Biblical Meltdown: Base Case Scenario

Those who believe the selling is over, were not trading in 2008 nor Y2K. The real selling isn't over, it hasn't even started. Well-conditioned gamblers were buying the dip all week, at the advice of proven psychopaths. My bold prediction for the coming week is an epic meltdown in global financial markets.

Bulls are now trapped in no man's land praying for a central bank bailout. Sadly, central banks and other known psychopaths got them into the bubble, but they can't get them out of a bubble that is imploding in real-time. All talk to the contrary is purely self-motivated delusion by gamblers who know they are trapped. And whose efforts this past week to buy themselves out of a crash failed miserably. But not for lack of trying. 

All of which means that the Trump super bubble is running perilously low on dumbfuck capital. 

Zerohedge does a decent job of explaining the various factors that drove this epic Coronavirus melt-up and last week's ensuing mini-crash. But then they come to an asinine conclusion that the selloff may be over for now.

First, they lay out the manic reach for risk that culminated in February of all months. An entire month of rabid speculation while the Coronavirus raged in the background. As if anyone couldn't see that ending badly. 

Next, they show some charts indicating that the momentum machines have flipped from massively net long to now net short. Why that means that the selling is over, is not for me to say. Is that because these machines only fuel momentum on the upside? Hardly. I predict all of these machine driven momentum strategies will be totally outlawed in the very near future. "CTAs" and all of this other crap.

Then they explain that the Millenials who drove the melt-up via various message boards got pole axed in the past week. As their leveraged bets got margined out. Not hard to believe.

However, that's where I part ways with their conclusion that the selling is over. Because while the factors that drove the melt-up to unsustainable valuations are now gone, the Mom and Pop home gamers went ALL IN during the crash.

Why? Because they were told to.

By Trump, Kudlow, Suze Orman, Jim Cramer, and Barron's this week. And by their own personal financial investment advisors the ones that were used car salesmen before they found their true calling in life. 

But it gets far worse, because the market manipulation I described the week before the mini-crash whereby the weekly options are being used to drive the market higher, was confirmed by Bloomberg. In other words, the manipulation of weekly options allowed a virtual boiler room of Millennials to drive the largest Mega Cap Tech stocks to obscene valuations. A super bubble that remains intact, with no catalyst to drive it higher. And now come the Coronavirus-linked earnings downgrades in Microsoft and Apple. The two largest cap stocks on the planet. 

But what could go wrong?

"History hasn’t been kind to people claiming to have a magic hand. The latest sell-off, driven by a new wave of coronavirus fears, shows how quickly markets can turn on you. But even veteran traders have trouble dismissing a 900,000-user Reddit forum called r/wallstreetbets, or r/WSB for short, whose tips and tactics have shown an uncanny ability to push prices, at least for the short term."

“There is no denying the fact that in the month of February 2020, the public is back,”

Members of r/WSB believe they’ve discovered a kind of perpetual motion machine in the interplay of stocks with options contracts"

To summarize what I described over a week ago, these morons were renting insane amounts of cheap weekly capital to push Tesla, Amazon, Microsoft, Apple, and other momo stocks higher. Until they exploded.

"At least from the dealers”—the middlemen—“they’ll tell you in big tech names, flows are substantial, and it’s moving things,”


So now that momentum has reversed, these guys are out of the market, and the algos are pointing down now. Which gets us to everyone else in the market. The ones who were buying the dip all week:

“The S&P 500′s drop has improved the risk/reward ratio but we need to see panic readings before stepping up.”

But while the drop in stock prices and bond yields was sharp fast, there still aren’t many signs of outright capitulation in the market after last week’s sell-off, JPMorgan’s Nikolaos Panigirtzoglou said in a note."

Here we see Rydex bull / bear asset now versus prior selloffs.

One of these is not like the others:

Beyond home gamers, it gets far worse.

Amid crude oil annihilation, speculators RAISED their bets this past week:

They are raising their bets into a third wave down:

Amid RECORD low bond yields, somehow speculators remain bearish on Treasuries. This has to be the MAX pain trade of the past year:

S&P futures speculators RAISED their bets this past week:

The entire repo rally evaporated this week. Four and a half months of melt-up gains gone in five trading sessions:

And despite epic realized volatility, vol speculators remained net short this week:

But the most lethal advent of this past week is that the largest bubble never imploded.

As the crash ratio shows, investors migrated further towards the largest cap Tech stocks in the past week. Seeking safe haven in the most overbought and over-owned stocks that were artificially bid up by options speculators:

1. Tesla
2. Amazon
3. Apple
4. Google
5. Microsoft

So for all of the hopium talk about "deleveraging" there was only "BTFD" coupled with removal of the momentum strategies that bid up the bubble in the first place. The net effect of which was to leave Mom and Pop investors holding the bag. 

Back in 2015, the Shanghai Composite had a very similar melt-up in the face of worsening economic news, driven by the over-use of monetary stimulus coupled with rampant speculation. When that bubble burst, the PBOC stepped in to do everything possible to stop the crash. They banned short selling, then they shut down the market for days at a time. Finally, they banned institutions from selling. Nevertheless, the market still found its true price -60% lower.

I called it Shanghai Surprise. Which is what I expect to happen this coming week. 

Ironically, this headline which could be circa 2015, is circa 4 days ago. As we know, we live in a society that never learns:

"A surge in small-cap Chinese stocks, fueled by government stimulus measures to support the virus-hit economy, is triggering fears of a repeat of the boom that preceded the 2015 market crash."

“This is already a bubble. It’s a game of the greater fool”

“With all the millions and millions of Chinese on lock-down, more people have more time to dabble in the stock markets,”



These are the Chinese stocks that are cross-listed on U.S. markets. The largest of which of course is Alibaba. 

In summary, China Tech and the Nasdaq 100 are the last bubbles. Now inextricably tied via excessive speculation.

Feb. 3rd, 2020:

Last week was merely the preview:

I have said all along, there is only one safe place to hide right now.

And there is only one group of people who got it right this past week.

The same people who have been betting against Trump since his election:

The Reign Of Denial Is Crashing In Denial

Until global capitalism succeeds in creating global prosperity instead of generating global poverty, NOTHING will improve on this planet. Anyone attempting to cash in on this exploitation scheme is going to learn that lesson the hardest way possible. In an age of relentless poverty-fueled deflation, that's all 0% ever meant - zero sum con game. Make no mistake, we live in a Super Idiocracy that is massively leveraged to a known dumbfuck and serial bankruptcy expert.

Trump is going to take down the Republican party, which will forever be known as the party of greedy, arrogant idiots. Desecrators.

"Ninety-five percent of participants in a Deutsche Bank survey of investors, economists and other market participants released earlier this month said Trump, a Republican, was either “extremely likely” or “slightly likely” to win the general election."

If Bernie runs the table and suddenly he becomes unstoppable, I think we’re going to see the jitters again"

“I think most of my clients pretty much are like me, thinking Trump is going win,” 


Got that? 95% of today's pundits don't see this coming.

They're a groupthink Terminal Idiocracy trapped in a MAGA circle jerk. Which is why NONE of them can be trusted anymore.

In retrospect, economists will realize that the Coronavirus pushed the world into recession, but they didn't recognize it at the time. Why? Because they never realize it at the time. They have a perfect track record of epic failure to maintain.

One year ago, the Fed was "pivoting" from tightening to easing, the U.S. yield curve was inverting and the U.S. data was pointing to recession. Many pundits, myself included, said that recession was imminent. CFO confidence was at a decade low. In response, the Fed cut rates three times and the Trump administration "borrowed" a ludicrous 5% of GDP to give the illusion of expansion, which sucked so much liquidity out of bond markets that the Fed was forced to print money at a 5% annualized rate. The largest combined pro-cyclical stimulus in U.S. history without any comparison. Which of course created the largest super bubble in U.S. history. 

In other words, the U.S. is in a recession now, merely covered over with record borrowing, record printed money, and record speculation which exploded this past week.

Worse yet, global central banks ALREADY front-loaded stimulus ahead of the true recession. Which means they have NO dry powder left for an economic downturn. Contrary to popular belief, artificially bidding up stocks does not benefit the economy.

Central banks have lost control over the economy. Now, they only have control over mass delusion. And very soon they are going to lose that control as well. 

Which is why this is by far the most obvious global downturn in world history, and yet due to the chasmic divergence between fantasy and reality no one sees it coming. Least of all MAGA denialists who can't admit that their reign of denial is ending. Go figure.

Therefore as the collapsing data rolls in now, they are merely writing it all off as temporary due to Coronavirus.  

Here we see via Australia that fantasy finally rolled over this week in the direction of inconvenient reality.

The entire Energy sector is heading for collapse:

What we are about to see is global deflation on an epic scale.

Cash will be king. Meaning treasury bills and any instrument that still has a central bank bid to it are the only safe havens. Safe being a relative term. 

The price of EVERYTHING else is about to go down.

Some would say that central banks still have one more option, the nuclear MMT option of handing out free money to the general public. Universal income and so forth.

However, that is a political calculation that has many more months to come to fruition possibly in November. In the meantime, we can rest assured that the Trump administration will be slow to nuke credit markets. Because any spike in interest rates at these levels will cause financial armageddon.

There is no room for reflation now. 

Why?

Because as it was in 2008 on the verge of implosion, bond investors went ALL IN this week. Meaning they totally ignored cycle risk. At the point in the cycle when defaults are now increasing, they bought the riskiest bonds with both hands merely to keep their monthly income streams high at the end of the cycle.

Amid insane levels of global risk, the Fed's own "stress index" reached a record low this month due to the global hunt for yield. This is the analog moment during the subprime crisis when global investors were buying recession with both hands as central banks eased interest rates. Fully ignoring cycle risk.

Which gave EVERYONE a totally false sense of complacency. 

Just as it is right now.

I normally don't discuss gold because I consider it to be more of a religion than an asset class. And I assiduously avoid cults and sanctimonious hypocrites in general.

I believe that gold is a monumental fool's trap right now. Featuring record net speculative and an abiding belief that it's a safe haven at all times. I believe it's a safe haven from inflation, but not deflation.

Of course, for those who have long time horizons and don't care about short-term margin calls, then this won't be a problem. It's the leveraged speculators who are at risk of getting wiped out. Anecdotally, I've heard that this is the latest Millennial-crowded trade.

"Investors rushed to sell the precious metal to generate cash to cover losses in the stock market"

“Investors absolutely see gold as a safe-haven, but the yellow metal is now succumbing to deleveraging pressure...This is when investors sell profitable positions to raise cash during a market rout. Frequently the cash is used to cover margin calls in other markets.”

In other words, gold is now MASSIVELY leveraged to Tesla so position accordingly. I have no position currently.

As long as Tesla doesn't take out the 50 day, gold will be fine. Otherwise they will explode in tandem as RECORD Tesla margin calls trigger RECORD gold margin calls. 

In summary:

The events of this past week are eerily similar to 2015 China smash crash. 

Although this of course is China Super Crash. An order of magnitude larger in scale and impact.

The Central banks that inflated the Super Bubble have their work cut out for them now that it's in the process of Super Crashing.

Should they fail to forestall further downside momentum, China Super Smash Crash 2020 will be biblical in magnitude.

Because now there is truly ZERO HEDGE. 


Davos January 2020, the same week as Coronavirus pandemic: 

"More bailout please"

In Well Known Psychopaths We Trust

When today's zombies realize that there is no one in leadership they can trust, the underwear will be fully stained...

Rule #1: Never go full Idiocracy

When I first started investing, I subscribed to multiple different financial information sites. Over time, I dropped them one by one. Now, I have zero subscriptions. I came to realize that in a society run by and for salesmen, anyone who relies solely upon other peoples' opinions, instead of reality and facts, will eventually be imploded by conflict of interest.

Here we are.

In other words, it was never reality that was the problem, it was the hairless monkeys telling me to ignore reality who were the real problem. 

Looking around at today's asinine punditry, there is no mainstream or even non-mainstream source of information that adequately informs us on the current level of risk. They are too busy selling pablum to babies.

Which is why none of them adequately describe the themonuclear detonation in progress.

Ironically, this morning (Friday), the market found its low for the week off of a headline saying that the WHO just upgraded the Coronavirus to "very high risk". Which is deja vu of late January when the WHO first called it a pandemic - the market staged a short covering rally. Which fell apart one day later.

Of course, today was also the end of February which benefited from end-of-month window dressing, and then shorts covered ahead of Sunday on rumours that the Fed may coordinate a bailout. Many on Wall Street are now predicting meaning praying for a surprise rate cut.

Picture a Fed with record low dry powder saying they are cutting the Fed rate down to where market rates are already trading, in order to offset a global virus pandemic. And regardless, the yield curve remains inverted. Hanging hope on a rate cut bailout is like jumping out a 20 story building using a pillow to break your fall. The world's second largest economy is imploding in real-time, and gamblers STILL believe that free money is the solution to everything. 

All this week, home gamblers bought the fastest crash in U.S. history, while hedge funds monetized their hedges. Now, with the VIX at 40 it's too expensive to hedge, so the only option left is to sell to reduce risk. Which is why today's volume was 4x average. 

"Investors largely held their breath, hoping for the selling to exhaust itself. The lack of panic, in fact, may be a negative."

As the article states, home gamers didn't panic, however machines were selling like crazy. As always, this was viewed as a positive for the market. Stoned zombies watching their portfolios implode while machines lose control over the casino. This week, multiple brokers had outages (Schwab, Fidelity, Ameritrade), and on Thursday the entire Toronto Stock Exchange was offline. 

Imagine in the worst weekly selloff since 2008, and the entire stock exchange is offline. Merely a hint at what's coming. There is no place to hide in Trump Casino.

This week we saw record down volume in the Nasdaq sans panic and yet the machines almost lost it. Now picture down volume WITH panic.

Speaking of nowhere to hide, the "low volatility" index once again proved to the inverse of its marketing claim. These critical over-owned "safe havens" have no support in any direction now. 


Here we see VixPlosion 2.0 on the right shoulder, as promised:

Among the momentum growth stocks, here we see the Nasdaq (100) gapped down to the 50 dma backtested that level a few times and then gapped down to the 200 day which was backtested a few times today. 

These are the most overbought and overowned stocks in the market. MAGA (Microsoft, Apple, Google, and Amazon). Now at critical support.

 Both Microsoft and Apple warned on Coronavirus impacts to this quarter's profits.

Next stop smash crash:

The real carnage was in economic cyclicals which went bidless this week, led by energy stocks which are now down -35% from their recent highs.

Banks, transports, retail, industrials - the reflation trade is dead, as U.S. bond yields reached record low levels all week.

If the Fed cuts rates this coming week, these stocks will explode. If the Fed does nothing this coming week, these stocks will explode.

Any questions?

In summary, there is no place to hide in Trump Casino

After the close on Friday:

"In the latest reading, non-manufacturing PMI – a gauge of sentiment in the services and construction sectors – also dropped, to 29.6 from 54.1 in January. Analysts polled by Bloomberg had expected the February reading to come in at 50.5"