Wednesday, December 18, 2019

Rich Man's Panic Attack

History will say that this past decade did to capital what prior decades did to the middle class - lured it in and obliterated it...


Way back in 2003, I lost faith in Ponzi capitalism. The Fed had lowered interest rates to 1.5% and was encouraging people to use adjustable rate mortgages, zero down payments, and other gimmicks to increase leverage. Policy-makers were pulling forward consumption from the future to boost GDP today. Of course a lot of people, still reeling from the Dotcom bust and recession, took the Fed up on the offer. So began the housing bubble.

Cheap money is an aphrodisiac, it can be irresistible. Worse yet is when the neighbours are all borrowing and spending, which leads to fear of missing out. Why don't we have a home equity line of credit ATM? Unfortunately, central banks had no exit strategy for all of that borrowed money. Starting in 2004, Greenspan raised rates 17 times in a row, obliterating anyone who took them up on the offer. It wasn't just Greenspan of course who had recommended ARMs, realtors were using adjustable rate mortgages with "teaser rates" to get homeowners to splurge on a larger home under the belief that their incomes would outgrow the inevitable interest rate "reset". Of course that isn't what happened. 






So it was with the economy, so it is now with investing. The seduction of cheap money, the "fear of missing out", and no exit strategy provided by central banks from their mega bubble. Sound familiar? Central banks have succeeded in creating an aura of invincibility that has convinced the masses to believe in an indefinite asset bubble. And an endless economic expansion. Retirement "planners" have done their part in convincing people that if they don't buy into the mega bubble they will never retire. Low interest rates did the rest. Forced people to believe in delusion.

In other words, deflation emanating from 2008 and the de facto failure of globalization, collapsed the cost of capital and forced investors further into risk. We stopped pretending a long time ago that the rest of the world will ever have our standard of living. Now we're just worried whether WE will have our standard of living. 

Just as the middle class got obliterated in the last bubble, the vast majority of capital will get obliterated in this one. For much the same reason - a tsunami of deflationary poverty capital lowered real rates of return to nothing. The only return now is the zero sum Ponzi return from chasing asset bubbles. A game in which the vast majority always lose. Left holding the bag again at the end. Many right wing pundits blame central banks for sponsoring this delusion; however, central banks were just trying to keep the almighty capitalist system duct taped together after 2008. Because when the system itself explodes, people will begin to question whether or not the model really worked in the first place. At which point they will finally demand to rebalance the economy back towards the worker. If this society had a cumulative IQ of five, that would have already happened by now. But American mythology isn't going to die easy, it wants to explode. 

We've reached a point now wherein investor sentiment no longer correlates to the economy. Central banks are managing asset rotations, that are wholly detached from economic reality.

Case in point, the Fed ALWAYS steepens the yield curve at the end of the cycle. That doesn't mean the coast is clear:


  

Pavlovian response to cheap capital made it inevitable that recession would be widely viewed as a buying opportunity.






"When the Fed hits the gas, buy bank stocks with both hands"
"I've heard that before, but I can't remember when"





Step 1 see it coming.

Get that step wrong, go back to CNBC. 




Judgment Day

This is an historic moment. Trump has never been held accountable for anything in his entire life. And he is none too happy about it either...





He was never held accountable for his bankruptcies - his creditors always left him personally intact and re-financed his subsequent failed ventures. His serial adulteries were merely try and buy prior to his next marriage. He threw his lawyer Michael Cohen under the bus for the porn star payoffs. And his serial tax evasion, still not prosecuted. The FBI never directly proved that Trump is Putin's Manchurian Candidate, despite having indicted the rest of his campaign team. Which is why he so brazenly extorted the Ukrainian government, now leading to his impeachment. He built his entire 2016 campaign around a racist lie that President Obama was not really an American. Which won him the undying love of the KKK, alt-right Neo-Nazis, Evangelicals, and every combination thereof. Subsequently his plundering of the treasury and de-regulated corruption have won him the undying love and support of Wall Street. He is THEIR man. 

This level of greed and corruption has never before been imagined in U.S. history. The Founding Fathers never saw this coming. Which is why the system has no recourse. They never predicted an entire party would base its platform on ending democracy in order to permanently install corruption. Historians will draw a direct line from the disgraced Nixon, to the b-Actor Reagan, to the C student GW Bush who did his best implode the entire global financial system. To the endgame show host, Trump. A narcissistic black hole of humanity. Ever greater abuses of power. All a direct line result of moral collapse while worshipping the cult of self-interest. The inversion of morality from altruism to narcissism. Now culminating in a morally void president. And a movement that will stop at nothing to see him re-elected. Including destroying democracy itself.

Make no mistake, this is an historic moment. The crater left behind by this cataclysmic explosion will be massive to say the least.

Nevertheless, a necessary consequence arising from epic greed and corruption. The mythology of greed will be duly imploded.

Everyone will ultimately understand the downsides of taking self-interest to its furthest logical conclusion - a nihilistic society of consumption addicts willing to sacrifice the future for instant gratification today. Ending in totally "unforeseen" self-implosion. A society too self-absorbed to see it coming.

Now convinced that endless borrowing and printed money are the secrets to effortless wealth.

It's truly shocking how few people see this ending. Three years of insanity has desensitized everyone to risk. In a society steeped in corruption, the biggest liars have the most airtime and the most followers, which is why Sean Hannity and Faux News are number one in viewership with a substantial lead. In addition, there is unprecedented pre-election stimulus lubrication now that the Fed is monetizing Trump's deficit.





*2019 monetary stimulus (balance sheet expansion) is through Jan. 2020:







Tuesday, December 17, 2019

The 2020 Election Is Rigged. To Explode.

History will say that out-of-control greed wiped the Banana Republican party off the map. Imploded by the last Trump Casino, rigged with record stimulus gimmicks to buy the 2020 election. The End...

Over the past decade the entire world turned into Japan - an old age home run by and for demented geezers who can't accept that the past is over. Unwilling to make a paradigm shift away from relentless greed to something more civilized. Recycling failed stimulus gimmicks over and over again, each time expecting a different result. Culminating in a record asset bubble in which faith in the central bank Jedi Mind Trick for weak minded fools is now complete...

Any questions?






“What was once extraordinary has become ordinary, not just in the United States but all over the world”

The real pioneer of QE, though, was the Bank of Japan, which has practiced expansionary monetary policy for decades, though to less clear results. The BOJ has exploded its holdings by some $4.5 trillion over the years, only to experience minimal growth that included the “lost decade” of the 1990s."


There is a belief right now within the Fed, the White House, Wall Street, and Zerohedge, that central banks can keep asset bubbles growing forever, or until the November 2020 election, whichever comes first.

"In other words, it appears that neither Trump, not Powell, will allow the S&P to dip even modestly before November [2020]. After that, however, all hell breaks loose."


Unfortunately for that asinine delusion, as both Japan AND China have discovered the hard way, central banks can't just continue inflating ever-larger bubbles. Not for lack of trying mind you.

No country has done more to prop up their stock market than Japan - including buying up half of the stock ETFs, and yet the Nikkei has gone nowhere for two years straight:









"China is set to record its weakest growth in GDP in 25 years. Yet it seems to have entered a bull market and may be where we deploy much more of our risk capital next year. That's because the recent exuberant run up in onshore Chinese equities seems to me to amply demonstrate the power of imagined realities."

The Chinese state is the largest shareholder in the Chinese financial system. That surely makes its ability to stave off a liquidity crisis pretty much limitless"


July 2015:



"All that’s left to happen in China’s stock market is for government leaders to admit they are powerless to stop a selloff."





When policy-makers actively encourage melt-up bubble chasing, I call it Shanghai Surprise. Which is the fate that now awaits U.S. bubble chasers, stoned on imagined realities. 


"Analysts at Bank of America Merrill Lynch, led by strategists Michael Hartnett, described the market as “primed for Q1 2020 risk asset melt-up,” with the Federal Reserve and the European Central Bank still providing ample support to portions of the market and economy that have shown some signs of softness."



"Melt-up will begin soon"





"It is important to note that the a so-called melt-up is considered by market pundits as the end phase of an asset bubble"



"I'm waiting for a greater fool to buy me out at a higher price"






“However, the percentage of S&P 1500 companies with positive forward EPS growth has deteriorated meaningfully since 2018”

“Further, the current level of this measure is worse than it was during the 2015–2016 manufacturing recession, a trend driven mainly by smaller-capitalization companies which are struggling with higher labor costs” 


"Don't worry, the Fed is providing ample support to portions of the market showing signs of softness"







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"







Monday, December 16, 2019

'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".







Sunday, December 15, 2019

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.







Saturday, December 14, 2019

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"