Meltdown 2.0: In Progress

The amount of rot and fraud under the hood of this Fed sponsored pump and dump is unprecedented in U.S. history. When it all explodes "without warning", the Idiocracy will be shocked at how much criminality they enjoyed while it was working in their favor...

On the anniversary of Meltdown 1.0, ALL of the COVID bubbles are imploding at the exact same time: Bitcoin, EV/Tesla, SPACs, MAGA cap Tech, Work from home, pot stocks, biotechs, and EM Tech...

Sadly, the usual bagholders have no possible way of knowing that the party is already over. One of the downsides of being addicted to bullshit.  

Last year during the first week of meltdown, I noted that the BTFD impulse had conditioned gamblers to calmly self-implode. The slow motion implosion was a surreal moment, as it is right now. The perma-bullish financial media will take a few days or weeks to catch on to the fact that the party is over, because their audience is in no mood to believe it. By the time they figure it out, it will be far too late. Over the past week there have been four overnight selloffs that led to morning crashes in the U.S. - each one of a larger magnitude, and yet each one got bought. 

Then as now, post-opex the Nasdaq 100 crashed into its 50 day moving average and backtested it from the underside. By Friday of that first week, the 200 dma was the first level of support. Which is another 10% lower from current levels.

The World's most popular ETF traded 600% of average volume today.

The largest holding of the Ark Funds is of course Tesla, which has now entered a bear market along with BitCasino. Two Ponzi schemes tied together to see if they'll float:

"Tesla shares have fallen into a bear market, down over 20% from the recent high, and some analysts suggest the company's ties to bitcoin are to blame as the currency takes a beating"

Ark Web's two largest holdings are Bitcoins and Tesla

I read a message board comment recently saying that Cathie Wood is the only Boomer who trades like a Millennial.

100% pump and dump and proud of it.

Speaking of which, Nasdaq selling pressure is at March 2020 levels of distribution. The smart money is hitting the dumb money bid.

Today, one of the most high profile SPAC deals revealed itself to be another pump and dump at home gamer expense. Shocking as that may sound. These unregulated private equity vehicles are a con man's paradise. 

"Amateur investors have crowded into Klein’s SPAC in the hope of backing the next Tesla Inc. They did so before knowing the terms of the proposed transaction or the state of Lucid’s finances. Gambling doesn’t always pay. 

The big winner here is Lucid’s principal shareholder, the Public Investment Fund of Saudi Arabia"

Despite the widening overnight gaps, so far, the algos are keeping options volatility compressed. However, as we see below, last year volatility shorts were reducing their positions into the event, whereas this year they have been pressing their bets.

The potential for volatility explosion is far greater this time around: 

Of course we never saw this much delusion a year ago:

There is an algo driven pattern to these Disney markets that is intended to monetize as many people as possible in both directions. Which means that when the bubble final explodes, most home gamers will be wiped out.

And then there will be nothing left to show for the virtual simulation of prosperity, and its acolyte QE, except for an enraged populace. Bilked by the usual psychopaths. 

Again. 

Lowering The Boom On Bullshit

Somehow these amnesiacs STILL haven't learned that the good times are only for the ultra-wealthy. When the economy booms, the party is over...

The deflation trade is getting obliterated while the fake reflation trade goes late stage parabolic, corralling bulls into the riskiest stocks at the end of the cycle. A necessary and sufficient event for full explosion.

They are about to get a boom, just not the kind they are expecting:

New York Times, Feb. 22nd, 2021:

Indeed.

Below, this is the Wall Street consensus now: Excessive stimulus and skyrocketing interest rates are good for value stocks and hence good for the overall market. The Y2K Tech bubble will now explode without any consequence:

"As reflation occurs with excessive fiscal stimulus, rising money supply lifts commodities, a positive for value versus growth"

Recall that Tesla now has a greater market cap than the entire energy sector, so how is a rotation to commodity stocks that leaves the largest cap stocks bidless, going to forestall casino explosion?

It won't. 

Tesla just closed below the 50 day moving average for the first time since the March meltdown. Another bubble bursting:

In addition, commodity and energy stocks always rally late in the cycle, which should be a warning to today's over-stimulated risk junkies. There is no such thing as "value" in this market. Traditional value stocks e.g. energy, financials, retailers, airlines, hotels, etc. have zero earnings visibility and are trading based upon Magic 8 ball derived forward earnings estimates. These stocks also have far too much debt and weak balance sheets. They are not value companies, they are value traps, and as I showed in my prior post most are already in a bear market. 

Below we see the CPI relative to 2008 - the last time we saw a late cycle headfake commodity rally. In that event, oil crashed 70% in a matter of weeks. Quite painful for those who bought into the asinine idea that inflation was coming in August of 2008. They believed this exact same fairy tale nine months into a recession on the eve of Lehman, so why wouldn't they believe it now?

All they have to believe now is that amid the worst unemployment in 90 years, a locked down economy, and a deficit at WWII levels, reflation is imminent. Clearly, reflation expectations have been ratcheted down over the past decade to Japanified levels of non-existent growth, and oil demand at a decade low. 

What will it take to create real inflation? It will take a paradigm shift away from bailing out the rich to bailing out the middle class. So far these "stimmy" packages have been too little too late. At best they are merely stopgaps to fill in the chasmic hole left by mass unemployment and a locked down economy.

In any event, the reflation argument is already self-destructing. Higher inflation portends higher interest rates which are lethal in the largest credit bubble in human history. As I've said before, interest rates will rise just long enough to explode the debt bubble at which point headfake reflation will be monkey hammered by a deflationary credit crisis:

Bonds and bond-like product are already imploding:

The safest stocks have left the building:

Tech stocks are going bidless.

Today was another record day for down volume in the world's most popular Tech ETF:

On my Twitter feed I made note of the fact that this current overbought bailout rally is literally almost identical to the 2019 Fed bailout. 

Then as now, running on glue fumes and rampant bullshit. 

A RAGING HANGOVER

When the sheeple realize they got conned into human history's biggest one way pump and dump and obliterated on the eve of global economic depression, I predict there will be considerable societal "acrimony". The only benefit of imploding in human history's biggest moron bubble is being able to claim no one saw it coming...

Historians won't understand how the worst global pandemic in 100 years spawned the biggest asset bubble in human history. After all it's a well known fact that the economic dislocations from the pandemic are four times worse than the global financial crisis, however stoned gamblers have been fully euthanized by central bank monetary heroin. This manic RISK ON party only makes sense in the context of the non-stop monetary bailouts since 2008. Dopium stoned gamblers have been conditioned to believe that the decimation of the economy is "good news" for stocks. The hangover from this final delusion will be brutal. 

“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”

One year later from the beginning of the 2020 meltdown and gamblers are celebrating mass unemployment and record debt accumulation by bidding up stocks to insane valuations. 

Depressionary interest rates and "free money" are the cat nip fueling this manic rally. There is no concern for the fact that these same 0% interest rates portend economic obliteration on the other side of global margin call.

Such is the overwhelming belief in free money that the "experts" on Wall Street can't think of anything to worry about right now. One minor pump and dump in Gamestop three weeks ago almost brought down the entire financial system, and yet professional money managers are too high on monetary crack to realize their careers will soon be ending.

"Up 75% from March, the S&P 500’s gain dwarfs all previous bull markets at this stage of the cycle since the 1930s"

“Whether it’s herd mentality, or fear of being left behind, that’s what you’re seeing.”

Dated from the last bear-market bottom, the boom cycle is young -- 11 months, versus five years for the median bull market...a majority of money managers in a Bank of America poll this month viewed the current bull market as being in a late stage"

Got that? According to today's "experts", this is a young bull market that is in its latter stages, so they are buying it with both hands. With that kind of logic it's clear they owe their careers to central banks. The inconvenient truth is that this was all just a headfake rally in a bear market that started one year ago. This was always how it was going to end. Money managers ALL IN at the top. Clearly when it explodes they will all look like fools, however the stampeding herd always believes there is strength in numbers. 

I keep a chart list of what I call the "COVID implosion" stocks. These are the industries that have been blighted by this virus. What we notice is that they are all three wave corrective, which means they are in a bear market:

Energy stocks have been the worst performers since the March low. This overlapping correction shows wave 'c' is barely above wave 'a' which ended last June. 

Among the most beaten down cyclicals, regional banks have enjoyed the deepest retracement

History will show that this COVID rally was the blow-off top in the risk rally that began back in 2008. Useful idiots bought the story that last year was late cycle, and the blowoff top was early cycle. You have to be brain dead to believe this shit, which is why few people questioned it. 

They got conned by the usual psychopaths. What's new?

Ponzi Schemes Are The Hottest Asset Class

One year on from the biggest meltdown since 2008 and global central banks have happily sponsored human history's biggest pump and dump. While D.C. regulators were busy interrogating Robinhood for their pissant Candy Crush trading game, they were ignoring the true Madoff acolytes down the street in the Marriner Eccles (Federal Reserve) building. The ones who have enticed record amounts of capital into a zero sum Ponzi scheme known as the Dow Jones Illusional Average. What we are witnessing now in global markets is ludicrous insanity that will end with the majority of investors wiped out in every risk asset class...

This was the headline that attended the S&P 500's all time high this week:

"Business borrowing “now stands near historic highs,” the U.S. central bank said in the report. Even though large cash balances, low interest rates, and renewed economic growth may dampen problems in the near term, “insolvency risks at small and medium-sized firms, as well as at some large firms, remain considerable."

Got that? The Fed sees considerable risk of business failures, so the solution is excess liquidity to inflate an asset bubble in the riskiest companies. The smallest and riskiest companies have been outperforming the overall market massively. Year to date, the S&P 500 is up 4%, micro caps are up 27%. Since the election, micro caps are up 55%.

The junkiest stock are leading the "market":

All week I read that Bitcoin is now replacing gold as a safe haven asset. 

You can't make this shit up. Even formerly intelligent people such as Jeff Gundlach was saying he prefers Bitcoin over gold. Suffice to say, like all billionaires Gundlach owes 90% of his wealth to central banks and taxpayer funded bailouts. So it's entirely understandable why he has forgotten how markets used to work.

I'm not saying gold is a safe haven from impending meltdown, but I have to believe it will be safer than a digital Ponzi scheme.

"Gundlach tweeted he’d been a long-term gold bull and U.S. dollar bear, but has turned neutral on both. Bitcoin may well be “the stimulus asset”"

Bitcoin is winning over institutional money managers and possibly siphoning cash from the gold market"

It only took over a decade and a price increase from under a dollar to $55,000 per Bitcoin to get the Idiocracy on Wall Street to believe that this virtual currency is a better safe haven than gold. Too many monetary bailouts have turned today's money managers into momentum chasing idiots. I predict that just as Bitcoin and crypto led on the way up in terms of performance, they will also lead on the way down in terms of meltdown. In other words, the exact same fate that has attended EVERY other pump and dump we've seen in the past decade, including Bitcoin itself three years ago in 2018. Recall it was the creation of Bitcoin futures on the CBOE and CME that fueled its melt-up and subsequent meltdown. This Idiocracy is the only society that has fallen for the exact same con job in the same cycle. It's a dubious accomplishment to be sure. Most pump and dumps that lost 80% of their value are dead money for decades. 

As I said on Twitter it was a cliffhanger of a week deja vu of options expiration one year ago. Algos kept the casino pinned to the all time high on Friday, but then the next week all hell broke loose.

Time will tell.

As interest rates soared on the back of rising inflation expectations, cyclicals were the story of the week. 

Gold is sending a clear signal - there is no reflation in fake reflation.

There is only a looming credit crisis temporarily obscured by human history's largest asset bubble

What do I call these people? 

Stoned gamblers:

"Barstool Sports founder Dave Portnoy believes there is opportunity in so-called "sin stocks...I'm very familiar with that space"

'People love to gamble and the retail trading shows it'

Indeed.

Unfortunately, like Gamestop three weeks ago, pot stocks are a spent fraud:

Rest assured, Wall Street will keep dumping junk into this market, until it explodes. This is the new subprime:

"With filings by blank-companies flooding in at a record pace, one new listing captures the spirit of the surge...Just Another Acquisition seeks trade on the Nasdaq Capital Market under the symbol JAAC."

Thirty trading days into the year, 145 new special purpose acquisition companies, or SPACs, have gone public in the U.S. -- an average of 4.8 per day.

At this pace, it will take less than a month for the volume to surpass last year’s $83 billion, which is more than the previous decade combined"

Today's Ponzi gamblers don't have to worry about getting out.

They won't.

Dangerously Close To Explosion

This week we learned that Gamestop almost broke Disney markets. How will we explain this to the grandchildren. In 2008 we had a global credit crisis and in 2021 we had a Reddit-organized pump and dump scheme carried out on a candified iPhone app called "Robinhood", designed to entice all juvenile order flow to the world's wealthiest hedge fund. You can't make this shit up...

Tomorrow is the one year anniversary of the pre-COVID market top. What has changed since the pandemic began? MAXIMUM RISK TAKING and the gamification of markets. Unfortunately, the system can't handle this level of gambling...

“We have come dangerously close to the collapse of the entire system and the public seems to be completely unaware of that, including Congress and the regulators”

Imagine one year on from the worst market meltdown since 2009, and the greatest stress markets have seen during the entire pandemic was caused by a pump and dump scheme on a stock that started 2021 at $1 billion in market cap. 

What changed during the past year? The rush of newbies into the market, the mass gamification of trading, and of course rampant pump and dump schemes.

All of these factors have continued to propel Nasdaq volume to new all time highs this week. As I've said several times, volume usually peaks on selloffs and recedes on rallies. So it's extremely ominous to see astronomical volume at an all time high. It does not portend well for a global RISK OFF event which is long overdue:

Of course what happened with Gamestop was merely a warning of what is about to take place. That particular short squeeze merely led to the type of epic volume that one would normally expect during a global selloff. If the machines almost crashed due to one tiny stock, imagine what happens when Tesla, Amazon, Apple, and Microsoft suddenly go bidless.

Which is where this all gets interesting, because one of the consequences of this late cycle headfake burst of inflation is that it has caused a massive rotation away from Tech/deflation trades.

For example the most popular Tech ETF, the Ark Innovation Fund has seen massive distribution (down volume) over the past week:

Chinese New Year ended yesterday and on the first day back, Chinese stocks got monkey hammered deja vu of last year:

Looking at this chart of new S&P 500 highs, we see several red flags. First and foremost the fact that new highs have been shrinking for three years now. Also we see that this year new highs peaked a month ago in January. It's the same pattern we saw last year - a peak in January and a lower peak in February during the terminal melt-up phase:

This is an interesting chart - Virgin Galactic went parabolic last year and again this year - top ticking the end of the rally. A propos of all of the virgin space cadets gambling right now, under the supervision of Dave Portnoy whose claim to fame is running an online sports betting operation. A skill that transferred seamlessly to the world of pump and dumps - someone always has to lose...

In summary, it would be extremely ironic and yet fitting if this Alice in Wonderland stock market rally exploded one year later from the pre-pandemic top. Last year they claimed somewhat dubiously over a month into the pandemic, that no one realized the global pandemic would spread to the rest of the world.

This year, we already know what they will say - exactly what they've been brainwashed to believe:

It was the beginning of a new cycle

The Fake Inflation Supernova

The consensus view is inflation, which is why they are about to get trucked by extreme deflation. All too often, conventional wisdom is the former and not the latter...

For some reason I personally can't explain, today's pundits are constantly expecting inflation, when the predominant paradigm for 40 years straight has been deflation. Not since the late '70s and early '80s has the U.S. experienced anything close to sustained inflation. Of course those who claim otherwise will always say that the price of this or that has risen far faster than the overall economy - primarily healthcare and tuition. Nevertheless, the true definition of inflation is a general increase in prices. In a wage constrained environment, price increases in one area of consumption must be offset by reduced demand in other areas. Whereas inflation is too much money chasing too few goods, deflation is too little money chasing too many goods. The one thing they have in common is that under both scenarios the middle class is falling behind. 

In the U.S. per the Future Shock prediction, workers have been increasingly marginalized by corporations seeking to increase profit margins after every major downturn, by downsizing their workforce. Most apologists for corporate profit maximization are obligated to blame the Federal Reserve and low interest rate policy, however low interest rates are the result of corporate rationalization, not the cause. Anyone who has actually worked in a major company in the past thirty years knows this to be true. In the absence of real growth and demand, cost cutting is the only way to increase profit. What broke the back of inflation in the early 1980s was supply side economics and the dismantling of labor protections. Free trade made it extremely profitable to outsource to countries having no labor or environmental standards. The result in the U.S. was increasing under-employment, which first primarily affected working class men, however in the past two decades the trend towards marginalization has moved up the chain to include technical professionals, increasingly obsoleted by H1B visas:

Future Shock:

"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."

Corporations don't want to retrain people, they find it far more profitable to layoff one obsolete skillset through one door and hire another more up-to-date skillset through another. Today's resume specifications are so narrow that those who do not have the exact qualifications are never considered. Ironically companies constantly complain of a skills shortage. These same companies are the ones that were laying off workers at the end of the previous cycle. Churn the workforce often enough and soon long term under-employment becomes endemic. And with that persistently falling demand comes deflation and low interest rates. Debt soon becomes the "economy". 

This phenomenon is well known and well ignored. Therefore it's only fitting that at the end of the longest cycle in U.S. history, the main reason these people don't see it ending, is because of their own studied ignorance of the true economic problem in America. Per Econ 101, at the end of the cycle cost pressures build on constrained resources. However, under the deflationary paradigm I just described, labor is not a constrained resource, it's in mass surplus, so wage pressures are not causing this transient blip in inflation. What is causing this short-term burst of inflation is central bank liquidity bidding up commodity prices. Oil futures speculation is feeding back into the CPI and PPI, causing the usual dunces to assume that it's 1979 all over again. You can fool these people over and over again an unlimited number of times. They don't get it.

Note that producer prices are NOT at the highest level since 2009, they are rising at the fastest rate since 2009. Big difference. However, most people are easily fooled by catchy headlines. Here we see the PPI is lower than 2009, 2011, and most recently 2018. And prices are tracking oil.

Of course they got fooled in 2008 as well:

This is oil demand going back three decades. This bounce off the 1993 bottom gets us back to the 2011 level - meaning a cool decade of demand has been lost and is not coming back any time soon. 

I could show myriad charts depicting the devastation to the Energy sector, but suffice to say this past year has been a paradigm shift for Big Oil. As I write, Tesla has a larger market cap than the entire Energy sector, yes you read that right. In 2020, Exxon was replaced in the Dow after 100 years, by Salesforce.com. The amount of capital that flowed into green energy in the past year through direct and indirect investment is incalculable. 2020 was the year of Electric Vehicles and green energy. Nevertheless, as it is with all early stage industries, most investors will soon get obliterated. Speculation has taken over the market and valuations are ludicrous. When the smoke clears, the real winners will eventually emerge. However, some of them will have to be restructured first, meaning the stockholders get wiped out.

Here we see that Tesla is carving out a topping pattern very similar to last year. It peaked in early February and then sold off towards the end of the month:

Cyclicals are a consensus trade on Wall Street, which is where they will get obliterated, same as last time.

Except this time sans bailout.

What about all this stimmy money? Where is it going?

It's going to credit card payments, overdue rent, food, and Robinhood accounts where it has been bidding up Bitcoins on the assumption of imminent inflation.

No discussion of inflation would be complete without a discussion of Bitcoin which is now officially the biggest bubble outside of the Dow.

Bitcoin is now equal to Tesla in value. What do I mean, market cap? No, I mean one virtual currency unit will now buy a Tesla Model 3 with all the bells and whistles. How anyone thinks that a single currency unit should be equal to the value of a luxury car is asinine on the face of it. One year ago it was a used Honda Civic ($5); this past November it was a new Camry (~$20k), and now it's a decked out Tesla or BMW. Today's crypto "experts" are predicting soon you can buy a used condo with one Bitcoin aka. $100k. 

Bitcoin perfectly embodies all of the deceptions of this era - it's a Ponzi scheme, it has zero value, it's bid up under the deluded pretense of imminent inflation, and it's going to wipe out latecomer speculators on a trillion dollar scale.

In summary, the entire "system" is now just one big fucking con job. There is now an entire generation of Bernie Madoffs running amok, while regulators focus on ensuring everyone has equal access to pump and dump schemes. 

For those of us realists, it has never been more important to be mindful of the words of Warren Buffett - what the wise man does at the beginning, the fool does at the end. 

And realize that the true believers in exploitation were never going to see this coming.