Reversal Of Fortune 2021

I have long asserted that Disney markets will implode everyone who believes in them. Now that prediction is coming true in broad daylight while well conditioned gamblers tighten the noose for the bungee jump off the cliff...

One year ago shocked gamblers were dumping economic cyclicals to buy "work from home" Tech stocks. Now, one year later, they are dumping Tech stocks to buy economic cyclicals. This will be the largest rotation in market history, as automated "quants" are set to reverse their portfolios at the one year anniversary:

"One of the decade’s most successful quant strategies is poised for a dramatic March makeover that threatens fresh volatility for a stock market already reeling from the turmoil in technology shares"

“The violent downdraft (and subsequent rally) of last March is poised to create the most turbulent rebalance ever for momentum-based strategies”

In other words, don't worry, this is just getting started:

The Nasdaq is massively oversold and therefore due for a bounce. However, there is no sign of capitulation and no reach for protection which is why Tech stocks keep going lower:

Since Thursday afternoon, the S&P 500 crashed 120 points, rallied back 90 points, crashed 90 points and rallied back 120 to unchanged. That's a 10% round trip in one day. If you stepped out to have a life, you missed it. 

Volatility scalpers don't realize yet that there has been a regime change:

The jobs report came in today at DOUBLE analyst expectations. Not what the bond market and Tech trades wanted.

Also, EM currencies not happy:

Here is where it gets interesting going into next week.

Late last week marked the low for Treasuries. This week, the t-bond market attempted to rally several times despite a deluge of inflationary bad news, including the highest inflation rate since 2008. Next week, the new stimmy package is due to get signed AND March is set to have double the record new Treasury issuance:

"Net issuance of Treasury bonds and notes are set to hit an all-time high of $414 billion in March, almost the twice of the previous record"

I think we all see where I'm going with this - T-bond shorts covered today into the jobs report news, which put a bid under Tech stocks: 

Recall that Senator Toomey (Pennsylvania) demanded that the Fed relinquish its special bailout powers in the December Trump stimulus bill. Which is why corporate debt - the most levered debt market on the planet - is rolling over hard. This time around, the Fed WON'T be allowed to buy corporate bonds in the secondary market. Which is why Bill Ackman's big short is going to make even more money this time around:

What a difference one year doesn't make. 

There are even more morons this time around than there were a year ago. We learned this week that Robinhood is planning their long awaited IPO, just in time for meltdown.  

We can see where bears were this week last year. This entire one year rally was human history's biggest bull trap.

History will say that the COVID rally was the blow-off top in a decade+ Tech rally:

We were told back in the Y2K era that end of cycle value rotation could hold up the market, they were wrong -50%. We were led to believe in 2008 that value rotation would hold up the market, they were wrong again -55%. Now we are told that end of cycle value rotation will keep the market from imploding. They are wrong. The entire energy sector has a market cap less than Tesla.

When this end of cycle value trap rotation ends, there will be no "winners" in Disney markets, except the usual psychopaths.

Any questions?

Denialistic Self-Implosion Is A Consensus Trade

Exactly one year from the COVID meltdown and gamblers have converged on the lethal consensus that the pandemic is over and a new cycle of delusion has begun...

The all things Tech "work from home" trade is officially over. Cramer said so himself just today. Unfortunately, the world's most overbought and overowned Tech fund is already in a bear market. Wednesday's close triggered the first Nasdaq Hindenburg Omen since February 2020:

"A rise in the 10-year Treasury note yield to around 1.47% on Wednesday has underpinned the rotation out of tech and tech-related companies and into energy and financials, which are expected to perform better as the economy recovers from the COVID-19 pandemic"

Wood told CNBC recently that she’s not perturbed by yields and is anticipating a pullback, vowing to double down on some bets"

This chart is a reminder as to what ALWAYS happens to over-crowded consensus dumbfuck trades. They work great on the way up, and then they give up three months of gains in two weeks on the elevator ride down. You can see via volume by price (side green/red bars) where most of the dumb money is trapped. At the top:

This chart below shows how quickly the Nasdaq morphed from record overbought back to one year oversold. The last time breadth was this weak was the first week in March 2020, just before the wheels came off the bus. 

Good times.

Whereas Technology stocks were officially the most crowded trade of 2020, the most crowded trade of 2021 is of course the reflation trade and economic cyclicals - retail, banks, industrials, hotels, airlines, and of course energy stocks. Energy was the worst performing sector in 2020 and so far in 2021 it is the best performing sector. 

There are several seminal reflationary events taking place this week. First off, Fed chief Jerome Powell is speaking today which is always good for boosting inflation expectations - he did not disappoint: 

"Powell did acknowledge the rapid rise in rates recently caught his attention, but said the Fed would need to see a broader increase across the rate spectrum before considering any action"

In other words, the Fed is going to let inflation run hot, and in the meantime Tech stocks and other deflation trades will spontaneously implode. Which includes the bond market of course. 

The second major event this week was the OPEC meeting which just concluded with a decision to maintain current output levels. This is the best news possible for oil and energy stocks, meaning that the best case scenario is now getting priced into the best performing sector of 2021:

In addition, there is the Biden stimulus package which is now heading for the Senate. The goal is to have it passed and signed by the end of next week. All indications are that it will pass.

Next, there is the monthly jobs report for February which is Friday morning. All of which is setting up a no win situation. More reflation expectation implodes the Tech trade, bonds, and Emerging Markets. A weak jobs report implodes the most crowded consensus trade of 2021. 

"Emerging-market bonds are becoming increasingly vulnerable as Treasury yields climb with the level of 2% on the U.S. 10-year note likely to trigger major outflows"

The velocity of the moves in U.S. Treasury yields are now intensifying at a time when both hard currency and local emerging-market bonds are more vulnerable to such a move,” 

In summary, the risks of this ALL IN gambit, now extend across global stocks, bonds, and currencies. 

Fittingly, amid all of this ludicrous amount of risk, this week is the debut of a new Reddit-driven pump and dump ETF. 

You can't make this shit up:

“The product is a little mind-blowing,” said Tyler Gellasch, executive director of Healthy Markets. Gellasch thinks that the ETF “appears to be capitalizing on what could very well be determined by SEC and FINRA to be market manipulation,”

What could go wrong?

An Unrequited Faith In Printed Money

The beginning of every new cycle has always been a leap of faith for investors. However, this time it's a fatal one. What was once standard business cycle investment strategy has now been reduced to Fed sponsored mass deception, at the happy intersection of Wall Street conflict of interest and rampant denial...

The wolves of Wall Street are using the cycle playbook against rube investors and those who should know better, under the fake auspice of a whole new cycle. The question they are all ignoring: Are inflation pressures greatest at the beginning of the cycle or the end of the cycle? At the end obviously. And yet we are seeing cycle high inflation expectations right now. The highest since the end of the last cycle:  

"Early inklings of inflation were evident in data from the Institute for Supply Management this week: Measures of prices paid jumped to their highest levels since 2008"

Which begs the question, can massively over-leveraged credit markets and the global pandemic housing bubble really afford this recovery? 

The answer ironically, is of course, no. We must remain in a permanent state of deflation OR else we will explode the credit market. This current path of ever-growing fiscal stimulus packages is the path of greatest explosion. 

Historically, central banks increased monetary stimulus at the beginning of the cycle to reliquefy markets and buy time until the economy caught up with asset prices. Taking their cue from central banks, markets have always responded ahead of the underlying economy. The leap of faith has been that the economic recovery would follow. In the good old days, monetary policy stimulated BOTH markets and the economy. 

This time however, the Fed has no interest rate ammunition left. Therefore, beyond bidding up asset prices to asinine levels, the only "economic" function of monetary stimulus is to finance never-ending Federal stimmy payments now fully conflated as "GDP". In other words, the role of monetary policy is now to assist with the illusion of recovery. 

This of course is all Japan-o-Nomics on steroids. The overuse and abuse of recurring stimulus gimmicks, preventing any and all policy changes that would be necessary to rebuild the economy. Levitated markets merely provide the illusion that it's all working.

And why would otherwise sane money managers buy into this fraud? Because they have no choice. Global interest rates are so low that money managers are on a constant hunt for "yield" and markets pinned to all time highs give the illusion of perpetual yield. Be that yield from bonds, from dividends, from selling options, selling volatility etc. It all works great as long as the bubble never explodes. Because below the fragile veneer of Disney markets is the dead zone of imploded yield seeking. Which means that "strategies" that work great in an up market, spontaneously explode when capital losses exceed the recurring gains from yield pickup strategies. Today's money managers are nothing more than call options on the cycle. A cycle which in their minds must continue indefinitely via continuous central bank fraud or whatever means necessary.

We have now taken the first inexorable steps down the path towards universal basic income. And the bond market is starting to wake up to this fact. What we saw one year ago in March is that it took substantial effort and several weeks for the Fed to get the Treasury bond market under control in the Japanese tradition. In the meantime, the Fed has ceded control of the bond market to reflationary forces. For all of the talk of QE controlling markets, Fed bond purchases have already failed to keep a bid under their target asset class. All of which means that leaving aside the economy, the first order financial paradigm shift we face is for the Treasury bond market to come to terms with unlimited Treasury bond issuance. A feat they have abjectly failed to accomplish to date, and one they will need to achieve DURING a global market liquidation. Suffice to say, the pikers on the NY Fed bond desk will have their hands full.

I predict it will be an epic gong show. Deja vu of last year we will see extreme two way volatility in the T-bond market. However, ultimately, the Fed will get the market under control. Even if they have to buy all new issuance for the first time in history. In the meantime while the Fed is preoccupied with the Treasury market and the overnight repo market and the basic financial plumbing, all other risk asset classes will spontaneously explode - for no other reason than being too far from the printing press. Contrary to popular belief, Go Daddy and other Tech stocks will not be safe havens from extreme deflation.  If you notice in the background of the chart below is Momo Tech (gray). These stocks have been correlated to rising yields since last March.

Last year, T-bonds were record bid in early March and then they imploded mid-month when the Fed panic cut rates to 0% and launched QE infinity (March 15th). The next day the stock market was limit down at the open. Between March 9th and March 18th the period during which the Fed initially panicked, the T-bond ETF crashed 40 points. 

This year, T-bonds are already back down to the March 2020 lows. You don't have to be a genius to see what could happen if the T-bond market crashes from these levels. EVERYTHING is priced off of Treasuries. 

When Gamestop almost crashed the stock market, that was the sign to get out of Disney markets. 

Global Implosion Is Ahead Of Schedule

One thing all of today's economists, analysts, and market pundits have in common is that they are looking in the rear view mirror while driving forward. A dangerous way to live...

Using the Dotcom March 2000 analog, the 2021 meltdown is ahead of schedule. According to last year's implosion it's right on time.

Here we see the Nasdaq circa Y2K - melted up from November '99 to March 9th, 2000. Imploded, had a three wave rally (2) and then crashed. For those who are not familiar with Elliott Wave theory, three wave retracement rallies are not bullish. 

While most pundits today are still busy upgrading their price targets for 2021, the Nasdaq peaked two weeks ago. Similar to Y2K, the melt-up began in November, but this time it peaked in February. During the past two week selloff, breadth collapsed back down to early March 2020 levels (lower pane), which has led to this oversold bounce. Last year's initial oversold bounce (circled) lasted four trading days. This bounce is on day five, having launched last Tuesday:

A three wave correction is not visible on the Nasdaq chart above, as the rally is too weak, however, three waves are becoming evident on Momentum Tech, as speculators have piled back into the highest momentum stocks.

New S&P highs never confirmed this was a durable top. Just another headfake - the least credible one we've seen to date:

Here we see the Nasdaq highs - lows. This is the fourth fake rally we've seen in three years. Each crash has been of greater magnitude. This one will be epic.

It's clear that central banks enjoy pump and dumps, since they are never the ones left holding the bag:

People always want to know, what would make me bullish?

Extreme panic on the part of gamblers and central banks. And prices at least 50% lower. And my broker still online.

Brace For Rampant Deflation

So many fools today are worried what happens if yields keep rising, that they are ignoring the real risk - what if they don't keep rising? While copious dullards are on the lookout for inflation, they are about to get trucked by deflation. Starting with asset deflation which will bring about uncontrolled economic deflation. Central banks will be powerless to stop it...

I wrote this article in response to this Zerohedge post:

Brace For Rampant Inflation

Most pundits today believe that all it takes to create inflation is Fed balance sheet expansion. If that were true then Japan would have extreme hyperinflation by now. The Yen would be worthless. However, despite having the most aggressive QE program in history Japan has been mired in deflation for over thirty years. In addition, the BOJ is Japan's largest stockholder. And yet, the Yen is STILL viewed as the ultimate safe haven, safer than the U.S. dollar. Globalization is inherently deflationary. It's not meant to create middle class wealth, it's intended to monetize the middle class to mint new billionaires. A dubious "capability" that reached record wealth inequality over the past year, in what can only be called the biggest billionaire bailout in history. And yet they STILL don't see the inherent deflation risk in this "system". Nothwithstanding this deflationary track record for forty years straight, deflation remains the least expected outcome on Wall Street.

Once again, the reflation trade is the most crowded trade on Wall Street right now. As we see via the graphic above, the consensus belief currently is that the vaccine rollout is leading to inevitable recovery which will accelerate in Q2. In the meantime, the ongoing stimulus is "building a bridge" to full recovery. The reflation narrative assumes that the record asset bubble continues growing unchecked, to infinity. However, in my view the asset bubble is the biggest risk to this fairy tale. When the Dotcom bubble exploded in March 2000, the Fed had 6% of interest rate buffer to cut to offset recession. They used 4.5% of it. This time, the Fed has zero % interest rate buffer. Which means that "stimulus" is entirely dependent upon a fractured Congress who can't agree on anything. Even within the Democrat party, fault lines are now appearing between fiscal moderates and the radical left.

The pandemic has made economic reflation far less possible than it was one year ago before the crash. Post-pandemic, we now face too much unemployment, too much debt, too much corporate insolvency and of course far too much asset speculation. Central banks have ALREADY lost control of risk asset markets, which have been levitating vertically towards a lethally overbought condition. A correlation of "1" in which all unhedged speculators are on the same side of the ultra crowded reflation trade - across stocks, bonds, and currencies. Fittingly, by pushing asset valuations to unprecedented levels, speculators have made their expected outcome far less likely to occur.  

Today's pundits who make the least sense are the ones who acknowledge the insane asset bubble AND who predict imminent hyperinflation. Do they not understand what inflation does to interest rates and bond markets? It explodes them. It ends the economic cycle as it has every other time in U.S. history. As it's doing now - reflation continues just long enough to create a credit crisis:

Of course the current back up in yields is minor compared to what we have seen in the past. Only now, yields are back to December 2019 levels, after $7 trillion of combined monetary and fiscal stimulus aka. 30% of the economy.

Here we see the oil market as a proxy for global recovery aka. lack thereof. 

The fact that central banks no longer have control over risk markets will soon be evident to even the most stoned of gamblers. They have been fully willing to ignore the risk as long as overall markets were marching higher. When it all explodes lower, they will not be quite as complacent. What took five weeks one year ago to get markets under control will likely take even longer this time. However, the real problem will be economic, as policy-makers won't have the ability to adequately stimulate the over-leveraged economy.

Given all of these risk factors, I currently don't see any serious prospect for sustained reflation on the horizon at this time. 

Gold is confirming what I see right now - stoned gamblers chasing risk in the biggest bubble in human history while making up stories about economic reflation to justify asinine valuations. They are reaching for maximum leverage going into an economic depression.

A lot of hot air, just waiting to explode. 

The Age Of Fraud Is Imploding

In the spirit of the times, the burden of truth remains on those of us who still believe in the truth. For those who are massively leveraged to more, there is only more fraud, more corruption, and more self-delusion, ending in unforeseen collapse...

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.

Rewind exactly one month to the end of January. The Gamestop debacle had monkey hammered the casino on massive volume. Growth stocks got pounded. On the last trading day of January which also happened to be a Friday, the casino was likewise camped perilously at the 50 day moving average. Here is what I wrote:

"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"

In other words, this week was literally identical to the last week of January. And of course back then bulls DID pull a rabbit out of their ass.

I know what you are thinking. I must have learned my lesson by now and seen the error in my ways. Based on the above identical technical set-up I must assume the market will ramp higher from this level. No thanks. I will NEVER trust Disney markets. Nevertheless, one must respect the fact that these algos will do everything possible to hold that 50 day moving average.

So now we must look around for what divergences attend this precarious scenario versus one month ago. First off, we should recall that this week is the anniversary of last year's meltdown. Only this time around, the preceding melt-up was far larger. 

Exhibit B shows individual investor bearishness now versus one year ago. Back then, and this year as well, bears pressed their bets into the first selloff, but then they reversed course during the ensuing melt-up. Looking closer from a month over month perspective notice that last month with the S&P at the 50 dma bears were much higher (Jan. 25th). This week, they let their guard down. Which makes this set-up similar to last year - a bull trap followed by a trap door. 

That's the good news for bulls - a set-up deja vu of last month with the possibility of one last bounce to get out through a very narrow and crowded exit. 

The bad news is that the smart money already left the building. And now there is massive technical damage on a scale we never saw one month ago:

Here we see the massive (weekly) volume in the World's most popular ETF, the Ark Innovation Fund. Note that in terms of price, the past two weeks erased year to date gains:

Similarly (large cap) Momentum Factor is negative on the year, and broke the trend-line going back to last March.

Tesla - the world's most overbought and overowned Tech stock is below the 50 dma for the first time since last March:

Outside of Tech, safe havens are bidless due to the bond market implosion this week. Stocks can no longer compete with soaring bond yields:

What about cyclicals? Surely the most crowded trade of 2021 must still be working? Glad you asked. 

This week, cyclicals rolled over deja vu of June:

Yields have likely peaked for this cycle. And now the dollar is getting set to rip. 

In summary, the February rally was a bull trap, and judging by the AAII bears above, it worked fantastic. 

Which means buckle up, because this March is very likely going to make last March seem like a picnic.

The Last And Most Lethal Bubble: Economic Delusion

Of all of the frauds and Ponzi schemes operating under the hood of this central bank sponsored vacation from reality, all pale in comparison to the economic recovery fraud taking place in broad daylight. Twelve years of post-2008 monetary bailout is now reaching its logical conclusion - a super asset bubble masking economic depression. Pump and dump schemes have been officially normalized...

This week Fed Chairman Jay Powell painted a bleak picture of the economy in his testimony to Congress. He also pledged to keep monetary policy on full throttle until the economy improves. Therein lies the problem, his own policies have created the biggest divergence between fantasy and reality in U.S. history. His stark view of the economy could not be more at odds with the opinion of the markets he has assiduously over-lubricated, which have now priced in a better economy than what abided pre-pandemic.

Cyclicals at the end of the cycle is where money goes to die:

"Fundstrat Global Advisors’ Tom Lee sees a major market shift underway in which Big Tech starts to greatly underperform economically sensitive stocks."

“We’re two months into something that could be playing out over the next 10 to 20 years.”

The market bottomed on March 24th, 2020, which means we are now eleven months into mass delusion on a biblical scale:

The other massive disconnect the Fed has created is between the working class and the casino class. Wealth inequality has exploded to record highs during the past year as service sector workers were laid off en masse while white collar workers enjoyed a paid staycation, spent online gambling. COVID accelerated all of the built in inequities of the U.S. economy, and in signature form, the beneficiaries of this "system" are ignorant as to the plight of the working class. They are judging the "economy" based upon their own unrealized casino gains, while ignoring the five years of job loss that has yet to be repaired.

The fact remains that today's policy-makers have no clue how to fix the economy. Today's economists are money printing experts and financial alchemists. This generation knows how to outsource an economy but they have not even the slightest clue how to get one back. The engineer CEOs of yesteryear have long been supplanted by overpaid marketing and finance Mad Men. All of which portends ongoing stimulus dependency for the foreseeable future. Each round larger and more dramatic. 

However, among the many distortions caused by printed free money, a massive stock market bubble is only one of the deleterious side effects waiting to implode. This week, the bond market is getting annihilated by the prospect of infinite stimulus. The efficient "free money" hypothesis is getting tested in the bond market, and it's failing:

The irony can't be overlooked:

Feb. 24th, 2020:

By not raising short-term rates, the Fed is pushing inflation expectations and long-term rates higher:

In their infinite bureaucratic wisdom, global central banks have decided that printed money is a proxy for a real recovery. Today's momentum chasing gamblers - themselves economically illiterate - have been easily seduced by the asset sugar high. Fully believing that the stock market actually reflects economic fundamentals, when nothing could be further from the truth.

An intentional delusion that central banks have been cultivating since 2008.

This week laggard Energy stocks are leading the market. Today, the XLE finally filled its open crash gap from last February. As we see manic stimulus expectations peaked in June and are overbought again now:

Tom Lee, double down on Energy stocks:

“The epicenter of the epicenter is the energy sector"

What awaits those who have bought into this entire fraud hook line and sinker is a sudden and very unexpected downsizing in lifestyle. One that will serve to collapse the massive gap between the wealthy and everyone else. In this way policy-makers will be successful in fixing inequality. 

Just not in the way that anyone expected.

After all, we are "early" in the cycle of criminality: