. However, for their gambit to continue working they need a constant stream of new fools to follow. 

Recall it was the Gamestop pump and dump that triggered record downloads of the Robinhood trading app two weeks ago. We now learn that half of the Gamestop buyers were first time traders.

“After studying some of the insights, we learned that half of the consumers that we saw deposit money into Robinhood and purchase GameStop stock – 50% of them had been new, first-time traders. And on top of that, 50% of them made their largest ever DIY day trade ever over the last four weeks"

This story tells the tale of how it ended for these newbies:

"GameStop stock’s climb in recent days captured the international spotlight as a “David vs. Goliath” tale for the digital age: a madcap web of everyday Joes winning billions of dollars from short-selling hedge funds that had bet on the stock’s collapse."

But with the stock having plunged about 80 percent since last week’s peak, the whiplash also highlights how so many investors, lured by the promise of a gold rush, have been quickly dismantled, with help from stock-trading discussion boards and apps that make it easier than ever to invest — and lose — a fortune."

Here we see that - no surprise - dollar volume in Gamestop peaked the day the stock hit $480:

Elon Musk who has recently been pumping Gamestop, Bitcoin, and of course his own ludicrously overvalued stock, has now been pumping a penny crypto called Dogecoin. A crypto that was started as a joke. 

Which is why on some message boards they are now calling him Enron Musk.

"The billionaire’s endorsement last week of Doge as “the people’s crypto” — cheered by KISS rocker Gene Simmons and rapper Snoop Dogg — sent trigger-happy Reddit traders stampeding into the canine-themed coin. As a result, its price is up around 1,000% year-to-date, eclipsing Bitcoin’s rise."

The deeper fear is that if Dogecoin ends up just another YOLO (You Only Live Once) pump-and-dump in the crypto timeline, it will reflect badly on all tokens — even Bitcoin"

What if it reflects on massively over-valued and over-owned car companies? That will be the REAL pain trade for Enron Musk followers - when sales collapse and the company is no longer cash flow positive. 

Of course, all of this frantic reach for risk means that an entire generation is on the cusp of being financially obliterated. Today's regulators are sitting on their hands with the view that organized pump and dumps can't be regulated.

When this all explodes with extreme dislocation they will all change their minds about that at the exact same time, but it will be far too late. The dislocations we've seen to date DURING this melt-up phase are merely a warning as to what is about to come. 

 

As a measure of reach for risk, we see here that Microcap stocks - the riskiest stocks in the market took a mere 7 months to eclipse their early 2020 high. And subsequently they have gone parabolic. Back in the 2008 Lehman timeframe these stocks took six years to eclipse their 2007 high.

This epic Ponzi scheme is on borrowed time and money.