The End Of Stimulated Prosperity

It's abundantly clear that some people don't know when the pump and dump is over...

In the day to day sturm and drang it's easy to forget where we are in the implosion cycle. The permanently optimistic bulls have a way of convincing everyone that these dislocations we are seeing in markets are nothing to worry about.

Cathy Wood whose Ark ETFs sucked record capital inflows into the all time Nasdaq highs in February before falling -35% into deep bear market, is out this week soothing her trapped investors with happy talk. She says that high interest rates are great for Tech stocks so she has been doubling down on Tesla and other speculative momentum favourites. Her impending new price target for Tesla is expected to be at least double the all time high from February. She is the Mary Meeker of this era.

Over in SPAC land despite last week's monkey hammering, fake hope springs eternal. The number of listed SPACs now far exceeds the 2020 previous record.

Rising bond yields have been unkind to growth stocks. Their impact on the special purpose acquisition companies has been downright cruel. The SPAC boom has become the Spacpocalypse. Nobody should be surprised.

Tech stocks are bouncing back from yesterday's drubbing ahead of the final fiscal stimulus vote expected Tuesday night or Wednesday morning.

Here we see that after the first House vote on Feb. 27th, Tech stocks imploded lower at the 50 dma. Now the second House vote is at the 200 dma (red line). In the lower pane we see that overall Nasdaq breadth is languishing at the March 2020 super crash line.

In my opinion, Tech stocks will soon be re-testing the March 2020 lows. 

So that takes care of Techland which is hanging by a stimmy vote. But now what about this final mega bubble, fake reflationary recovery? It stands to reason that reflation expectations will peak with the vote itself. After which, it will be the most crowded trade of 2021, featuring a big crowd and a non-existent exit.

"Bond bearishness hit a record level last week as investors piled into short bets on Treasuries."

In summary, anyone who still believes that crowded trades work, hasn't been paying attention to markets in 2021.

100% Smoke And Mirrors For Everything, Alex

Over the years many people have told me that no one can predict the future. These are people I don't trust very much anymore. After the money printing insanity, comes the "we didn't know this would happen" bullshit...

None of this is about predicting the future. This is about predicting that the most asinine economic ideas in history will end badly. And that the blind followers of this gambit will be obliterated. Sure, we could choose the path of mass ignorance. We could pretend that monetary alchemy comes with no consequence. But can we really choose to ignore the truth? Can we watch the same movie over and over again, and STILL forget the ending? That takes a special mental deficiency not all of us possess. 

All of this stimulus-driven chicanery follows the path of exploitation which is the hallmark of globalization. There are winners and there are losers. The winners keep winning, and the losers keep losing. Those are the rules, and the system is rigged by continual monetary intervention on the behalf of the ultra-wealthy. Those are the people who are continually selling stock to retail bagholders in what will come to be rightly viewed as human history's biggest pump and dump. Gamestop is merely a miniature version of what is taking place in the S&P 500. In the same way that Bernie Madoff was jailed for his pissant Ponzi scheme while the real criminals got a free bailout for imploding the global financial system. 

One must ask themselves, at what point did modern democracy morph into a choice between socialism or slavery? Because that was the seminal fork in the road. Given the choice, I will gladly take socialism over slavery, however, today's conservatives still haven't figured out that it's the better choice. That will be the lesson they learn the hard way. 

Apologists for Ponzi capitalism will assert that it didn't have to be this way, but according to their own rules it did. The middle class has been systematically strip-mined of job security and job benefits for forty years straight. The new book Evil Geniuses does a great job of chronicling the recent decades of economic plunder in all of its sordid detail. A permanent stain on the Grand Old Qanon Party of McDonald Trump.  

All of which criminality exploded in 2008 leading to a perpetual state of deflationary malaise. So along came Trump in 2016 running on the idea of breaking out of the deflationary funk. His idea was to eliminate corporate taxes and borrow as much money as possible to make up the difference. Basically how he ran his businesses into the ground. By 2018, all of that "free money" had jacked up interest rates on the middle class and the market crashed into the end of the year. Fortunately in early 2019, the Fed bailed out the Casino and it was off to the races again with a few hiccups along the way as the Fed was forced to monetize a trillion dollar deficit to placate the overnight repo market. 

Then 2020 came along and we all know that story. I have said before recently that these two back to back bailouts by the Fed look very similar. Here is more proof:

Which gets us to 2021. What the Democrats are attempting right now with this current middle class bailout bill is noble, and good, and for the right reasons, however it violates ALL of the rules of Globalization. Globalization is supposed to be for the rich at the expense of the middle class. Not the other way around. This level of fiscal stimulus is surely going to blow up "the system". For good.

The seeds of destruction are documented in this article published today indicating that China and the U.S. have swapped playbooks from 2008. The Democrats remember early 2009 very well when the newly elected Obama/Biden White House was stymied by a Republican-controlled Congress which severely limited stimulus. Now it's payback time.

On the other hand, the Chinese remember all of the ghost cities that were built after 2008, and they have vowed not to do that again:

"The widening policy divergence is putting strains on exchange rates and could potentially reshape global capital flows"

Unlike many of its peers, including the Fed, China’s central bank has continued to calibrate its policy partially with a view to prevent an excessive rise in asset prices"

It's working. 

Many Chinese Tech companies are cross-listed on the Nasdaq. And they are holdings in some of the most popular Tech ETFs.

Now in meltdown week four deja vu of last year:

China pulled the world out of recession in 2008 with its massive infrastructure projects. However, the U.S. can't become the same engine of growth, because the 20% of GDP budget deficit is sucking capital out of global markets. The first order effect of higher interest rates (bond yields) is a stronger dollar. 

The Democrats remind me of Trump & Co. in 2018, totally clueless as to how global markets work. Janet Yellen reminds me as to how she was in 2015. 

Totally out to lunch. 

A Generational Meltdown

Millennials have turned the stock market into a massive casino. The results will be catastrophic for those who are now betting their retirement on the market equivalent of the Wynn Las Vegas. Multiple generations are now competing for reckless abdication of responsibility...

First, some long-term perspective, in which the worst pandemic since 1918 facilitated the shortest bear market in U.S. history (one month), following the longest bull market in U.S. history, eleven years. 

Or, a supercycle blowoff top: 

In talking to the Millennials in my life, one thing remains clear - the old man doesn't know what he's talking about. Those of us who still remember the painful Dotcom boom and bust and the more painful 2008 meltdown, are unfortunately few and far between. One must be old enough to have experienced it first hand, and still young enough to avoid mental infirmity. The Millennials who were in diapers during the first bust, and elementary school during the second, have absolutely no recollection. For educational purposes, they will now be entreated to a combination Dotcom style Tech implosion, 2008 style credit crisis, and 1930s style unemployment, all at the same time.  None of which they see coming. 

The asinine level of this entire delusion can only be considered in the context of market history. We are to believe that the shortest bear market in U.S. history - a mere one month - corrected the longest bull market in history of eleven years. You have to be brain dead to believe this shit, or just one of today's typical market pundits.

The only way to view this ludicrous fantasy is to compare the length of each historical bear market (since WWII) relative to the preceding bull market:

As I write, the latest stimulus bill just passed the Senate on Saturday, leaving one more vote in the House on Tuesday. Which means that we should be seeing peak reflation expectations priced into markets in the coming week.

This recovery is a true Millennial recovery because it's 100% smoke and mirrors. Including this latest stimulus bill, the 2021 deficit will be 20% of GDP. Debt is the new GDP. It's clear that this society is now stimulus addicted. In the spirit of full Japanification, there is no cogent plan for how to replace the five years of jobs lost during the pandemic. Were it not for the impending meltdown, all of this printed money would be hyperinflationary. Unfortunately, the massively bloated credit market can't take more than a wafer thin mint of reflation before it explodes - a process that is underway already. 

As always, Oil and Energy stocks are leading this late cycle charade, and as we see below, their three wave correction is perfectly symmetrical from the March low:

As always, some long-term context is in order:

In addition, this week is the anniversary of the Dotcom bubble explosion. And as we know, Tech stocks have been down three weeks in a row, for the first time since March Madness 2020. So what to do? Double down on risk:   

Going into this week, we are informed that the Reddit gang has been doubling down on imploding Tech stocks. Because they have what they call "diamond hands", meaning they are invincible to risk:

"Since the market peaked a few weeks ago, retail traders have plowed cash into U.S. stocks at a rate 40% higher than they did in 2020, which was a record year. They’re opting for parts of the market that have suffered the most, doubling down in arguably risky ways with triple-leveraged tech funds and options galore."

Got that? They've been doubling down on the parts of the market most exposed to inflation risk in order to front-run the THIRD massive fiscal stimulus package in the past year. Apparently they don't remember last December when stimmy 2.0 tanked Tech stocks in late December. 

Cathie Wood aka. "The Money Tree" is the 65 year old CEO of Ark Funds - the world's most popular Tech ETFs. Some observers have said that she is the Baby Boomer who invests like a Millennial.

A very apt description, as she too has been doubling down on losses for the past three weeks.

"Based on the firm's daily trading activity, Ark Invest was consistently selling large-cap names like Apple and Amazon to fund purchases of riskier companies like Tesla and Palantir"

Buckle up, because an entire generation - and those who invest like them - are about to get the lesson of a lifetime, at the point in history when they can all least afford it.

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

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

The dumb money always comes in at the end. Why break with tradition?

   

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.