April 2021: Official Month Of Ponzi

April was the month in which the re-opening "recovery" con job became record overbought and overbelieved. This past month markets went FULL Ponzi in honour of Bernie Madoff, a man before his time...

Bitcoin peaked on the exact same DAY (April 14th) that Madoff died. You can't make this shit up. Now it's three wave corrective.

Scanning all of the various "alt-coins" with their asinine names, including Dogecoin the crypto that started as a joke and then became more valuable than Ford Motor Company - I've noticed that only Ethereum is making new highs. The rest have a very similar corrective wave pattern:

Here is DoggyCoin on the hourly making its third lower high:

Now, you may be wondering why am I looking at all of these pump and dump Ponzi coins? I am wondering the same thing myself. 

It's because I believe they are the least highly manipulated markets if you can believe it. Crypto Ponzi schemes are LESS manipulated than stonks. Therefore I think that they are the clearest indication of social mood.

Case in point, the Google search term "Crypto" continues to be extremely popular. And we see it peaked back in 2018 with the Global Dow, and of course with the crypto bubble.

Also in the category of extreme RISK ON sentiment (positioning), the 5 day moving average Rydex ratio has been hitting new all time highs this past week. 

The other big story in April was corporate earnings. This past week saw Tech earnings from all of the big names: Microsoft, Apple, Google, Facebook and Amazon. All of these stocks ramped during the month of April, as we see by this island formation in the XLK. We've seen this movie before - where algos use earnings season to catapult mega caps into orbit on non-existent volume. Now past earnings, the insiders are free to begin selling shares again, which they have been doing with wild abandon lately, particularly in Tech stocks. I am sure they would like to take advantage of these new all time high prices. In other words the convenient volume collapse that took place in April, may not continue.

Semiconductors in particular are repeating their pattern from February:

The real point of all this market manipulation is to keep the IPO/SPAC issuance market running at a record level. 2021 already surpassed 2020 for IPO issuance. Which looks like this on an average monthly basis:

In summary, during April the stonk market officially became the most overbought in history.

"During 18 sessions this month through trading on Thursday, 95% or more of the index’s members traded above their 200-day moving average. That’s the most days ever observed in a single calendar month and double the previous high of nine days in September 2009"

Marketwatch:

"There is only one precedent in history for such a rapid doubling, when U.S. stocks doubled between June and September 1932,” Deluard says. “A 40% correction quickly followed, and then another 100% + rally in a confusing sequence of brutal bear markets and dazzling rebounds which lasted until the battle of Stalingrad turned the fate of World War II"

Alchemy Only Gets You So Far In Life

We are witnessing record market manipulation by central banks, momentum algos, Reddit chat rooms, industry con artists, and of course Wall Street psychopaths. All of it is taking place in broad daylight and is assiduously encouraged by a populace desperate for this delusion to continue by any means necessary. When this super bubble explodes, regulators will be dealing with a collapsed Tech bubble, a collapsed echo housing bubble, a debt crisis, and a wiped out generation of Millennials who were too young to see the first renditions, so now they believe they are invincible to all of it...

Just remember: "No one did anything wrong"

I have written at length about the echo Tech bubble. Twenty years ago, excess monetary liquidity following the Asian financial crisis accelerated a brewing decade long Tech bubble which peaked at the end of the longest expansion/bull market in history. Deja vu, the COVID pandemic accelerated the post-2008 Tech rally, featuring a one year melt-up phase that peaked this spring at the end of the new longest expansion/bull market in history. The duration and magnitude of the two melt-up phases are virtually identical:

The key difference versus twenty years ago, is that back then the Fed was tightening policy whereas now they are still pumping record liquidity. Which is why the decline in February this year got bought with both hands. The fact that central bank invincibility didn't save the Nasdaq two months ago, has already been forgotten so many hours and days later. 

Enter algo market manipulation which has created the largest  divergence between mega cap Techs and rest of the Nasdaq we've ever seen. While the mega caps - all of which posted earnings this week reached for new highs, the rest of the index simmered in a three wave correction just off the lows of early March:

On the weekly chart we see that the breadth collapse (lower pane) two months ago was worse than last year and far worse than the decline in late 2018:

Next, there are the overvalued cyclicals which are priced on the basis of a record recovery. When in fact what we are seeing are year of year rates of change that are the highest since the dead cat bounce of the early 1930s. Most of the gains in economic "growth" we are seeing are due to one time effects. But don't take my word for it, here is a timely summary of this "record" earnings season from Forbes:

"Banks are killing it. In terms of rising profits, they are the #1 reopening industry so far. But most of their profits have nothing to do with reopening. They are coming from released “reserves”—which is the money banks had set aside for loan losses that didn’t come to pass. That’s a one-timer."

"Covid has disrupted the supply of raw materials. And now the supply can’t keep up with exploding demand from construction and homebuilding. The result: commodity prices are blowing up and certain sectors like materials are cashing in big time. How much of that is a result of Covid or of a reviving economy is up for discussion"

Indeed.

I posted this chart on my blog which clearly shows that lumber prices are entirely out of whack with housing starts. In other words, the widely feared "inflation" is mostly due to commodity speculation and short-term bottlenecks. 

Another chart I posted on Twitter shows that cyclicals are massively over-leveraged to the economy due to the excess liquidity in markets. The "recovery" that is priced into markets far exceeds the one that is taking place in reality:

We see the same thing in retail stocks. The COVID pandemic brought local shopping malls to the brink of existence, but looking at this chart one would be led to believe that the pandemic saved them:

Another scam taking place is in the crypto market where fake "inflation" hysteria is a key driver of the crypto Ponzi scheme.

These opportunistic inflation scaremongers have driven the highest concern for inflation since 2008 which was the last time inflation predictions were catastrophically wrong. These con artists are doing their part to push everyone to the same side of the boat.

Which gets us to the housing market itself which is now having a moment deja vu of 2006. Then as now, low interest rates pulled forward demand and now we are told there is a "supply shortage". So what to do, but increase supply which is always the recommendation of the homebuilders and realtors. Curbing speculation is never part of the plan.  

"While the pace of home price gains has been dizzying, it’s not hard to understand what is driving the frenzy. Mortgage rates sit near historic lows. Millions of millennials are entering their early 30s, the typical age of first-time home buyers. And the pandemic has spurred new demand: Some buyers want more space to work from home while others are willing to move farther from their offices"

The ultra corrupt real estate industry did the exact same thing during the housing bubble - they fueled the false perception that there is a long term housing shortage. When in fact, the housing "shortage" was driven by panic buying and speculation. In the meantime, housing prices got bid up to unsustainable levels, and when the bubble popped homebuyers were underwater by the millions. The lagged supply eventually arrived in time to put even more pressure on a collapsed market. Been there, done that. This is a society that can make the exact same asinine mistakes over and over again, each time telling itself the exact same lies. 

In summary, we are surrounded by scam artists and industry salesmen. The Fed has provided the monetary heroin and the con artists went to town spinning the narratives to accompany this falsehood of recovery. The hangover from all of this fraud and delusion will be epic. This mega boom is merely a one time re-opening bump in demand that will prove entirely ephemeral. After this, "growth" will collapse back down to pre-pandemic deflationary levels. The fiscal "stimulus" is merely papering over the decimation of the travel and recreation industries that will take years if not decades to recover.

The New Utopia

Skeptics of synthetic wealth should beware that we have now entered a new permanent Utopia, consisting of socialism for the rich and socialism for the poor. The only question from true believers, is why didn't anyone think of this sooner? What fools.  

Going back to last November just before the election, few people would have predicted that upon Biden winning the election, stocks would go vertical and remain decade overbought six months after the election. This week he is proposing doubling the capital gains tax on the ultra wealthy and yet the ramp-a-thon continues.

Skeptics of synthetic prosperity have been stampeded by a herd of late coming retail investors who waited until Biden was elected to begin investing. Recall that more money poured into stocks since the election than in the twelve years prior since 2008.

No wonder the market is perma-bid. We are witnessing record monetary stimulus, combined with record fiscal stimulus, combined with record cash inflows, record options speculation, and record margin debt. All at the same time. Underinvested money managers have been forced to chase performance. Hedge funds have abandoned short selling. Options premia have collapsed. Incessant time decay has more than offset the lower cost of hedging. 

So, does all of this one sided bullishness cause me to change my mind? 

Of course not. In fact, I have now come to realize that this will be the shortest recovery in U.S. history. Why? Because, when this super bubble crashes, all of today's rosy economic predictions will go straight out the window. They are now all massively leveraged to record speculation. Which means that last year's shortest bear market in history will yield to the shortest bull market in (modern) history. The first and likely largest of the 1930s style boom and busts, but by no means the last. America's Japanified supernova. 

This obsession with stimulus is straight out of the Japanified playbook. The belief that debt is "GDP" and government can "create jobs" by mandate is 100% fantasy. Of course there will be jobs for the time that the stimulus is deployed, and when it ends so will the new "jobs". Permanent stimulus addiction.  

Here we see via the University of Michigan consumer confidence poll, that people are confident that the largest one year rally in market history is just getting started.

I have no doubt that the mass unemployed will continue to see their benefits rolled over indefinitely. What some are calling an experiment in universal basic income. Ironically these people will be the least affected by this bubble explosion. Many of these people used to have jobs that the "experts" are now predicting will be automated away over the next several years, so what this represents is a nominal safety net in what remains a highly deflationary economy. What I call structural deflation. There will be no hyperinflation emanating from a $7/hour  equivalent unemployment stipend. 

For those who have wed themselves to this bubble of course the impending dislocation will be substantially more difficult. It will be nothing like Utopia. What we are witnessing is a lethal amount of delusion and the misallocation of capital on a biblical scale. 

Of course the global bond market will be the final arbiter of this asinine gambit. 

We can infer from this chart that the short covering in the Treasury market is over. If so, then the renewed sellof in bonds will coincide with the third wave down in Momentum stocks. 

Nevetheless, I have no doubt that Treasury bonds will massively outperform stonks when reflation expectations collapse like a cheap tent and the Fed finally realizes that 100% Japanification has arrived.

What this era proves is that people believe what they want to believe. 

They will always choose opinion over fact. Which is why today's mainstream "news" is no longer worth watching. It's a circle jerk of like-minded morons. 

That has now turned lethal. It's money printed "Utopia", and those who believe in it, deserve their certain fate. 

EPIC HUBRIS At the Pinnacle Of Fraud

We are seeing a level of central bank adulation that is beyond the asinine. An entire society convinced that printed money is the secret to effortless wealth. Those who believe this contrivance will find their future is forever stained by the epic fraud that defines this era...

We talk about the financial consequences of this rolling pump and dump scheme all the time. Buy this bubble or that bubble and get out ahead of everyone else or explode in place. Those are the choices.

However, the other major consequence of this era will be measured in lost credibility, damaged reputations, and destroyed careers. Don't worry about Wall Street, I doubt there will be one after this event - their primary line of business pumping junk IPOs/SPACs/subprime mortgages into public markets will be regulated out of existence. This era will separate those who bought and believed the largest fraud in human history versus those who wanted nothing to do with it. Sadly we see that the pressure to capitulate to mandatory optimism is overwhelming. No amount of intellect can prevent those in the financial services industry from succumbing to the primary economic imperative which happens to be blind optimism for the future. Why? Because 90% of the time, optimism is richly rewarded. However, 10% of the time it proves to be lethally fatal. Sadly we are in the sudden death overtime phase of the richly rewarding era. The muscle memory of the past is now guiding the extrapolation of delusion into the indefinite future. 

Somehow today's con artists have convinced the public that a  massively leveraged post-pandemic re-opening is the strongest recovery in history. Meaning, the exact same businesses that were forced to shut down last year, will now partially re-open and economists will hail that as a record recovery. All because they base ALL of their economic metrics (metricks?) off of year over year comparisons. Last year being dire depression, this year being greatest economy in history. No other profession could get away with this level of incompetence.

According to the Fed's own economic model, these are the leading indicators based upon one year rate of change relative to a locked down pandemic:

Here we see, the "greatest recovery in history" attends U.S. payrolls at a level first seen five years ago:

The recent passing of Bernie Madoff at the pinnacle of the largest global Ponzi scheme in human history will this weekend be matched by the spectacle of "The greatest investor of all time" holding court at his annual confab.

It's called tempting fate.  

With a straight face Buffett will regale his acolytes with tall tales of his legendary success. There is only one problem, it will be all bullshit. Since 2008, Buffett and his billionaire cohort have been bailed out by non-stop monetary intervention. So much so that monetary policy is no longer having ANY effect on the economy. Its sole use is to prop up the wealth of multi-billionaires at public expense. Monetary policy is now the method by which wealth passes from the middle class into the hands of the ultra-wealthy on its way to offshore bank accounts.

From an economic standpoint, the situation we face was last faced in the 1930s - a liquidity trap. A scenario in which interest rates reach a point at which there is no one left to borrow. Looking back, historians will say that the pandemic lockdown concealed a liquidity trap that was deemed to be temporary, but turned out to be a permanent scarring of consumer confidence. 

"A liquidity trap is a contradictory economic situation in which interest rates are very low and savings rates are high, rendering monetary policy ineffective"

Here we see that consumer sentiment has in no way recovered back to its pre-pandemic levels, notwithstanding the biggest asset bubble in human history.

As it stands now, central bank alchemy still "works" to the extent that it inflates asset bubbles. However, in the experience of Japan (and China), when these bubbles deflate, even that "super power" will be rendered useless.

And then, the underwear will be mighty stained. 

Sorry Warren. Been there, done that. 

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.