All Signs Point To Weak Recovery

The bar that constitutes a recovery keeps getting lower and lower.  It's so low now that a 2% annualized increase in GDP since 2019 (using CBO projections) is now causing end of cycle inflation hysteria. The irony of bailing out the economy without allowing any deleveraging is that it truncates the length of the new cycle, because bottlenecks typically associated with the end of the cycle manifest instantaneously in the *new* cycle.

On the other hand we could just be honest and acknowledge that this is STILL the longest cycle in U.S. history now running on record stimulus. 

"The ISM survey's measure of prices paid by manufacturers rose last month to the highest reading since July 2008, when the economy was in the midst of the Great Recession. That bolsters expectations for higher inflation this year"

Of course July 2008 was the end of the cycle. Back then economists expected inflation to worsen but when the Great Crash of 2008 took place, the exact opposite occurred. 

First off, as I pointed out on Twitter, the reason there is so much "inflation" hysteria is because the middle class has been obliterated and therefore small price increases have outsized impact on household budgets. It's a poverty trap in which wages can never rise because inflation hawks immediately call for higher interest rates to quash the recovery. They have a well brainwashed populace taught to believe that prices at Walmart can only go down, never up. The virtuous circle of rising wages and rising output/productivity that created the middle class in the first place cannot exist under this current paradigm. Likewise, amid record debt, small increases in interest rates have outsized impact on credit markets. In other words, this is a Mr. Creosote economy. Always only a wafer thin mint away from exploding.

Due to the year over year "base effects" of comparing a re-opening economy to a locked down economy, all of the various metrics economists use are skyrocketing. Unlike anything we've seen in modern history. This is all due to year over year comparisons against a zero baseline. 

If we look at more absolute indicators, we quickly realize that this "recovery" is by far the weakest in U.S. history. Which portends badly for what is coming on the other side of asset  super crash.

First off, looking at the ten year Treasury yield, what used to be the floor for interest rates, is now deemed to be the ceiling. According to today's inflation hawks a 2% bond yield would be the end of the world.

If we look at air travel (passenger miles) as a proxy for tourism and business travel, here is what we see:

This is through January, nevertheless the increase is nominal:

If we look at vehicle miles as a proxy for people commuting to work and/or taking vacations, we see they are at a twenty year low as a 12 month moving average.

This data is through February:

No surprise, crude oil is languishing amid demand still at an eight year low. This is the third echo bubble since 2008.

Crude oil demand is from mid-April:

Here we see the big "housing boom":

Housing starts are fractionally above pre-pandemic levels:

Housing starts are from March:

And if we look globally, we see that the Baltic Dry Index which is a measure of shipping costs, is a pale shadow of its 2008 levels.

Bear in mind, this is all the good news, imagine what happens when the asset bubble crashes.

BDI is updated weekly:

The Post-Pandemic Investment Hypothesis

The premise of the post-pandemic investment hypothesis is that an economy that is locked down for an entire year emerges far stronger than when it entered. You have to be a brain dead idiot to believe it, therefore it's now the consensus theory...

According to this novel hypothesis, mass unemployment, record deficits, small business obliteration, and soaring corporate debt are all factors that make stocks more attractive. If this all works out, we can look forward to the next global pandemic buying opportunity. I'm sure Redditors are hatching a global Ebola epidemic as I write.  

Per the post-pandemic hypothesis, there is now a *new* category of investment called "Value Momentum". What used to be two polar opposite investing strategies have now been morphed into one gigantic Ponzi momentum chase. In other words, there is no longer such a thing as value investing. 

Incidentally, the fund company that manages the MTUM ETF is Blackrock, the world's largest ETF issuer and overall money manager.

Maybe they will add their own stonk to the fund to get some momentum going:

The Fed, for their part has done everything possible to avoid the Minsky Moment by making the bubble far bigger by promising unlimited liquidity forever. The ubiquitous belief that attends this lunacy is that as long as the Fed never raises short term rates, the market can't explode. The fact that the Fed has already imploded the long-term bond market apparently doesn't matter. In other words, the stock market is now in an upward momentum feedback loop that will only end when the bubble spontaneously explodes at all time highs.

Unfortunately, the Treasury Secretary almost caused the Minsky Moment today when she accidentally told the truth:

Risk markets were not very happy with the news, because they had assumed that Fed liquidity would flow until happily ever after. However, the bond market appears to be pricing in an inevitable tightening which would ironically be bullish for bonds as it would reduce inflation expectations. 

If the thirty year yield breaks key support, then the ultra-crowded cyclical trade will be the next domino to fall. Needless to say, no one is expecting that to happen. 

"RISK OFF"

And then there will be no "momentum" left in the casino. And without momentum, Ponzi schemes collapse very quickly and of course unexpectedly.

The New Cryptocracy

A Cryptocracy is a de facto Idiocracy that believes in creating wealth out of thin air, without any effort whatsoever...

Unfortunately, no one told these historical illiterates, that it's already been tried.

This past weekend Charlie Munger, Warren's Buffett's second-in-command called crypto currencies "wealth created out of thin air". He also said that Bernie Sanders had accidentally "won" the war on inequality, because future generations will find it impossible to repeat this same level of alchemy.

"The difference between the rich and the poor in the generation that's rising is going to be a lot less"

A billionaire monetary crack addict dispensing sage advice about wealth created out of thin air. Sadly his entire legacy will be  absolutely demolished in the impending  meltdown, as will Buffett's. There is such a thing as living too long.  

Ironically, when this cycle started in 2009, few if anyone believed in the new alchemy of monetary inflated assets. Now, 12 years later few people question it.

The ultimate irony of this Wall Street recovery which massively favours the economic cyclicals over last year's Tech/deflation trades, is that the asset bubble is now the biggest risk to the economy. This market is far too over-leveraged and overbought to sustain a RISK OFF event, the likes of which is long overdue. In other words, the market IS the economy.

Among the cyclicals, Transports are leading, what else?

The Dow Transport index has now been up 14 weeks straight and is two decades overbought. We see via the lower pane that the signature of this bounce is deja vu of 2009/2010. Except of course this time, the index is at record highs and is far more overbought than last time - compliments of central banks and BTFD investors who collaborated on the shortest bear market in history at 16 days.

Now, celebrating the anniversary of the May (6th) 2010 Flash Crash. What could go wrong?

Looking at the VIX from that same era, we see that the Cryptocracy has grown more and more complacent over time. 

Due to the shortest bear market in history, the VIX futures net speculative never actually turned positive. Unlike every other volatility event of the past decade. 

I would be remiss if I coined the new term "Cryptocracy" and did not make a connection back to crypto currencies.

Here we see that the financial asset managers, the Rydex asset allocation ratio, and searches for "Crypto" are now reaching new highs at the same time. Deja vu of 2018 Vixplosion.

In other words, today's financial advisors are in the same league as crypto con artists. Both spinning a falsehood of recovery.

One thing stonks and Bitcoins have in common is that when the meltdown begins, the machines will go offline, leaving no one on the other side of the trade. And then all bubble assets will discover their "true value".

In summary, it's no accident that all of the cyclical industries are now seeing ludicrous all time high valuations. These are the industries that are most prone to salesmanship and ludicrous predictions for the future: Real estate, car sales, financial investments, fracking etc. etc. 

This is a con man's paradise, and they are taking full advantage to ensure that consumers and investors have maximum FOMO. Which is why they all agree that "inflation" is the biggest risk. They want us to buy now before prices go up later. 

In the event they have purposely created panic buying in every asset class.

Soon all of their lies will turn to dust and blow away. Today's hot air "inflation" will morph to permanent deflation. 

This rampant delusion that the post-pandemic economy will be far better than the pre-pandemic economy is the dumbest fucking lie in human history. Those who believe it are addicted to bullshit. When their hot air bubble bursts, these people will finally realize they can no longer afford this level of delusion.

Then, they will be forced to settle for the inconvenient truth for the first time in their lives. 

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.