Stimulus Driven Explosion At All Time Lies

Options speculators have poured RECORD Nitrous Oxide on the most overbought and overowned stocks in the casino to complete their moonshots into orbit. Bidless re-entry will test the Efficient Implosion Hypothesis...

All major crashes in the past several decades were due to excess stimulus and rampant speculation. This super crash will make the others pale by comparison. The current melt-up is capping off a decade of global Japanification in which central banks, at the behest of an aging society, cultivated an unquestioned belief in the virtual simulation of prosperity and its acolyte QE. The inevitable result of protecting gamblers from risk...

The cause of the 1987 crash was the Reagan tax cut which fueled excessive speculation. The cause of the Dotcom crash was easy Fed policy and excessive speculation. Smash crash 2010 occurred during the post-2009 melt-up amid record global monetary stimulus. The cause of the VolPlosion in February 2018 was Trump's tax cut and excessive speculation, which exploded the exact week the tax cut came into effect. The cause of this super crash will be due to the monetization of the Trump deficit at record stimulus, global central bank decade-high stimulus, China stimulus to offset Coronavirus, and of course excessive speculation. Which has now reached manic levels:

What happens to the Nasdaq when these most active stocks by dollar volume all implode at the same time?

System meltdown, that's what. Overnight futures limit down, mass margin calls, flash crashes, brokers offline, panic and so forth. We've never seen this much risk concentrated in so few stocks at the same time:

All of these most actives are on the list of stocks that have driven record options volume:
Here Are The 15 Stocks That Have Driven Record Options Volume

The (options) tail is now wagging the dog:

Before we get to Tesla, a new bubble just formed. Appropriately, it's a space stock now in outer orbit on 10x average volume:

"Fidelity told CNBC that Virgin Galactic was bought more than any other stock on Tuesday — topping Apple, Tesla and others"

Getting back to Tesla which is leading the overall bubble in clean energy. Recall, 2020 is the year of Big Oil divestment. As we see, this manic run began when all U.S. brokers cut casino commissions to zero:

"Free gambling"

Clean Energy ETFs are in vertical ascent on heavy volume

Within the Semiconductor space, despite the supply china disruptions in China, AMD is making new highs.

This stock has doubled since November:

The last time Nvidia imploded back through its 200 day, the S&P lost -20%:

Momo Tech has entered outer orbit

This week is monthly opex which means that a record number of lottery tickets will expire COB Friday...

Position accordingly 

We can see via the hedge fund holdings that the top performing stocks are losing relative momentum (RSI, top pane)

"Low volatility" safe havens are likewise overbought

Nasdaq divergences are similar to last May

NYSE divergence similar to VolPlosion

The stock bond ratio is warning that this is a headfake rally, based solely upon momentum junk stocks:

This is what they are told to believe:

MAGA 2020: Greatest Con Job Ever

Let me get this straight - we need to bilk old people in order to re-elect a known con man, so we can make unprecedented deception great again? Where might historical greatness not follow? No amount of human capital is too much to pay for this next election. Bilking the old age home is the last gambit...

What we are witnessing in real-time is a demographic bust of colossal economic and political implications. Human history's biggest pump and dump, covered over with record lying and buffoonish bullshit. Sponsored by printed money and Return on Imagination (ROI).

For the GOP, it's a mandatory delusion. Their last act of organized criminality - selling this well-lubricated Ponzi scheme, as the "greatest economy ever"...

The Republican party is now the standard bearer for existential delusion. Tasked with keeping the American Dream alive by any lies necessary. The last guardians of American mythology. Constantly recycling proven failure, each time with greater leverage, and each time expecting a different result. As it was in the late stage Soviet Union, no amount of human detriment is too great to protect the reputation of the "system". Including throwing Boomer retirement investors under the bus at peak retirement.

The high for U.S. GDP growth, fiscal normalization (surplus), and monetary normalization was twenty years ago. Which was also the high for labor share of GDP, in the past several decades. Subsequently, the Dotcom bust cratered stocks -50% at the lows in 2003. Cheap money subsequently funded the housing bubble, which crashed to the lows in 2009, only six years from the Dotcom lows. Those two events coming so close together took a tremendous psychological toll on retirement investors. In Y2K, Boomers had on average twenty years to retirement. At the housing crash low, they had on average ten years until retirement. Now, they are retiring at a rate of 10,000 per day on average, into the greatest bubble in human history.

This author does a good job explaining what damage was inflicted to investor confidence and capital over the past twenty years of boom and bust. Arguing that the majority are just now getting back to breakeven (in aggregate) for the past decade:

Just in time. The insiders have cashed out at the top again:

The SEC warned this was happening in 2018, but the Idiocracy ignored them:

"Now, we all know what happened the last time a Republican-controlled government pushed through a corporate tax holiday in 2004. As that bill’s sponsors hoped, American companies repatriated billions of dollars of overseas cash. But corporations didn’t invest most of that money in innovation. They didn’t invest it in retraining their workforce or raising wages. Instead, executives largely used the influx of fresh funds for massive stock buybacks"

So when I first took this job, I worried that 14 years later history would repeat itself, and the tax bill would cause managers to focus on financial engineering rather than long-term value creation. Sure enough, in the first quarter of 2018 alone American corporations bought back a record $178 billion in stock."

Even more disturbing, there is clear evidence that a substantial number of corporate executives today use buybacks as a chance to cash out the shares of the company they received as executive pay"

Financial engineering via share reduction to artificially increase per share profits, can only get you so far however, when aggregate profits have been falling for six years.

In other words, Trump's tax cut had no effect on demand, aside from a two quarter sugar high:

It can come as no surprise that today's older investors don't want to see this coming. Having dusted themselves off twice, and finally regained the courage to trust stocks, they don't have the option of another cataclysmic drawdown. So it "can't happen". This is the longest cycle in human history, and it will go on forever. 

Worse yet, RECORD low interest rates have pushed far too many investors out of bonds and cash into stocks, in an attempt to "make up" returns. Unfortunately, the market doesn't work that way. Investors can't just bid up their own asset values like a piggy bank, storing those inflated values until they retire. The value of stocks in the long-term is determined solely by corporate earnings, not what price the last fool paid for them. 

These record low interest rates are symptomatic of the assiduously ignored problem with the real economy. It's deflationary, because real incomes are falling. Underemployment is now ubiquitous. Higher education and healthcare costs are exploding the middle class. And yet all we hear non-stop is that unemployment is at an all time low. Which merely means that people are working more jobs and longer hours to make ends meet. It's hardly a victory. 

And then of course, there is national debt now masquerading as "GDP". Which is also helping to propagate this mandatory delusion. 

It's a fraud in every direction.

Ex-debt bubble explosion, does anyone actually believe that today's earnings and "GDP" are anything more than a figment of the imagination, with deflation already taking over the economy? The deflation trade has been leading this rally for over a year straight. 

Utilities are making new highs just today. Giving total lie to any concept that this is "the greatest economy ever". This is the greatest Econ job ever.

All of which means that there are no (stock-based) safe havens anymore and there is no fiscal and monetary safety net beneath this delusion. It was all squandered in order to buy another election.

The term "retirement" in the future will bear no resemblance to the past. It will be some combination of downsizing, cutting liabilities, sharing housing and transportation, and likely working part-time. A lesson that should have been learned ten years ago. 

The multi-million dollar retirement touted by Suze Orman and most of today's used-car-salesmen financial advisors is a figment of the imagination. It's TOTALLY impossible in aggregate via this Ponzi stock market. What we have now is a record number of paper millionaires, the exact same way we had record paper millionaires in February 2000 at the Tech bubble peak. They all found out very quickly the definition of unrealized gains. Which means that today's ALL IN stock-based retirement strategy is nothing more than a DANGEROUS delusion that will cost many people the money they could have used to create a more sustainable way of life.

The one they would have had if they hadn't been lied to constantly by proven psychopaths.

"Good News, Implosion"

Never before have so many embraced mass insanity, as right now. The worse the news flow becomes, the more gamblers embrace risk, per the Efficient Money Printing Hypothesis. If you don't understand it, it's because you don't get 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"

Small retail investors, having been burned by two massive drawdowns just six years apart (2003-2009), were extremely reluctant to embrace the post-2008 Disney markets paradigm. Until Trump got elected. He convinced them to go ALL IN at the end of the cycle. Because every fool knows that it's not abuse of monetary and fiscal stimulus when it's benefiting the rich...

"What the wise man does at the beginning (of the cycle), the fool does at the end"  - Warren Buffett

History will say that the reason Trump-o-Nomics was an abject failure is because giving more money to the super rich bailout class while raising interest rates for everyone else, is deflationary. It's not reflationary. None of today's economic "experts" understood that 3rd grade concept in 2018 which is why the casino fell -20% "unexpectedly". In 2019, Trump finally got his way - a weaker economy, imploded reflation, and Fed easing. Nevertheless, the middle class still got NOTHING. The super-rich on the other hand got a FULLY monetized tax cut, which generated human history's largest super bubble.

Which they sold into with both hands.

On the other side of implosion, the sheeple and archaeologists will want to know how today's trusted proven morons aka. financial advisors, believed that global trade wars, global slowdown, Coronavirus, China implosion, record valuations, Tech bubble, record low interest rates, and the overall disintegration of Globalization in broad daylight, was a buying opportunity. After all, it will be hard to say no one saw it coming, when those were the justifications for buying in the first place.

They will say it's because they believed that printed money was the secret to effortless wealth. 

This mass stampede to insanity explains the frustration that the "smart money" has had shorting this market. Case in point, the most shorted stock in this entire cycle - Tesla - literally went off the charts parabolic. Putting an exclamation point on an entire era of insanity. As if to say that anyone who dares question simulated prosperity will be taken to the woodshed. Hence, the vast majority of formerly sane people merely capitulated to the super bubble. After all, 7.5 billion like-minded consumption zombies can't be wrong.

Good times.

Be that as it may, we've seen this movie before, albeit not on this scale. They called it "The Big Short" in 2008. A time when Wall Street played the trend of buying up subprime, until they realized that the meltdown was in progress, and then they flipped their position overnight. To the surprise and consternation of the "smart money" at that time, the premium on subprime packaged crap kept falling in lockstep with the imploding economy, because global central banks were lowering interest rates and bond yields were collapsing. Therefore, the global hunt for yield - also extant today - was putting a firm bid beneath all things crap. For a time. 

But then, the short-covering in crap ended. At which point there was NO BID for crap of any kind.

"Raymond James believes the market comeback in the last month has been a “liquidity rally” with investors hiding out in the biggest and most heavily traded stocks."

Investors “want as much liquidity as possible in case they change their mind” and have to sell because of the worsening coronavirus, the report said."

"Where should I hide?"
"Same place as last time"

Appetite For Self-Destruction

As always in bubbles, speculative appetite has accelerated towards the apex of the bubble. Like moths to a flame...

Picture a scenario in which the broader market peaked almost a year and a half ago. Last year's 2019 Fed capitulation rally was propelled to new highs solely by Tech and recession trades. Now, in 2020 over HALF of S&P gains year to date were driven by an even smaller cadre of just five Tech stocks. And since the beginning of February, those stocks went further parabolic due to RECORD call option speculation. 

Now you get a sense of what's coming...

At the height of the Y2K Tech bubble, just as now, many pundits said that value investing was dead. "Valuations don't matter" anymore. Adherence to that consensus view peaked and exploded at the same time as the bubble. Value investing indeed came back from 2000-2003 on a relative basis. However, the S&P 500 still lost -50%. In other words, when the most overvalued and overowned part of the indexed bubble explodes, it takes down the entire market. No rotation to underweighted left-for-dead cyclicals, can stop that from happening when overweighted growth stocks are collapsing.

Since the Trump Casino is closed today for Dictator's Day, I wanted to explain how the options market has taken over the casino. A massively leveraged casino within a massively overvalued casino. First a primer on the options market:

We all know that an option is merely a bet that a stock/index/ETF will rise or fall a certain amount in a given period of time. Most gamblers are familiar with what happens on the long side of the trade: You have a certain amount of time to be right or lose the entire premium/investment. Most have no idea what happens on the other side of the trade, which is why most options expire worthless. Especially short-term options. First off, there is no such thing as free money, so someone buying Tesla call options for example, is essentially renting capital. At an $800 share price, each contract (100 options) controls $80,000 of Tesla stock at the money, using a fraction of that amount of capital. The cost of capital is embedded in the option premium which factors in time to expiration aka. the rental period. Many gamblers have gravitated to the weekly options because they are the cheapest and hence most speculative. Essentially lottery tickets. What they don't understand is that the dynamics of the options market almost ensure they will lose money, especially on that short of timeframe in a crowded trade.

Why? Because as the trade becomes more crowded, the near the money call options skyrocket in cost (premium), forcing gamblers further out of the money to gain leverage. Meanwhile, the market makers on the other side of the trade are hedging their (short) Tesla option position by buying the underlying stock. So when there is a frenzy of out-of-the-money options buying, the stock is propelled upwards by the rented capital. However, as the stock price approaches the most heavily owned strike price, the hedging pressure reaches a plateau wherein the market makers are fully hedged 1:1. At which point momentum wanes and time decay takes over, as every elapsed minute means a lower probability of the stock closing above the most crowded strike price. Therefore market makers can start peeling off their hedge, putting downward pressure on the stock. This momentum reversal accelerates as the stock price leaves the strike price, as the probability of exercise becomes increasingly less likely. In other words, the feedback loop reverses.


Any questions?

All of which is why highs in the call/put ratio, precede large market moves lower. The massively leveraged momentum feedback reverses, and stock gets automatically dumped back on the market:

No surprise, gamblers have gravitated to the best performing stocks of the past year, to play this Corona melt-up.  In other words, they looked around to find the most overvalued and overbought stocks and drove them higher on record call volume.

What could go wrong?

Of the top fifteen, Tesla is #1 of course with an 829% surge in options volume and $80 billion daily average value. Followed by Amazon with a 60% surge and $60 billion in daily value. Apple volume up 111% and $24 billion in average daily value. The two Googles combined, up 150% in volume at ~$17b in value. And Microsoft seeing a 300% increase in option volume and $9.6b in value.

Add in AMD, Nvidia, Netflix, IBM, and Facebook to round out Tech dominance on that list. Meaning that the majority of the Nasdaq's daily active dollar volume is now record leveraged to the options market.

"single stock options volumes are now 91% of shares, a 14-year high"

Which means that as these lottery tickets expire, record amounts of parabolic stock will automatically be dumped back into the market.

Meanwhile, hedge funds, having underperformed for a decade straight, have learned that they need to aggressively overweight Tech. Which is why they are overloaded on MAGA Tech:

The article is subscriber only, but we can see what's in this ETF, here:

It's 52% dominated by the MAGA Tech sectors. It has to be in order to outperform the market year-to-date:

All of which is why the Tech sector is 20 year overbought (based on relative strength (RSI), top pane):

"Apple suppliers in Asia will be closely watched"

1930 Rally

This is the biggest market headfake since 1930. Which means it's 10x larger...

The first question archaeologists will have to answer about this era is, what is the point of freedom of speech if it culminates in non-stop lying? They will come to realize that freedom of speech is meaningless in the hands of a brainwashed Idiocracy living in the fetal position. All it means is freedom of disinformation. Everyone knows that the Russian and Chinese governments control the state media. Therefore everyone in those countries discounts what they say. However, most Americans are under the delusion that corporate media is telling a version of the truth. Their own politicized version of truth. Disinformation is like religion - everyone thinks they're right and everyone else is wrong. The combination of mandatory lying and naive gullibility is what has combined to create the greatest optimism of the entire cycle:

Social media weaponized lying against the populace, leading to this human history's biggest groupthink circle jerk. We learned all this during the election in 2016, but since Trump won, nothing has changed since that time. Quite the opposite, now all of Trump's lies have been weaponized on social media.

Per the theme of this post, current events are playing out very similar to 1929/1930. In late 1929, the market peaked and then crashed. The market stabilized in early 1930 and rallied in a three wave retracement that lasted five months. A global trade war broke out in the Spring of 1930, but still optimism remained high. At the end of April, the party ended, and the market tanked -90% in two years. Herbert Hoover was punted from office.

This time around, the Global Dow peaked in January 2018 two years ago. On a dollar basis only the U.S. has subsequently made new highs. Within the U.S. market, economic cyclicals (Banks, transports, small caps, retail, autos, industrials ex-defense) peaked in October 2018. U.S. GDP growth peaked in 3rd quarter 2018. Stock buybacks peaked in 4Q2018.


Dow Theory never confirmed this dumb money bubble:

In the meantime, global central banks squandered all of their dry powder creating the Trump super bubble. A bubble that has pushed U.S. momentum stocks to multi-decade high valuations. In the process they created an unsustainable valuation gap based solely upon momentum. They also inverted the relationship between global GDP and stock prices for the first time in world history:

https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/WEOWORLD

Regardless of the Tech bubble sugar high, what we are witnessing right now, is the second rollover of social mood from a lower high.

The 1930 analog to super crash.

In summary:

Central banks have created a sugar high super bubble in the context of a burgeoning global depression. Papered over with simulated prosperity aka. printed money. 

In the event, they have pumped up U.S. stock prices to cycle highs, while creating bubbles in global real estate, municipal bonds, corporate bonds, and global sovereign debt. 

Which means they have inflated liabilities in lockstep with assets. When the follow-on explosion takes place, only the asset values will fall. Liabilities will remain at their bubble levels. Fools who believed bigger fools will be trapped with non-amortizing debts, with no ability to sell the assets.

As we see from global GDP above, today's EconoDunces have not taken notice of the fact that Central banks have lost their control over the deflationary global economy, and now only have control over asset prices. Monetary policy has lost its economic efficacy at the zero bound. 

Which has created the lethally chasmic gap between fantasy and reality, as evident in the bond market versus stocks. As the economy deteriorates, low bond yields have pushed more and more money into stocks at the point at which corporate earnings are about to fall off a cliff. Nevertheless, well-conditioned gamblers are eager to front-run central banks into stocks. 

Throw in an existential election, and those who are party to this fraud must soon ask themselves what role in this epic con job did they play?

And when did they stop believing in the truth?