Wednesday, August 16, 2023
GLOBAL RISK OFF
Friday, August 11, 2023
ARTIFICIAL INTELLIGENCE IMPLODING
"The Federal Reserve's aggressive interest rate hike cycle, which kicked off in March of last year and was partly responsible for roiling the crypto market, has ended, according to several investment banks"
Wednesday, August 2, 2023
NOTHING MATTERS, UNTIL IT EXPLODES
We now live in a late stage Idiocracy that is in denial of risks that are unfolding in broad daylight, to say nothing about what's going to happen when this gong show final explodes...
Among the many known risks in 2023 - Tech super bubble, bank run, BOJ carry trade implosion, housing bubble, extreme over-valuation etc. etc. - debt ceiling fiasco was near the top of the list. That is until June, when Congress finally reached an agreement with a mere one day left. Bulls unilaterally decided that the 2011 scenario had been avoided, so the agreement catalyzed a melt-up into the end of July. Which happens to be exactly when the U.S. debt was downgraded in August 2011. And it happened again on Tuesday, August 1st. And yet no bullish pundit saw it coming. So what else could they say now? "It doesn't matter". By the way, they said the exact same thing back in August 2011. But the market plunged -20% anyways.
Incidentally, those who say this entire fiasco "doesn't matter" apparently don't read the news, because Congress is heading for ANOTHER funding clusterfuck in September. In other words, the ratings agencies had to send a message:
Remember Occupy Wall Street? That movement was launched at the nadir of the debt ceiling fiasco. Far worse awaits this incipient collapse "not happening" in real-time.
Of course, the biggest risks of 2023 have yet to be revealed. The known risks are bad enough, but the yet unknown risks will be far worse. Consider that no one predicted the Adani explosion, Carl Icahn's Ponzi revelation, and regional bank meltdown. But those things happened anyways. That's what happens on the right shoulder of a super cycle head and shoulders top. We finally learn who has been doing stupid things with free money.
Nevertheless, pundits continue to say that BOJ policy normalization isn't happening, even though it's taking place RIGHT NOW. They predicted the BOJ would NOT modify their policy twice, and then it happened twice. Now they are saying it again. They don't learn from their own mistakes.
Why? Because placating the stoned masses is now the primary order of business. Making sure that money is spent freely on all manner of goods, but most of all ad-sponsored financial bull shit.
These people are amply proven sociopaths, so anyone who trusts them, does so at their own risk.
Another lethal denial is the belief that the Fed is done raising interest rates. This week we learned that Q3 GDP is heading back to 4%, which guarantees not only more rate hikes but also an IMMINENT u-turn higher in CPI.
But economists say it doesn't matter as these two headlines on my news feed show:
And, as far as Friday's jobs report, we learned today that ADP came in hotter than expected. I've always suspected that a hotter than expected jobs market could explode stocks. We'll find out on Friday when the first test of last week's pause melt-up gets system tested.
Which gets us to the world's largest and most important stock, by market cap. Which reports tomorrow after the close.
As a preview, tonight we got Qualcomm:
"Qualcomm reported third-quarter earnings on Wednesday that beat Wall Street expectations"
Net income during the quarter fell to $1.8 billion, or $1.60 per share, a staggering 52% drop from the $3.73 billion or $3.29 per share reported at the same time last year.
In summary, what else could go wrong?
Thursday, July 27, 2023
HOT AIR EXPLOSION
Sunday, July 23, 2023
FOMC: FEAR OF MISSING CRASH
"It's called the American Dream for a reason - you have to be asleep to believe it" - George Carlin
I just finished watching the HBO special, George Carlin's American Dream. I thoroughly enjoyed it of course. It confirmed my view of the degeneration of humanity. Throughout Carlin's life his views on society became darker and darker, but then he died in June 2008, just before the big housing collapse and bailout clusterfuck. Imagine if he were alive today what he would be saying about this current gong show? Over the past 15 years since 2008 all of Carlin's self-destruct themes have gone into overdrive. The difference is that in 2008 we discovered Quantitative Easing - printed money - the secret of effortless wealth. Which happens to be just another drug - a financial drug. I call it monetary euthanasia - just hose down markets with enough free money to give everyone the illusion of normalcy. In other words, central bank manipulated markets give the sheeple the illusion of wealth while everything falls apart in real time. Carlin would say that it's all a big fucking conspiracy.
Of dunces.
Which gets us to this coming week's central bank extravaganza. The Fed is widely expected to raise rates again. The ECB is also expected to raise rates again. The BOJ is once again expected to continue massive easing.
The question for the Fed is what do they tell markets going forward? Headline CPI has dropped sharply, but now GDP is re-accelerating and the last time the Fed signaled an impending pause was at their May meeting, at which point markets exploded higher. Which has forced them to put on another rate hike in July. In other words, their dovish commentary at the May meeting made another rate hike necessary. Will they make the same mistake again?
Which gets us to the casino. Since this rate pause rally began late in 2022, mega cap Tech stocks have vaulted 100%. Typically, Tech/growth stocks are the primary beneficiary of a slow growth economy with receding interest rates aka. "The deflation trade". However, the rally was running out of gas in May, but the Fed reignited the rally with their June pause which coincided with the debt ceiling resolution. Those two events AND the AI frenzy led to the recent overthrow high for mega cap Tech.
Which gets us to this week.
At the start of this rally no one expected rate hikes to be continuing into July. Therefore, the bull case is that now with another potential pause coming, Tech stocks should bolt higher again. However, one could make the case that even if the Fed is dovish going forward, much of the "pause" has been priced in already.
If so, then we are looking at history's biggest rope-a-dope, as Tech is now the most crowded trade of 2023.
Making life a bit more complicated for bulls is the fact that this past week Tech earnings were a shit show. Netflix imploded and then Tesla imploded. But it was Taiwan Semiconductor that threw cold water all over the artificial intelligence rally. They guided revenue down for the full year and said that AI demand was not sustainable following the initial surge in orders. In other words, AI is turning out to be just another Tech scam similar to Crypto, Cloud, and Metaverse. Consider that we've now been told that semiconductors went from a shortage in the pandemic, to a glut in early 2022, to a shortage in early 2023, to now a glut again.
Sure.
Here we see the semiconductor sector (weekly) with Taiwan Semiconductor.
This has been the best start to a year for Tech stocks in 30 years of data. Including the Y2K bubble.
Tech stocks are now up seven months in a row, including July.
According to bulls, the bull market is just getting started.
In summary, the sheeple are going to soon awaken to the inconvenient truth that the American Dream is just a big fucking scam.
Tuesday, July 18, 2023
THE END OF THE SUPER CYCLE
What we are witnessing in real-time is the end of the 90 year stock market super cycle. In hindsight, historians will say the pandemic super bubble was the end of the super cycle rally which began in 1933.
The extraordinary era that is assiduously used to extrapolate future stock market gains, is over. It turns out printed money is not the secret to effortless wealth. But, who knew?
Leaving politics aside, the health-related response to the "panicdemic" was unquestionably incompetent. An approach we were told was based on "science", at the local level, resulted in a hodge podge of made up rules with zero consistency from one city and country to the next. Any time you traveled you had to learn the new set of rules, all of which were based on "science". It was pathetically idiotic and yet there has been literally no assessment of what should have been done better. Which is how we roll in this society - lurching from one crisis to the next. However, it will be the global Federal economic response which will cause by far the most dislocation. The true cost of which has so far been obscured by the super bubble.
Three years ago in March 2020, global central banks panic eased the most in history. They flushed global markets with unprecedented amounts of printed money, which went straight into asset markets. From that point forward we have witnessed one pump and dump implosion after another. Beginning with the Gamestop melt-up in early 2021 which was attended by the Ark ETF, IPO/SPAC, Chinese stock vertical melt-up and meltdown. At the lows of that meltdown, the hedge fund Archegos exploded amid RECORD Nasdaq down volume.
That event is what I call the "left shoulder" of the super cycle head and shoulders top. But, stocks recovered and marched to the all time highs in late 2021. That event was attended by the melt-up high for Crypto currencies, reflation trades (banks, industrials, retail, leisure, transports), and of course Tesla and the EV complex. That peak was the "head" of the super cycle head and shoulders top. Next came the bear market of 2022 which culminated in an oversold low in October 2022. Since that time, markets have been rallying in what bullish pundits are calling the "new bull market". Which is what I call the right shoulder of the super cycle top.
The super cycle head and shoulder top can best be viewed by semiconductor stocks which have the most obvious top. Notice in the lower pane that consumer sentiment has been trending down throughout this topping process. Why is that not getting any notice from today's bullish pundits? Why would they assume the consumer is still strong after 20 consecutive rate hikes. Which happens to be three more rate hikes than what imploded markets in 2007.
Today's bullish pundits inform us that there has never been a Dow/S&P rally of this size and duration that didn't end at new all time highs. Never - meaning going back to WWII (1945). The last major rally of this size and duration that failed was 1930. Currently, the S&P 500 is up 28% off the lows of October 2022. Coincidentally, the same size rally as occurred in 1930. The one that back then had everyone convinced there was a new bull market.
At this latest one year high, the S&P 500 is STILL unconfirmed by the equal weight S&P, despite the primary cap weighted index making ten successive new 52 week highs. This is the longest string of divergent highs between these two related indices, in 20 years of market history.
All due to this artificial intelligence mega cap Tech rally. The bank run in the Spring is long since forgotten.
All of which brings us up to date.
Market history and Elliott Wave Theory predict that the impending failure on the right shoulder will be cataclysmic for risk assets. The fact that the equal weight index has not made a new high indicates that for most stocks, this counter-trend rally ended in February of this year.
Note the record NYSE down volume in the lower pane which attended the Spring bank run:
What we are witnessing now with this latest melt-up is bearish capitulation.
Once the global margin call begins, the main thing we should expect is that unlike March 2020, this time around central banks will under-react to this crisis. A crisis they helped to create. Which means that the liquidation of risk assets and attendant de-leveraging will be deeper and more severe than what we saw last time. By the time central banks panic, the global margin call will be complete.
And then will come the bullish capitulation AND total loss of faith in printed money.
The erstwhile secret to effortless wealth.
Sunday, July 16, 2023
FROGS IN BOILING WATER
Human beings have only one natural enemy - themselves...
I predict the artificial intelligence rally will end badly. At least it's named appropriately.
The temperature is white hot in the hottest summer in recorded history. Yet, you couldn't tell from stock bulls. The temperature is just right for boiled frogs. As with climate change and every other man made problem, denial is rampant. And lethal. After all, how could they see the problem when they are the problem?
Investing is "so darned easy" you just throw your life savings into a handful of parabolic tech stocks and ignore all risk. Because everyone knows that stocks always go up in the "long run". Perhaps, but after 1929 it took 25 years for stocks to return to the prior high. After 2000 it took the Nasdaq 17 years to breakeven.
Once again, this society has painted itself into a corner with no way out. This week there were many indicators that were reminiscent of the all time high. It appears that the recessionary CPI collapse catalyzed total bearish capitulation. What else?
First and foremost is the fact that the Nasdaq (100) reached two years overbought on the % Bollinger Band which in the standard setting is 2 standard deviations above the 20 dma. The last time this happened was February 2021 during the Gamestop melt-up. The tall wick on the daily is of course reminscent of the all time high.
Then there is leading mega cap Tech stock, Nvidia, which at the highs of the week was up 240% in 2023. Then it suffered a major reversal of fortune on Friday which is deja vu of the Nasdaq's all time high in November 2021.
Then there is the rampant speculation in all manner of junk stocks, led by Crypto infrastructure stocks.
These stocks haven't been this overbought since you guessed it - when Nvidia peaked at the Nasdaq all time high in November 2021.
This is where it gets interesting - For some reason the banking crisis in the Spring catalyzed an artificial intelligence rally into the summer. Why, is not for me to say.
This is a topic I haven't touched on for several months, so it's time to revisit FDIC risk.
Back in the Spring, the FDIC organized several large takeovers of failed banks which helped to prevent their deposit insurance fund (DIF) from being depleted. However, in the meantime, the problem of $9 trillion of uninsured deposits remains totally unaddressed.
This is what Janet Yellen said back in March - basically that these initial bank failures got special treatment:
“Will the deposits in every community bank in Oklahoma, regardless of their size, be fully insured now?” asked Lankford. “Will they get the same treatment that SVB just got, or Signature Bank just got?”
Yellen acknowledged they would not"
The issue is that barring additional takeovers of failed banks and barring FDIC bailout > $250k there will inevitably be panic among uninsured depositors leading to even larger deposit withdrawals than the record withdrawals so far in 2023 (below). When that happens, there will be mass bank failure. In other words, what happened so far, was just the easy part of the bailout.
Year over year deposit flows, $:
Has this risk been priced in to the Disney markets since March?
Of course not, it has been priced out. The net effect of the artificial intelligence rally is that this time, Tech stocks won't be a safe haven from meltdown.