THE SUM OF ALL RISKS

Only by extrapolating the past into the indefinite future can today's financial Ponzi schemers ignore this stupid level of risk. Fortunately for them, their job is made easy by the fact that the sheeple only want to be told that the future will be exactly like the past. They are not capable of believing anything else. 

Of course when this epic mass deception spontaneously explodes "without warning", that will be a different question. 

What follows is a summary of the risks that have been growing to extremes over the past year since the March 2020 low:

First and foremost global markets have been fully "Gamestopped"  by central banks. Meaning we are watching a continuously rotating pump and dump from one sector to the next. Last year, the crowded trade was Tech stocks. The narrative at the time is that we were in a secular bull market for the new virtual economy. Gamblers flocked en masse to the "Money Tree" Cathy Wood and her Ark investment ETFs only to realize it was a mirage. Tech is only part way through its bear market. Wall Street deserves a lot of credit for collapsing the Tech bull market, because when Biden was elected they said the deflation trade is over and the re-opening reflation trade is the next bull market. We went from having a massive Tech bubble to now having a massive cyclical bubble. Based on the exact same specious narrative that valuations don't matter. Valuations mattered in Tech, and they are starting to bring down cyclicals. 

You know the financial system is fatally weak when a pump and dump scheme in a pissant stock can almost crash the system.

"We have come dangerously close to the collapse of the entire system and the public seems to be completely unaware of that"

The first leg down of the Tech wreck saw record Nasdaq down volume. A minor taste of what is coming. 

The next widely ignored risk is Japanification - the use and abuse of stimulus gimmicks as a proxy for a real economy. This is a synthetic recovery currently running on 27% combined fiscal and monetary stimulus. It's the full virtual simulation of prosperity. Today's bulls have no thought or concern for the chasmic and ever-increasing deficit. Worse yet, the fiscal multiplier has collapsed, meaning that fiscal stimulus is having an ever decreasing impact on the economy. In the tradition of Japan, the economy is now dependent upon continuing massive deficits. It's not "stimulus", it's life support. 

While fiscal policy is having a lessening impact on the economy, monetary policy is having no effect on the economy. Monetary policy's only use now is to juice markets. At the 0% bound, there is nowhere to go with interest rates, which means there is NO monetary safety net for when this mega bubble explodes. This stimulus dependency has led to stimulus overload in the markets. All global risk assets are now massively overvalued. Another risk is that the Fed has now lost control over Treasury bond yields. They can't rein them in because more QE will cause inflation expectations to rise. This week saw the largest stock to bond rotation in a decade. And yet bond yields STILL rose on the week. Bond yields will continue rising until the stock market explodes, led by Tech stocks. 

Speaking of rising bond yields, back in 2018 Trump's tax cut caused U.S. bond yields to rise which monkey hammered Emerging Markets. Now, the same thing is happening due to Biden's stimulus package and the impending Infrastructure program. It's sucking money out of global markets back to the U.S. and driving a massive dollar rally. It will be extreme irony when this next meltdown originates in China, as it did in 2015 with the Yuan devaluation. 

No discussion of risk would be complete without the discussion of margin leverage and overall extreme speculative appetite. Global gamblers are under the belief that central banks are invincible and hence there is zero hedging taking place right now. Complacency is rampant, and there is a stupid amount of risk being chased. Nevertheless, the dominoes are already falling in SPACs/IPOs, pot stocks, Chinese stocks, work from home stocks, Biotech, cloud internets, Fintech, and electric vehicles.

Of the three major rallies in the past five years, this rally has been the narrowest in terms of new highs participation. This is a sign of a market that is under constant churn and sector rotation. Each sector getting pumped and dumped until there is nowhere left to hide.

Another risk that Cramer raised earlier this week and then forgot about later in the week, is the MASSIVE amount of stock issuance coming to market via SPACs and IPOs. As he put it, this glut of supply is already overloading the market, and it will keep coming until the market breaks. SPACs are this era's subprime, they are riddled with fraud - and deja vu of 2008 regulators are arriving too late. 

"The SEC is looking into potentially illegal activity related to SPACs, according to people with knowledge of the inquiry"

Imagine getting this far down the page without talking about massive unemployment. It speaks to the total alchemization of markets that the economy is always a distant consideration. One year from the pandemic onset and there are still five years worth of jobs missing. Non-farm payrolls are at 2015 levels. Due to Globalization, the U.S. economy is now in a state of structural deflation. Which means that profits are now taking a disproportionately large share of GDP, and wages are taking a record low amount of GDP. Wages can't rise due to the high unemployment and extreme global deflation that is being imported. Neither political party currently has a plan to acknowledge this issue, much less fix it. See stimulus dependency above.

Another risk that is seldom mentioned by today's Madoff-acolyte financial pundits is the fact that corporations have been gorging on debt for the past year. Unlike every other cycle in U.S. history there has been no deleveraging during this recession. We are to believe that this *new* cycle will merely pile on to the debt super bubble from the longest cycle in U.S. history.

Sure. 

In summary, getting back to the first topic of fragile markets. In momentum markets such as these, the buyers are above the market, and the sellers are below the market. Central banks have ensured that everyone is on the same side of the boat - they just sponsored human history's biggest short covering rally, led by beaten down retailers which may or may not even be in existence a year from now. One year from the March lows and due to the massive margin leverage that has accumulated in the meantime, the machines can no longer handle a RISK OFF event. They will step aside, and the market will go bidless. The margin clerks will be in charge and stonks will be sold at any price to raise liquidity aka. "cash", which will soon be in very short supply. 

Last week we got a preview of what's coming. 

Stonks will be dumped by brokers at any price. Why? Because if they don't, another broker will front-run them out the door to avoid the billions in broker losses that were reported this week.

$10 billion from one minor hedge fund. 

The biggest risk of all of course is what I call "bailout risk". Which means that when the middle class gets wiped out in stonks again, the amount of rage will be quite unfathomable.

After all, who told them this was the beginning of a whole new cycle?

Inflation peaks at the END of the cycle, that's Econ 101. These people can be conned over and over again. 

April Fools

The difference between 2008 and now, is that back then there was only one Bernie Madoff running amok. This post-COVID recovery period will be viewed as a time when the full arsenal of Wall Street criminality was used against the public. It's a con man's paradise. Biblical meltdown is base case scenario...

First, for some perspective, we should bear in mind that ALL bubbles end badly. There have been no exceptions. Not even Bitcoin, which has already enjoyed multiple -50% drawdowns in its short lifespan. Why people are crowding back into something that has proven to be spectacularly unstable, is not for me to say. Call it the power of eternal delusion.

As relative strength shows (top pane), this thing is running out of gas, despite the fact that it has finally garnered Wall Street's full adoption. Recall that the last massive crash (-80%) in 2017 took place after the CME and CBOE implemented Bitcoin futures. That was the top. Now Goldman just announced they are selling Bitcoins to their base of useful muppets. 

 

Recall that for most of 2020, Tech stocks were deemed the most crowded trade. As we know, that super bubble is already well on its way to re-tracing the path of the Dotcom crash, about one month ahead of schedule. In addition, the Biotech vaccine bubble is imploding. The EV/SPAC bubble is imploding. Pot stocks, Gamestop and Reddit pump and dumps, and of course Chinese stocks. China led the recovery out of the pandemic and now they are leading the decline, as the sugar high wears off. There are more bubbles in this timeframe than we've seen at any time in past decades. All as a result of the central bank sponsored sugar high. The losses are mounting. 

Here we see via the Nasdaq that the Fed's bailout in 2020 looks almost identical to the 2019 bailout:

There is one final bubble that is the most crowded bubble of them all. Far more crowded than Bitcoin. That is the cyclical recovery bubble. This is where all of the new money is now headed in this new quarter beginning April Fools Day. 

Bulls will make the case that the much dreaded end of quarter rotation did not explode the stock market. That the transition from Tech stocks to cyclicals and from stocks to bonds was "seamless". From this point forward, all new money will be flowing in one direction towards the most overbought and overowned bubble still standing. The bubble that now takes the crown from Tech for the most crowded bubble. A sector that is so in favor, that these "beaten down" stocks are now considered momentum plays. From this point forward, momentum quants will be crowded into high beta cyclicals.

It's a disaster wanting to happen.

"As investors continue to rotate their exposure into value sectors, stocks in that corner of the market starting to take on characteristics of the momentum factor, an uncommon combination that bodes well for investors"

“This is the holy grail of quant and Value investing!”

This is the holy grail of meltdown. No surprise, Jim Cramer is all over it. The same guy who said two days ago that Wall Street is dumping too many SPACs and IPOs, and that they will implode the market. Now he advises crowding into cyclicals. His argument is that large funds need more "beta" so they are crowding into cyclicals to get more leverage relative to the economy. 

"Money managers don’t care about the most exciting long-term growth stories … they want the companies that can deliver the biggest upside surprises right here,” Cramer said. “In a booming economy, that means owning boom-and-bust cyclicals"

Boom and bust cyclicals indeed. As this chart shows, boom and bust cyclicals have been crowded since the election. Goldman put out their first call to buy cyclicals way back in October, almost six months ago. This trade is crowded and it's already rolling over, despite becoming the go to stock trade on Wall Street. 

In summary, what we have is another Wall Street recovery masquerading as a Main Street recovery. 

It's an end of cyclical dead-end.

There is no way out for those who believe in it.

The momentum algos always get out first. This time will be no exception. 

Deflation Is A Margin Call Away

The consensus calls for asset inflation as far as the eye can see...

Why? Because the IQ bar keeps going lower, and lower, and lower. Morons keep front-running each other to the next level lower, while the crowd feels obliged to follow, for fear of being left out. 

One thing they all have in common, they don't see it coming. Because mass deception has now been normalized. It's a business model. 

"The first quarter of the year has not even ended yet, and Wall Street firms are already building a case for stocks to rise even further in 2021."

Not once has the crowd been right on their inflation prediction. Each time they have imploded:

The reason that Japan hasn't escaped deflation after three decades, is because structurally nothing in their economy has changed. They have spent all this time using and abusing various stimulus gimmicks in order to avoid any true economic reforms.

Sound familiar?

Now we are seeing the exact same thing in the U.S. - bigger and bigger stimulus packages, each having less economic impact. As the chart below shows, most of the stimulus impact has been to the stock market not to the economy. U.S. bond yields are not even back to where they were at the lows of 2009, yet we are told bond yields are approaching the danger zone, NOT because the economy is overheating, NOT because unemployment is fixed, but because the financial markets can no longer stomach normalized interest rates. At no other time in U.S. history would a 2% interest rate be considered "too high".

A 2% yield would get rates just back to the 2009 low. Contrary to popular belief, what has been driving stocks higher IS rising interest rates, pushing banks, industrials, retailers and other cyclicals higher. If rates come down, those sectors crash from record overbought levels.

So, rates can't go up, and rates can't go down:

Forty years of poverty-inducing imported deflation later, and most Americans have now been conned into believing that the definition of inflation means prices they can no longer afford. If their incomes went to zero, they would blame it on inflation. We are now in a vicious poverty trap in which wages can no longer rise, because that would cause "inflation". During the 1970s, true inflation came at a time when wages as a share of the economy were the highest in U.S. history, now wages are the lowest in U.S. history. Unemployment is currently the worst in decades, and under-employment is even worse. Sustained inflation in this broken economy is not even really possible, absent a universal income. Nevertheless, conservatives have successfully redefined inflation as anything that would break this cycle of deflationary interest rates. Why? Because these perpetually low interest rates are great for stonks and bonds. 

This Jedi Mind Trick has led the average American to believe that what we are seeing today is a dangerous level of "inflation".  

For their part, it took forty years, but the Fed has finally figured out that unless they allow the economy to "run hot", there will never be anything approaching full employment ever again. In fact, if we continue in this current deflationary downtrend, eventually there will be full unemployment, because each recovery is weaker than the last. 

The Fed has arrived at this belated conclusion at a time when the Biden Administration is more than primed to take them up on their offer of unlimited free money. Back in the early days of the 2009 great recession, the Obama/Biden administration was stymied by a belligerent Republican Congress. Now, it's payback time. Biden's recent $1.9 trillion mega stimulus combined with his impending mega $2t infrastructure plan is the stimulus equivalent of a middle class economy. However it's an insane amount of stimulus for bond markets to digest. We are fast approaching stimulus overload. So far, rising yields haven't caused a problem for the overall stock market, due to the massive rotation out of Tech/deflation plays into cyclicals. So far, the decimation has been solely in bondland. Many are now saying that the forty year bull market in bonds is now officially over:

BBG: Worst Bond Rout In Decades:

"The selloff put an end to the bull market in long-term U.S. Treasuries that began in the early 1980s. The Bloomberg Barclays U.S. Long Treasury Total Return Index, which tracks bonds maturing in 10 years or longer, has plunged about 20% since its peak in March 2020, putting the market in bear territory."

Unfortunately, like Japan, we have done nothing to solve the long-term deflationary crisis. In fact, we haven't even admitted it's a crisis. Instead, we are using ludicrous amounts of stimulus to merely pretend it's over. Amounts of stimulus that have primarily found their way into stocks and NOT the economy. At present, all of the economic data looks fantastic due to what economists call "base effects". Meaning we are comparing year over year improvement relative to a shutdown economy one year ago. So, on a relative growth basis everything looks fantastic. These "base effects" are a con man's paradise. Into this chasm of obfuscated economic data, any specious narrative will be bought and believed. 

However, when we look at real-time indicators of true economic activity, we can see that we are a long way from recovery:

Crude oil demand is at a decade low (lower pane). Oil's recovery price is cycle low (main pane). 

The "recovery" CPI is also cycle low and tracking the oil price 1:1. It's central bank sponsored Ponzi inflation. 

In summary, what we have is asset inflation masquerading as economic reflation.

A Jedi Mind Trick for weak minded fools: Those who believe in the virtual simulation of prosperity and its acolyte QE to their peril.

What would it take for the stock/bond ratio to reverse?

"SELL"

Because as risk assets fall so will inflation expectations. Like a rock.

And then this fictional recovery will turn back into a pumpkin.

Overnight. Limit down. 

Big Crowd No Exit

This single hedge fund margin call that rattled global markets was a mere warning as to what is coming. Millennials are about to learn the hard way, they don't have to sell any stonks in order to realize irrecoverable losses...

Just remember this, because you will be hearing it a lot:

"No one warned me"

A relatively obscure hedge fund run by a convicted insider trader named Bill Hwang, just caused the largest and fastest single entity margin call in history. In echoes of LTCM, his Archegos hedge fund was massively levered via derivatives that were underwritten by multiple investment banks. These swap agreements were merely cleverly disguised margin loans. The entire house of cards ironically exploded due to a failed secondary stock issuance in one of the massively levered holdings, ViacomCBS, which was underwritten by Morgan Stanley and Goldman Sachs. They were double dipping and inadvertently imploded their own client. That selloff triggered a margin call in which all of the brokers scrambled to unload their positions and front-run each other out the closing door. In the event, Goldman and Morgan Stanley got out, while Credit Suisse and Nomura sustained massive losses.

In the event ViacomCBS and several other stonks got obliterated, including Credit Suisse and Nomura.

Most pundits wrote off this debacle as a one time ordeal, nothing systemic. What they seem to forget is that this COVID melt-up has funded untold numbers of over-leveraged entities. Including record numbers of latecomer retail traders.

Today, perma-bull Jim Cramer admitted that the IPO/SPAC issuance bubble has gotten way out of hand. He also states that the flood of issuance is now the biggest market risk. And it's not going to abate until something breaks. 

"Between the IPOs and the big SPAC attack and the big secondaries, we’re being flooded with stock right now, so the market’s going to struggle until Wall Street turns off the spigot,” the “Mad Money” host said Monday. “Unfortunately, there’s no sign of that happening yet, so you have to keep being careful.”

You can tell that there’s too much supply because many of these deals have started to fizzle,” Cramer said. “These special purpose acquisition companies just keep coming, even though the whole SPAC ecosystem’s falling apart"

With all this new supply, it’s no wonder the fast-growing tech stocks can’t find a bottom"

The first quarter of 2021 has already seen record IPO issuance in $ proceeds for a single quarter. More than full year 2015, 2016, and 2017:

 

These same Tech stocks coming under pressure from SPACs and IPOs are now about to undergo the biggest sector rotation driven outflow in history as the first quarter ends.

In summary, today's over-leveraged gamblers are going to wake up one day to massive irreversible losses. On that day, their broker will indiscriminately liquidate their accounts, thus locking in those losses permanently. 

Their Reddit-ordered goal of never selling one stonk will be realized. Just not how they expected. 

In the event, they will take part in the largest global margin call in history.  

Stimulus 3.0 is now "priced in"

   

A Consensus Of Implosion

Not only are gamblers all on the same side of the boat, but just as they were in 2008, the award winning financial media are on the same side of bullshit. Something about corporate owned media is not leading to truth in financial journalism...

The burden of truth in stock markets is always on those who tell the truth. For the rest there are specious narratives and tall tales of gold in them thar hills. Nothing captures the imagination more than shared speculation and the expectation for a massive profit. It's true that greed is blindness, and this society is now flying blind straight into the ground.

 

Having started investing in the early 1990s, what I came to realize is that those who place their faith in these continuously bailed out markets and the people running them, will inevitably wake up to massive unexpected losses. Do that a couple of times in a row and it starts to lose its appeal. Among the reasons I turned skeptical on central bank manipulated markets is because I had lost trust in Wall Street. Secondly, because I wanted control over my level of risk. Third because I wanted no part in officially sanctioned pump and dump schemes, and lastly because I knew this experiment would continue just long enough to implode everyone who believed in it. What Reddit is doing to Millennials, central banks are doing to Boomers - luring them into a big pump and dump scheme with no exit. Both schemes, officially sanctioned by Congress. The media are just there to facilitate the process and make sure no one gets away.

Unfortunately, these markets and the "award winning" financial journalists covering them, have been entirely cleaved from economic reality. They are now running almost entirely on combined fiscal and monetary stimulus at 27% of GDP. They are fully drugged by the virtual simulation of prosperity and its acolyte QE.

Now we are seeing the exact same Wall Street con job being run against the Millennials. They are the ones now setting the high bar for the ludicrous narratives they are willing to believe, and they are already paying the price for it in margin calls in Reddit pump and dumps, pot stocks, Ark ETFs, SPACs, IPOs, Cloud internets, Chinese stocks, and Biotech. Those investing side by side with that generation are implicitly sharing the same false narratives and hence embracing the same risks of full scale implosion. So far the damage has been limited to the more speculative sectors, but the rot is spreading week by week. What Millennials don't know and haven't been told by anyone, is that they came very late to the party. In fact, this cycle is deja vu of the 1990s when the Tech bull market grew over the course of the decade and only went vertical at the very end of the cycle. The length of the final vertical melt-up ~1 year is virtually identical in both cases. We were told the exact same lie twenty years ago. The longest cycle in U.S. history, would last forever. 

The current abiding narrative is that a new bull market started a year ago after a 16 day bear market - the shortest in history, which corrected the longest bull market in history 11 years, therefore this is still early days for record overvaluation in a post-pandemic obliterated economy. In order to take this view one must either have dementia, total ignorance of history, or as is more common these days complete and total faith in central bank alchemy. Today's mainstream financial sites provide sufficient conflicting opinion to provide plausible deniability for those who seek this latest cozy consensus of unforeseen implosion.

Today's financial media has conflated diversity of opinion with objectivity. What we have right now is rampant conflict of interest coursing through the financial media under the guise of responsible journalism. There is nothing responsible about it.

One of the regulations that should have arisen from the 2008 disaster is that Wall Street which makes its primary income from selling stocks and bonds, should not be permitted to publish their market views in public media and on Zerohedge. Because they can't be trusted. They have an extreme conflict of interest and we are watching it play out yet again in real-time on a Madoff-inspired scale.

Currently these "award winning" financial sites are selling Wall Street bullshit like it's AAA rated subprime bonds in 2008 and the liquidations have already started. 

"Late last week, Morgan Stanley, Goldman Sachs Group and Deutsche Bank unloaded large blocks of shares in Viacom CBS, Discovery and other companies as part of the liquidation of positions by Archegos Capital Management. The sales approached $30 billion in value, people familiar with the matter said, and led to stocks in those companies plummeting. Market participants called the size and speed of these sales unprecedented."

Make no mistake, the regulations are coming and they will not be accretive to corporate profit. 

There's A Hole In The Bucket

The United States and the World are in a poverty trap. And the assholes who got us into it, can't get us out of it. Why? Because they are what's wrong with this economy. They've fully embraced Third World values...

The only book I am reading right now is called "Evil Geniuses", by Kurt Andersen. (This is a New York Times excerpt). For me even that book is on a slow burn, because he basically says what I've been saying since 2008, except far more eloquently. And there were many who were warning about the decimation of the middle class well before 2008. Bruce Springsteen has been lamenting the obliteration of blue collar workers since the early 1980s. During the early 1990s we were told that "knowledge workers" were the wave of the future. However, when the Dotcom bubble boomed and busted, the future exploded amid mass Tech sector layoffs. The protesters at the Seattle WTO convention in 1999 warned what was coming from accelerating globalization, but they were roundly derided as anarchists:

"The way it has used its powers is leading to a growing suspicion that its initials should really stand for World Take Over"

The U.S. was the primary advocate for China's ascension to the WTO in 2000. That event combined with the Y2K/9/11 corporate Shock Doctrine led to the wholesale outsourcing of U.S. factories at a rate of 17 per day on average over the next decade (2000-2012). 

In 2008 the massively levered American Dream exploded. So what to do, this infinitely corrupt society bailed out the exact same criminals who caused the financial collapse in the first place. It was a fatal mistake that has led to over a decade of ever-increasing fraud, now culminating with this epic end-of-cycle con job: A combination Dotcom Tech bubble in a 2008 credit bubble, ending with a 1987 stimulus-driven melt-up, into a 1930s job market. A ludicrous level of blithely ignored risk invisible to those who are no longer capable of recognizing fraud in broad daylight. One constant throughout these decades has been America's inexorable moral decline which has always remained a step ahead of what would have been recently considered criminal activity. Those who don't see this coming are more than happy with this path of least resistance descent into Third World depravity which is now one margin call away from biblical revelation. 

My synopsis of Evil Geniuses from what I've read so far, is that the Reagan revolution was essentially a post-1970s born again fantasy. A nostalgic recycling of the past that conveniently rewrote America's greatest era of middle class prosperity 1950 - 1975, with Third World values:

"Of course, Ronald Reagan didn’t cheerfully announce in 1980 that if Americans elected him, private profit and market values would override all other American values; that as the economy grew nobody but the well-to-do would share in the additional bounty; that many millions of middle-class jobs and careers would vanish, along with fixed private pensions and reliable healthcare; that a college degree would simultaneously become unaffordable and almost essential to earning a good income"

Rather, when we were promised in 1980 the wonderful old-fashioned life of Bedford Falls, we didn’t pay close enough attention to the fine print and possible downsides, and forty years later here we are in Pottersville instead, living in the world actually realized by Reaganism, our political economy remade by big business and the wealthy to maximize the wealth and power of big business and the well-to-do at the expense of everyone else"

Evil geniuses indeed.   

The only real problem I have with the book is that I'm not stuck in the past anymore, I am more interested in what happens now and in the future. Personally I found Andersen's epiphany that styles and fashion haven't changed in 30 years, to be the most shocking and compelling:

"During the twentieth century, each decade had its own signature look and feel. By the late 1960s, the 1950s looked so ’50s, and by the early 1980s, the 1960s looked so ’60s. But then, starting in the 1990s, that unstoppable flow of modernity— the distinctly new continuously appearing and making styles seem old— somehow slowed and nearly stopped...in the 1990s we also stopped creating the fundamentally, strikingly new, perfecting a comfortable Matrix illusion that in some sense the world wasn’t really changing all that much"

Clearly the corporate Matrix didn't want us to be overly shell shocked by the relentless descent into debt penury and squalor. 

Trump ushered in a hail Mary era in which the used car salesmen who got us into this predicament promised they could get us out. My blog is a testament as to how that is working out. The same old greedy assholes recycling the same old false promises. When Sean Hannity is your beacon of truth, you know your best days are long behind you. AC360 a circle jerk of like-minded morons. I watch Bloomberg Asia to get an objective look-back at the U.S., because you can't get the truth anymore in this country. It's all opinionated bullshit. Pablum for weak minded dunces. 

With the advent of Biden we have a turn back towards compassion. However, at the same time as Biden's State Department is promulgating Trump's signature Anti-China strategy, Biden has assigned VP Kamala Harris to oversee the nascent #StopAsianHate movement.

See any connection?

America's accelerating racial balkanization is primarily driven by the fact that the economy itself is inherently biased towards the rich. Those facts are very well documented in Kurt Andersen's book or many other places on the internet. There will be no coming together of the masses until the inherent bias against the working class is eradicated. Only then can this toxic race war that is tearing the country apart be ended. Pitting white trailer parks against black ghettos is merely a useful diversion.

Per the title of this post, the U.S. is now in a poverty trap. Which means that low levels of income preclude investment in long-term economic growth. The country is consuming not only the entirety of current domestic production, but in 2021 20% of consumption is now borrowed from the future. What is left to give back is corporate profit which is running at a record % of GDP. That reversion to reality will be detrimental to stock prices. There is a hole in the bucket, and at present we don't have the will or resources to repair it, so the lying will continue until EVERYONE is on the same page.

And that event is pending. 

  

To be continued...

Peak Crack High: Asinine Levels Of Risk

One year past the March lows and this central bank sponsored crack high has generated record levels of rebalance risk that comes to a head this week:

"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.

 Almost a year after the S&P 500 hit the Covid-spurred low, momentum investors are set to pare exposures to lockdown favorites -- mega-caps and stay-at-home companies -- to join the boom in cyclical equities"

First off, as I said in my prior post and as confirmed above - momentum IS the most successful strategy of the past decade. 

This momentum-based rebalancing means that Tech stocks which are already imploding will undergo the largest rebalance-driven outflow in history.

What could go wrong?

But that is only half the story, because due to the largest one year stock rally in history (to an all time high), this week will also feature the largest stock to bond rebalancing in a decade. 

But don't worry, because according to CNBS, this is good news for stonks. Because in the land of snowflakes bad news is not allowed.

"What happens to stocks is less clear. Normally, stocks would be under selling pressure as big investors rebalance by also reducing holdings because of the stock market’s positive performance. The S&P 500 is up 4.9% this quarter, and the same investors would be trimming holdings in equities as they add to bonds."

It's not unclear what will happen, because this past week for the first time in a year, we saw Tech stocks decline even as bonds rallied. Meanwhile, if bond yields do fall, as this article seems to suggest, which sector will take the hit?

Cyclicals, which are also record overbought:

In summary, in the coming week, imploding Tech stonks will be sold to buy record overbought cyclicals, and cyclicals will get sold to buy Treasury bonds. 

Does that mean that bonds will rally? Not necessarily. If we go RISK OFF, then the global margin call will take down stocks and bonds at the same time. It's called "de-grossing" and it means that when funds that own both stocks and bonds get hit with redemptions, they are forced to sell both. So, while bonds will likely outperform stonks on a relative basis, they may still implode on an absolute basis as they did last March.

Then however, the Fed will panic and bid bonds back up. 

Below is a chart of what happened to bonds last year, for reference:

At first bonds rallied when stocks crashed, but then bonds imploded as well. When the Fed announced QE infinity, the bond market cratered, and stocks were limit down.

It took a few days for the Fed to get bonds bid back up. This time it could take even longer, but I believe they will be successful.

Unfortunately, by the time the Fed gets the bond market under control, it will be far too late for stonks, because the algos and margin clerks will be many days if not weeks ahead of the FOMC.

It's been a fun party, but now the bill for record fraud, and record market manipulation is due.