The Crack Up Boom And Bust

While I often deride Millennials for chasing this super asset bubble. What can you say about a generation that throws its own children under the bus, in the World's greatest Ponzi scheme? Nothing good...

At the apex of human history's largest asset bubble, social mood has nowhere to go, but down. Central banks have been increasing the wealth divide every day since 2008. Still, the masses will be shocked when monetary welfare for the rich spontaneously explodes. No one told them printed money is NOT the secret to effortless wealth. 

Ludwig Von Mises died in 1973 long before Quantitative Easing (aka. monetary welfare for the rich) was invented. His conventional inflationary theories never predicted the massive deflationary impulse that Globalization would soon create. A world of poverty imported by container ship straight to America's shores. Unlike prior mercantilist eras throughout history, Asia's exporters have never cared that the U.S. dollar was no longer backed by gold, hence they have never rejected it as Von Mises predicted. Instead, they took their bounty in factories, jobs, and industries. Now, ironically, they are as wed to this Faustian Bargain trade relationship as we are. 

It's clear from the comments on my Twitter feed that most people don't understand the difference between inflation and deflation. That's because at the individual level they feel very similar - a declining standard of living as a paycheck no longer covers expenses. Which explains why most people view this as an inflationary death spiral. At the macro level however, inflation and deflation are nothing alike. Inflation takes place when consumer purchasing power is rising along with wages to fuel the inflationary spiral. It assumes FULL employment. What if no one had a job, would there be inflation? Of course not. The U.S. currently has the lowest EMPLOYMENT rate in modern history. People are leaving the workforce in droves and economists can't figure out why. 

There are different reasons why people are leaving the workforce, depending on age, gender, occupation, parenting status etc. For one thing almost all pundits seem to forget that there are 60 million gig workers in the U.S. right now. None of those gig jobs show up in the monthly jobs report. Secondly, many Millennials are quitting their jobs to become full time gamblers in stocks, cryptos and other markets. Thirdly, Boomers were retiring at an average rate of 10,000 per day even BEFORE the pandemic; however, the pandemic moved up their retirement by many years. Why? Peak asset prices.  

"About 3 million people retired earlier than they likely had planned as a result of the Covid environment, according to a report by a senior economist at the Federal Reserve Bank of St. Louis"

“Standard theories of household behavior predict that when people get richer, they work less, and there is some evidence that the evolution of asset values influenced labor force participation in previous recessions, especially for those closer to retirement,” the report read. “The large rise in asset valuations during the pandemic suggests that retirement may have become feasible for many people.”

The Fed STILL hasn't figured out that the Fed is the reason why there are so few people looking for work right now. Let's face it, these are not bright people. 

"Where did everyone go?"

There are other deflationary factors that were accelerated by the pandemic: One was the overuse of technology. Silicon Valley has a term they use to describe today's rapacious business model: "Blitzscaling". Blitscaling means using "free" capital to subsidize unprofitable business models as they scale up by destroying traditional competitors. Anti-trust regulators used to call this predatory competition. Now, it's the standard business model for untold numbers of "unicorn" billion dollar pre-IPO companies. At 0% interest rates, pretty much any business idea that MAY turn even a minor profit in the very distant future will get funded. And hence now we have the "virtual economy". 

And of course global debt exploded during the pandemic. 

One chart I posted on Twitter recently showed the collapsed velocity of money. The velocity of money measures the rate of circulation of money throughout the economy. Fed balance sheet expansion is going straight into markets not the economy, like a shot of adrenaline. From there the trickle down effect is making its way into mega yachts, Teslas, and Rolex watches. From there it goes straight back to the banks where it sits as excess reserves. 

The banks lend the money back to the Fed via reverse repurchase agreements, and they earn interest on it for doing absolutely nothing.

Here we see the velocity of money (blue line) and the reverse repo $ amount (red line). What inflationists STILL don't understand is that monetary welfare is for the rich, it's not for everyone. 

The other shocking chart I showed on Twitter is this one of commodities. 

As we see, during the pandemic, commodities lost 50 years of nominal price gains. Subsequently, they have enjoyed the largest rally since 1974. What we also see from this chart is that even before COVID, the trend was already down. 2016 price levels were below 2008 levels. 2008 happened to be peak Chinese growth rate. Now, this year China is set to record its lowest GDP growth in 25 years. Add in a skinnied down Biden infrastructure bill, and there will be no follow-through for this mega rally:

Taking this all together, I am not a deflationist, I am a hyper-deflationist. The only thing standing between us and hard economic reality is human history's largest asset bubble. Consumer confidence has already collapsed and it has taken down housing and auto confidence along with it. This is the consequence of monetary welfare for the rich. It has bid up asset values beyond the reach of normal citizens. As a result, household liabilities have sky-rocketed. The deflationary burden is increasing with each passing day and it will accelerate upon asset bubble collapse.

Since the start of the pandemic, Tesla has gained 2,000%, while Elon Musk's bubble wealth increased 12x in two years.

What we are watching in real-time is peak insanity. The Pyrrhic victory of misallocated capitalism at the EXPENSE of the economy. 

Global Synchronized Delusion

This cyclical recurring reflation fantasy reminds me of the Matrix. What begins as a central bank assisted rocket launch, reaches second stage orbital escape powered by misallocation of capital, at which time central banks remove their support. And then the machines destroy Zion all over again. This time however, I believe the zombies will remember the ending. When they wake up to the Third World reality of fully leveraged denial, the true believers in fraud will have nothing to show for it…

There is an exorbitant price to be paid for this fool's errand, in time and money. The true bagholders will be short of both when it comes to this final reckoning. I predict very few "winners" in this ultimate game of chance. Art is imitating life on the most popular show in Netflix history - "a bit of the old ultra violent" Squid Game, is a South Korean version of the Hunger Games, wherein desperate gamblers from all walks of life are recruited into a deadly series of games for the amusement of the ultra wealthy. 

If gambling is a rampant problem, then one can make the case that the situation isn't about to improve as the Kospi backtests the 200 dma ready to go bidless:

These Global Chaebols however are far from merely a South Korean problem. China is taking its oligarchs to task in a serious way, whereas the U.S. is sitting back and doing nothing. More content to criticize China for interfering in what is clearly exceptional capitalism.

"...None of those U.S. shows capture the rage and despair of our broken capitalistic system, in which young people are crushed by debt, social mobility feels like a joke, power and capital are hoarded by unreachable oligarchs and elected officials are too impotent or indifferent to help"

Indeed.

U.S. policy-makers are captured by the system. From an economic standpoint, the "center" has silently moved to the right over the past forty years, meaning the old center is now to the left of Nancy Pelosi and her gambling husband. Ron Paul can take pride that he consistently voted for the destruction of the middle class, while pretending to be a man of the people. It's the fruit of forty years of "Shock Doctrine". In the words of Milton Friedman, never let a good crisis go to waste. Now what we have is a Third World economy papered over with continual stimulus.  

And it was all going so well...

My predictions for a deflationary collapse in 2021 have been continually pushed back into the end of the year, bonus season. The stakes have never been higher. Unfortunately, none of today's pundits acknowledge the binary risk inherent to these manipulated markets. They are all content to extrapolate  Ponzified "stagflation" into the indefinite future. Not one of them acknowledges the role of speculation in fueling this illusion of reflation. Capital is now front-running the economy and inventing false narratives on the way. Whereas the economy used to drive markets, now it's the other way around. 

Returning to the 2018 analog, all of the Trump tax cut stimulus was spent in the first half of the year. By the fourth quarter, the fiscal drag was well underway while the Fed was hell bent on tightening. Sound familiar?

I can't explain why these serial fools keep believing the same fairy tales each time expecting a different result, but they do, every single time. Here we see via Financials that this week the reflation delusion went full crack up boom mode, however NYSE new highs are right back to where they were a year ago when the massive post-election reflation rally got started.

The whole stimulus-driven illusion is turning back into a pumpkin.  

Just in time for Halloween.

 

Here we see weak bears are capitulating deja vu of last year at the top. Meanwhile, skew is also coming down.

All it takes for delusion to become rampant is time and misallocation of capital.

While reflation trades go late stage parabolic, the Nasdaq is dragging. This fantasy has taken its toll on growth stocks.

It's been a long time since we saw both cyclicals and growth stocks implode at the same time...

Global markets have seen this fake reflation movie over and over again since 2008. 

This secular recovery fantasy is a Made In America export.

In summary, at the beginning of this longest cycle in U.S.  history, Millennials were protesting Wall Street. Now they are massively levered to the world's largest Ponzi scheme, the S&P 500. Bitcoin/crypto is the fission trigger for thermonuclear detonation of the Weapon of Millennial Destruction (WMD).

They have now officially become Generation Gambler. And when they implode, they will take down everything.

The Golden Age Of Fraud

Today's pundits have capitulated to the zeitgeist of rampant fraud. Investing has taken on a magical quality in which financial fraud goes largely unquestioned. Sadly, mass insanity is not a bullish argument. It's clear that the masses have been fully euthanized by the virtual simulation of prosperity and its acolyte QE. In this post I will tackle today's chimerical "bullish argument". And destroy it...

PBS: Frontline

“It’s pretty basic in medicine that our doctor may give us a drug, which, in a small punchy dose, for a brief period of time, might help us recover from whatever ails us, but that the same medicine, the same drug, taken in massive doses over long periods of time, might kill us" 

I used to search the internet for sources of financial information that would affirm my position - bullish or bearish. Not anymore. Now I seek to find sources that will challenge my hypothesis so I can ascertain where I may be wrong. Which is fortunate, because now I see almost no bearish commentary whatsoever. All I find now are snippets of bearish commentary in stand-alone articles that assiduously ignore the bigger picture of rampant fraud having taken over all aspects of modern life. One of the lasting legacy's of Trump's presidency will be the fact that back in 2018 he killed fiduciary duty and since then fraud has been rampant:

"So did the rule’s demise benefit Americans by empowering them to “make their own financial decisions,” as Trump indicated he wanted to do? The evidence suggests not. Sales of potentially questionable investment products have soared, and retirees stand to end up billions of dollars poorer"

Investors will be TRILLIONS poorer. 

For my strawman this time I'm going to use this article below by Lance Roberts which caught my eye because he has been mostly cautious towards markets this year but he now views this latest minor dip as a potential buying opportunity. It's clear that many who have been on the sidelines this year are getting anxious to make up for lost time in Q4. The typical money manager's dilemma. In other words, this is about as "bearish" as it gets these days: 

Bulls Regain Market As Fed Taper Looms

The bullish argument is predicated upon several key factors he elucidates:

First off earnings ARE strong. Corporate profits are at a record high as a share of the economy, while labor's share of the economy languishes at all time lows. In addition, corporate profit margins are historically at all time highs. The bullish bet is that it will all continue. However, the article notes that rising supply costs are now eating into profit margins potentially creating a peak for profits. In addition, stock buybacks are now back at record highs as well. Forty years ago stock buybacks were illegal because they were deemed market manipulation. However, now they are at record highs because organic corporate profit growth is ZERO. Therefore the only way to increase per share profit is to shrink the share count. What we are witnessing is maximum buyback market manipulation. Why that's bullish is not for me to say. 

Among the other "bullish" arguments he makes is that the market is oversold: I showed on Twitter that the S&P McClellan (breadth) oscillator is now seven months overbought. More importantly, this is the largest (% gain) uncorrected rally since 1933. When I say uncorrected I mean having not touched back to the 50 week moving average. Another quasi-true argument: sentiment IS getting more bearish particularly among retail investors. However, it's far from as bearish as it was at prior market lows. Here we see the eight week moving average of retail bears is at the same level as the 2007 top. Last week's reading is even lower. The long blue rectangle shows that bears sidestepped the worst part of the crash in 2008 by being far more bearish than they are now. We also just learned that margin debt fell only slightly during this past September during the biggest monthly pullback since March 2020.

This is NOT negative sentiment:

The final main bullish argument is around seasonality. It's clear that many investors that were shaken out in September are looking for any reason to get back into the market, and the end of year is usually seen as good for markets. They seem to forget the experience of 2018 when the same set of circumstances tanked the market in the fourth quarter.

What's the most shocking is that there was NO MENTION of China in that entire article. Too many U.S. investors have a massive blindspot when it comes to the rest of the world. Which is why they are constantly blindsided by events taking place overseas often taking the futures limit down overnight. As happened in 2015 (China crisis), 2016 (Brexit) and multiple times in 2020 when the pandemic was initially ignored.   

To kick off my bearish rebuttal, below I show the S&P then and now with the similar factors that tanked markets in Q4 2018:

China implosion, money outflow (lower pane), fiscal hangover, monetary withdrawal, second Nasdaq blow-off top in a massive Tech bubble, chasmic breadth divergence:

Of these bearish factors shown above, the article mentions monetary withdrawal and weak breadth. A bland argument in the face of unprecedented risk. The article says that valuations are "stretched". No they're not, they are asinine by any measure. The only REAL reason to own these markets is because money printer goes "brrrr". We've never seen simultaneous over-valuation of stocks, bonds, home prices, car prices, cryptos, and every other asset class at the same time.

Worse yet, the Fed is repeating the same mistakes as 2008. They are fixating on the inflation they caused while ignoring economic risk. The Atlanta Fed GDPNow real-time GDP estimator has 3rd quarter GDP at just above 1.2% stall level. Given the simultaneous withdrawal of pandemic UI fiscal support, monetary taper, mass unemployment, and the outright collapse in consumer sentiment, it's highly likely the recession will be backdated to September. Which, is also when the stock market peaked. 

The Fed however is now boxed in by their own profligacy. They kept the spigots open for too long post-pandemic and now they are facing another financial crisis. The scenario is very similar: The Fed responds to a crisis, the policy response creates an asset bubble, liabilities rise in tandem, the bubble explodes due to unsustainable valuations, equity turns negative. For a time banks throw good money after bad, but then the music stops and financial crisis ensues:

"Along with “deteriorating asset quality,” banks’ “excessive search for yield” is feeding growing demand for leverage, increasing market risk"

Been there, done that.

The real risk not mentioned in the Zerohedge article is extreme moral hazard arising from continuous monetary bailouts. The greatest risk is that investors no longer fear risk. Recall, this year saw greater stock market inflows than the last 20 years combined. It's hard to unwind that extreme amount of positioning with a 5% market pullback. All that money is now TRAPPED in gamified markets that almost exploded in the early Spring during the Gamestop debacle. Too many newbies have no experience in markets and are taking way too much risk in speculative assets. Algo market structure is the biggest risk that is seldom discussed. Traditional human market makers no longer exist. Now the market is reliant upon HFT scalping algos that TAKE liquidity out during selloffs instead of adding liquidity. 

 

As I pointed out in my last post, the risks to the traditional 60/40 stock/bond portfolio have never been greater. The potential for a simultaneous drawdown in stocks AND bonds at the same time exposes the majority of passive investors to losses on a magnitude they are entirely unprepared to experience. 

I will summarize this speculative mania by discussing this crypto bubble that is reaching back towards the Bitcoin highs of April - The day Bernie Madoff died was the all time high. Many crypto "investors" claim that scarcity is the reason price will keep going higher. Cryptos are not scarce. Imagine if there were several thousand precious metals and new ones were being found every day. Would gold be considered "scarce"? No, it would be a commodity. There is only ONE gold and new ones are not being invented out of thin air.

The amount of speculation however in these "shitcoins" is truly telling of the fraud in this era:

"Called altcoins or, sometimes, "shitcoins," these are essentially penny-stock cryptocurrencies. And they're crazy. Bitcoin tripled its value recently, but many altcoins explode 30, 40 or 50 times over within days"

"The Dot-com Bubble was all about pouring money into "pre-profit" companies in the hopes they'd make money someday. Cryptocurrency, however, takes speculation into the stratosphere. For the most part, cryptocurrency is pure speculation. People are investing in technology that produces nothing"

These are "penny stocks" that are now cumulatively worth over a trillion dollars - as much as subprime mortgages were worth at the height of the housing bubble.

The Hardest Landing

One could not invent a dire set of circumstances that would be more cataclysmic than this banquet of overdue consequences. The Casino Class is about to experience what the middle class experienced in 2008 - forced de-leveraging in a bidless market. What happens when you are looking down the tracks expecting inflation and get steamrolled from the other direction by deflation. Hard to believe, but bidding up everything to record valuations ahead of a global crash is a bad idea...

Here we see consumer sentiment is very similar to the 2007 market top except even lower. Q4 2007 was also the onset of the Great Recession, however it took until the markets exploded a year later for the Fed to realize it had started. Up until that time they were primarily concerned about inflation. Sound familiar? 

The other low in consumer sentiment we notice was from August 2011 just after the debt ceiling debacle. Which is a reminder of what is coming up in a handful of weeks (December 3rd). And then of course we learned this week via the FOMC minutes that the taper is coming in as soon as a few weeks (mid-November). Suffice to say, the Fed's current policy stance is 100% wrong. I predict they will soon be forced to a neutral stance on their way to an easing stance. But unfortunately they are 100% out of easing ammo.

At the top in 2007 they had a 6% interest rate buffer, now they have 0%. But really, what could go wrong?

Even at this latent juncture, gamblers, pundits, and advisors remain sanguine. Deja vu of the Fed circa September 2008, the Chinese government just announced today that they will not be bailing out Evergrande, because it's a "unique" situation. They see no risk of contagion and therefore they have conveniently ignored what is now officially the largest property asset bubble in human history. According to this recent article, China's super real estate bubble is even larger than the one in Japan from 1990 that put them in deflation for the past 30 years:  

"According to Rushi Advanced Institute of Finance, condominium prices in the southern city of Shenzhen are now 57 times the average annual income, and 55 times that of income in Beijing. Even at the height of Japan's bubble economy in 1990, Tokyo condos were 18 times the average annual income"

Picture a middle class family in the U.S. with household income of $80k per year. At 55x they would be buying a home worth $4.5 million on leverage. You get the idea. 

The other crazy statistic is the fact that real estate/property development is 25% of China's GDP. In the U.S., it's 6% of GDP. So imagine the magnitude of dislocation if the Politburo is wrong in not attempting to stop Evergrande from imploding. Quite high. Regardless, in 2009 China's massive property-driven fiscal stimulus exported reflation via commodity demand to the rest of the world, whereas from this point forward they will be exporting deflation as the air comes out of their bubble at a "controlled" rate. Needless to say that China's satellite cities of Hong Kong, Sydney, Vancouver, Seattle, London and San Francisco will feel the full effect of real estate de-leveraging. 

The chart of the week is this one showing EM currencies at critical support and in the lower pane Chinese junk bonds which have collapsed BELOW COVID levels. If EM currencies break that key level, the entire World switches from an inflationary impulse to a deflationary impulse OVERNIGHT.

Nevertheless, today's gamblers are making an ALL IN bet that it can't happen. 

For the purpose of the discussion below when I say "cash" I mean money market funds and t-bills. There is no such thing as pure cash deposits in today's fractional reserve world. Everything is a loan of some sort. 

Today's negative real yields are the root cause of moral hazard in today's Casino. By taking rates down to 0% the Fed made cash extremely unattractive. By leaving them down at 0% they  have generated just enough inflation to force real yields negative forcing institutions, robo-money, (and many others) out of cash entirely. "Cash is trash" is the mantra of the day. Bond "guru" Bill Gross said so himself at the end of August which still stands as the S&P all time high by the way. This article I posted on Twitter explains that today's money managers are "super cash efficient", which means they don't have any at all. What they have instead is something they believe is highly liquid aka. long duration Treasuries which they assume can always be turned into cash easily. That assumption will be tested and fail catastrophically. What I predict is that first deflation will explode with a vengeance via some sequence of EM currency collapse, commodity/oil crash, global margin call etc. THEN, I see so-called Risk Parity funds being forced to puke Treasuries (and other long duration proxies i.e. Tech) back into the market due to forced unwind/de-leveraging. When they do so, they will further accelerate the rise in real yields which will further monkey hammer reflation trades, forcing more de-leveraging so on and so forth. I call it the de-leveraging death spiral. I do not predict that T-bonds will be permanently imploded - I predict they will be imploded long enough to wipe out every other risk asset, particularly non-yielding assets - Bitcoins and all that other worthless crap that had perceived value so long as yields remained negative forever. Long duration Treasuries imploded back in March 2020 for a day or two, but this time I see it lasting substantially longer. The Fed will eventually panic and take over the Treasury market Japan-style. But suffice to say, policy-wise they are right now heading in the other direction. Sadly, the FOMC isn't quite as quick as algos and margin clerks. 

What we notice from the chart below in the lower pane is that gamblers have less and less respect for owning cash. They are 100% positioned wrong for what's coming and therefore they will exacerbate the overall liquidity collapse that will be global. 

Which is why I said above, they will be forced de-leveraging in a bidless market.  

Dr. Copper already knows what's coming:

This chart gives an inkling of the magnitude of what is coming. The Tech decline will be on par with Feb. 2020 and the down volume will be similar to the Feb. 2021 debacle. Meaning this event will be a multiplier of those two events.

It couldn't be the end of the cycle if Wall Street wasn't minting coin at the sheeple's expense. Today we learned that Goldman made more money in the first three quarters than they've ever made in a full year:

In summary, bidding up every asset class to record valuations ahead of a global crash is a bad idea. the Fed is totally out of ammo, so markets are now running on 100% empty bullshit. What saved the markets in 2020 and 2008 was their ability to cut rates drastically after the collapse. This time they have nowhere to go on rates. Those who think they can bail out all gamblers at the same time are ignoring the lessons from Japan and now China. Contrary to popular belief, the U.S. is on the exact same path to a hard landing, but you can't warn the sheeple.

I've tried.

The New Permanent Plateau Of Bullshit

"There is no means of avoiding the final collapse of a boom brought about by credit expansion" - Ludwig Von Mises

The ideological consequences of this super asset bubble collapsing will be of such a magnitude that most of today's pundits are incapable of acknowledging them. This market has done nothing "wrong" other than to remain artificially pinned at all time highs while the sheeple threw their life savings into it. Bulls can afford to be fat and happy, because they are sitting atop the largest uncorrected rally since 1933 and that fact is not the slightest concern to them. Unfortunately, contrary to popular belief, there is no pot of gold at the end of this rainbow. On the other side of super asset bubble meltdown, gamblers will come to realize that all they bought was the biggest empty load of hot air in human history...

The greatest fear I've heard over and over again is that we are headed for "stagflation", and of course there is a trade for that - commodities, Bitcoins, alt-currencies, real estate etc. Never mind that those asset classes are part of the super asset bubble. This argument of stagflation is of course wishful thinking for those who are whistling past the graveyard of the greatest debt bubble in human history. It conveniently fits with the right leaning desire that Biden's economic recovery is doomed to fail, but not catastrophically. It will fail in a late 1970s peak middle class kind of way that proves Supply Side economics was the right choice all along. It WON'T fail to the extent that it reveals four decades of Reaganomics to be an abject human catastrophe. Because that would be bad and ideologically terminal.

Wishful thinking.

It never once occurs to any of these people that they are watching a credit crisis unfold in real-time. Not A credit crisis - THE CREDIT CRISIS. 

Here we see gasoline adjusted for inflation is either at a three year high OR at the same level as 2005, depending upon who you believe.

This chart of global (wealthy nation) real estate is a good proxy for the overall relative magnitude of each serial asset bubble. What it shows is that each bubble has exploded with greater and greater dislocation, followed by a bailout and an even larger bubble. Many people seem to forget that there was a financial crisis that preceded the financial crisis. It was the Savings and Loan Crisis:

"The roots of the S&L crisis lay in excessive lending, speculation, and risk-taking driven by the moral hazard created by deregulation and taxpayer bailout guarantees"

In other words, the roots of the Global Financial Crisis of 2008 are the EXACT same as the roots of the S&L crisis, only of much larger magnitude. AND the roots of this impending crisis are the exact same as the roots of those two prior crises only once again of much greater magnitude. Fraud and criminality encouraged via continuous monetary bailout since 2008.

Of course, societal moral collapse has been front-running this latent disaster all along. Which is why even now so few people question it. Most people in positions of wealth and authority today are the prime beneficiaries of this mega fraud and hence they have no incentive to warn against it. Why would they want to see a paradigm shift that could have them at the bottom instead of the top?

All of which preamble gets us to the Casino...

As the saying goes, tops are a "process" not an event. I say, tops are a process followed by an event. In this case, a super cycle top which is even a longer process than usual. Here we see the Dow has been topping since last May which is now five months and who's counting? 

The 2018 Q4 deflationary collapse is the analog of choice. It featured the following similarities:

Fiscal stimulus withdrawal, monetary stimulus withdrawal, a peak in oil, a massive spike in natural gas, peak Treasury reflation expectations, heavy distribution (negative money flow), Chinese stock meltdown, dollar rally, massive breadth divergence, a double breakout in Nasdaq new lows, record option skew, and a second growth stock blow-off top in the same year. The first one being February. The main difference we see below however is that investor positioning (IMX) increased since February whereas in 2018 it decreased.

Note the current position (main pane) and the circle from October 2018:

Here we see Brent Crude is literally identical to 2018:

Among the reflation sectors, airlines have the clearest wave count:

In summary, Chinese markets have been bouncing this week as gamblers BTFD deja vu.

The reason why you don't hear much concern about China Lehman is because these people can't afford to be wrong this time.

 

The Wall Of Shame

Last updated November 1st, 2021

Over time as organic economic growth has slowed, industry salesmen have been competing on the basis of ever-increasing fraud. Monetary market manipulation is a con man's paradise as conflict of interest has reached every corner of every market. Investors conflate their own misallocation of capital with economic improvement while ad-sponsored media pundits make their living telling investors what they desperately want to hear, afraid that if they tell the truth they will lose subscribers. In this ongoing post I will document all of today's industry assholes and their transparent criminality. What all of these economic predictions have in common is that they are all predicated upon an ever-increasing misallocation of capital. What I call "Ponzi Reflation". As we've seen over and over again, these reflationary asset bubbles are illusory. The market is now the economy which means that every rosy economic prediction is one RISK OFF event away from turning positive to negative. And when this final bubble explodes, it will reveal a level of fraud none of us have imagined in our lifetimes...

 

This week (Nov. 1st), top prizes go to first Wall Street for predicting a year-end melt-up. 

Bears Forced To Recant Due To Strong October

"...Much of the latest rally comes down to the return of animal spirits. Take the options market, where traders piled into bullish calls to juice rallies in stocks like Tesla Inc. Inflows into equity funds also climbed to a seven-month high, as a majority of bears were forced to convert to buyers"

I showed on Twitter that going back 75 years there has never been a rally of this magnitude in such a short amount of time.

Therefore bulls are betting that this record win streak continues for another full two months:

Secondly, we have been inundated lately with non-stop disinformation over the various supply chain issues. Every time a company misses earning expectations, they blame lack of supply. So, I decided to go on Fred and do some fact finding. And what I found out is that supply (and demand) are literally off the charts. Worse yet, many pundits expect this spending spree to continue.

I'm not going to delve into the intellectual contortionism this author uses to justify this fantasy. I am not that malleable. Instead below is Fred data going back 75 years showing this latest surge in durable goods quantity. 

What this chart predicts is an imminent collapse in demand due to panic hoarding, the collapse in consumer sentiment, the rolloff of pandemic fiscal unemployment, and record asset valuations.

In other words, we are a mere market crash away from the largest drop in demand in U.S. history. 

This week (Oct. 17th), Goldman Sachs gets top prize for predicting that the housing bubble is set to continue its parabolic ascent in the year ahead aided and abetted by the usual belief that "this time, it's different again".

"Numerous experts have predicted not to expect a housing crash like in 2008, given that the current market is so different"

This week, top dumbfuck prize goes to none other than the IMF. On Tuesday October 12th they made two major predictions. One that the China Evergrande real estate meltdown would NOT get out of control and cause global contagion.

On the exact same day, the IMF predicted that global real estate (and stocks) are primed for meltdown anyways. No contagion necessary:

"The International Monetary Fund warned of the risk of sudden and steep declines in global equity prices and home values as the Federal Reserve and other central banks withdraw the support they’ve provided during the pandemic"

Let's get this straight. China has withdrawn support from the Evergrande meltdown. Therefore, it's the Fed's impending taper that will cause all the problems. Because technically, it's not contagion if everything was poised to collapse anyways.

Here we see OECD (wealthy country) home prices as a ratio of rents, which is a proxy for the relative magnitude of each global asset bubble. 

The second runner-up goes to this recent prediction by JP Morgan that oil prices will hit $200 in a super spike. This call is reminiscent of a similar call by Goldman Sachs back in mid-2008. The main difference is that back then oil was 100% higher than it is today. 

All of these oil predictions are solely based on the supply side and are ignoring the demand side. They automatically assume that oil demand will continue to increase in the future when it still hasn't recovered from the pandemic.

Recently we learned that Wall Street is using used car prices in order to predict inflation. The global semiconductor shortage has driven a shortage of new cars, which in turn has caused a shortage of used cars as well. As we've seen with every other supply chain bottleneck during this pandemic, the chip shortage will get ironed out in due time however in the meantime, the prices of new and used cars has skyrocketed as has dollar sales volume AND loan issuance:

Now we learn that Wall Street is using record used car sales volume to predict future inflation.

https://www.nytimes.com/2021/09/27/business/used-cars-inflation.html

"I’ve never spent so much time looking at it,” said Robert Rosener, a senior U.S. economist at Morgan Stanley. “I don’t think I’ve ever spent so much time talking about used car prices in my life, either"

Here we see via Fred that used car sales dollar volume is off the charts and loan issuance is the highest in 20 years:

With the Evergrande crisis growing in the background, this Wall Street analyst is recommending investors overweight banks in order to capitalize on what he calls "credit euphoria". 

He also cites a record stock market and its attendant record overvaluation as reasons for optimism.

"You have credit euphoria. I mean this is night and day versus the global financial crisis"

Goodnight Moon

JP Morgan came out with a note this week recommending Bitcoin as a better hedge against inflation than gold. I suggest that's because, as I've shown, gold is informing us that inflation is not the problem.

Crypto currencies are this era's purest form of Ponzi scheme. Not to be confused with central bank assisted stock market manipulation which is another type of widely embraced transparent fraud.

Crypto madness will play a key role in the impending meltdown, as investors are now using various forms of crypto loans to increase their leverage vis-a-vis the most volatile asset class.

 

This past week, Cramer predicted that Tech stocks are making a bottom at these RECORD levels.

 

This chart shows that over the past decade, Tech stocks have accounted for nearly the entire market gain. The average U.S. stock dipped to 0% gain on a decade basis at the pandemic nadir.

We also see that Nasdaq breadth has deteriorated substantially to a level preceding the two prior crashes (2020, 2018):