Meltdown In Progress

The last Trump Casino is going out of business, those who don't get out ahead of time, are not getting out. We have been warned. The machines can't handle what comes next...

What we are witnessing in real-time is a convergence of unprecedented risks coalescing into the mother of all financial meltdowns:

Yesterday the Dow gapped limit down at the U.S. open and then crashed the -7% circuit breaker down ~2,000 points within :5 minutes. The market closed down almost 8% for the day. Today, the market gapped up 1,000 points and then crashed down negative by European close (11:30am EDT), and then rallied back 1,000 points up on the day. Now, after hours, it's giving it all back. Who knows what happens tomorrow. 

Here is what we DO know. The Dow just traveled 6,000 bi-directional points in 24 hours. That's 25%. Yes, you read that right. The Dow traded a quarter of its value in two trading sessions.

There is NOTHING normal about that. Not only is realized volatility off the charts, but much of it is occurring off hours. Which is not captured in the conventional volatility metrics. Yesterday (Monday) the VIX options were delayed open because the CBOE couldn't find any market makers. 

When Apple and Microsoft, the two largest stocks finally lose their bid and break key support, there will be nothing left holding up the casino. That could happen any time. At that point volatility will explode and market makers will lose all control. We will see markets limit down across all asset classes. 

Market makers will ultimately be wiped out. I predict that at this rate of expanding volatility, within days there could be no buyers for ANYTHING risk related. Everyone will be hoarding cash or money market instruments. Anything that has to be sold will not find a buyer. That may sound extremely bearish, but that is my base case assumption.

Of course central banks will panic and when they do they will take back control of the Treasury market, however, that does not assume they can control every asset class on the planet using t-bond buying programs. 

Nor are they necessarily going to bail out market makers.

Global risk asset correlations will soon approach 100%. Which means the rolling selloff will go day and night. For days, maybe even weeks. Most traders will be locked out. Brokerage companies will collapse. This is not meant to be alarmist. Brokers keep client accounts separate from their own balance sheet meaning the broker can collapse and the client accounts are unaffected. But the liabilities that will arise from this "event" will be astronomical. 

Already we are seeing this via Robinhood, which has been offline for the largest trading days of the past two weeks. They are toast as an ongoing entity. They will be class actioned out of business.

They are the canary in the coalmine. Last week we also saw outages from Schwab, Fidelity, and Ameritrade.

Obviously the panic will be epic. Imagine being in stock holdings and unable to sell as the casino opens limit down and then goes offline for the remainder of the day. The way the circuit breakers work is that -7% triggers a :15 minute time out. -13% triggers another :15 minute time out. And -20% triggers a halt for the remainder of the day. It's not hard to imagine the stock market halted for the day by 10:15 am. Yesterday, the 7% circuit breaker was triggered for only the third time in U.S. market history.

ETFs will be the fatal weakness as they come totally unhinged from their underlying holdings. First we had the repo crisis which locked up overnight markets. Now the paralysis is spreading as reported by Zerohedge yesterday:

ZH: There Is No Liquidity

"The problem with passive investing is that while it propels market dutifully higher, when stocks crash, ETFs reverse, and a painful selling liquidation commences, one which takes a long time to stop, or as Bloomberg puts it, "when the market goes into freefall, they are required to sell the underlying asset, prompting a frantic search for anyone who will buy it."


On the other side of this gong show no one will trust ETFs ever again. They will be considered a failed way to invest. And a hazard to orderly markets. 

As I write this, I am watching the S&P futures moving lower tick by tick with the $USDJPY carry trade unwind.

As we see, they are one and the same now:

China Lehman

Deja vu of last week, this week's imaginary bailout spontaneously imploded, but then Biden hopium forced the shorts to cover. Big Donny's Twitter bullshit may have just sponsored the final short-covering rally before the shitting of bricks...

Picture a scenario in which quarantined global gamblers are sitting at home bidding up their own stocks while the entire global economy goes offline. Because THAT is where this is all heading. A society conditioned to believe that "stocks" are more important than the economy...

FULL CASINO

Entire countries are now being quarantined:

"ROME (Reuters) - Shops and restaurants closed, hundreds of flights were canceled and streets emptied across Italy on Tuesday, the first day of an unprecedented, nationwide lockdown imposed to slow Europe’s worst outbreak of coronavirus"

“It looks like an apocalypse has struck, there is no one around,” 



This Corona virus is now being used as an excuse to hide the imploding economy. Every negative data point is viewed as temporary. A buying opportunity. It's non-stop on CNBS. You have to get in BEFORE peak virus. Because otherwise when factory workers return to making goods for an imploded economy, it will be too late to buy. 

Meanwhile, unprecedented central bank liquidity is hiding insolvency. A tsunami of cheap capital with nowhere to go has hidden the fact that today's weak corporate dominoes are all Ponzi borrowers. Central banks have merely delayed the Minsky Moment and in doing so increased complacency and set up a larger explosion.

Goldman Sachs put out a note saying that (options) implied volatility is too high relative to the soon to revert level of Corona risk. Creating an opportunity to short more volatility via the options market. Of course, my prior post suggests the exact opposite. They go on to explain that global realized volatility is lower than 2008 and more inline with 2011. (Although they also admit that the futures market is pricing in an extended period of extreme volatility).

"Data on the impact of the coronavirus will be the key driver of normalization in the current environment"

Apart from global economic meltdown in broad daylight, here is what they are missing: Overnight volatility, which is not captured by standard intra-day volatility metrics. Every day, for the past two weeks, the market has opened down and then rallied in the U.S. compliments of BTFD.

Which is why I use the Average True Range:

"Wilder designed ATR with commodities and daily prices in mind. Commodities are frequently more volatile than stocks. They were are often subject to gaps and limit moves, which occur when a commodity opens up or down its maximum allowed move for the session. A volatility formula based only on the high-low range would fail to capture volatility from gap or limit moves. Wilder created Average True Range to capture this “missing” volatility."

Meanwhile, I've noticed that large cap volatility is really heating up lately. Which is a function of fewer and fewer stocks holding up the casino.

In the spirit of imaginary bailouts, this morning Trump spawned a 1,000 point Dow rally via bullshit on Twitter.

However, unlike last Tuesday when bears pounded the Fed rate cut into the dirt, this week, they are covering their shorts ahead of tonight's Super Tuesday 2.0. On the basis that another Joe Biden win could spark another massive rally. The fact that they covered shorts this week and not last week does not bode well for another short-covering rally tomorrow. Meaning we are likely already seeing the Biden bounce right now. Of course a Sanders win and we could be limit down again overnight. Either way, a whole lot of bullshit is "priced in".

The bottom line in all of this, is don't trust Goldman Sachs or any of the other financial sociopaths running amok. They are always wrong when it matters the most.

And, one should never ignore overnight risk. Now that China's gamblers are "going back to work".

2008 Deja Vu

What is taking place right now in real-time is deja vu of the late summer and early Fall of 2008. A multitude of headfake rallies in an oversold market that keeps going down "the slope of hope". To the inevitable realization that the party is over...

In between the moments of stark terror are all of the bullshit artists who have to say something to keep the sheeple in Trump Casino.

Bueller?

President Donald Trump floated on Monday the idea of “a payroll tax cut or relief” to offset the negative impact from the coronavirus...However, administration officials told CNBC that the White House is not close to rolling out specific proposals to deal with a coronavirus-induced economic slowdown.

“While we believe that a fiscal stimulus package will be produced, the timing and scope remain uncertain”


800 Dow points for imaginary bailout #2. As I said, Congress does not work at the speed of margin clerks. 

Back in 2008, markets were sliding down the slope of hope. There were myriad bailouts as the various dominoes collapsed. Each rally was shorter than the last. Until eventually, the market went vertical down after the TARP fiasco in October 2008. Of course back then the Fed had far more dry powder so each rate cut was attended by a short (covering) rally, rollover, and failure. Last week, the Fed's .5% emergency rate cut failed immediately, because the smart money now knows the Fed is out of conventional ammunition. It was essentially an admission that the economy is heading for recession. 

The downsides of having an idiot for president are about to be fully revealed to even the biggest dumbfucks among us. 

Which gets us to the long awaited return of Quantitative Easing. First off, the Fed has shown no indication of re-starting QE yet. They know it's their last option, so they are keeping it in reserve. Which is very ironic, because the ONLY reason investors are not panicking is because they expect QE, however the Fed is not delivering QE because investors are not panicking. This is the dilemma that attends front-running central banks. 

Unlike 2008, when investors eventually fled risky assets causing "yield spreads" to blowout, NOW investors keep buying risky assets giving the Fed the perception of low risk.

The Fed's own stress model is not a valid indicator of risk. It wasn't in 2007, and it's even less so today. The consequence of living in a low interest rate world whereby central banks force investors to seek risk.

The Fed is stuck in their own feedback loop of creating a false sense of low risk:

At this point, the term "safe haven" is the most bastardized term in the casino. Leading investors to make all sorts of foolish herd-like decisions.

The "safest stocks" are now the most over-valued, as it was in 2008.

The reach for yield today is far worse than it was in 2008. 

There is a belief today that every type of bond is equally safe. Because the cycle will never end meaning there is no default risk. Which is why the so-called "spread" products are catching a massive bid. They are now conveniently viewed to be equally safe as Treasuries. 

The high yield (junk bond) bubble officially imploded yesterday (not shown) during  OilMageddon. So now the investment grade bond market is the next bubble to explode. 

Which gets us to gold. I am short gold via put options, so take that into consideration.

Gold is a very crowded trade as gamblers have been front-running central banks for over a year straight. It's also now highly exposed to ancillary margin calls in over-leveraged brokerage accounts. 

And now we see that volatility is exploding deja vu of the top in 2011. The exits are closing:

My volatility positions have been doing very well of late.

However, I am surprised to see that even as of today, April volatility call options are still relatively cheap near the money.

Why?  

Because amazingly, the volatility short trade is still in place. The vast majority of gamblers believe this is all just Corona virus related. Having nothing to do with global implosion.

Second derivative volatility is very subdued indicating zero sign of panic:

The noose keeps getting tighter:

Which gets us to long-term Treasury bonds. 

The Fed has lost control over deflation which is why T-bond yields are collapsing. 

In 2008, MASSIVE panic doses of QE eventually reversed the deflationary death spiral in late 2008, at which point long-term Treasury bonds went from being a safe haven to being a death trap.

Overnight.

All of which means that short term t-bills and high quality money market funds are likely the only true safe havens. Safe being a relative term. Again, I am not an investment advisor and I don't trust people who are.

But, don't take my word for it:

What does all of this have to do with the economy?

Absolutely NOTHING. 

We now live in a world in which the top performing stock market are Chinese stocks. Why - because quarantined gamblers are stuck at home bidding up their own stocks while the economy collapses in real-time. There is now inverse correlation between the economy and global stocks.

What I see happening next is that gamblers continue bounding down the slope of hope for a few days or hours longer. At which point the frogs in boiling water realize they are totally fucked. 

At which point volatility explodes.

Make no mistake, we are getting closer by the hour:

When humpty dumpty explodes, central banks will panic, leading to a 1930 headfake asset rally lasting some weeks or months.

However, the real economy will go the other direction.

And then will come heli money. The last bailout.

This time for the middle class.

Gamble at your own risk.

Across The Board Denialation

The slow motion mega crash has given ample opportunities to wrap the noose tighter. And the sheeple have bought all of them with both hands. These people can't accept the fact that the cycle is over, so they just pretend it's not. They expect high ROI - Return On Imagination. Now featuring imaginary bailouts sold to them by their trusted psychopaths...

Overnight, the S&P futures reached (-5%) limit down early in the Asian session, and then remained limit down until the U.S. open. Oil futures were bludgeoned -30% overnight. When the U.S. casino opened, it took only five minutes to reach -7% which tripped the first circuit breaker, halting the market for :15 minutes. For all of the technical carnage done to every major index, the remainder of the day was very orderly.

Why? Because these well-trained chimps are STILL buying the dip.

The casino ended at the bear market level:

No sign of panic

Cyclicals have almost reached the 2018 low, however new 52 week lows (lower pane) are now higher.

Leveraged loans are bidless:

MAGA is over for banks

JP Morgan deja vu:

Volatility is exploding:

Casino liquidity has collapsed

"BTFD"

Blue Monday

Trump's criminal accomplices are telling tall tales of imminent bailouts to keep the sheeple from bolting out of Trump Casino. On the 11th anniversary of the 666 S&P low, the Anti-Christ in chief has a death grip on his useful carbon...

Trump's disastrous Energy policy has sparked a global oil war, which is arriving at a critical juncture with Big Oil already in a death spiral of lethal magnitude. Trump has done a fantastic job of imploding the fossil fuel sector.

Sadly, the latest experiment with an idiot as president, is ending the exact same way the last experiment ended. 

Trump's entire economic plan can be summed up as getting interest rates and oil prices to depression levels as fast as possible:

"I called up OPEC, I said you’ve got to bring them down. You’ve got to bring them down,” Trump told reporters"

The Energy sector death spiral accelerated in January with the boom in "ESG" socially responsible investing. And the simultaneous divestment movement kicked off by Blackrock, the world's largest asset manager. From that point forward, shale oil companies lost their source of funding.

The demand collapse arrived via Coronavirus and the hysteria that has spread like wildfire. Much faster than the virus itself. Airlines and cruise ship companies now bidless. Transports annihilated. 

The third death blow arrived over the weekend with the announcement by Saudi Arabia of an oil price war. 

One could not possibly imagine a combination of lethal events taking place in a mere two month timeframe. Not all of this was Trump's fault, just most of it. First off, the divestment movement was in direct response to Trump's abjectly irresponsible policy of environmental desecration on an epic scale. The divestment/ESG movement is a grassroots vote with your wallet movement that has left the Energy sector bidless. To a point at which the world's largest asset manager decided it was no longer worth the PR liability associated with the smallest S&P sector getting smaller by the day. 

Meanwhile, Trump's response to the Coronavirus was to call it a "Democrat hoax". And to otherwise go down the path of abject denial. A lack of response which has allowed the virus to proliferate unchecked. A slow motion trainwreck heading towards widespread pandemonium. 

Thirdly, the Saudi oil price war was in direct response to the uncontrolled Ponzi growth of shale oil: 

As gamblers learned last week, monetary policy is dead from an economic standpoint. The only thing the Fed can do now with its next rate cut, is to confirm recession. We've passed the point of diminished marginal returns from free money.

This chart shows why the Fed's rate cut last week blew up in their faces. It annihilated the reflation trade:

From an asset levitation standpoint, the Fed could use free money to buy the S&P futures, but that isn't going to help when every other global asset class is crashing and the economy itself is imploding. The next real step is MMT and that is a bridge too far from here politically, at the moment. Bulls are now hanging their imagined realities on fiscal policy which is nowhere to be found at the moment. Trump's tax cut was a repo market imploding disaster. Meanwhile, the wheels of Congress don't move fast enough to pass "shovel ready" projects between overnight limit down S&P futures sessions.

Nevertheless, belief in printed money dies hard. Charles Hugh Smith - Of Two Minds blog - believes the Fed still has the magical QE powers to bail out trapped gamblers, even while the world implodes in real-time. Then again, last month he categorically said the Fed CAN'T repair a collapsing bubble. Who to believe?

Sadly, the rules of Shanghai Surprise dictate that central banks cannot repair bubbles once they begin to collapse. As Japan and China found out. And as 3rd grade logic would dictate.

2020's largest balance sheet expansion last week preceded Blue Monday. The third worst market open in history. One can make the case that the Fed has lost control of the Casino:

Fed balance sheet, weekly $ change. 

The only "safety net" now, is an extremely important imaginary one. The one sold to morons to keep them in Trump Casino while it burns to the ground in real-time. Aided and abetted by Trump and his copious accomplices, cashing out as fast as possible.



"Whatever you do, don't panic"

Final Countdown

Super Clown is the Jim Jones of our time. He convinced millions if not billions of useful idiots to drink the Kool-Aid. The sum total of four decades of Banana Republican criminality - ignorant, arrogant, morally dead, intellectually void, determined to self-destruct. A biblical Anti-Christ with a purpose. The Trump carbon tax is due...

Donny's re-election Super Bubble is now of a magnitude large enough to explode his presidency. The entire Republican party. And all of his criminal accomplices who contributed to his 2020 Manhattan re-election project. 

Trinity is ready for detonation:

This is the largest Financial Weapon of Mass Destruction in human history without any comparison. It combines ALL of the features from the prior test implosions into one massive Super Bomb.

It embeds a Y2K Tech bubble featuring four MAGA stocks accounting for unprecedented percent of market performance.

It has a record corporate credit bubble now being imploded in real-time by Corona hysteria. Panicked shoppers emptying out Costco over a virus weaker than the common flu.

A pandemic of morons.

The unforeseen side effect of a useful corporate Idiocracy subject to mass panic and stampede.

It has a Chinese economic meltdown deja vu of 2015

Trump's Idiocracy is celebrating the monetization of poverty

It has an embedded index super bubble, featuring an ever-growing universe of ETFs. Which flash crashed in 2010 and again in 2015. Five years later the number of ETFs has grown even larger to a point that Michael Burry of "The Big Short" fame warned that it is set to explode.

It's the new subprime:

https://www.statista.com/statistics/278249/global-number-of-etfs/

It embeds an obligatory oil/commodity implosion deja vu of 2016:

Now, over the weekend a new oil war has broken out between Saudi Arabia and Russia with the real intended target the U.S. shale sector.

And yet crude oil speculators ended the week STILL net bullish:

Of course it was Trump's tax cut and mega deficit that created the Repo crisis late last summer when the debt ceiling was lifted. Record treasury issuance imploded the repo market:

August 2019:

The repo liquidity crisis has only worsened in the meantime. 

March 3rd, 2020:
Fed Sees Huge Demand for Repos; Tuesday Operations Total $120 Billion

"Big banks’ demand for temporary liquidity exceeds limit"

Remember when Republicans held Obama's budget hostage back in 2011 because they were pretending to care about the deficit? In the event, they forced a U.S. debt downgrade for the first time in history. They only backed off when the S&P collapsed -20%.

Well, this is payback:

And of course it has a volatility trigger deja vu of 2018 which STILL hasn't been triggered.

YET.

It has all of the features one would want to see in a Financial Super Bomb, all rolled into one.

This one even has some features that we've NEVER seen before. Some things only Jim Jones could accomplish.

First off, it has mass complacency on an epic scale.

Secondly, and even more amazing given the amount of rampant complacency, it has NO stimulus safety net for the first time in U.S. history.

Donny has somehow convinced the masses to sky-dive without a parachute.

The same way Jim Jones convinced hundreds to drink the Kool-Aid. Trump has pulled off the same feat.

On a biblical scale.

Of course he had ample assistance from the same accomplices as last times.