America's Japanified Supernova

Everything the U.S. is doing now has been tried in Japan and it failed. In the U.S. everything they are doing has been tried twice, and it failed twice. This is the last and largest asset supernova...

The definition of insanity is buying the exact same bubble over and over again, each time expecting a different result. 

I have no doubt in my mind that when this last supernova explodes, investors in every risk asset class will have very little to show for it. It took three weeks last year for global central banks to get markets under control. This time their job will be compounded by the record leverage that has been added in the meantime. Their first order of business will be to get sovereign bond markets and global currencies under control. By the time they accomplish that herculean task, they will look around and realize everything else has already exploded. Home gamers who believe that central banks are invincible will come to find out that margin clerks don't share their views. 

Central banks print the money that inflates all of the various bubbles. Those who buy into these lethal bubbles pay the true price in over-valuation. When the bubbles burst, the bagholders invariably lose most of their money. Those lucky "insiders" who are selling stocks and Bitcoins to the general public, usually put their money in another over-valued asset class such as corporate or municipal bonds. Japanification proves that ironically the only "safe" asset class is the one that yields NOTHING aka. t-bills. And yet, very few people in the U.S. are willing to earn nothing on their money. The Japanese learned the hard way that it's better to protect principal than to pursue illusory zero sum gains. The very prevalence of zero interest rates signals ZERO economic growth in the future. And yet due to the alchemy of finance, today's Ponzified financial "gurus" have seized upon zero interest rates as being "free money" for speculation, better yet, allowing for infinite valuation. Proof that this society is now an Idiocracy. 

When this all explodes, many people will blame central banks for creating this contrivance. What they should be doing is blaming themselves for believing in it. All of these asinine ideas have been tried and failed already in Japan for thirty years straight. Central banks have Ponzified every single asset market and turned them into 100% zero sum games. This society doesn't notice, because Globalization has propagated a global exploitation based culture of Third World values. 

Ironically this magnitude of asset supernova has only been seen one other time in modern history. That was in 1990 Japan:

The Japanese asset price bubble was an economic bubble in Japan from 1986 to 1991 in which real estate and stock market prices were greatly inflated...The bubble was characterized by rapid acceleration of asset prices and overheated economic activity, as well as an uncontrolled money supply and credit expansion. More specifically, over-confidence and speculation regarding asset and stock prices were closely associated with excessive monetary easing policy at the time.

"At their peak, prices in central Tokyo were such that the Tokyo Imperial Palace grounds were estimated to be worth more than all the land in the entire state of California"

In summary, the Bank of Japan didn't set out to take over the bond market nor did they set out to become the nation's largest shareholder. Nor did they set out to become the de facto "economy". However, the populace always demanded an easy way out of economic reform. It was not a "conspiracy" of the elites, as so many idiots suggest is driving the Fed actions of today. These people have conflated a profoundly corrupt populace bounding down the road to economic Perdition, for Bill Gates' master plan. Historians will place the blame for all of this insanity squarely on an education system that churns out fucktards by the thousands where they can be monetized by opportunistic sociopaths. 

Those who think that the U.S. is any smarter than Japan, are in for the shock of a lifetime. After all, who is the greater fool, the fool or the one that follows?

The Calm Before The 100 Year Storm

A confluence of risks are coalescing around this week's FOMC meeting, which may well answer the question as to whether or not the Fed still has control over the markets. Central banks have intentionally dampened volatility in order to give investors a false sense of security. I call it the Efficient Explosion Hypothesis. It never fails to encourage investors to take maximum risk at the worst possible time. Which leaves the fate of investors in the hands of known con men. Because why break with tradition now?

My opinion for the past several months has been that the Fed has lost control over the bond market. Up until the last FOMC meeting in March, yields had been rising inexorably, notwithstanding the Fed's bond buying program. Part of which was intentional as the Fed is intending to "reflate" the economy, hence bonds were building in an inflation premium. However, the downside effect of exploding yields is an exploding bond market. All of that changed at the last FOMC meeting (mid-March) when the Fed somehow assured markets it could keep yields under control while allowing the economy to "run hot". Subsequently yields have backed off even as the economic data has been coming in hotter by the day. Many theorize that this recent bond rally/yield decline has been due to short covering.

Speaking of which, the biggest risk of promising endless liquidity for the economy, is that it has emboldened speculators to onboard ludicrous amounts of leverage. That in turn has forced money managers to abandon all forms of risk management. 

"The median short interest in members of the S&P 500 sits at just 1.6% of market value, near a 17-year low"

“There’s just mass euphoria...No one wants to get their head ripped off by a short anymore.”

What we notice is that the most shorted stocks which tend to be Retail (Gamestop, AMC etc.) tend to spike ahead of FOMC meetings. In other words, Reddit gamblers are using Fed meetings as a backstop for their pump and dump schemes.

In addition, as we see above, central bank control is now a low volume illusion. They have pushed everyone to the same side of the boat, which ensures a bidless market on the other side of meltup. Unlike last year, central banks won't be able to bail out investors this time around. Those who buy into this illusion will be imploded.

Therefore, it's highly possible that the Fed's "control" over markets is reaching its terminus. No longer can they at the same time over-lubricate markets while ignoring the fact that certain sectors of the economy are over-heating, despite massive unemployment. In other words, there are key bottlenecks in the economy as one would expect in a late cycle expansion. 

Market volatility may well pick up as investors fear the Federal Reserve could fall “a little behind the curve” on inflation by having “such a dovish stance,” according to Fernandez. Still, she expects any spikes in inflation over the next few quarters, including in areas such as commodities, will be relatively short-lived"

“True longer-lasting inflation typically comes from wages”

Anybody worried about wages rising has been living under a rock for the past several decades. In other words, this is 2008 deja vu - commodity inflation from rampant speculation is feeding back into the economy. Yet again, the commodity/cyclical trade is a massively crowded consensus trade.

At the end of the cycle. 

“Corporate sentiment has jumped to an all-time high so far this earnings season...This corroborates our preference for cyclicals/value over defensives” 

As I showed on Twitter, despite the fact that new NYSE highs peaked at the last FOMC meeting, the market cap weighted NYSE Composite index has continued to chug higher. It has been decade overbought since the election.

Yesterday, the Nasdaq finally joined the Dow and S&P at new all time highs. However, the number of stocks confirming this high has collapsed.

In summary, similar to Gamestop and BitCon the fate of stock market investors is now solely in the hands of con men. 

Why break with tradition now?

Lethal Asset Hyperinflation

The sheeple at large have lethally conflated an asset hyperinflation bubble for a traditional wage price spiral. They've had ample assistance from those who are more than happy to offload over-valued assets at asinine prices...

This current paradigm is nothing like true inflation as defined  by a cost of living wage price spiral. In order to have a wage price spiral, one must have wages increasing at an accelerating rate. Not depressed by mass unemployment. In addition, under true inflation financial assets - stocks and bonds - get destroyed by the reduced discounted value of future payments. Does that sound like this type of inflation? Of course not. This is a lethal asset hyperinflation bubble rotating from one asset class to the next. And the dominoes are falling.

Most articles on Zerohedge are worthless these days, because not unlike the mainstream media, the quality of their content  has declined inversely with the growth of their lowest common denominator subscriber base. Nevertheless, this one by The Burning Platform cut through some of the monetary haze surrounding this lethal hyperinflation bubble. The author describes how a condo that languished below 2004 prices for 14 years, suddenly gained 60% in the past two years. Then he talks about the baseball card craze and how small pieces of cardboard are suddenly gaining tens of thousands in "value". Does anyone actually believe there is a shortage of basecall cards? Apparently, the site that values these sports collectibles stopped taking new customers because they've been inundated with new clients eager to value (aka. "sell") their old baseball cards.

Remember a year ago when there was a toilet paper shortage at the beginning of the lockdown period? 

The article below is a reminder from March of last year. Several reasons for the shortage are given, but the one that resonates is that panic buying creates more panic buying. In other words, what they are describing is the hoarding mentality that accompanies a TRUE hyperinflationary environment - one in which prices are higher week after week. There is only one problem, the shortage was temporary. If there was true hyperinflation, the cost of toilet paper would be skyrocketing not due to a lack of supply but because the dollar would be collapsing in value.  

"Images of empty shelves and shopping carts piled high with supplies have inundated news reports and social feeds. People see images of panic buyers, assume there's a reason to panic and buy up supplies, too"

 

Of course there was no actual shortage of toilet paper. Manufacturers quickly figured out how to make more of it. In fact, last year's shortage has turned into this year's glut:

One year later:

"Kimberly-Clark Corp. reported a sharp drop in toilet paper sales and warned the coronavirus pandemic-fueled surge in demand for its products was slowing."

The number of assholes keeps growing at an exponential rate, and yet toilet paper demand is slowing. A modern paradox. 

Where was I...

Unlike general price inflation, an asset hyperinflation bubble can implode overnight, destroying asset values. Central banks didn't have to do a thing for Gamestop to implode. Next went Biotechs, Ark ETFs, EV SPACs, Fintechs, Cloud computing etc. Central banks didn't raise interest rates nor change their QE policies in the least. 

The toilet paper scenario is a warning of what's coming when this hyperinflation asset bubble fully unwinds - a glut of everything. 

Gold, which is the true protection from inflation, is warning that there is no sustainable inflation. Gold started rallying in 2019 when the Fed was cutting rates, but then it ran out of gas last summer. One of the first asset bubbles to roll over. In my opinion it has substantial downside from these levels. 

All of these bubbles are predicated on the basis that the dollar is losing its value. Permanently. Which is the fundamental basis behind true hyperinflation.

However, the dollar is merely lurking behind the scenes of the massive margin expansion.

What people forget from last year, is that one of the first order effects of the pandemic crash was that the dollar ripped higher.

We are seeing a very similar headfake pattern play out this year:

When the dollar rips higher, today's assets will become liabilities. At that point, low interest rates won't matter. Only return of principal will matter. There will be a global liquidity crisis unlike anything we've seen in our lifetimes. 

Those who are predicting the death of the dollar will get their heads ripped off. Again.

Bernie Madoff's Market

There are no bullish arguments for this market. Everyone knows it's massively overvalued. The arguments for owning stocks right now are straight out of the gambler's playbook - you have to be in it, to win it. As in gambling, a few will win, most will get wiped out. There are no rational arguments for owning this market, which is why this is a con man's paradise. Bernie Madoff would be proud of a generation carrying on in his footsteps...

Looking back, no historian will be able to understand the level of madness taking place right now. Speculators are playing their own corner of the markets while being oblivious to the overall systemic risk accumulating in the background. No one is looking at the big picture as far as how all of this unprecedented risk seeking gets unwound.

Unlike last year, central banks will have far more trouble getting things under control this time around. For several reasons:

First off, interest rate policy is already at the zero bound. which means that the Fed has no policy tools to reinvigorate the economy. Secondly, quantitative easing has already been massively overused and has created extreme over valuations. Which works great on the way up, and is catastrophic on the way down. Contrary to popular belief, there are no "value buyers" below this market. In addition, unlike last year, margin balances are at an all time high, which means that mass margin calls are lurking directly below the market. The rotation to Tech stocks that saved the market last year is already imploding ahead of time. Corporate debt (% of GDP) which was already at a record last year, has grown astronomically year over year. But the biggest risk, is the fact that this year the Fed will be highly constrained on their "special bailout programs" compared to last year. Already Congress has taken away their power to buy corporate bond ETFs in the secondary market. This won't be viewed as a pandemic rescue, this will be viewed as a rich man's bailout and we can be confident it will be extremely unpopular. 

A week ago I predicted that cryptos would be the first bubble to burst. And of course that was the story of the week. Since that post, Bitcoin has had two legs down and two weak rally attempts. It's now halfway between the 50 day and 200 day moving average.

I showed this chart on Twitter yesterday:

The NYSE Composite "Reflation trade" has tagged the upper trend line every month of 2021 so far. Each double tag has sent it back to the lower trend line which is also the 50 day moving average. Each new high has attended greater risk and greater complacency.

If the crypto crash continues, a massive margin call will be waiting at the lower trend-line this time around, 100x the size of Gamestonk in market cap. Also, if the Nasdaq begins its third wave down, then the sum of all risks will coalesce from an all time high, which is my base case scenario:

For most of today's gamblers, price is their sole indicator. So with the Nasdaq at all time highs, they are of the belief that there is no point in de-risking. Of course this is an asinine argument. It implies that the market can't crash from an all time high when it did so just last year, in the most violent high/low crash in history. Featuring five limit down gap opens - more than the entire prior decade combined. 

Now, they are making the same mistake all over again. Granted, most of these people were not even investing a year ago, so how would they know?

This is the weakest breadth at a Nasdaq all time high we've ever seen. And it's attended by the largest Rydex bull/bear asset allocation we've ever seen. And of course the highest margin debt:

In summary, this is the most overbought and overbelieved market in history. Bulls can't afford to be wrong. Unfortunately, the irony of markets is that when everyone believes it's the beginning of a new bull market, that means it's the end. 

Don't forget, this week is FOMC week aka. "Fear Of Missing Crash". Should be a good one - they will tell us that this Ponzi scheme is 100% under control, with interest rates at 0% and no margin of error. And the sheeple will believe them, right up until the day they realize they got conned. Again. 

This meltdown will make last year's gong show seem like a good time. 

 

ALL WARNINGS IGNORED.

COVID was the wake up call to this society to change their ways. So what did they do? They hit the snooze button and doubled down on the status quo. What comes next will make last year's main "event" seem like a picnic. Mother Nature is stalking this bloated species like an invisible predator. She doesn't need a climate conference, she has denial on her side...

Today is Earth Day of course. However, to most people it's just another day to take the blue planet for granted. So I thought I would dedicate this post to discussing my views of the environment and the great reset that began last year, from an economic standpoint. One of my recurring topics prior to the pandemic was my uncontrolled rage at the denial of global climate change by people who are in denial about everything. Climate change being the least of their worries. My opinion is that if this deep reset via COVID - which is orders of magnitude beyond anything imagined at any climate conference - doesn't work, then nothing will. 

First off, tonight I went to dinner at one of these new Chipotle style healthy fast food restaurants. There were two disposal containers on the way out of the store - one for recyclables and the other for trash. The sign made it clear that almost everything could be recycled. So one would think that the recycle bin would be full and the trash bin empty. It was the exact opposite way around. The trash bin was full of recyclables and the recycling bin was completely empty. To me this epitomizes a society of entitled assholes who take far too much for granted. They're zombies on auto-pilot oblivious to their descent into squalor. 

My entire hypothesis is that in 2020 the "great reset" commenced - not by today's "elites", but by Mother Nature by way of a fairly innocuous virus in the grand scheme of things. In the event, we all know what happened. Mass pandemonium and stay at home gambling. A make-believe recovery based upon unprecedented stimulus. And a lethal belief that this is the beginning of a whole new cycle.

In other words, full Japanification.

What took place over the past year was a climate activist's wet dream: An entire populace was locked down and commuting to work was entirely replaced by telework. International air travel was halted. Major pension funds and endowments divested themselves of the fossil fuel sector and poured their wealth into the green energy sector. Oil demand dropped to a one decade low. Exxon was kicked out of the Dow after over 100 years. At one point last year, Tesla's market cap exceeded that of the entire Energy industry. COVID massively accelerated the changeover to green energy, by years if not an entire decade.

In addition, many sectors of the economy were blighted by the virus and the ensuing pandemonium - Energy, airlines, restaurants, hotels, small businesses, conferences/caterers etc. However, the distortions created by central banks have put a massive bid even under the most blighted sectors of the economy to the extent that the most shorted sectors have substantially outperformed the market. These false signals of recovery are luring investors into a cyclical dead end recovery. A mega boom and a mega bust. Except in this case, financial markets will lead the economy in both directions. 

We are to believe that the post-pandemic debt-riddled economy will be far better than the pre-pandemic economy which had no restrictions. This is the next bubble to pop. 

Of all of the fake recoveries, this is the fakest one so far...

In summary, today's gamblers have bought hook, line, and sinker into a falsehood of recovery spun by central banks aided and abetted by the financial services crime syndicate and the profoundly failed economics establishment. 

Their love of all things fake has caused them to mistake the virtual simulation of prosperity for the real thing, this time on a biblical scale:

Some would say that it was a coincidence that oil prices went negative last year on the day before Earth Day. However, in my opinion it was all part of the widely ignored wake up call. The type of which this denialistic society specializes in ignoring. 

For my part, I'm not worried anymore. Because it's not my turn. The denialists will be doing the worrying from now on. They are now an endangered species and central banks can't save them from natural selection.

Nothing Matters Until It Explodes Spectacularly

Most people are not willing to call an end to this idiot bubble, because they don't want to stand out in the crowd...

What we've learned in this era is that when people see ludicrous speculation in markets they merely assume it will become even more asinine before it ends. Hence, it conveniently has no known end point. So we're told.

Stop me any time...

First, let me set this up - back near the top of stock market in early 2007, the housing bubble was already collapsing in many parts of the country and investors were already realizing that subprime loans were a disaster in the making. So ironically as the crisis escalated and investors backed off of subprime mortgages, Wall Street cooked up even riskier leveraged bets in order to juice returns and entice investors:

March 30th, 2007:

Wall Street Cooks Up Even Riskier Exploding Subprime "Innovations"

"With the subprime mortgage crisis making investors wary of collateralized debt obligations, or bonds secured by other bonds, Wall Street is cooking up even riskier deals offering bigger returns to lure hedge fund investors"

That same year when the Fed began lowering interest rates, the global hunt for yield accelerated which allowed Wall Street to sell ever riskier subprime-loaded time bombs to money managers desperate to meet their annual return targets. In July of 2007, the CEO of Citigroup Chuck Prince was asked his thoughts on the escalating subprime crisis. He said he believed the Fed had it under control and therefore his bank was going to keep "dancing while the music is playing".

Now we are hearing the same rationlizations today being applied to Ponzi schemes:

"Dogecoin is now valued at more than $50 billion, exceeding Ford Motor Co. and many other companies with extensive histories...Stock market operators who have been around for a few cycles know the sentiment implications of something like Dogecoin: time to grab the canned goods and head for the bunker"

As former Citigroup Inc. Chief Executive Officer Chuck Prince infamously said in 2007 right before the subprime mortgage bubble burst and caused a financial crisis, the music is still playing, so you have to keep dancing."

The author goes on to claim that it was rational to keep gambling in 2007 and 2008 amid escalating levels of risk. He admits that when the crash took place, the people who were most off guard were "the experts", whereas many "perma-bears" had already predicted the inevitable outcome. In other words, since no one can predict the exact day when insanity will end, gambling up until the very day of meltdown is the rational choice. However he admits that if people had known the extent of what was coming, it would have made sense to de-risk ahead of time. But he claims that the extent of meltdown is also  conveniently unknowable ahead of time. 

Call it the monetization of practiced ignorance. It can come as no surprise that the financial media who are now forced to cover joke-memed crypto currencies must find a rationale for this insanity that ensures a perma-bullish outcome. Otherwise, their subscriber base would collapse like a cheap tent. One wonders how many more times the general public will look back fondly at all of these dunce "experts" and the dumbfuck media and laugh at their corrupt excuses for ignoring conflict of interest. I will go out on a limb and say this is the last time.

Here we see that the magnitude of the Ponzi Crypto bubble exceeds the size of the subprime bubble and is 100x the size of the Gamestop debacle. It will be extreme irony if the Crypto Ponzi bubble peaked the very same week that Bernie Madoff died. So far, that indeed does appear to be the case.

This chart best combines all of the excesses of this era into one exploding weapon of mass destruction. Crypto searches on Google have exploded to an all time high this week. Which is deja vu of January 2018. And of course the combined magnitude of crypto market cap and stock market margin balances far exceeds what attended the 2018 explosion:

I wrote an essay on the impending Bitcoin/Blockchain collapse, but it's too long to include this time around. So without all of the background technical jargon, here is my overall hypothesis regarding the long-term instability of Bitcoin and crypto currencies:

My overall hypothesis regarding price stability is that speculators drive prices higher due to the liquidity/scarcity  constraints designed into the Bitcoin network. Miners react by adding additional computing power to the network, which takes place on a lagged basis. This time lag between supply and demand is a prime opportunity for price manipulation aka. pump and dump schemes. In time, the mined supply increases to match demand. At that point, the price momentum slows and then reverses, at which point speculator demand vanishes and the miners are left selling mined Bitcoin into a bidless market. At that point, the price very rapidly resets back down to the marginal cost of mining which is defined by the underlying cost of server capacity and electricity. In other words, miners arbitrage away all excess profit from the crypto network as one would expect from basic economic theory. Unlike gold production there are no major barriers to entry for crypto mining. The cost of these bubbles and busts accrues to latecomer speculators.

In addition, miners can easily switch from one crypto currency to another, so they pick up and move to whichever crypto currency offers the best profit margins. At present that is no longer Bitcoin. Which is why the Bitcoin hashrate collapsed last weekend when Dogecoin went vertical. The same thing happened in 2018 when all of the other cryptos started outperforming Bitcoin. As a consequence the Bitcoin transaction fee has exploded back to levels not seen since January 2018:

I posted this chart yesterday on Twitter:

A couple of weeks ago I described the blockchain death spiral hypothesis, which posits that in a large enough crash, miners will leave the Bitcoin network en masse which would prevent anyone from buying and selling Bitcoin. For long-term holders this may not seem like a problem, but for hedge funds and leveraged Robinhood home gamers it's a huge problem.  If  speculators have illiquid holdings, then brokers will sell whatever other liquid collateral is available. Which is why asset correlations converge at 100% in downside panics. One could imagine that having $2 trillion in illiquid crypto sitting in speculator accounts could have massive spillover effects in other markets. The Bitcoin price could be collapsing and yet it would be impossible to sell Bitcoin, so everything else gets liquidated instead.

On that note, I will point out that Ethereum has the clearest wave count. As we see it's trending in correlation to Momentum stocks which have entered their third wave down. 

In summary, it could turn out that Bernie Madoff perfectly timed two cycle end explosions. 

We haven't heard this in a while...

Pigs To The Slaughter

In what can only be described as human history's biggest mass con job, central banks have systematically desensitized gamblers to all risk. They are now cycle high fat, dumb, and happy. I call it monetary euthanasia...

Compliments of central bank alchemy, the shortest bear market in history yielded the best one year market gain to an all time high in market history. In addition, inflation expectations are the highest since the end of the last cycle, retail investor speculation is cycle high, and now we learn that the market is two decade overbought. 

All late cycle indicators peaking at "the beginning of a new cycle". 

One of the indicators I haven't shown recently, shows the ratio of mid cap stocks to the large cap Dow. What we see is that mid caps peak relatively early, they underperform for a while and then they burst higher at the end of the cycle due to short covering. In addition, commodity stocks (second pane) outperform at the end of the cycle and of course inflation expectations are highest at the end of the cycle:

This fraudulent recovery which is based solely upon asset inflation has seen some ludicrous moves in asset prices. However, few sectors are as insane as the retail sector which was blighted by the pandemic. And yet, it's the top performing sector over the past year. This entire sector has been "Gamestopped" higher amid record store closures.

Which has fulfilled the circular mirage of "recovery" based upon capital misallocation. 

Another thing you don't see at the beginning of a cycle is cycle high IPO/SPAC issuance:

Herein lies the problem:

Over the course of this 12 year continuous monetary bailout cycle, investors have become more and more complacent. I use a ratio of NYSE down volume over up volume to show the degree of panic selling.

Back in 2008 when it was the end of the cycle, panic selling peaked. Subsequently, we have seen lower peaks over the course of the cycle. We are to believe that the lowest level of selling in the entire cycle marks the beginning of a new cycle.

Sure.

What we are about to witness is 12 years of pent up selling, which will make 2008 look like a picnic. 

And then everyone will know what we know. It's the end of the cycle. 

And this is no time for bullshit from the same proven assholes who lied last time.