Disposable Society

This society is lazy, corrupt, denialistic, and more importantly they don't want to change. So what to do but recycle greater amounts of insanity while pretending the future will be just like the past...

No matter what level of abnormality this society embraces, those who question it are the ones who are deemed abnormal. Imagine not propagating the fantasy that this will have a happy ending. Anti-social. It's up to our mainstream purveyors of denialism to keep this dual track fantasy running smoothly. The left informs us that the past will be canceled and replaced with a centrally planned monoculture. The right promises us that the disasters that led us to this juncture can be fixed by doubling down on the same ideology of greed and fraud that created them in the first place.

History will say they were all dumb assholes trapped in their own echo chambers of self disinformation. 

The combination of the Trump tax cut and the pandemic bailout has put the U.S. firmly down the path of MMT: Modern Monetary Theory. The monetization of chasmic deficits. Those calling for exploding inflation are ignoring the fact that Japan has been down this path already. Nevertheless, the scale of these deficits is unprecedented and it indicates a society willing to do anything to avoid reality. We should never underestimate the lengths they will go to in order to avoid short-term inconvenience at any cost. 

Which makes long-term predictions impossible, except to understand that the detonation of their financial weapon of mass destruction will likely lead to even greater forms of insanity. And anyone who questions it will be deemed unfit for  the asylum.

At this juncture the majority of Republican governors have now canceled the ancillary Federal government unemployment programs - including the ones supporting the self-employed and long-term unemployed. Ironically they have greater confidence in the Biden recovery than Biden himself. Unlike Trump who constantly over-stated the strength of the economy, Biden is constantly informing people that this recovery has a long way to go.

And of course he is right. Based upon payrolls, the Wall Street recovery is years if not decades ahead of the economic recovery. Here we see that ALL of the Trump payroll gains were rolled back by the pandemic:

If we use oil as a proxy for economic activity we see that Energy demand is eight years behind this "recovery":

GDP is a useless indicator because year over year it's distorted by last year's lockdown. However, the CBO predictions for 2021 indicate a 1.8% annualized growth rate vis-a-vis 2019. At the cost of a 20% Federal deficit. Truly asinine. 

All of which is why this society is plowing their savings into the Casino, because they are confident that the past 100 years of history will repeat into the indefinite future. And at peak Boomer retirement, no one can tell them any different. 

I showed this chart on Twitter showing the inflation adjusted Dow. Real returns peaked in the 1980s and 1990s. Since then it's been a non-stop monetary bailout featuring record low interest rates and now MMT madness. One would have to be a dedicated denialist to assume that this brief foray above the Y2K breakout line can be sustained at record valuations and record money printing. Picture what happens when the numerator is going down and the denominator is going up, at the exact same time.

Everything has been poured into this epic con job - the economy, the future, the Federal budget, the Fed balance sheet. And yet it's still losing momentum and running on the glue fumes of monstrous lies. 

In summary, this is truly a gambler's market now. Those who are fully invested in denial will find their future returns are deeply negative. The cost of believing in a fantasy propagated by an inherently corrupt society.

For those who buy low and sell high and ignore the relentless bullshit emanating from rampant assholes, it won't be so bad. 

It will probably look something like this:

All Aboard The Fraud Supernova

There is a level of widely accepted fraud in this era that is far beyond anything we've seen in our lifetimes. It's amazing what criminality people will ignore when markets are rising. And what they shockingly discover when they fall...

Back in 2016 prior to the election, Trump predicted that Obama's "Big, Fat, Ugly Bubble" would explode when Obama left office. But when that didn't happen, Trump got to work making it much bigger. Then it exploded on his watch in 2018.

We can see via the Global Dow that the Trump bubble peaked in 2018 after a 14 month rally. The peak coincided with the implementation of his tax cut. While the S&P 500 made a new high in September of 2018, global markets essentially went down the entire year. Then the S&P imploded and met them at the bottom in Q4, until Trump demanded a Fed bailout. 

Acquiescing to Trump's demands, 2019 marked a Fed easing of policy - three rate cuts and a $trillion in quantitative easing to quell the repo crisis caused by the tax cut and resulting deficit. All of which led up to the pandemic implosion. Now, Biden's post-election rally equals Trump's post-election rally in magnitude, but in half the time. 

In four years Trump tweeted over 150 times about the stock market. Biden never talks about the stock market, because he knows it's a bad idea. 

Looking at the chart above, we see that Trump built upon the Obama rally and now Biden is building onto the Trump rally. In the meantime, leverage and risk have continued to grow. In 2018, Trump killed the Fiduciary Rule which requires investment advisors to disclose conflict of interest and otherwise steer their investors towards responsible investments. Once they were off the hook from taking into account their client's best interest the fraud genie was out of the bottle and has grown inexorably since that time. Now we live in an age wherein Reddit pump and dump schemes are defended in Congress as democratization of markets. Crypto currency schemes are going mainstream. And SPAC issuance is out of control and riddled with fraud. Unlike IPO's SPACs are lightly regulated which is why they are ideal for con artists looking to take advantage of the public:

Preparing For The Deluge Of SPAC Litigation:

“In a traditional IPO you can’t show a [financial] forecast and you can’t talk about the future of how you want to do things, you’re just not allowed … Because the SPAC is a merger of companies, you’re all of a sudden allowed to talk about the future … when you do that, you have a better chance of being more fully valued.”

Then there are today's pump and dump celebrities: Cathie Wood, Elon Musk, Mark Cuban, Chamath Palihapitiya, Dave Portnoy. These are people with massive followings who use Twitter to drive all of the various pump and dump scams. 

In a sign of the times, this week, Miami is hosting the largest crypto conference in history. Over 50,000 attendees are expected. 

"Miami is hosting the largest-ever cryptocurrency conference this week in a sign that what was once dismissed as a passing fad is now going mainstream"

This chart shows that the losses in crypto equal 10 years of market cap gains:

In a zero yield, zero sum game, fund managers unshackled from Fiduciary duty, are now seeking yield by taking ever greater risk. After all, they need to make money in every type of market, and over-valuation is not THEIR problem. 

We can be certain that there is a level of shadow leverage beneath the casino that will make 2008 seem minor by comparison.

The latest trend is to turn insurance companies into massively levered hedge funds:

“There are some people out there who take these assets, they assume the insurance regulators won’t pay that much attention to them. And they swing for the fences"

In summary, the Millennials who were protesting Wall Street one decade ago, are now massively levered to record Wall Street  fraud and criminality.

You can't make this shit up.

Stuck In A Third World Deflation Crisis

The only inflation is in hyperbolic bullshit, which is now half the economy. Those who don't see this coming, were not meant to see this coming. To them mass exploitation is the "system" and they are the beneficiaries. Therefore it never occurs to them that it's their turn to go under the bus...

 

Why are "prices" going up? Did I miss something, did the middle class float back from China? Did we finally bailout workers and restore their standard of living back to what it was forty years ago? Of course not. That narrative is for useful idiots. The reason why prices are rising is because yet again during COVID we bailed out the rich and therefore asset speculation is rampant. It's the exact opposite of what the Idiocracy believes. The Trump era proved that checking facts is not their priority. Believing ignorant and arrogant bullshit is the order of the day. The price to be paid for being a true believer didn't come in November.

It's coming now...

Contrary to popular belief, this is a Third World deflation crisis. Not only is the debt market hyper-sensitive to interest rate increases, but the commodity market is hyper-sensitive to balance sheet expansion. The Fed is using the wrong tool. Their approach to inflating the assets of the wealthy will always collapse back in on itself as Ponzi inflation expands and then crashes. As long as they continue with this approach, they will always fail. The only beneficiaries will be the corporate insiders cashing out at public expense. 

At 0% interest rates monetary policy no longer has ANY effect upon the middle class standard of living. It's over. The Fed can bid up billionaire portfolios, but all they're doing is creating greater wealth inequality. The debt penury expansion game has ended at the zero bound, amid stagnant incomes. These commodity-fueled price increases only add insult to injury. Throw in another stock bubble, another housing bubble,  and another crypto bubble for maximum pain. Ten losers for every "winner". 

Every pump and dump cycle leaves more middle class carnage. Every Wall Street "recovery" leaves more people behind. This is the activity rate (labour participation rate) going back to 1960:

Underemployment is the economic crisis of our time, and yet economists ignore it. Only when they themselves are mass unemployed will they realize it's a problem.

Too late.

All markets have been gamified now. This populace is addicted to gambling so they haven't yet noticed that the house always wins. They are always eager to return to Vegas. 

Gold is warning what's coming and it's not inflation:

Here is what happens next. The new bull market will be in cash. Post-crash, cash will gain in relationship to everything that can be bought and sold. The Fed will pin the long-term bond yield to zero and everything else will implode. 

From panic buying to panic selling. 

How long that continues is anyone's guess, because now the 'economy' is beholden to a fractured Congress. Which means that those who are living large beyond their means are about to see a massive forced downsizing in lifestyle.

The house will be moving like a rummage sale.

Those who are bullshitting us about inflation, are the same ones who can't admit that the past forty years has come at the expense of the middle class. To reverse that obliteration will take first a change in ideology from supply side to demand side. And second it will take an actual change in policy. Don't hold your breath. 

Meanwhile, the rest of the world will be worse off, which portends competitive devaluation. The dollar will sky-rocket and that will again make everything cheaper still. Cash will go up in value every day.

Last year, these morons didn't get the memo that the competitive self-destruction lifestyle is over. It's lethal to mental and physical health. It's lethal to the environment. And now it will be lethal to financial health as well.

This bubble is running solely upon asshole inflation. And despite their overwhelming superiority in numbers, they are going up against hardcore reality. 

And this time the table stakes are $Everything, no refunds.

In summary, how many times can these people be conned?

Every time.

But when they're selling down their load of accumulated junk, even the biggest moron will come to realize that prices are not going up. 

A panic buying bubble ahead of a record asset crash is by far the worst case scenario for true believers in bullshit. 

Rational Self-Destruction

What happens when selfish assholes seek validation from other selfish assholes? Alienation, loneliness, rage, mental health breakdown, suicide, overdose, mass shootings...

Let's see, political civil war, militant activism, record wealth inequality, rampant anxiety, what's not to like?

There is only one "cure" for all of this insanity, which is to reject the modern way of life. To reject debt penury and otherwise stop trying to keep up with the Kardashians. However, the Millennials are just now experiencing their first pump and dump cycle, so they think this is all going just fine. They've never seen a bear market, nor a housing bubble, nor a Tech bubble. So now they will experience all three at the same time.

At the dawn of 2015, China was experiencing their slowest GDP in decades, so the PBOC decided to bid up the stock market to get the speculative juices flowing. Extolling the invincibility of central banks, Hedge fund manager Hugh Hendry called it "imagined realities" and he was all set to jump onboard: 

Dec. 2014:

Hugh Hendry Is Taking The Blue Pill Now

"China is set to record its weakest growth in GDP in 25 years. Yet it seems to have entered a bull market and may be where we deploy much more of our risk capital next year. That’s because the recent exuberant run up in onshore Chinese equities seems to me to amply demonstrate the power of imagined realities"

As we see it was a straight up, straight down pump and dump that exploded global markets in August of 2015. All caused by excess monetary liquidity. That event of course marked China's introduction to Japanification. Wherein markets begin trading in a wide sideways range. Which is what they've been doing ever since. Now currently at the February 2018 VixPlosion level:

If we go by the Chinese experience in 2015, the Fed will get this all under control after a -60% decline. Back then the PBOC did everything possible to stop the crash - including banning short selling, then they banned institutions from selling altogether. Next they shut down the market for days a time. Nothing worked. The market had to clear. 

Now whose turn is it?

According to the post-pandemic investment hypothesis, we are to believe that the post-pandemic economy will be far better than the pre-pandemic economy. 

This Wall Street recovery is America's imagined reality. Lockdown, re-open. Get rich quick. Why didn't anyone think of this sooner?

This was another lesson from Hendry:

"The worse the reality of the economy becomes, the more we take on the reflexive belief in further and dramatic monetary expansion and the more attractive the stock market looks"

There has been no sign of capitulation in this Tech decline.

BTFD all the way down.

And now the noose is tight.

In summary, this is called rented prosperity. The Japanese learned the hard way. The Chinese learned the hard way. And now the U.S. has to learn the hard way. 

There is no such thing as effortless wealth.

We Have Now Entered The No Bailout Zone

When the shit goes down deja vu of 2008, Warren Buffett will pick up his hotline to the White House only to find Elizabeth Warren at the other end of the line. And then the underwear will be mighty stained...

I was a conservative most of my life, until I realized it was always going to be about enriching billionaires at the expense of the middle class. And then I wanted nothing to do with it. I don't do continual descent into squalor.

Today's fair-weather friends of capitalism are destined to have their faith system tested by fair-weather algos. Both will fail simultaneously in a cataclysmic fashion. This time when the "capitalists" come begging for a bailout, they will be met with epic rage instead. At that point the age of unfettered hubris will end. 

The right wing is pounding the table on this fake "inflation" theme. They see it as Biden's Achilles heel. They have bought their own delusion hook, line, and sinker. They're locked in a circle jerk of link-minded dunces with no way out. Too bad no one could warn them - not a net 5 IQ in total when you include the negatives. What happened to honesty and integrity? Did that go out the window along with democracy? When the entire fake news formula is predicated upon expanding the base of useful idiots, there is no ground floor for buffoonery, there is only  a death spiral lower. 

One thing we know vis-a-vis the late 2018 debacle, is that the Fed won't reach for the bailout switch until at least -20% lower. Which is deep in marginal call obliteration territory. At that point ~$1 trillion of leveraged Tech stonks will get dumped into a no bid market.

Picture GameStop x 20.

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

At the same time, or likely sooner, what remains of the crypto bubble will be exploding amid rampant outages the likes of which we got a taste of last week.

“Coinbase always goes down”

“It’s kind of funny, it’s a forced hodling by these exchanges because you can’t sell” 

Hodling is not a typo, it's what drunk Bitcoiners call holding until bankrupt. And if they can't sell Bitcoins, they will sell something else, like Tech stonks and Grandma's china.

Suffice to say, all of this dislocation won't be limited to one time zone. It will be a 24 hour rolling event.

And then there will be the Emerging Market currencies imploding vis-a-vis the sky-rocketing dollar. It's at that time that the inflationists will implode spectacularly.

Commodities will be limit down.

"Lumber futures did something remarkable yesterday. Trading in the benchmark “random length” contract for July delivery was halted twice on the Chicago Mercantile Exchange (CME), once for a limit down move, then for a limit up. For those like me with a trader’s mindset, that is an interesting little tidbit, but the significance of yesterday’s trading in lumber doesn’t end there. The recent moves in that market are indicative of what is going on elsewhere, and what happens in lumber from here may well give an early indication of what we can expect in the stock market in coming weeks"

Collapsing Treasury yields will implode the Cyclical bubble

Picture what happens to these stonks sans bailout

In summary, a wealth "tax" is coming and it's called 

#NoBailouts#

A Fatal Addiction To Bullshit

Disinformation is rampant, because monetizing idiots is the last business model. No matter how ludicrous asset prices become this perpetual growth model will always demand "more". And therefore the false narratives must become more ludicrous in lockstep. Fortunately, the collapse in average IQ is front-running these ever-more asinine narratives we are sold...

Today's ubiquitous belief is that central banks control inflation and deflation. Unfortunately, nothing could be further from the truth.  What they control is asset inflation. Even at peak asset prices, they have no control over global deflation. When history's largest asset bubble explodes, even the biggest moron will figure it out. Far too late unfortunately:

This society is addicted to deflation because it's the secret sauce that boosts asset prices at the expense of the economy and wages. Which is why every time prices rise a small amount the deflation mongers cry "inflation", despite the fact that the only inflation is feeding back into the economy via the risk asset bubble itself. 

Heading into the Memorial Day long weekend and the unofficial start to summer, both volume and volatility have collapsed. Which is why speculators are loading up on risk and otherwise manipulating markets with impunity.

Case in point, we are to believe that movie theaters which have been in decline for years were somehow rescued by the pandemic. Everyone get off of Netflix and go pay $30 to see a movie. Popcorn and sugar water are nominal commodities until you go to the theater where they command a 100x profit margin. 

Over in Tech stonk land here we see the Ark ETF is back-testing the 200 dma while the Nasdaq is the most overbought it's been since the February top:

But what could go wrong amid record stock margin?

According to this week's AAII retail investor survey, bears remain in hibernation:

Outside the U.S. we see that the Nikkei is rolling over hard. So far, the Nikkei timed three for three global RISK OFF events. 

We are to presume this time will be different:

The 2021 Crypto Conference "Consensus" ended today and Bitcoin is making what appears to be a right shoulder on the weekly ahead of the long weekend:

Crashed Tech stonks, crashed cryptos, maximum margin leverage, extreme complacency, which just leaves the record overbought end of cycle reflation trade:

In summary, I call today's "inflation" Ponzi inflation. Which is what happens when a bunch of assholes bid up their own assets and then begin to fear that central banks will end their party early because someone gets paid a living wage. 

There are far too many assholes running amok and they need to discover the joys of living in subsistence. 

The Systemic Risk Rally

Never before has this much capital been exposed to this much risk. Which has put the entire system at risk. We can thank de-regulated corruption...

Since the Anti-Christ left the White House I've been avoiding politics. Nowadays both sides believe that every election is an existential ideological battle. One side wants to return to the glory of the past by recycling the exact same mistakes that led down the path of squalor. The other side, "the progressives", want to cancel the past entirely, while ignoring the fact that economically the past was better for the majority of people. There is no ideology of compromise. All of which means this new permanent plateau of Wall Street Utopia will have to explode before anything gets better.

It's my own opinion that we will be worse off if conservative values are entirely destroyed in this impending meltdown. I'm not talking about these scam-riddled corrosive values that are destroying society. I am talking about old fashioned conservative values of honesty and thrift which were supplanted by base opportunism years and decades ago. Social Justice Warriors will never admit that unless the economy is reformed to provide a broad-based path forward for socioeconomic self-improvement, then no amount of protests and transfer payments will make a lasting difference. What they could do however is create a permanent underclass subjugated by economic rules that will always be biased towards the wealthy, regardless of color. Without substantial economic reforms the scheme for buying off the past will backfire. 

So from an historical standpoint we know what will happen next: When this experiment in maximum idiocy explodes, we will go too far to the left, which will not be accretive to profit. What we've witnessed for the past four decades is the ascendancy of capital over labor. Now, that will go in reverse. Therefore we are witnessing peak corporate profit of our lifetime.  

Going forward, we can expect that wages will become a larger share of GDP, and profits will become a smaller share of GDP. We can expect that corporate taxes will be higher, and personal taxes on the wealthy will be higher as well. We can expect substantial re-regulation of Wall Street and financial institutions, reducing their profitability. We can likely expect stock buybacks to become illegal again. IPOs and SPACs will be re-regulated making capital less abundant to start-ups. In addition, Globalization will collapse along with "free markets". Meaning trade wars, tariffs, and economic nationalism will be the new world order. The WTO need not apply. And of course a corporate debt crisis is in no way priced into today's markets. Despite the fact that corporate debt is at a record (% of GDP) and lending standards have collapsed over the past year. 

In other words, fair value for the S&P 500 will be somewhere in the range of 50-75% lower than these current levels. Throw in the high potential for much higher interest rates and the 75% haircut becomes the realistic figure.

How do I arrive at my drawdown figures? Suffice to say this is not a scientific process, and neither are Wall Street's forward earnings estimates. However, here in this chart we can see the valuation premium on the S&P 500:

Here is the stock market divided by Federal debt to give an idea of the sustainability of mass layoffs covered up with massive Federal stimulus:

 

Not to say this is the end of the world. However, one must factor all of this into their "buy the dip" strategy. 

What COVID did was it put the system at risk. Why? Because the usual psychopaths took full advantage of the monetary-induced stock market recovery to con the masses into believing this was an entirely new cycle.

In summary, the lack of a true conservative movement threw conservative values of honesty and thrift under the bus. In the process the land of opportunity became the land of opportunism. Many alt-right pundits will blame the left for what comes next, but history will say they should be blaming themselves for de-regulating corruption every chance they got.

Until it all exploded totally unexpectedly.