There's No Bailout From Idiocracy

This society has a lethal addiction to cheap money. One that comes with an exorbitant price tag: Super asset crash at the zero bound, sans bailout. The Fed is following the exact course of action that will ensure they have neither interest rates to cut to save the economy, NOR QE to deploy to save the imploded asset bubble. History will say that the Fed and Congress were too busy front-running retail bagholders in the stock market to notice the bubble was out of control...

Many people don't like my writing style, because I am biased towards the bearish point of view. I leave nothing to the imagination. More importantly, I don't pander to idiots. The predominant writing style on the other hand, spews multiple opinions across the full spectrum of IQ and leaves the reader to get buried by the ball of confusion. Monetizing useful idiots is by no means limited to Wall Street in this era.

More importantly, I personally would never pass up this once in a lifetime opportunity to point out how fucking stupid this species has become. Looking back from an historical standpoint, this era will be the new 1929 - whereas that era stood for almost 100 years as the apex of insanity, per legendary investor Jeremy Grantham, the insanity of this bubble far exceeds that one. Did anyone alive twenty years ago believe they would see a Dotcom bubble bigger than the original one? Or a housing bubble bigger than 2007? Of course not, but here we are with both at the same time. The pandemic arrived at an unfortunate time because the cycle was already in its late stages. Many companies that had borrowed excessive amounts of cheap money were already starting to implode. However, the pandemic and its "special lending programs" threw them a lifeline to double down on balance sheet impairment. 

On the topic of the Tech bubble, the delusion that abides this bubble is that overvaluation is limited to the Ark ETFs and the profitless junk issued by Wall Street at double the rate of Y2K. That junk bubble has been collapsing since LAST February. Since that time there has been a massive rotation to "quality Tech". A rotation that has only amplified the overvaluation of this era's Tech behemoths, which as of December reached the same extreme as Y2K:

"The dramatic fall in some of the "flaky" parts of the stock market so far this year has followed the paths of previous implosions, including the bursting of the dotcom bubble in 2000"

These mega caps: Apple, Microsoft, Google, Amazon, Facebook are also at the happy intersection of the LARGEST stock market bubble, which is the passive indexing bubble. What some of us call the "Dumb money bubble". Michael Burry warned that passive indexing was creating a bubble of monumental magnitude which would lead to MOAC: Mother Of All Crashes. But then he capitulated, because this madness went on too long. The very protagonist of The Big Short couldn't fight the Fed any longer. 2008 was a mere micro-subset of this current bubble.

It's no secret that the Tech sector has driven the majority of gains since the 2009 low. When the pandemic hit, investors rotated out of cyclical reflation trades into Tech stocks which were deemed "safe havens" from lockdown. That set off a decade high blowoff top in the spirit of the Y2K date change melt-up which capped off the 1990s internet bubble. 

We can surmise that we've seen peak Amazon as the pandemic drove massive online sales at the expense of small service businesses. However, now sentiment towards durable goods is at a record low:

I don't know much about NFTs, I just know they're worthless. I was in the IT industry long enough to remember the "hype cycle" which was the cycle of hype that every new technology went through - the highs and the lows. Right now the Crypto space is coming off its all time crack high. This bubble will explode and then from the ashes we will find out if Crypto has any value beyond paying porn stars and child traffickers, off the books. Because right now that's it's only "utility" aside from bankrupting latecomer speculators.

Which gets us to this era's housing bubble. For the past decade HGTV has been on in the background in our household, as every home in the U.S. seemingly got remodeled to all white interiors and stainless steel appliances. The modern style being a replica of an institutional insane asylum. 

To say that we've mass overbuilt and commodified the housing stock is a ludicrous understatement. We've basically created a formula for mass bankruptcy on an industrial scale.

Last year, Zillow made news because they were EXITING the home buying business. That news should have been a massive warning as to what is wrong with this current housing market: Robo buying. Flipping houses on an industrial scale. 

"Wall Street and Silicon Valley have already transformed U.S. housing markets since the 2008 financial crisis, which had its roots in real estate"

The millions of foreclosures in the housing collapse created new opportunities for global investment firms to buy homes at scale, becoming corporate landlords controlling tens of thousands of homes"

The sheer irony is unbelievable. Wall Street creates a financial crisis that explodes the housing market at all time highs. Then, they come in at the bottom and buy up all the houses using cheap money leveraged 100x. All of which is leading to an even BIGGER housing crisis this time. In 2008, most of the leverage was in subprime, now the entire market is over-leveraged.

Which makes today's headline that much more dire:

Contrary to popular belief, there will be no bailout from Idiocracy this time.

The Hotel California Of Denial

One could not possibly invent a market scenario more lethal than this one. Today's investors now believe that the Fed has expanded their mandate to include inflating asset bubbles and bailing out investors when they explode. A lethal fantasy that is now boxed in by their primary mandate to keep inflation under control. Add in cycle denial, and it's the perfect recipe for a Hotel California market...

“Reading through various research papers from the Street, I couldn’t find anyone who disagrees with each other. But if we all agree and put on the same positions, who’s going to take us out” of the trade?"

No one. Everyone "knows" cash is trash. Why would you own cash if interest rates can only go higher.

After the jobs report on Friday, now traders are beginning to price in a 50 basis point rate increase for March. Which would be the first 50 bps increase since May 2000, which happens to be the last time a Tech bubble was bursting. Except this time, the everything bubble is bursting.

It all comes down to cycle denial which happens to be a very lucrative business model adopted by the vast majority of today's financial commentators. As long as today's pundits are unwilling to admit this is the end of the cycle then they will continue to push the higher rate scenario. Until such time as investors realize they are ALL on the same side of the boat and it's about to u-turn to recession. 

Another thing today's pundits don't admit is that the Fed can now basically manage the economy SOLELY using their balance sheet. As interest rates have sunk lower and lower over past decades, the efficacy of conventional interest rate policy has likewise collapsed. The Fed hasn't even raised rates yet, but already the two year yield has round-tripped to the pre-pandemic level. The market is tightening for them. 

Also late this week, the ECB shocked markets as well:

"Central banks are actively trying to tighten financial conditions ... they are moving faster than expected"

Morgan Stanley said markets were now facing "the largest quantitative tightening in history"

All of which means that imploding global markets which are used to receiving a bailout at about this time, are further from a bailout than they've ever been. Which means that liquidity is about to collapse at the same time as margin calls arrive for FOMO traders front-running imaginary bailouts.

Another critical delusion is the belief that only small growth stocks are overvalued. That delusion has driven money out of small caps into mega caps, driving their over-valuation higher. The same thing happened in Y2K, before Cisco lost -80% of its value.

This past week, new Nasdaq lows eclipsed the 2008 level. However, there are far more junk stocks in the market now than there were back then, so I'm sure someone can turn that into a positive argument. Even at this late juncture, the burden of truth remains on the truth. 

As we see above and below, this end of cycle denial is deja vu of 2008. Except, unlike back then, markets remain much closer to their all time highs, as investors buy every dip per the Fed's imaginary mandate to keep the asset bubble inflated at the new permanent plateau of over-valuation, while they vanquish inflation.

A ludicrous delusion that goes unquestioned. 

Sadly, there is no easy way out of this Hotel California of mandatory denial. This multi-decade failed Supply Side gambit was always going to fail at the zero bound at the hands of denialists recycling the same playbook that abided when the middle class was still strong and healthy.

Today's Idiocracy of pundits don't see this coming, because they all expect the middle class to come floating back from China any day now.

After all, no one would want to admit that they've been party to four decades of failure.

ALL ABOARD COLLAPSE

"What a fool believes he sees, no wise man has the power to reason away. What seems to be, is always better than nothing at all" 

It's not my goal to "rain on the parade". I am merely pointing out that this parade is taking place in a torrential downpour on the way to biblical flood...

Unfortunately, facts and logic can't compete with a society in love with denial. Nevertheless, the slow arc of reality is coming in for the kill. We are witnessing the PEAK of everything in this cycle from profits, to speculation, to consumption. 

Two cycles in a row (2000/2008) I changed jobs right at the end of the cycle. Why? Because my job satisfaction tank was empty and wages were rising. Also, because no one told me it was the end of the cycle. Like now.

We are currently seeing a level of turnover unprecedented in U.S. history. For a variety of factors - most significantly, the pandemic put the supply/demand equation in favor of employees for the first time in decades. Ironically, due to 20 million knee jerk mass layoffs at the beginning of the pandemic. Yes, you read that right. A DECADE worth of jobs got wiped out, even though the government promised to PAY employee wages during the shutdown. Now, employers are scrambling to fill empty positions, because THREE MILLION baby boomers chose early retirement, which just so happens to be the gap between pre-pandemic and post-pandemic payrolls. All of which means that higher wages are cutting into profit margins leading to PEAK profits for the cycle. The irony is quite ironic. 

Number of Americans quitting their job, monthly (thousands):

Still, no one need be convinced this will continue indefinitely, since that's what they must believe anyways.

Yesterday the monthly ADP private jobs report was a total fiasco. -300k job LOSSES versus 200k expected job gains. This was a massive miss even by EconoDunce standards. It was off by more than a minus sign. It's hard to be that incompetent and still keep your job, but economists excel at it. If it's one thing their continuing employment proves is that none of their theories are credible. 

I personally have long stopped guessing the monthly BLS jobs report which comes out tomorrow. There have been many pundits making excuses for why the January jobs number could be a disaster similar to ADP. However, we must bear in mind that this post-pandemic macro environment is a con man's paradise. All of these "unique" factors make it very easy to bury the end of the cycle in broad daylight.

Make no mistake, none of these "experts" want anyone to believe this is the end of the cycle. Does anyone on Wall Street want to tell people that recession is looming? No. So they don't. 

This week, we are very likely witnessing peak earnings, although most analysts won't admit it. The key is not what happened in Q4 of last year, but what will happen THIS YEAR:

"The first quarter estimates declining reflects the reality of supply chain and inflationary problems, the second and third quarter numbers rising are wishful thinking”

 there is increasing doubt that corporations will be able to keep raising prices to offset higher costs, particularly labor costs"

Got that? Up until now, profits have been rising faster than wages, but we've reached a point at which "consumers" will no longer accept higher prices, hence profit margins must come DOWN. 

And along with all of this peak wishful thinking, we are also witnessing peak corruption.

"Movement on the issue comes after an Insider investigation found dozens of lawmakers violated laws around stock trading while in office"

We live in an era wherein the Fed is trading stocks AND Congress is trading stocks, far more freely than at any time in modern history. And we wonder why there is no financial regulation. 

That will change. When it's way too late. 

Social mood is turning down. We see it in consumer sentiment. We see it in Biden's tanking poll ratings. We see it in the market itself. People who don't understand the role of greed and fear in markets are the ones who are constantly surprised when they explode. Currently we are seeing less fear in these end of cycle markets than we've seen in any other cycle in history. Why? Because the Fed has convinced everyone they are expert stock pickers. Therefore even as the Fed removes stimulus, these morons remain over-confident as to their prospects for future gains due to their unique "skill". Little do they know that their only skill in life is getting serial conned by Wall Street. 

Which gets us to the casino.

Today Facebook is imploding on 10x average volume due to "inflation" impacting advertising spend for their customers. That sounds a lot like a decline in overall economic activity to me. After the close today, we will hear from Amazon which is already expected to see a year over year -60% decline in profit. The stock is not waiting around to see what happens, as it's trading down in tandem with Facebook. What we notice below is that Amazon rocketed through the pandemic, but has been carving out a top for over a year and a half now. In other words, the pandemic brought about peak Amazon. The virtualization of the economy, which is inherently structurally deflationary. 

Now, they are seeing slowing growth AND higher costs at the same time. Their business model, consisting of predatory competition the likes of which would have been broken up in any other era, is coming to an end. 

In summary, algo-driven Tech moonshots by Apple, Microsoft, and Google drove the Nasdaq to backtest the 200 day moving average. However, now Facebook and Amazon threaten the next leg lower.

Finally, Trump's election rally exploded in the February after his first year in office. Right after the January jobs report. 

I'm sure everyone believes this time will be different.

The Eye Of The Hurricane

The front wall of the hurricane weakens the structure, the back wall blows it away...

We are in the midst of a Lehman style collapse in real-time, but there's no way of knowing because today's pundits are broadcasting sugar coated bullshit across every media channel. The sheeple wouldn't have it any other way. No one would pay for what I have to say, nevertheless it will turn out to be exorbitantly unaffordable.

We live in a society of useful idiots, who are convinced there's strength in numbers.

Last Friday I posted this chart on Twitter showing that to-date the volatility at the 200 day moving average was the highest since March 2020. The third highest was March 2000.

In other words we are in the midst of a bear market rally. The path of this bear decline is so far following the Y2k sequence: First junk Tech stocks got obliterated, which began a year ago. After that mega cap Tech took the lead, which continued until  November. Then, cyclicals led in December. Finally everything imploded in January. Except Energy stocks which I will discuss further below. 

Now investors are getting worried as January was the S&P's worst month since March 2020. For the Nasdaq, it was the worst month since December 2018, tied for the worst month since 2008. Had January ended last Friday it would have been the worst month for the Nasdaq since 2008.

Therefore, to placate their investors, every advisor and pundit is working overtime to keep the sheeple from bolting out of the casino. At the prime broker level, Marko Kolanovic is "pounding the table" for everyone to buy stocks. 

Many market metrics such as recent performance of high vs. low beta stocks and valuations of small-caps are already fully pricing in a recession — something we do not see materializing,”

The flip side of this argument comes from Alfonso Peccatiello, author of The Macro Compass blog, who notes the spread on overnight index swaps is dangerously close to inverting"

As I've said many times, buying cyclicals going into a recession, is a very bad idea. They get demolished. Unfortunately, the imploding Tech bubble gives investors fewer and fewer places to hide. So what to do, push investors into cyclicals and tell them recession is off the table. 

Unfortunately, every spike in inflation for the past 70 years has preceded recession.

Another asinine assumption Kolanovic makes is regarding the bullish aspect of collapsed small caps. Below we see that January had the worst Nasdaq breadth in HISTORY. And comparing to 2008, the maximum breadth collapse occurred in October 2008 which was four months before the market bottomed. In other words, margin clerks won't be selling the small caps anymore, now they will dump the big caps that have been holding up the market.

This chart is also testament to the RECORD amount of junk stocks that got dumped into the market in 2021.

Another dumbfuck assumption getting bought with both hands is that we are "early" in the rate hiking cycle. You have to have amnesia or dementia to believe this argument. First off, as we see below, interest rates have been in a downtrend for four decades. Secondly, as we see also see, this relative move in rates is unprecedented. Somehow we are to believe that post-pandemic price increases in the order of 8% justify increasing interest rates 400%. Because we all know that the price of money is not a "cost" to the consumer in the most leveraged society in history.

Sure. 

Which gets us to the massive Energy sector outperformance in January. Here we see that Energy outperformance has attended EVERY end of cycle/bear market in the past thirty years. And January's monthly outperformance is the largest in the life of the data.

Similarly, the monthly VIX is warning that we are heading into recession AND bear market.

But among the most dangerous assumptions being made right now, including by Kolanovic, is that cyclicals are NOT overvalued. This is how all of today's pundits are able to ignore the meltdown in Tech stocks, because they tell themselves that Cyclicals are "value" stocks. 

Unfortunately, nothing could be further from the inconvenient truth. 

But what better sector to prove it than the Wall Street brokers now pushing out all of this end of cycle bullshit in 2022 after having dumped RECORD amounts of junk stocks into the market in 2021. 

Rule #1 of survival: Never trust proven liars just trying to make the quarter.

"Many investors are grappling with their portfolios turning negative and the rotation into value is depressing appetite for the growth stocks"

In New York, the market turmoil has made at least nine firms call off IPOs"

The Point Of No Return

"The Sea On The Tide Has No Way Of Turning"

I am not predicting a market crash, I am predicting a market explosion. The likes of which will be impossible to bailout...

This week the Fed and Wall Street were in consensus, we need to accelerate this meltdown:

Step back for perspective...

At the lingering end of a two year pandemic the global economy is struggling to regain normalcy. History's largest asset bubble is imploding and the Federal Reserve has decided to embark on accelerated tightening. The growth stock crash is approaching the one year mark with certain key sectors having already given back all of their pandemic gains and or -40% deep bear market: Chinese internets, Biotechs, Fintechs, Ark Innovation, IPOs, EVs/green energy, Cryptos, ecommerce, momentum Tech etc.

The losses are STAGGERING. Multiples of 2008 subprime.

Wiped out Millennials are abandoning the market, as the era's most popular online broker, Robinhood is down -90% from its  2021 IPO high. 

The Nasdaq was down -19% at the week's low and then bounced ahead of the seminal FOMC meeting. The S&P 500 is holding up better as hedge funds rotate en masse to cyclical stocks.  Therefore, it remains record over-valued by every known metric. 

The Fed now believes that inflation is the ONLY risk to markets and the economy and that they are behind the curve. They are happily ignoring the reverse wealth effect as the air comes out of their asset bubble.  The inflation the Fed is concerned about is a lingering remnant of the pandemic which exacerbated supply side shortages. The Fed's inflation gauges are at a 40 year high on a relative basis, whereas most commodity prices are substantially below their 2008 highs. The Baltic Dry index which is a leading indicator for U.S.. inflation shows the problem with focusing on percentages versus absolute price levels, ESPECIALLY following a depressionary pandemic.

Bad data leads to bad decisions. 

On the labor side, the jobs market is very tight due to mass layoffs during the pandemic. Many former employees have either retired early (3 million Boomers) or moved to gig jobs. The Fed's models ignore ALL of these pandemic-related factors , which make their economic models OBSOLETE and totally useless.

They are flying blind straight into the ground.

"The Fed has admitted that it is seriously behind the curve"

Aggressive Fed tightening should affect the economy with a lag"

The biggest policy error since September 2008 just took place this week. And to celebrate the occasion, consumer sentiment collapsed to that same level:

Consumer discretionary stocks are flirting with bear market on decade high volume.

The Wilshire/S&P ratio worst since October 2008:

Emerging Markets got monkey hammered this week by the rising dollar.

Global market dislocations ended Fed tightening in 2015 AND in 2018.

This time Powell and Fed are totally ignoring global markets.

Unfortunately, there is no bullish case anymore. Up until now the entire bull case which ignored valuations, was based upon  the ubiquitous belief that printed money is the secret to effortless wealth. Now that argument no longer exists. However, there remains an industry of financial salesmen who need sheeple to continue buying financial junk through all types of market risks and at the end of the cycle.

THAT is why we find ourselves at this perilous juncture where fear of missing out is the only risk today's investors understand.

"Despite the deep losses in tech stocks, there’s still an appetite for risk among the retail crowd"

"Stock funds have absorbed $84 billion this year and just two out of the 18 trading days have seen outflows"

In summary, the Fed is wrong. AGAIN. 

The economists who believe the Fed, are wrong. AGAIN. 

And the consequences are already exorbitant, on their way to unaffordable. 

This era's fantasy that central banks can bail out investors from unlimited amounts of risk is filed under the long forgotten lesson of moral hazard. The muscle memory of which lingers long after the safety net has already been removed.

mor·al haz·ard

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

  

Here Comes "Common Prosperity"

Globalization failed to create common prosperity, so now we're going to do this the hard way. Super bubble meltdown at the zero bound. It's amazing how few people want to see it coming...

"It's time to pull the plug on inflation!"

It's shocking how clueless people are at this juncture. No one would believe this extended "cycle" began with a global financial meltdown caused by the laundering of cheap global capital through the U.S. housing ATM machine. Weaponized 10x, Wall Street subprime time bombs were sold to global banks desperately attempting to avoid 0% interest rates at the end of the cycle.

KABOOM!

Now here we are in sudden death overtime of the longest cycle of all time watching the Fed "pivot" from expanding the world's largest asset bubble on record, to exploding it in record time. Standing around like we're watching a tornado in a trailer park.

Today's bulls are functioning solely on their standard model of mass ignorance. The less they know, the better. Today's pundits have as their job to sugar coat every bad piece of information and ensure that the only resulting conclusion is to buy more stock. If Bernie Madoff were alive today he would have to be released from prison and installed as head of the SEC so he could oversee the smooth functioning of this epic mass deception.

So it is hugely ironic that China is the FIRST country in the entire world to begin turning their back on this epic human and environmental disaster via the policy they call "Common prosperity". Meaning, no more bailouts for the rich.

Already this no bailout policy has drawn the derision of GOP and Democrats alike. It's UnAmerican to turn your back on fellow billionaires. So say wealthy politicians trading stocks in their spare time. The only way anyone could believe any of this is "normal" is if Walt Disney is your national historian. 

Of course, the term "Common prosperity" is loaded with irony. For me it's a euphism for super crash sans bailout. One so big and so bad that the rich head straight to their yachts and flee to the Cayman Islands. 

There are random times when I actually agree with Jim Cramer. By that I mean down days, because that's when he's bearish. Between his bullish days of exhorting his flock to buy stocks, he  like me somewhat acknowledges that the amount of junk paper dumped in 2021 is deja vu of 2008. My words, not his.

SPACs/IPOs and Cryptos are this era's suprime, only ~5x larger in magnitude. 

“I want to believe that many of last year’s 600 IPOs are better than the 300 that we got in the dot-com era. But the recent action tells me they aren’t,”

I can’t even find 15 good companies out of the whole 600 odd enterprises that came public last year"

“These broken IPOs have emptied the pockets of investors, and yet they’re selling their winners to fund the over-hyped losers"

Got that? According to Cramer, this era has twice as many junk IPOs as there were in Y2K. 

As it was in Y2K, the meltdown began with the junk companies, but eventually those imploding stocks dragged down the good companies with them.

The vast majority of growth stocks are deep in a bear market, and now the Fed is about to implode cyclicals. Yesterday's gap reversal rally was the largest since October 10th, 2008 which was the acceleration point for the Lehman meltdown. At that point stocks were already in a bear market, but they fell 40% further. Although, the article below doesn't mention any of that. It just makes it sound like a great (one day) comeback.

Not only did both the S&P and Nasdaq stage massive one day reversals yesterday, but as I showed on Twitter today Nasdaq highs-lows were the worst since the pandemic and before that...

October 10th, 2008.

However, unlike that era when the Fed was working overtime to keep markets from final imploding (Hint: It didn't work). This time we are told that the Fed MUST raise interest rates in the middle of a meltdown. 

To restore credibility:

This should do it.

One year ago, the Gamestop pump and dump scheme almost imploded the stock market. Too many newbies who didn't know what they were doing were buying and selling stocks for the first time. That debacle took place amid record Fed liquidity. Now one year later we are witnessing the Millennial margin call amid maximum Fed liquidity withdrawal. 

Nasdaq down volume has been trending up for the past five years:

Of course this reckoning is long overdue. The real question is how is it that so few people see this coming. And I realized recently the reason why bearish commentary doesn't reach the masses, and it isn't for lack of trying. It's because we're not responsible for teaching people right from wrong. That biblical responsibility has been clearly neglected. Today, we have religion without values.

Some think I'm a preacher, I'm not. I see things more from an historical perspective. This cycle of ignoring record inequality has taken place over and over again throughout history. And it always ends the same way. 

"Common prosperity"