THE HANGOVER

For those who were not around during Y2K, I will now explain what happened during that era and how this current fiasco is very similar...

I have several relatives in-law who are former hedge fund managers, which is how I know a few inside secrets of Wall Street. For example that hedge funds - aided and abetted by prime brokers - made a lot of money crushing the Gamestop bubble on the short side when it hit $400+. However, the most recent crop of Wall Street analysts were all in preschool during the Dotcom bubble so it's not hard to understand why they have not even the slightest clue what's going on. As far as anyone over the age of 40 who are now claiming "No one knows what's going to happen", their only "good" excuse is dementia. This is all deja vu.  

The 1990s stock rally at the time was the longest rally in U.S. history. Born out of the 1990 recession, it began to accelerate in 1995 with the nascent Dotcom boom. Fed Chief Alan Greenspan famously declared that stocks were caught up in "irrational exuberance". He had no idea that was nothing compared to what was coming. The bubble accelerated from that point forward, but hit a hiccup in 1997/1998 with the Asian financial crisis which was a currency crisis caused by the strong dollar. Sound familiar? The contagion spread worldwide, leading to Russian debt default and the LTCM hedge fund collapse in October 1998. The Fed which had been on a tightening path, then eased to assuage markets. That easing set off the Dotcom blow off top. The Fed stayed too loose for too long because they were concerned about the Y2K millennial date change event. 

The Y2K date change event forced companies to invest large amounts of money on Technology equipment in order to replace older software and hardware with newer systems. This set-off an IPO "Dotcom" bubble of companies seeking to cash in on the bonanza. The surfeit of new startups further fueled demand for new Tech equipment. It all frothed higher until early 2000 when the Fed slammed on the brakes post Y2K date change. We knew early on New Year's Day that planes were not falling out of the sky in Australia. 

After New Year's 2000 the Fed did an abrupt u-turn on monetary policy and the Nasdaq collapsed by March 2000. Still, most of Wall Street predicted the Tech boom was NOT over. It was John Chambers of Cisco in December 2000 who officially said that demand had fallen off a cliff, something the stock market had already figured out. The Nasdaq bear market lasted two years longer. Down -80%. 

Good times. 

Fast forward two decades. Pre-pandemic, this was already the new longest stock market rally in U.S. history: Lasting from March 2009 to February 2020. Aided and abetted by continuous monetary bailout at the zero bound. When the pandemic struck, global central banks eased on a level never before seen in human history. The pandemic lockdown forced companies to invest large amounts of money in Technology equipment in order to create the "Virtual Economy" for their work from home workforce. This setoff an IPO bubble of companies seeking to cash in on the bonanza. Over 1,000 new IPOs debuted in 2021, the most by far for any year in history. The surfeit of new startups further fueled demand for Tech equipment. Sounds familiar. 

The wheels started coming off the bus in early 2021 when the meme stock pump and dump frenzy came to a head with Gamestop. Record newbies flooded into markets where they were quickly bilked of all their capital in meme stocks and crypto Ponzi schemes. The majority of Tech stocks peaked and collapsed. However, mega cap Tech remained bid due to the passive indexing super bubble. All the way up until a year ago, October 2021, when the Fed slammed on the brakes on "lower for longer" and abruptly U-turned to a policy of "higher for longer" going into 2022. Still, most of Wall Street has yet to acknowledge that Tech demand is now falling off a cliff. 

Good times. 

Big Cap Tech is now trading like a brick. For Amazon, Facebook, and Google, they face an outright decline in earnings. In the case of Microsoft and Apple, those companies are seeing an abrupt down shift in growth. They are ALL massively overvalued relative to the rest of the market. 

In summary, we don't know what is going to happen, we only know what is happening all over again. 

Which is only something "different" in an Idiocracy. 

Bounding Down The Slope of Hope

The story of 2022 is that the news flow keeps getting worse, hence Wall Street predictions keep becoming more ludicrous. This week, Bloomberg Economics posited a 100% probability of official recession. Meanwhile, terminal Fed rate hike expectations continue to ratchet higher which is pushing long-term bond yields higher in lockstep. The Fed's mantra last year was "lower for longer". This year their mantra is "higher for longer". Because what could go wrong.

When the year started, there were 0% odds of recession and four rate hikes projected for ALL of 2022. Now, the odds of recession are 100% and the Fed's terminal rate is projected to be 5% by early 2023.

October 20th, 2022: 

Anecdotally, I would say that half of today's pundits believe the Fed should keep tightening and the other half say the Fed is making a colossal error by over-tightening. So it can come as no surprise that mass confusion reigns supreme. 

For it's part, the bond market is agreeing the Fed is making a historically massive error. Inflation expectations as imputed from Treasury Inflation Protected (TIP) bonds are LOWER than they were in 2007 and 2000. Which you see in the top pane of the chart below. 

There has never been this much divergence between the CPI and TIP expectations (not shown). All compliments of the fact that the Fed itself is the major source of inflation due to its elevated balance sheet and now elevated interest rates. The cost of carry for a newly purchased average home has risen 150% year over year (lower pane).

This is DOUBLE policy error.   

What's even more bizarre is that the set-up is very similar to 2008 when commodity prices were keeping the CPI  artificially elevated at the end of the cycle. 

The Treasury MOVE index which measures T-bond volatility is the highest since 2008 as indicated in the lower pane of the chart below. Clearly there is now a massive divergence between the MOVE and the stock market VIX. 

Basically, the bond market has priced in the end of the cycle whereas stocks remain in La La Land. There is a prevailing belief among stock market investors that inflation will remain elevated indefinitely.

The Equity Risk Premium (not shown) is the lowest since the 2007 market top.

What it all points to is that the Fed is essentially blowing up the global housing market. 

Global currency collapse is forcing other central banks to tighten in lockstep with the Fed. The notable outlier of course is Japan where the $USDJPY just broke the 150 level overnight. 

The Yen carry trade has turned into a one way freight train. 

However, what is NOT priced in is a BOJ policy change and/or global RISK OFF.

When a butterfly flaps its wings in Thailand this house of cards will explode.

Any questions? 

 

Back in the casino, several Wall Street analysts are calling for an end of year melt-up. Which is convenient now that there is just over two months left until bonus season. A rally now is the only hope for Wall Street to get a decent payday this year. 

From a technical standpoint, the market was oversold at the recent lows, however since that time it has been going nowhere. As I showed on Twitter, relative to the breadth oscillator this has been the weakest rally of 2022. 

What happens when a market should rally and doesn't?

It crashes with extreme dislocation. And no one sees it coming.

What happens when we get down there? All of Wall Street's forward earnings projections will FINALLY be updated. To include a minus sign.  

What will they say then? We were wrong.

Heads we win, tails you lose. 

THE FULL COST OF DENIAL

No one knows what will happen next, we only know that it will be somewhere in the range of extremely bad to cataclysmic. The less you know the more confidence you can have in happily ever after. No amount of impending risk could break this rampant mass complacency. The heroes of our time are those who make all risk disappear with the stroke of a keyboard...

Have you noticed no pundit ever mentions the Fed balance sheet? It's always only about interest rates being still too low. Fed Funds futures predict that by the end of this year, the Fed rate will be TRIPLE what it was pre-pandemic. And the 30 year mortgage is already higher than it was in 2008. Today's financial observers are eminently corrupt to believe that interest rates are the problem, when the real problem is that today's ultra wealthy have far too much fake wealth which is driving inflation higher and imploding the middle class. In other words, this meltdown merely punctuates forty+ years of failed Supply Side economics.

What we are witnessing is an ultra regressive policy error, meaning it favors the wealthy over the middle class. The Fed is compounding their regressive policy error from last year with an even bigger error this year. Back during the pandemic, the Fed lowered rates a mere 1.5% while growing their balance sheet an astronomical $5 trillion. In the process they created RECORD new billionaires. Now on the tightening path they are making minimal reductions to their balance sheet and instead focusing solely on raising interest rates and crushing the middle class while leaving the wealthy generally unscathed.

It's asinine policy beyond any idiocy we've seen in our lifetimes. 

We are to believe this biblical policy error has a happy ending. The time bomb is now ticking down to "common prosperity", which is the policy being used in China right now. They are no longer concerned with bailing out the wealthy anymore. Their belief is let the losses fall where they may. It's a major departure from their policy over the past decade. And it's due to a sea change in social mood towards the wealthy. 

"Chinese President Xi Jinping signaled no change in direction for two main risk factors dragging down China’s economy -- strict Covid rules and housing market policies -- providing little lift to a worsening growth outlook"

Here in the U.S., real yields are warning that the Fed is making another epic policy error on the scale of 2008. Back then, the CPI collapsed in a matter of months along with the stock market. In other words, it wasn't tied to wages as is commonly believed today, it was tied to asset values. With 100% correlation.

When stocks bottomed in March 2009, the CPI was -2%. Problem solved. 

What this all means is that whereas in March 2020 everyone got bailed out, this time no one is going to get bailed out. The list of asset classes that have fallen below the March 2020 lows is growing by the day. 

The consensus among investors remains that the U.S. is the ONLY global safe haven:

October 17th, 2022:

"Investors are looking beyond a looming global recession and they see one country – and its financial markets – emerging strongest on the other side"

86% of investors expect US markets to recover first, with respondents slightly favoring stocks over bonds"

One caveat to think about: inequality. The (unspoken) downside risk for the US if the survey’s outcomes come to pass could be a widening of income and wealth gaps"

Unspoken for a reason. 

The article assiduously ignores the fact that the U.S. has already been the beneficiary of massive global inflows. The U.S. "TINA" trade is already the most crowded trade of 2022.  

In summary, AFTER bulls implode, the Fed will arrange their long awaited bailout. It won't be pretty and contrary to popular belief, anyone who is front running it will not emerge "stronger on the other side". 

They will ALL learn the historical lesson of common prosperity at the zero bound.

THE EFFICIENT EXPLOSION MODEL

Remember back in 2018 when the VIX exploded and again in 2020? I will now explain why that happened...

First off, I am not an options dealer nor have I ever worked in that industry, however for years I have traded options on my own account. In order to do so wisely, one needs to have a general understanding how the options market works. This will not be a perfect explanation, but good enough for self-directed traders.

Step back for some perspective. The options market allows traders to rent capital for a certain period of time to increase leverage and manage their risk exposure. A put option is a much safer way to bet on downside than a naked short position. Even though as we will see below the underlying dynamics turn out to be very similar. 

The option buyer has the right to exercise or sell the option at a profit. However, most options get sold ahead of expiration. Why? Because selling an option ahead of time is usually more profitable and it's much safer than waiting until the date of expiration. The only way to survive as an options trader is to be aggressive about taking profit and always assume while you may be directionally right, your timing could be WRONG. The only way to control for that risk is by rolling over in time and price. 

Options market makers are on the other side of every trade. Their goal is to collect premium and maximize profit. They are the equivalent of the "house" and they usually win because the odds are mostly in their favour. 

When an option is opened, the market maker determines the amount they need to hedge their exposure by based upon the various option parameters ("Greeks"). Theta (time), Delta (rate of change), Gamma (2nd derivative delta) aka. convexity. A put option is hedged by shorting the underlying, whereas a call option is hedged by going long the underlying. 

For options that are out of the money, the probability of profitable exercise (in the money) goes down over time. This creates a natural bias towards profit for the market maker. 

When many options are clustered at a certain level, this creates a "wall" that paradoxically reduces the chance of option profit. 

Take a put wall below the market as an example. As the puts get bought, the market makers short the index/stock towards the common strike price. However, as the strike price approaches, delta and gamma approach "1" meaning that hedging is 1:1. Market makers are fully hedged AT the put wall. Therefore any momentum away from the put wall, including time expiration, lowers the overall probability of exercise and causes the hedges to unwind. Shorting then turns into buying. Buying turns into more buying and momentum drives price AWAY from the put wall. This is called a Gamma squeeze because it's very similar to a short squeeze.  

A call wall above the market works the same way. It is very difficult to penetrate because the dynamics of hedging accelerate towards the wall and then go in reverse at the wall. 

When pundits speak of "Dealer Gamma" they are referring to the total hedging exposure dealers have at a given strike price. It's a means of describing the directional bias and magnitude of the option buffers that are above and below the market. 

There's the background. All quite logical when you think about it. Now throw in weekly option expiration which is a relatively new options market. Weekly opex seemingly allows algos to "control" the market and otherwise dampen volatility between the call wall and the put wall, all the time.  

Which would explain why I have noticed recently that VIX gaps are large on Mondays which is the day after weekly opex and negative on Wednesday's which is VIX opex. 

Coincidence. No. 

All is well that ends well. However, as Rick Santelli pointed out this morning, derivative based strategies only work in continuous markets, because they use historical volatility to predict future volatility. Yes, you read that right. Therefore, they do not function well in discontinuous markets. 

What does this all mean to a Black Swan trader? It means that the market is binary. It will function well until the day it doesn't. When volatility explodes, the market makers will step aside and there will be no one on the other side of the trade. 

Which is what happened in March 2020. Except back then the Fed reinitiated QE on March 15th and when that did NOT work, they initiated QE infinity on March 23rd, which was the bottom. THEY were the buffer below the market. Now, they are on the side of reducing liquidity and increasing volatility. 

The key takeaway in all of this? Market stability is an illusion that will not withstand global RISK OFF. Volatility expansion will accelerate downside momentum as the majority of large players realize they are underhedged according to their traditional models. 

In summary, despite what many bulls are saying, NO ONE is positioned for what's coming - the consequence of 14 years of continuous bailout.

If you believe that the FOMC who are now diametrically opposed to easing will come in to support the market more quickly than volatility algos can go RISK OFF, then your amnesia precludes memory from three years ago. 

This will be March 2020 without the Fed put. 

DEEP BURIAL

No excuse this time...

Michael Burry:

"How anyone over the age of 40 didn't see this coming is a riddle. The answer is Greed."

Pollyanna predictions still abound. There is no shortage of pundits willing to tell people what they desperately want to hear. Blowing smoke up people's asses became the primary financial model after 2008. Each time markets get bailed out, fraud and corruption increase. However, this time gamblers are sky-diving without a parachute. The one time they didn't hedge is the one time they won't get bailed out. As I said in my last post, this is extreme moral hazard.

A new and extremely dangerous myth has been created that the dumb money is the new smart money. This myth was cultivated during the Gamestop debacle which saw a massive rush of gamblers into the casino. During that pump and dump, the Reddit mob took down a couple of over-leveraged hedge funds. However, there were many MORE hedge funds that shorted Gamestop from the top all the way down. The REAL losers were the legions of newbies who were late to the party and got crushed by short sellers at the end of the pump and dump. Funny how that part of the story never got told.

This newfound *smart money* theory is just another way of ensuring bagholders remain in the market while conflict of interest continues to be assiduously ignored. We need not expect Wall Street to question such a lucrative fantasy.

History says that people who do nothing get officially buried by serial financial psychopaths. 

Wall Street keeps downgrading their market predictions while maintaining buy ratings on every stock. They've been behind the curve all year and they will happily remain far behind the curve, selling stock to useful bagholders. 

The never-ending pivot fantasy remains the clarion call of denial:

Lately I've been reading Paul Volcker's aptly named autobiography "Keeping At It". This is the book J. Powell cited at his Jackson Hole speech. The most interesting part of the book is towards the middle when he is nominated to the Federal Reserve in 1979. Back then Volcker raised rates to 19% and held them at that level until unemployment reached 11% in 1982. He caused two back to back recessions. The current Fed rate is 3% and the unemployment rate is a record LOW 3.5%. Even still, today's bailout junkies are complaining constantly. Just this week Cathie Wood wrote an open letter to the Fed decrying their battle against inflation. Apparently she has a passionate concern for the middle class.  

What is happening right now in the UK is a warning to stock market bulls as to what happens when a central bank tries to pivot in an inflationary environment. It backfires. Expansionary monetary policy only works in a deflationary environment. It does not work at the end of the cycle. Which of course is Econ 101, cycle theory:

"Instead of boosting growth, the IMF made it clear it thought the government’s policies ran a serious risk of provoking a deeper downturn once inflation had stayed too high for too long."

The Bank of England initiated a temporary bond market intervention two weeks ago, but they are warning markets it will end this coming Friday. The BOE has now officially put their credibility on the line and markets will soon test their resolve. Recall that George Soros made his fame and fortune shorting the Pound in the early 1990s. Now there is blood in the water all over again. 

The critical question on the table is how can the BOE defend BOTH the bond market AND the currency market at the same time? They can't. All they can do is sponsor ever-weaker global short-covering rallies, each one conflated as a "new bull market", until the wheels come off the bus for good. 

The RBA is another example of a failing pivot. On October 3rd they shocked markets by raising rates by a much less than expected quarter of a % point. Since then the currency has been bidless, accelerating imported inflation and exacerbating slowdown. 

China is having another devaluation disaster.

Investors came back from Golden Week to find their stocks are back at 2015 lows, on a dollar basis. Where they were the last time China currency devaluation forced a global bailout. 

Here in the casino, the market keeps stair stepping lower amid mass complacency. A Lehman-equivalent crash now would equal -60% down, from all time high to low. If this slow bleed lower continues, the final low will only be far worse. Picture a market that trickles down -40% and then explodes lower. Because that's the way things are heading.  

The political ramifications of this disaster are not even remotely priced in. There will be no bailout for the rich this time, which means it will be a corporate mass deleveraging event.

In each of the past two bubbles there was a discovery phase near the end of the bear market in which all of the various scams were revealed. As Warren Buffett says, "When the tide goes out, we find out who's been swimming naked". In 2001 it was of course rampant IPO junk stocks, Worldcom, Tyco, Global Crossing and Enron. In 2008, it was Bernie Madoff's fund and all of Wall Street with their subprime fiasco. Authorities jailed Madoff for his billion dollar scam while they bailed out Wall Street for collapsing the global economy.

This time around, the level of criminality is beyond anything we've seen before: record IPO and SPAC junk, Ark ETFs, Reddit organized pump and dump schemes, rampant Crypto theft, and a record housing bubble. The public will be enraged when the era of mega scams explodes. It will make 2008 seem like a Boy Scout jamboree by comparison. This article from the Wall Street Journal came out this week: 

WSJ: Thousands of Federal Officials Traded Stocks Affected By Agency Decisions:

"Across 50 federal agencies ranging from the Commerce Department to the Treasury Department, more than 2,600 officials reported stock investments in companies while those companies were lobbying their agencies for favorable policies, during both Republican and Democratic administrations. When the financial holdings caused a conflict, the agencies sometimes simply waived the rules"

In summary, there is no shortage of deceivers willing to tell the sheeple what they want to hear, because scams and corruption are widely embraced.

For now.

MORAL HAZARD. INDEED.

mor·al haz·ard

"Lack of incentive to guard against risk where one is protected from its consequences"

Wall Street has converged on the seamless bailout hypothesis. What could go wrong?

It's a very sad day when all of investing has boiled down to begging for central bank bailouts. The entire bullish thesis now rests upon central banks capitulating against inflation. 

The consequence of the 2008 Wall Street bailout and subsequent continuous monetary bailouts is that central bank invincibility is no longer questioned. Even in a high inflation scenario such as the one we face, the inevitability of higher markets is largely unquestioned. 

Over the course of 2022 as the market has stair stepped lower, Wall Street has slowly and surely downgraded their price forecast to a "worst case" consensus level of 3000. Which is a 40% total decline and roughly 15% from the current level. That point of view is now shared by Bank of America, Morgan Stanley, JP Morgan/Dimon, Gary Shilling, and the once uber-bearish Jeremy Grantham, who now finds himself with plenty of company. The outlier is John Hussman predicting a 50-70% decline. Michael Burry does not give price targets. 

This article lays out the "bull case" of a fast -20% decline followed by a certain Fed bailout and 50% rally. In doing so, the article inadvertently lays out the 1929 scenario of a ~45% initial decline followed by a 50% rally. Which by the way, would still leave the market 10% BELOW the all time high. Basic math now being beyond the capacity of this society. In other words, the bull case and the bear case are largely the same now. Which means that a TRUE bear case precludes a seamless bailout scenario. Which I will discuss further below. 

Going the exact other way, Peter Schiff expects hyper-inflation due to a Fed pivot that reinflates the everything bubble. He asserts that today's central banks lack Volcker's fortitude to deflate markets. What he doesn't understand is that the bond market is not going to allow rampant inflation. Real yields as measured by the nominal yield - CPI are ALREADY the lowest in U.S. history. According to Schiff they are about to go much lower. We are to believe that the Minsky deleveraging moment can be deferred forever while market rates sky-rocket. Sure. It's tremendously ironic that in 2022 inflationists have finally been proven right after 40 years of continuous deflation. However, in this year the dollar has sky-rocketed meaning their trades have imploded anyways. 

Fed governor Chris Waller astutely laid out the Fed's dilemma last week - which is that shelter costs in the U.S. as determined by rents, are going to continue to keep CPI elevated for months into the future. Each month only a subset of leases expire and are rolled over to the new higher rates. Therefore, older lower rents will inexorably rise.

"The inflation statistics use a six-month average when calculating rent growth. Asking rents and rents on new lease contracts—which do reflect contemporaneous rental market conditions—have been rising at a fast pace for more than a year. These increases have fueled shelter inflation so far this year, and they should continue to do so for at least the next six months"

The Fed is in a sense lucky, because if they measured inflation based upon the cost of carry for homeowners, the current inflation rate would be FAR higher than it is currently. The combination of house prices and interest rates has raised owner-occupied carrying costs by 100% in the past year. You read that right. That fact has priced new homeowners out of the market and placed even more pressure on rents. In other words, the Fed itself is STILL a key source of inflation by raising shelter costs. 

The Fed used their balance sheet to inflate the housing market and now they are using interest rates to bring it down. It's two policy errors for the price of global meltdown.

All of which from an investment standpoint leaves just the now universally anticipated "accident" scenario followed by bailout. We can surmise that the bar is now VERY high for what would force a Fed pivot. Something on the order of a 1998 Russian Default/LTCM meltdown. The problem is that such an event would immediately tip the world further into global depression. In other words, trapped bulls will realize far too late that they bought a false promise of seamless bailout.

Any blind man can see that U.S. consumer sentiment is at an all time low whereas in 1998 it was at an all time high. 

Subtle difference. 

 

All of which means this market is tradable but no longer investable. There will be large trading rallies followed by large declines. So far, we've seen small trading rallies followed by new lows. 

This roller coaster scenario is what Japan and China have already experienced at the zero bound. And what the U.S. experienced in the 1930s. 

Arguably gold is a long-term hedge against inflation and monetization of deficits. However, we must go through the deleveraging phase first which will be highly deflationary. I have no long side conviction in gold at this juncture.

In summary, the KEY point Wall Street never admits is that you can't always put the toothpaste back in the tube.

Position accordingly.

COLLAPSE IS RIGHT ON SCHEDULE

So far, the 2008 analog is continuing on schedule...

There was a lot of trolling of bears at the peak of the failed pivot rally this past summer and I've noticed that it has come back into style. Charles Hugh Smith who wrongly predicted new all time highs in the summer, is back for another bullish swing at bat. He asserts that everyone should "Play Devil's Advocate" to what he believes has become the new standard (bearish) consensus. I'm not going to refute the hard facts because there are none to refute, but first off I will say that any active trader who is down in 2022 needs to reassess their trading strategy in a down market, NOT try to pretend this is still a bull market. That is a dangerous game to play. He asserts that there is no analog for the current market and therefore one can evince "near ZERO " conviction. The article is a love affair with denial. 

"Very simply, nobody knows what's going to happen"

Anyone who doesn't understand the current level of asset deflation risk is the investor equivalent of JFK Jr. flying upside down into the ocean, unwilling to trust what their cockpit instruments are telling them. I can never understand how so many people have absolutely no memory that Fed over-tightening collapsed BOTH prior asset bubbles. During which time the CPI was lower both times. This current market is the sum total of every risk that has EXPLODED in the past two decades WHILE central banks were actively arranging bailout:  EM currency crisis, Tech bubble, housing bubble, Europe crisis, China meltdown. This time, all of those same risks are now attended by central bank coordinated tightening. So now we will find out what WOULD have happened all those other times had bailout not taken place. The irony of finance is that the less you know, the more confidence one can place in sheer fantasy. For example believing that the dollar and interest rates can both go higher indefinitely when they've already monkey hammered the Global Dow -30% amid the worst bond market in 100 years.

In 2022 financial reality has come home to roost. The cost of capital is sky-rocketing globally. Real yields are rising at the fastest pace since 2008. The Fed is boxed in. All of which means that risks have NEVER been clearer. But even more importantly, they will NEVER be clearer. So if you can't handle this type of market you should be playing Canasta with the girls on Thursday. This is a bear market and the trend is down. The decline to date equals the decline in the S&P 500 just prior to the October 2008 collapse. 

Now compare the "Devil's Advocate" view to Michael Burry who asserted this week that this set-up is now WORSE than 2008. The exact same "lone voice in the wilderness" in 2008 is pounding the table all over again in 2022. What people forget is that Burry lost a lot of money before he made a lot of money in 2008. Many at the time questioned his sanity. But he was adamant he was right and of course in hindsight it's his detractors who look like idiots NOT HIM. The fact that he was ever "wrong" has been long forgotten: 

Wall Street NEVER sees it coming. They do not try to predict Black Swan events or predict anything outside of their cozy consensus. Above all, they never say anything that would ignite widespread investor panic.  

In 2008 there were buy ratings on almost EVERY stock.  

May 16th, 2008:

Ritholtz: ONLY 5% OF WALL STREET RATINGS ARE SELLS

We just learned that the British pension system almost collapsed last week:

"A large quantity of gilts (UK Treasury bonds), held as collateral by banks that had lent to these Liability Driven Investment (LDI) funds, was likely to be sold on the market, driving a potentially self-reinforcing spiral and threatening severe disruption of core funding markets and consequent widespread financial instability.”

There were several bear market bounces in 2008 and then all hell broke loose in October. It's highly likely that this Pound "bailout" bounce is the 2008 equivalent to the early October TARP bailout rally. The last chance to get out. 

 

In summary, questioning the bearish narrative this month is tempting fate on a BIBLICAL scale. The number of people who would like to admit they ignored the EXACT same warning TWICE by chance happens to be the exact same number of people who "know what's going to happen". 

No one.