Extraordinarily Popular Delusions And the Madness of Clowns

Buyer beware: This super bubble is running on MAGA glue fumes. The false confidence that comes from the total belief in a swaggering super dunce. The rally having made it this far only by violating EVERY principle of commonsense and sound investing...

Sadly, the climax to this Trumptopian fantasy is arriving eight months too soon. Ironically, the stocks fueling this end stage rally and the ones that will explode it with extreme dislocation are the trillion dollar MAGA stocks: Microsoft, Apple, Google, and Amazon. All Tech mega caps. In a widely ignored omen of what is about to come, the companies that are correlated to the actual Trump economy have been entirely left behind. Like everything else in the MAGA Kingdom, diversification is a quaint concept from a bygone era...

When an aging society can no longer accept facts, reality, or the inconvenient truth they turn instead to fantasy and delusion. They look around for whatever fraudster will tell them that the future will be great again by repeating the mistakes of the past, this time on 10x leverage. The leverage that created the housing bubble pales in comparison to what has been deployed in this cycle. 

Gamblers are now convinced that no amount of risk is too great for any amount of concern, because central banks can bail them out with printed money. Which explains how the collapse of the world's second largest economy is now viewed as a buying opportunity. The unquestioned belief in the unlimited powers of free money is the fairy tale that guides all of today's investment "gurus". In the process they have successfully inverted all of the usual laws of economics. 

As I showed recently, global growth is now inversely correlated to stock market prices, for the first time in world history. The worse the economy becomes, the more low interest rates "support" higher valuations amid expectations of greater central bank liquidity. The concept of cycle risk no longer exists. This longest cycle in U.S history, will last forever. The concept of conflict of interest has likewise been wholesale abandoned. The fact that Wall Street keeps raising their price targets every time the momentum herd stampedes past their annual target, has been completely ignored. You wouldn't want to have a price target lower than the current level, because that would imply a prudent rotation to cash. Which is why the wholesale abandonment of valuations was the next thing that had to go by the wayside.  

The concept of "value" investing no longer exists. Now it's all about growth and momentum. Which should come as no surprise in a pre-recessionary environment addicted to central bank liquidity. Which is why economic cyclicals have been left far behind by the passively indexed growth/momentum trade, now featuring a handful of stocks that have now become "the market".

Ironically, the true MAGA stocks are not confirming this rally, having peaked two years ago:

"The innovative strategy behind the MAGA ETF that allows you to invest in companies that align with your Republican political beliefs. The MAGA Index is made up of 150 companies from the S&P 500 Index whose employees and political action committees (PACs) are highly supportive of Republican candidates."

Which is also why the concept of diversification is no longer an operating principle for sound investment, according to today's Idiocracy:

"It’s an old theory, with shaky proof, that always gets louder right around now. The stock market is so overrun with dumb index money and exchange-traded funds that it can’t even tell when something bad’s happening."

You hear it from old hands and stock pickers, lamenting a lost edge in a world where even a pandemic barely registers on charts. Something sinister must be afoot when 30,000 people are infected with coronavirus, the global economic expansion is threatened, and the S&P 500 has its best week in eight months."

“The passive flows are set on a schedule the way they come in...They don’t care if they buy the market at 10-times earnings, 20-times earnings, 30-times earnings, 50-times earnings.”

Active managers aren’t doing themselves any favors with their picks. Perhaps sensing a turn was due, they came into the year with relatively light exposure to the high-flying technology firms that have ruled the bull market.

That was a poor decision. Five companies alone have accounted for 55% of the S&P 500’s returns year-to-date"

Got that? There is nothing sinister about a melt-up into pandemic. And it was a poor decision to get out of a Tech bubble now featuring five stocks driving over HALF of the returns of a 500 stock index.

Make no mistake, we live in a Terminal Idiocracy that has abandoned every basic principle of sound investing in favour of printed money and non-stop bullshit. 

"The defense spending request contains the Pentagon’s largest research and development budget in 70 years"

The MAGA Circle Jerk Is Reaching Climax

Trump's base is record lubed with record stimulus, for their biblical reckoning. History will say that the Bannonite alt-white echo chamber played a CRITICAL role in this con job...

There has never been a bigger load of bullshit bought and believed by more useful idiots than right now. The lethal intersection of a known con man and easy money:

It's important to remember that the subprime meltdown was not only predicted ahead of time but it was massively shorted by Wall Street in the months ahead of the October 2008 collapse. The stock market peaked a full year before Lehman. 

This time around, gamblers are reaching for maximum exposure at the pinnacle of maximum risk. Having been fully drugged by the virtual simulation of prosperity and the need to make the quarter in a zero interest rate environment:

"Investors are hungry for yield, and that is forcing them to take on risk they normally wouldn't for acceptable returns".

"One of the consequences of the central banks easing again is that they are feeding the zombie companies that would be out of business by now if money wasn't so cheap and credit so easy"


Ironically, central banks have compressed yield spreads giving the illusion of low risk when risk is at maximum. The hunt for  yield in a zero interest rate environment has put capital into self-destruct mode. In early January, the Fed financial stress index hit an ALL TIME low. The asinine Fed model signals lowest "stress" at the point when valuations and exposure are the highest. 

"We've waited long enough, now is the time to buy junk"

Gamblers are well conditioned to believe that implosion is good news:

"I bought for the tax cut, but I stayed for the pandemic"

Greater fools' markets end when gamblers expect a greater fool to come along, only to find out they already did...

Trump Versus Sanders: WTF?

Socialism for the obscenely rich who've been bailed out for a decade straight, or socialism for everyone else, that's what will be on the ballot in November. I am pretty sure the second option is not "priced in" to the Trump Casino. Today's supreme over-valuations are predicated upon supreme over-confidence in continued monetary bailouts for people who don't need more money...

My 2020 prediction for super crash followed by rioting, is right on track. The fact that no one sees it coming will make it all the more brutal. They are too busy buying the melt-up Tech bubble amid global pandemic. Faith in printed money is total. There's a reason why no generation of Americans tried this previously. Because they were intelligent. The "system" is now riding on human history's biggest stimulus bubble. Because the "system" IS the bubble...

What we are operating under now is EXTREME socialism for the ultra-wealthy at the expense of everyone else. Only because the Trump Super Bubble is at its apex do useful sheeple still evince false confidence in trickle down Ponzinomics. Drugged by the virtual simulation of prosperity, augmented with their own savings. When the bubble explodes, their opposition to "socialism" will be dropped like a rock. We are living in the land of opportunism.

I have this debate with my libertarian son all the time: He tells me that today's economy is not true capitalism. I say that's fine, tell me the last time the U.S. economy was true capitalism. He says about 150 years ago. At which point I rest my case. There was no actual middle class in the 1800s. And the heyday of the U.S. middle class was the 1950s when taxes, trade protections, wages, and worker benefits were far higher than they are today. Once upon a time, American families could live on one income.

As you can tell, I am not a big believer in false ideology, left, right, or center. We are heading into the worst economic crisis in 100 years with really no cogent ideas for how to get to a better economy. Everything right now is talk, talk, and more talk. 

Trump's idea for a better economy is a 5% of GDP deficit monetized by the Federal Reserve at 5% of balance sheet expansion. In the event, creating the biggest super bubble in human history. It's MMT for the rich. But it won't work.

Of course, no one else is saying this, even the Democrats are not willing to criticize this asinine misuse of stimulus. If we are now abusing stimulus at this late stage stage, when stimulus would normally be at the lowest point in the cycle, what happens in recession?

I will tell you what happens. Ideologies get dropped like rocks. And the monetary fire hose pivots from Wall Street to Main Street. At which point extreme deflation will eventually morph into extreme inflation. I will not dare to say what month or year that happens. In my opinion, Trump won't be in the White House for that event to occur.

We face multiple layers of economic problems. One is how to navigate the incipient global super crash that no one sees coming. The second one is how to cope with the ensuing extreme deflation. Again, the MMT nuclear option appears inevitable at this point. After that, the real problem not even being discussed yet, is how to create a sustainable economy in the post-stimulus environment. In the meantime, discussions around "socialism" are totally meaningless yet politically useful diversions. 

We are well beyond the bounds of sane socialist policies, now in the realm of continual monetary bailouts aimed solely at the wealthiest .001% of society. About the dumbest abuse of economic stimulus one could possibly imagine. A gambit that can only foment societal unrest unprecedented in U.S. history, putting the entire capitalist system fully at risk with no safety net.


"It was all going so well"

The ultimate problem we face is an IQ deficit. Wherein today's politicians are actively solicited to offer pie in the sky solutions, none of which are long-term viable. Politicians are now chosen based upon which one will offer the most fantastical view of the future no matter how fraudulent.

This society needs to wake the fuck up from the stimulus coma and educate themselves on basic economics. And in that I include ALL of today's academics, business leaders, politicians, and media mannequins. They are all drinking the Kool-Aid.

Faith in our leaders, our academic institutions, and our ideologies are all going to fail at the exact same time. Which is what happens when people decide to abandon the inconvenient truth in favor of whatever delusion they find works to their own immediate instant gratification.

Pandemic Melt-up aka. Lehman Moment

This last stage pandemic rally is fueled by capitulating bears getting trampled by idiots rushing into the riskiest stocks in Trump casino. It feels like China's Lehman Moment has arrived...

Four Hindenburg Omens on the NYSE and two on the Nasdaq in the past two weeks:

Many people forget that stocks rallied after the Lehman event. Why? Because the Fed shit a brick and came in with massive liquidity. This sparked a MASSIVE short-covering rally. Sound familiar?

Once the shorts had covered, the casino fell like a brick.

Good times.

The events at this juncture are eerily familiar. A ludicrous amount of risk, global dominoes falling, and yet a last minute surge into the riskiest stocks. Speculators unwilling to leave the casino. Unwilling to admit the party is over.

And it's been one hell of a party, featuring a blowoff top in momentum stocks driven by fear of missing out. For their part, fund managers are chasing the averages into melt-up. After all, it's not their money, it's "OPM". 

Other People's Money.

Hedge funds have converged on the most overbought large cap stock in the market. As it was twenty years ago at the height of the last Tech bubble:

"Two decades after it first peaked as the dominant leader of a dazzling bull market, Microsoft is once again Wall Street’s indispensable stock."

In the past 12 months, Microsoft has added $600 billion in market capitalization — equivalent to the company’s peak value in high-tech heyday of the late 1990s."

Microsoft is now the very top holding in its Hedge Fund VIP basket"


Hedge funds are the new dumb money:

Just as this past Monday's pandemic gap down was a bear trap, this last stage of the rally is a bull trap: The running of the stops set above the prior high, reached when the pandemic hit two weeks ago. A headfake new all time high, compliments of weak bears evincing the conviction of a five year old in a candy store.

Last week I ran down the pantheon of prior historical market crashes. The best known ones were stair steps lower over a period of weeks culminating in a crash. 1929, 1987 etc. I have often surmised that this Disney market would be the first one in history to crash directly from all time highs, with ZERO prior notice. Aside from a decade of denial. 

That prediction is coming more true by the minute, as more and more money crowds into fewer and fewer massively overbought Tech stocks:

The pandemic contagion is spreading globally both from an illness standpoint and from an economic standpoint. This week, the locus of implosion - China - shot their wad propping up global risk markets. Aided and abetted by short-covering and Tesla gamblers. Nevertheless, Emerging Markets are rolling over, the same way they did last week at this time, and the week before:

You know you're an optimist when:

Institutions were hitting the PBOC bid all this week, which is why this rally is now running on Tesla glue fumes heading into the end of the week.

The last time we saw this, the S&P was down -20% in the fourth quarter of 2018:

All of which means that come early next week, gamblers are going to need a much bigger bazooka. 

Or shit gets biblical.

At "all time highs"

Stocks Are 100% Correlated To Collapse

The age of central banks has inverted the relationship between asset prices and GDP for the first time in world history. As global growth slows, the rise in stock prices accelerates towards the Minsky Moment. Per the iron law of Disney markets, gamblers are attracted to cheap money like moths to a flame...

I don't know anything new or interesting about this Coronavirus, I just know that I'm not worried about getting it. My belief is that the panic over the spread of the virus is going to cause far more economic dislocation and global distress than the sickness itself.

The global economy was already extremely weak going into this event and can ill afford a massive supply shock centered in China of all places. The central supply hub for the entire planet. Critical shortages of food and supplies are already evident in China and will be spreading worldwide during the coming week. The global supply chain is complex and fragile.

Ironically, most of us market bears - what few remain - have been far less alarmist about this illness than today's policy-makers shutting down borders over what could turn out to be nothing worse than the seasonal flu. They have no idea what domino effect of supply disruption could ensue. In other words, their panicked response is likely to be far worse for markets and human health than the virus itself. And is this our future? A virus kills a few hundred people out of 7.5 billion - a nominal event - and the world shits a brick?

On average 7,500 people die every day in the United States of various causes. Mostly from McDonald's and related addictions. Coca Cola probably one of the most lethal enterprises in human history. And yet, we've become a fragile society incapable of reality, truth, adversity and now minor flu events.

Global central banks have happily sponsored this bubble in complacency by systematically euthanizing the populace in the face of any and all economic risk. So far, it has worked. This is the first endless economic cycle in world history. However in doing so they have lethally inverted the positive correlation between GDP and asset prices. Per Hendry's iron law of Disney markets:

"The worse the reality of the economy becomes, the more we take on the reflexive belief in further and dramatic monetary expansion and the more attractive the stock market looks."

Nowhere do we see this more clearly than in Australia. The Aussie dollar is a bellwether for global economic activity. Highly correlated to real economic output via the commodity markets. This week we see it breaking down to new cycle lows. And yet, at the same time, Aussie stocks hit a new melt-up high.

The age of central bank alchemy literally inverted the correlation between asset prices and global output. Can you imagine how high stock prices will be when the global economy grinds to a halt?

The locus of implosion is the oil market which was already under duress from over-supply and weakening global demand:

There have been three major coordinated central bank bailouts in the past decade. As we see via the crude oil market, each one has had less impact on global economic output:

Central banks' only capability right now is to inflate asset prices in the face of declining economic output. In the process, creating an unprecedented divergence between fantasy and reality. While at the same time euthanizing the populace from risk. 

The Minsky Moment arrives when global gamblers believe that global economic shutdown is an ALL IN buying opportunity.

"Looking into 2020, Ford said it sees 2020 earnings in the region of $5.6 billion to $6 billion, well shy of the Street consensus of between $7.3 billion and $7.6 billion, and cautioned that it was too early to quantify the impact of the spreading coronavirus on its worldwide operations."

In summary, the U.S. is now run by total idiots. Who have embraced global collapse with 100% enthusiasm. 

Enjoy the end of the show.

"Stuart Varney said stocks "moved down this morning because with such a strong report on jobs, the Federal Reserve is not likely to cut rates, and I think a lot of investors were hoping for a rate cut"

The 2020 Election Is Rigged. To Explode.

Since the Roman Senate just acquitted Trump, the GOP is now going to learn the hard way about the true cost of rigging elections. The Republican circle jerk has reached manic proportions. Gamblers are record lubricated for what comes next. The sum total of Trump's 2020 election rigging strategy is now coming to fruition...

Only 5% of the GOP still has a functioning brain:

Republicans are now using global recession as a cause for celebrating "good news" about the U.S. economy. This week, we learned that the trade deficit is shrinking for the first time in six years, which Faux News has attributed to Trump's "successful" trade war. The inconvenient reality is that the trade deficit always shrinks during U.S. and global recession.

"For decades, China has taken advantage of the United States. Now, we have changed that," Trump said Tuesday night during his State of the Union address."

The trade deficit improved in 2019 because imports fell more sharply than exports – which isn't necessarily improvement for the right reasons"

The inconvenient truth is that Trump's trade war and tax cut WIDENED the trade deficit, and now he's taking credit for a recession. Why? Because he's a fucking moron, and his followers are even dumber than him. 

Here we see the Cass freight index imploding. People have forgotten that China is the world's second largest economy and when their economy implodes, the entire world implodes.

"The intensifying coronavirus outbreak constitutes a large negative economic shock to China that will ripple through the global economy"

This data is from BEFORE the virus:

"Great news, we imploded China"
"Awesome, dude"

Manic reach for risk is reaching a crescendo this week due to monetary stimulus overload, Trump acquittal, and of course the total clusterfuck in Iowa for the Democrats, which I will discuss in a moment. As the economy moves closer to recession, euphoria is increasing in lockstep, as Hugh Hendry predicted:

"The worse the reality of the economy becomes, the more we take on the reflexive belief in further and dramatic monetary expansion and the more attractive the stock market looks."


Here we see the level of speculation substantially exceeds the 2018 melt-up:

Speculators are crowding into the riskiest stocks. Outside of Tesla, we see blow-off tops:

In Fintech:

NextGen internet

IPO junk

This week, Wall Street is trying to get the pump and dump back on track after it exploded last Fall. It might not work.

"Casper ended up pricing its IPO on Wednesday evening at $12 per share, giving the company a market value of $476 million. That’s dramatically lower than the $1.1 billion valuation from its latest round of private funding"

Getting back to rigging elections, this latest GOP gambit has backfired, because the impeachment scandal collapsed Biden's chances of winning the overall Democratic primary, while exponentially increasing Sanders'. Now Sanders' odds exceed all others COMBINED. The numbers don't add up to 100% because apparently there's still a chance that some dark horse will join the race. An unknown candidate who is now favored above every other candidate except Bernie. Sure, whatever.

In other words:

"It worked. Again"

Joe Biden was imploded by Trump's latest election-rigging gambit:

https://projects.fivethirtyeight.com/2020-primary-forecast/

In other words, when the Trump bubble explodes with extreme dislocation. We know what is going to happen in November.

And we know what WON'T happen.

No bailouts for criminals. And no socialism for the rich.

Prepare for hardest landing.