The End Of The Cycle. Meltdown Rally

Archaeologists will want to know how this Roman Circus exploded unexpectedly. It all started with Third World aspirations. And went downhill from there...

On the eve of impeachment by the House, impeached or not, Trump is still favored to win the 2020 election. Which is a testament to the almighty power of greed and corruption at this late juncture. This society is WHOLLY drugged by the virtual simulation of prosperity and its acolyte QE. The truth is no longer an option. These people are fully invested in Disney World, which means they can no longer even contemplate what would happen should it explode due to rampant corruption. Hence they will all find out the hardest way possible.

Here is what is planned for Trump's second coming:

"For all the attention the Democratic 2020 hopefuls garner, most on Wall Street still believe the election is President Donald Trump’s to lose"


No surprise, Trump is going to monetize more tax cuts for the rich. But first he will get rid of Powell and install one of his right wing sycophants. The U.S. will be fully Third World by that time. Only inconvenient reality can stop this gong show now.

Under President Camacho, soon corporations will pay zero taxes:

Corporate taxes are at a 25 year low, unadjusted for inflation:

Generational theft will explode under the second coming of Donny:

There is only one fly in the ointment for this Banana Republican corruption orgy. For some reason, there is no reflation in fake reflation. The middle class was not invited to the party.

Nevertheless, gamblers have been too busy front-running central banks to bother to check to see if the economy is coming along for the ride. And it's not:

"If you buy it, they will come"

In hindsight, this will be viewed as a totally bogus stock market rally. Unconfirmed by Banks, Transports, Homebuilders, Autos, Retailers, and Industrials (ex-Defense). In other words unconfirmed by the economy.

Confirmed only by rampant bullshit and the misallocation of capital at the end of the cycle. 

As I said at the outset, the truth is no longer an option. These monetary zombies are fully invested in Disney World

According to Mark Hulbert, investors are as extreme bullish now, as they were bearish at the bottom one year ago. Fantastic market timing. 


"I bought for the meltup, but I stayed for the meltdown"

'Tis The Season For Super Crash

So far, the Trump impeachment rally is going fantastic. Picture the combined dislocation of 1987, Y2K, and 2008 landing in the middle of a circus with a bunch of clowns standing around wondering what happened...

It's now up to global markets to do what the Banana Republican party should have done long ago - impeach and remove Trump. Mike Shedlock shares the ClownTopian view, there is "Nothing In The Christmas Stocking For Impeachment". Of course, nothing could be further from the truth. What is set to explode out of the Christmas stocking is three years of accumulated corruption, fraud, generational theft, and non-stop lying on a scale never before seen in U.S. history. All widely ignored by a society of corporate automatons fully desensitized to corruption. Now featuring a $1 trillion FULLY monetized deficit, direct deposited to offshore bank accounts - what Trump has been demanding all along. The pinnacle of U.S. corruption. And ironically the coup de grace for the MAGA Kingdom, a massive monetary heroin overdose. This era proves that democracy no longer works when half the country embraces corruption. 

History will say that Trump's Super Idiocracy followed their game show host to the very end, until his corruption exploded in their faces. And NOT ONE of them saw it coming. All true believers in rampant criminality and non-stop lying. And of course, free money.

Truly fantastic brainwashing. Biblical in scale and impact. And of course timing. 

As I wrote last week, Fed monetization of Trump's deficit is sending risk assets into the parabolic stratosphere, from where they will rollover and explode. Led by Tech stocks.

But don't take my word for it. 

It's no coincidence that the largest cap Tech stocks are the ones continually making new highs. They are the epicenter of the index super bubble.

Recipients of the largest amount of inbound dumb money, totally regardless of (over) valuation:

Apple is among the stocks expected to "benefit" from last week's trade deal, meaning it won't get hit with new tariffs. 

Similarly with semiconductors, apparently the trade war was merely suppressing the end stage Tech blowoff top.

Which is now well underway:

Note the three wave pattern, which I will discuss below

Tesla, one year of non-stop short-covering later:

The top performing stock of the year is up another 75% TODAY:

Outside of Tech, the remaining sectors are three wave corrective.

Which portends third wave down across the board, while Tech explodes like Y2K.

Not only is Pharma three wave corrective, it's symmetrical to the left shoulder.

Banks never confirmed the all time high, nor did asset managers:

Trucking/Transports never confirmed the all time high

Small caps never confirmed the all time high

Rest of the world, never confirmed the all time high 

The Nikkei has the exact same three wave pattern as last year. And is now symmetrical to the left shoulder:

Homebuilders never confirmed

The U.S. population has grown ~65% since 1970:

In summary, the only stocks making new all time highs are bubble Tech stocks. 

What we also see is that buffoonish over-confidence is rampant. Why, because we now live in a society that places its trust in game show hosts, rather than trusting facts and reality.

And there is only one way that can end. Which is is extraordinarily spectactularly.

And of course, entirely "unforeseen".

The Exorbitant Cost of Denial

Today's ubiquitous disinformers will sequester 100x more carbon than any climate conference...

“The further a society drifts from the truth, the more it will hate those that speak it.” - George Orwell



For a long time I've had tremendous anger at the fact that the American political system specializes in ignoring all of the REAL problems while focusing on a very narrow range of mostly superficial issues. This was all theoretically going to change under Trump, a man whose life's "work" is based upon superficial accomplishment and marketing-based gimmicks. The masses at large blame politics for the country's decline, however, the U.S. political system will never be effective until truth is once again valued by society. When it's not about electing whichever village idiot tells the best story. Trump is merely a reflection of a decadent society incapable of facing truth in any direction. Now running full speed towards its unforeseen endgame.

This week, Trump's campaign team "stole" the Person of the Year award from a child climate activist and awarded it to a climate denialist:

This is the sad and pathetic world we live in now, run by and for infantile geezers and their acolyte Lost Boys, locked in human history's biggest circle jerk of obligatory lying: 

There is a reason the "system" can never be called into question - because it still works for a minority of the richest people in the country: The people who control the media and the people who ARE the media. In particular the business media who will gladly propagate any lie to keep the status quo from changing.

Be that as it may, denial is a blind spot. It's the desire and ability to eschew key facts in favor of fantasy narrative. Told by a cabal of human history's biggest story tellers, who now dominate U.S. media.

This denial of course is rampant on environmental issues. The healthcare crisis. This borrowed economy. And of course Disney markets - the most imminent crisis this Idiocracy faces. We wonder why there is a mental health crisis when this society is told to believe non-stop lies? Sanity has been abdicated. 

There is now a widespread delusion in this society that if one believes a lie with enough conviction then it can become truth. If only in its ability to seduce other converts. It's the triumph of false witness over reality. Which of course, works for a time. Because any con job can work for a time when there is another fool to be found. Most particularly when it comes to markets. In a corporate society the extant "belief" is the right to deceive other people to make the quarter.

There is tremendous arrogance that attends denial. This presumed right to use up other people in order to propagate an amoral system to the benefit of the infinitesimal minority. Now featuring Bill Gates constantly informing the world's poor how good they have it. Hang on for another few lifetimes, you may make it to the middle class one day.

No surprise, we are deep down the rabbit hole now. Very little is real anymore. There's fake prosperity, fake news, fake trade deals, fake leaders, fake people. It's been three full years to impeach a president who has been abusing power, manipulating markets, plundering the Treasury, and lying non-stop since election. By far, the most corrupt and incompetent president in U.S. history. He should have been impeached and removed by his own party a long time ago. A lesson they will learn the hardest way possible.

And yet those of us who call into question all of this fraud are still viewed as the non-credible sources of information. Biased by our refusal to accept the standard assumptions. When we stray outside of the normal bounds and question the underlying assumptions, we risk "triggering" the audience. The term used to describe someone coming into contact with inconvenient reality for the first time.

What we are about to witness is a revelation that is going to "trigger" an entire fake society at the exact same time.

At which time the true cost of unquestioned conviction in proven liars will be counted. In the form of unrealized gains melting away like a snowball in the sun. 

Perma-bears are only right once. At the end of the cycle. The only time it matters who is right or wrong.

In the meantime, the con men have their day in the sun fully disarming the masses for what is about to come.

Everyone has a role to play in the carbon bubble collapse. Especially the denialists. We couldn't do this without them.

The Crack Up Boom And Bust

Historians will say this was all just a liquidity driven delusion. Record borrowed money conjoined with record printed money. Trump was the Harry Houdini of fake recoveries. He was a master market manipulator who took a late cycle economy and put it on fiscal and monetary steroids. For a time he preempted recession, however, the end result was a mega bubble that collapsed into depression. Those who warned this would all end extraordinarily badly were assiduously ignored. The economists of the day having long ago sold themselves out to central bank alchemy. Disney markets and simulated prosperity.

One thing we've learned for certain over this past decade, is that in a Super Idiocracy facts and logic can't compete with easy money. 

2019 is the Idiocracy's official year of easy money

This is for the historians. And for those of us who prefer rationality over denial. 

By the summer of 2015, U.S. GDP growth was at a cycle high along with the U.S. stock market. Commodities and oil had peaked a year earlier in 2014. The Fed was positioned for the first interest rate increase in a decade. Global deflation was accelerating to the downside into the planned (September) rate hike. EM currencies were collapsing. In early August 2015, China devalued the Yuan, which set off a chain reaction RISK OFF across global asset markets. In late August global markets crashed.The Fed postponed the rate hike.

By December 2015, global markets had stabilized. The Fed raised interest rates by a quarter point for the first time in almost a decade. Global markets exploded in January 2016. WTI crude oil hit $26 per barrel at the low point.

Central banks got together in early 2016 and formulated the global coordinated monetary expansion dubbed "The Shanghai Accord". Risk markets were bid.

The rally continued for several months and then got choppy ahead of the Brexit vote as the polls swung back and forth ahead of the vote. Still, the "remain" camp was expected to carry the day. We know who won. Global markets tanked. The S&P futures were limit down. However, once again central banks quickly coordinated a bailout. Markets stabilized.

Ahead of the U.S. election, things were getting dicey again. Trump famously warned in late September during a debate against Hillary Clinton, that this was the worst recovery since the Great Depression. He called the stock market a massive bubble. He said the Yellen Fed was being political by keeping interest rates too low this late into recovery.

Markets sagged into the election even though a Clinton win was widely expected. The latest central bank bailout was running on glue fumes. Trump won, and global markets imploded overnight. However, by noon the next day, Trump had talked markets green, from there they exploded higher. The business friendly president was large and in charge. Word spread like wildfire throughout the business community: de-regulation of everything was coming. Capital moved back into risk markets on a cycle-large scale.

2017 was a one-way melt-up in global risk markets, as Trump's tax cut plan was formulated. The lowest volatility year in decades. The Fed viewed this as their opportunity to begin balance sheet rolloff, which started incrementally in October 2017, and then grew in size quarter by quarter until October 2018. 

The tax cut melt-up went vertical in January 2018. In early February, right as the tax cut came into effect, markets exploded vertical down into the now-famous "VixPlosion". It turns out that the low volatility condition that had attended the tax cut rally had generated mass complacency and over-leveraged positioning among volatility speculators.

Markets stabilized, however with the tax cut stimulus now in place, Trump started the China trade war in the Spring of 2018. U.S. GDP peaked in the third quarter of 2018 along with the U.S. stock market. The Fed had raised interest rates eight times over the two years since the 2016 election. Their last rate hike came in December 2018 which imploded global markets. The S&P 500 was down -20% from peak to trough.

Trump was not happy. He blamed the Fed for imploding the stock market. The Fed quickly "pivoted" in early 2019. Global central banks orchestrated another bailout - the largest since 2009. Global markets exploded higher. The first quarter was the best start to a year for U.S. stocks since 1987. The first half of 2019 was the best six months for U.S. stocks since 1997.

Now we get to recent history.

Into the summer of 2019, the U.S. expansion had now become the longest on record. At that time the Fed - coerced incessantly by Trump - ceased balance sheet rolloff and telegraphed three interest rate cuts, the first cuts since 2009. Fed chief Jerome Powell called this the "mid-cycle adjustment", coming at the milestone mark of the longest expansion in U.S. history. 

The newfound monetary accommodation was all going well until August 2019, when a "debt deal" in Congress allowed Treasury to massively increase their cash holdings to finance the deficit, by issuing unprecedented amounts of new Treasury bonds. Traders warned in August 2019 that this amount of issuance was collapsing liquidity. They specifically warned about the overnight inter-bank lending "repo" market.

In mid-September 2019, as predicted, the overnight repo market imploded, as overnight lending rates sky-rocketed. Fingers were pointed in every direction. The Fed orchestrated another bailout - the largest balance sheet expansion since 2009. A tsunami of new cash flooded the markets. Reflation expectations exploded higher, along with long-term bond yields. The Fed had reverse-engineered a reflation rally, using excess liquidity.


The Fed has been pushing gamblers out of bonds into stocks all year. This latest "reflation" rally has lasted four months:

Which gets us to now, December 14th, 2019.

The S&P 500 is up 35% since the low of December 2018. The Fed and global central banks have done a fantastic job of lubricating risk markets. Here we see social mood as exhibited via the rest of the world. The decline from Feb. 2018 to December 2018 lasted 11 months. The subsequent retracement has lasted just over 11 months and recovered slightly more than 61.8% Fibo. As we see global central bank coordination has tightened correlation among global risk assets.

U.S. cyclicals are following the world pattern

What comes next is called third wave down in Elliott Wave parlance.

It means brick-shitting panic. Worldwide.

Meanwhile, some traders are STILL warning that the Fed has not fixed the repo market, which is expected to tighten again substantially into year-end. Which is "now". The problem at a high level is that the Fed is treating the symptom of short-term lending, whereas the problem is the lack of liquidity in long-term lending markets. Which is where most of the Federal deficit is taking out liquidity. It's a duration mismatch. 

Nevertheless, according to this past week's post-FOMC press conference, this is all well under control. As of their December 12th press release, the Fed are now planning for record short-term stimulus through January. What we know for certain is that risk markets are absolutely convinced this is all under control. Furthermore, the prevailing view is that this much additional stimulus, combined with the "trade deal", and Brexit resolutions, can only lead to higher asset prices. In other words, the repo bailout rally was an acceleration of the rate cut bailout rally, and now the Santa rally will merely be tacked onto the melt-up that began two and a half months ago. From what we are told. The Fed's only verifiable "success" to date can be measured in an Extreme Greed reading the highest since the tax cut melt-up, and the most extreme short volatility futures position in U.S. history (see below).

November 27th, 2019:
"...Asset managers have pushed exposure in U.S. equities through the futures market just above their positioning in July 2019, September 2018, January 2018 and 2007 highs. All of those dates marked “major” peaks in the American stock market"

In other words, speculators have become very adept at front-running central banks. Those who believe the Fed will be successful in keeping vertical markets vertical, have already taken a position on this matter. Therefore, what this all comes down to believing is whether or not central bank drip liquidity measured in the billions per day can control a stampede of RISK OFF capital measured in the hundreds of trillions overnight.

As I see it now, there is no way out:  a) Either the liquidity crisis arrives as some expect, and hammers risk markets OR  b) the ludicrous amount of liquidity injected into risk markets to avoid the liquidity crisis artificially ramps markets to unsustainable levels creating an inevitable crash. The scenario taking place right now.

However, the MOST LIKELY scenario is c) All of the above

This blow-off top and leveraged mass complacency triggers VixPlosion 2.0 at which point the liquidity crisis explodes out of central bank control. Bringing a very unexpected ending to the widely believed and beloved era of easy money.

"Getting in was easy"

The Last Temptation Of Donny

Picture the largest market crash in history coming in the last two weeks of the year. Because that is what we are facing. Those who place their faith in non-stop lying are about to get financially wiped off the map...

"For some reason I can't explain

I know Saint Peter won't call my name

Never an honest word

That was when I ruled the world"

"By the last days of the Idiocracy, Camacho-in-Chief was fabricating make-believe trade deals on Twitter. While his loyal acolytes blocked all attempts at impeachment. They were unified by their faith in corruption, and an existential belief in incessant lying"

In summary, what we are witnessing in real-time is stimulus overdose and the usual psychopaths, pushing lemmings straight off a cliff:

Trump's base is super lubed by free money, for what they are about to receive

"The Santa Rally is just getting started"

As of this writing, the U.S. and China just agreed to two totally different trade deals. One put forward by China, and one put forward by the U.S. With nominal overlap. 

It's clear in hindsight now, that when Trump put out his typical market manipulation tweet yesterday indicating a "Big deal" is coming soon, the Chinese trolled him with a fake trade agreement. Which forced Trump today to state that a rollback in tariffs is not part of the deal. So what to do, China just held a press conference saying that tariff rollback IS part of the deal. So Trump just put out a tweet saying HIS agreement includes no rollback.

Which is how China and the U.S. have now "agreed" to two totally different trade deals. What happens when you negotiate critical trade deals between the two largest economies in human history, on Twitter. 

"I'll have chicken fried rice, beef chow mein, and a fabricated trade deal to go"

NorthmanTrader provides a good summary of the week's events, prior to Friday's gong show. I will reframe it in my own words:

As of this writing, two totally separate fantasy "trade deals"

Massive amounts of monetary liquidity to monetize Trump's deficit. What I call the "MMT" super bubble. The combining of extreme monetary and fiscal stimulus solely to create momentum in asset markets.

A blow-off top in risk-seeking, most evident in semiconductors and Biotech.

Fake reflation. No indication that liquidity is making it into the real economy. Meaning the bidding up of cyclicals on the premise that trickle down demand will follow. 

In summary, there is unprecedented risk offset by unprecedented stimulus. Which is why the bullish case still reigns supreme. The belief that printed money is the secret to effortless wealth is complete.

First, on the subject of fake reflation and the MASSIVE cyclical rotation which is now completing the right shoulder, almost two years from when this topping process started.

Perfect symmetry:

Here we see that banks had an identical gap run in early 2018:

Industrials completed their first leg down and a three wave retracement, on the right shoulder this week:



























Transports also corrective:

Of course, narco pharma confirms the head and shoulders topping pattern

Meanwhile, due to fake reflation, the deflation trade is now bidless

And as far as the Tech bubble, that went parabolic this week:

Led by semiconductors, which are the intersection of the Tech bubble, the fabricated trade "deal", and the reflation trade:

Many of these parabolic semi stocks exhibit the same three wave corrective pattern as the non-tech cyclicals. 

Also led by revenueless Biotech

In summary, record risk can only mean one thing:

That was the advice from Chris Rupkey, who sent a rousing note to clients late Thursday, on the heels of trade optimism that is lifting global equities at the week’s end and a decisive election outcome in the U.K."

Trust proven con men at your own risk. Past performance is no guarantee of future result

"Buy it all."

"Christmas is coming, and my bonus is getting fat."