Staring Into The Abyss

This will be known as the week that global central banks went ALL IN to rescue gamblers trapped in Trump Casino. Which happens to correspond with the week that Trump Casino gave up all of its gains since the 2016 election. What's at stake now are all of the gains since 2009. Somehow, the MAGA circle jerk survived the collapse of the moron bubble.

Which means that the next "test" will be faith in proven psychopaths who are right now panic lying. Don't expect it to be successful. No other society in U.S. history would be dumb enough to believe that printed money could offset shutting down the entire economy. This is a biblical IQ test with an epic fail...

With this post I am going to try something I haven't tried in the past ten years - being mildly optimistic. Once upon a time I was always optimistic with respect to the markets. However, after getting bilked a few dozen times by Wall Street sociopaths, I finally learned my lesson.

At this all important precipice, bulls see a double bottom forming, while bears see a last line of support prior to the abyss. Not everyone can be right. In the coming week we will  likely have either a headfake 1930s vertical rally, or a super explosion lower. In this post I will assess each possibility...

To those who desperately believe in central bank bailouts, this week gave them everything they wanted - unlimited amounts of imaginary reflation:

“The speed and aggression with which authorities are wheeling out measures to cushion the economic fallout from the virus and sowing the seeds for a hopefully rapid recovery, has resonated somewhat in equity markets,”


ZH: The Fed Balance Sheet Exploded to Record Highs This Week

"The Fed just injected in one week almost the entire amount of liquidity it did in all of QE2 and it is barely enough to keep stocks from plunging"


On the other hand, the economic data that comes out over the coming weeks will be hellacious:

"Upcoming weekly jobless claims will shatter the standards set even during the worst points of the financial crisis and the early-1980s recession, with Bank of America forecasting a total of 3 million when the number is released Thursday"

The worst month for job losses during the financial crisis was 800,00 in March 2009"

“We never imagined we’d write anything like this,” Sheperdson said in a note. “The shock will be so great that it will leave policymakers with no choice but to pass much more stimulus than is currently under discussion.”

One upside to the coronavirus scenario is that most economists still expect the downturn to be brief compared to other recessions, with the worst news front-loaded."


In other words, we are to believe that the worst jobs data since the Great Depression will lead to a mild recession in an economy that was heading towards recession BEFORE the virus struck.

Nevertheless, the 1930 headfake bounce also took place under the backdrop of similarly worsening economic data. So we can see why one could manifest now.

What this will come down to is a battle between central bank liquidity and imploding market technicals, while the fundamentals of the virus and the economy deteriorate in the background. Which means that in the coming week, the casino will either explode up, or explode down.


Which gets us to the casino technicals. Notwithstanding massive intervention, my opinion of the markets is very similar to last weekend:


The Minsky Moment (Sunday, March 15th, 2020)

"By not allowing capitulation, central banks have allowed this stair-step lower to continue. They have funded the BTFD mentality all the way down. They have given it false hope. Today's "capitalists" no longer believe in markets, they only believe in non-stop bailouts. 

Worse yet, the Fed's market manipulation efforts via the S&P futures have continued to see more money rotate to mega cap Tech stocks and out of the rest of the market. While the average stock gets massacred, the largest stocks keep receiving an artificial bid due to index alchemy pushing more and more inflows to the largest cap stocks"


The crash ratio continued to deteriorate this week, to levels far worse than 2009 as the reflation trade (banks, transports, autos, homebuilders, retail, industrials) went entirely bidless.

Which means that the Tech bubble grew larger this week:

"MOST of the selling continues to occur overnight, leaving U.S. gamblers buying the dip lower and lower while algos sell the futures limit down in the off hours.

Pundits who keep recommending buying the dip have now trapped gamblers in a non-functioning and wholly illiquid market. Which has become less liquid and more volatile with each stair step lower. All on the premise that central banks are coming to the rescue. The perceived safe havens are now the least safe stocks"


Here we see the "low vol" stocks broke the critical support line that held in February and December 2018:

Compliments of exceptional bullshit, the dumb money bubble remains intact, as there is no sign of panic among the general public. They have been told to look across the valley of great depression and ignore the -80% drawdown along the way. And the decades it will take to repair the damage. In 1929 it took 25 years to regain the all time high.

When the smart money is getting out, there is something very useful about a useful Idiocracy:

The global margin call accelerated this week as the dollar liquidity shortage became acute.

The past three weeks are circled in red:

The impending stimulus checks are a drop in the ocean compared to shutting down the global economy, something that never happened in 2008

Central banks have lost all control over deflation. The divergence between fantasy and reality is breaking hard down in the direction of reality:

Considering all of the above information, one must conclude that the impending explosion will be lower.

When liquidity collapses to zero and the casino is closed until further notice, the shit will hit the fan, literally.

You know you're an optimist when you take this home for the weekend:

"A worldwide credit crunch triggered by the coronavirus will set in motion a wave of corporate bankruptcies that will make the global financial crisis look like “child’s play”, investors have warned."

“$2tn worth of corporate debt is due to be rolled over this year but the market has completely frozen. The market is essentially closed. It’s a disaster.”

The End Of Disney World As We Know It

This isn't the end of human life, this is the beginning. However, it IS the end of corporate Disney World. Sadly, the government can't "bail out" an entire decade of rampant criminality. What we are witnessing is ten years of hubristic alchemy unwinding in one cataclysmic moment...

For a decade straight central banks have been bailing out egregious stupidity. To the point where today's moron class started to believe that being ignorant was a virtue. Enter Trump, saviour to the useful Idiocracy. For the past year all manner of people have been saying that they could never vote for Bernie Sanders because he is a "socialist". I said all along, these central bank invented capitalists would abandon their  pretend ideology at the drop of a hat when their portfolios got monkey hammered. And here we are with an entire generation of former capitalists now turned instant beggars. Desperate to be rescued from their bad investments. These people make real socialists look like free enterprise advocates by comparison. Pathetic. 

Sadly, central banks are now out of ammo. In the past 48 hours, the ECB brought their biggest bazooka of the decade, and the Fed injected an entire month worth of liquidity. The S&P was up 11 points on Thursday. An unfortunate reversal of fortune that has left today's moron class trapped inside their imploding moron bubble. Circle jerking each other all the way down to total obliteration. Seeking and finding solace from like-minded sociopaths. Those who are in a "balanced" portfolio of stocks and bonds are now getting monkey hammered on both sides.

This just in:

NYT: Super Dunce Is Now Suppressing Jobless Claims

"Job losses have become so sensitive that the Trump administration is asking state labor officials to delay releasing the precise number of unemployment claims."

 "Many states reported that their employment websites crashed due to a surge in traffic, suggesting demand for unemployment benefits is even higher than the reported figures."

This nascent reset will usher in an entirely new way of life, called life. A world in which the object of living does not revolve around competitive consumption and entertainment spectacle.

To be sure, for today's consumption addicts, cold turkey will be difficult. And for today's bailout addicts, mark-to-reality markets will be extremely painful. Central banks are slowly learning that they can't bailout everyone at the same time, much less with the economy under quarantine. Excess liquidity can't augment non-existent economic activity. The dollar is screaming higher due to human history's largest margin call. In the process, sucking liquidity out of every other asset class.

The real issue that no one wants to discuss is rampant extreme deflation, now consuming every asset class. Cash is king in a world full of bloated bubbles. We live in a world having a glut of everything except toilet paper and hand sanitizer. All of that junk is about to come onto the world market in human history's largest yard sale. True unmitigated deflation has only just started. And policy-makers have no way to stop it from expanding. The quarantine of course has only made it 10x worse. There is no point in giving people $1,000 and then telling them they can't go out to spend it. There is no way it can reach the real economy.

Meanwhile, social mood is turning down hard against corporate bailouts for today's stock buyback addicts. One pundit after another decries giving bailouts to today's c-suite buyback junkies. However, given the exigencies of this credit collapse, these newfound patriots need not worry, because ratings agencies will ensure that ALL stock buybacks are now curtailed.

Which will remove all remaining liquidity from Trump Casino:

"The US stock market could be losing one of its most solid sources of support, as big banks lead a wave of companies putting share buybacks on hold."

Some analysts worry that by putting programmes on hold, companies are removing a pillar that the stock market has come to depend on"

“This removes the support we’ve become addicted to,”

Next, we are going to start hearing about those countries that can no longer meet their debt commitments as they attempt to massively increase fiscal stimulus spending in the middle of a credit crisis.

Overnight, the ECB unleashed their own bazooka after Christine Lagarde disappointed bailout whores this time last week. Which has put ANOTHER fake bid under the casino.

You know you're an optimist when:

The last line of support has been getting pounded day and night for a full week now:

The way I view this global economic quarantine is like a 747 turning off its engines in mid-air to perform emergency maintenance, all while praying they can be re-started prior to the crash.

It won't work.

If you look closely enough, you can see central bankers flapping their arms in the wind:

The Super Moron Bubble Is Over

The Dow gave back ALL of the MAGA era gains today. The Trump Super Moron bubble has officially exploded...

We know it was named accurately, because those who populate the bubble have no clue that it's over. Still buying the incipient depression with both hands.

In my fifty two year lifetime we've never seen a global simultaneous quarantine. The quality of information is so low right now that we can't tell if this is a viral pandemic, a social media pandemonium, or some combination of both.

Last Friday, Trump's pet monkey, Steve Mnuchin advised BTFD in conjunction with the stimulus package du jour. On Monday this week he declared he does not see a recession on the horizon. Last night (Tuesday), he monkey hammered the overnight futures when he said that we are headed for greater depression:

Is this non-stop lying leadership? Of course not, it's the exact opposite, it's dealership. The conning of the masses to achieve one's own political and economic benefit. Which is why Trump's base love him so much, he exhibits their exact same non-existent values.

Unfortunately, this time they bought their own lies, and it will be the hardest landing one could possibly imagine. Biblical in magnitude and impact. Having their own Kool-Aid dispensing sociopath in the White House is the last nail in their coffin. 

There is NO STIMULUS package that will offset shutting down the entire economy. The government can't bail out everyone at the same time. This is the ultimate reset which will force this zombified corporate Idiocracy to give up their consumption addictions once and for all. 

Cold turkey.

The good news is that the sun is still shining and the birds are still chirping. Meanwhile the carbon level has collapsed like a cheap tent. This virus is like ten Paris conferences on climate change coming to realization at the same time. Compliments of a denialist society caught with their pants around their ankles by mother nature herself. This global pandemic response is human history's biggest clusterfuck. How much of this knee-jerk reaction is merely to protect poll ratings ahead of the next election? Each politician not wanting to be seen as under-reacting to the old age home's existential fear of everything.

Getting back to the casino, this is officially the most vicious market crash in history, however, we haven't seen anything yet. The true elevator ride lower has yet to begin. These daily bailouts have merely forestalled the inevitable. Leading to a false sense of confidence among today's profoundly euthanized masses.

"The S&P 500 recorded its quickest bear market ever, falling 20% from its peak in just 15 trading days. That's twice as fast as the next quickest meltdown. That was in 1929, and it took 30 trading days."

In other words, this meltdown is twice as bad as the prior worst meltdown in history. And yet, the market remains in an overbought condition due to the BTFD mentality. There is STILL no sign of human panic:

Does this look like panic?

Stoned gamblers have been assured they can ride out greater depression.

Here we see the stair step lower towards the looming abyss. Every time the market bounces, we end up limit down overnight. 

This is where it gets interesting:

Despite record volatility and the fastest bear market in history, the market is two week overbought:

Why? Because of bailout BTFD:

We are seeing record volatility across every asset class at the same time. 

The Fed STILL hasn't cornered the t-bond market which is causing dislocations across the entire bond market, as the "risk free rate" gyrates out of control. They will will have to increase their bond purchases by an order of magnitude.

The corporate bond market is bidless:

They keep talking about shutting down the casino, but so far, they haven't pulled the trigger. The Dow's close on Monday tagged the second circuit breaker level (-13%) at the close. Once the third circuit breaker is reached -20%, shutdown will be automatic.

When that happens it will be too late to panic. Global financial meltdown will be de facto. And there will be no way out of Trump Casino.

FOMC: Fear Of Missing Crash

What today's Ponzi capitalists demand is a total lack of regulation when times are good and government bailouts when times are bad. Today's corporate mad men are nothing more than inter-generational thieves granted open access to the Federal Treasury by their Criminal-in-Chief...

The poster child for bailout corporate criminality of course is Boeing. This is the company that co-opted the FAA to get the 737-Max fast track approved and in doing so by-passed standard design principles to save money. Culminating in an airplane "designed by clowns who are supervised by monkeys", according to Boeing's own engineers. In the meantime, management was sucking the company coffers dry to pay for stock buybacks to finance insider cash outs. Now their balance sheet is impaired and their order book has collapsed, so they are demanding a government bailout.

Of course Boeing is just one of hundreds of large companies that have impaired their own balance sheets due to insider cash outs. Multitudes of which are now demanding public bailouts.

Trump of course, is no stranger to rapacious criminality and massive bailouts, therefore he has already promised bailouts far and wide - including cruise ships and casinos. Because we all know that these are vital economic industries.

There is no real risk to the economy that would arise from bankruptcy re-organization for these over-leveraged industries. In fact these companies would benefit from a recapitalization. As long as they are cash flow positive, they will be re-financed with new capital. However, the current shareholders and the current debtholders would be wiped out.

Life goes on. THAT is capitalism.

What this Coronavirus points to and the pandemonium response of shutting down the economy, is a society that can no longer handle even the slightest discomfort in any direction. A society of candy asses hiding from the truth and demanding bailouts from their own stupidity. Two days ago, the CDC recommended no gatherings of greater than 50 people. Yesterday, Trump said no gatherings of more than 10 people. That's a small Mormon family. We now live in a totalitarian state, wherein the government controls where we go, what we do, and who we see. 

Yesterday, Mitt Romneybot was speaking in favour of heli money. Today it was Trump and Mnuchin. The Federal government balance sheet will now be officially destroyed. 

Welcome to Japanification on steroids:

Below we see the roadmap for inflation/deflation. Notwithstanding imminent heli money, as long as people are quarantined to their homes, this money will not find its way into the overall economy. Sure, grocery stores and pharmacies will do just fine. Amazon will mint coin. But the local bars and restaurants will see none of this money until the quarantine is lifted. Which means that the most vital sector of the entire economy - small business is now sans bailout. One must take that fact into account when predicting the timeline for "reflation". It is not imminent. 

Trump is now predicting this will last until August. 

Most small businesses won't survive this asinine self-imposed depression. It's only because Trump and company lie constantly about the state of the economy and Faux News propagates these lies does the average idiot accept this mass quarantine. They all believe this economic downturn is temporary.

If they had any clue that they will emerge from this politburo-ordered vacation totally bankrupt, I highly doubt they would be as sanguine about hiding from an illness that for most people will amount to nothing more than the flu. And which most of us are going to get anyways. 

Nevertheless, this biblical carbon collapse was all the inevitable fate awaiting a society commandeered by idiots who believe that Trump is their saviour. 

Getting back to the casino. My prediction of an algo bounce at the key support level was not disappointed.

Here we see the last few weeks in a nutshell. One week ago was the Biden bounce on Super Tuesday 2.0. The noose has tightened every day since: 

Here is some of the carnage that has been wrought at the individual stock level:

Tomorrow of course is the FOMC meeting, however they already shot their wad. So how that meeting can lead to anything more than human history's most massively coordinated sell order, is beyond me.

Black Monday

In a bid to keep the last Trump Casino from final imploding, the Fed just went ALL IN final implosion...

Last Thursday:

Two trading days later, today (Monday), is the new worst day in three decades -12% on the Dow:

We must never underestimate how crazy things can become in this insane asylum.

The Fed couldn't wait until Wednesday to squander what was left of their dry powder yet again attempting to rescue trapped gamblers from the towering inferno of Trump Casino. When the futures opened on Sunday night just minutes after the Fed announced they were slashing interest rates and re-starting QE, they were limit down in :5 minutes. I have to believe it was the fastest -5% decline in history. Clear indication that the smart money no longer trusts the Keystone Kops in leadership. I am referring to computer algos, not the artificial intelligence of the human kind. 

At the Monday open, there was no open. The casino tripped the -7% circuit breaker before the start of trading. The net result was a 9:45 am open with the casino trading -9% from the start. Similar to every other bailout rally of the past two weeks, gamblers did everything possible to stage a rally off the lows during the middle of the day. And then it all fell apart at the end of the day. Nevertheless, once again the daily bailout had the effect of sponsoring still more BTFD complacency at a new lower level.

Kudlow and Mnuchin keep insisting this is not a recession. They are right, this is now a depression. A total collapse in GDP. Goldman Sachs sees -5% in the second quarter (April - June). I suggest that is highly optimistic.

As the deflationary forces grow ever-stronger, the Trump Administration falls further behind the curve. Their policy ideas now no more than sound-bite gimmicks. The sad fact is that the government is out of dumb ideas. Both fiscal and monetary stimulus are entirely depleted. There is no conventional mechanism for fiscal policy to reach the middle class. 

The only next step is to nuke the credit markets with MMT for the masses, which I have said they would be loathe to take. And yet once again I underestimated how ideologically flexible today's capitalists have become. Remember when Ocasio-Cortez suggested MMT for the masses and was roundly derided as a Communist? Well, that's because she is a Democrat. Now that Republicans are in dire fear of losing the election, it's their idea now:

"Cash handouts to all American households are gaining support in Congress as the best way to shore up an economy brought to a near-standstill by the coronavirus.

Republican Senator Mitt Romney gave his backing to the idea on Monday, proposing to immediately send $1,000 checks to every adult American, and Republican Senator Tom Cotton also said he is working on legislation that would provide cash stipends. 

Among economists, the idea of across-the-board cash handouts as a response to the epidemic has been rapidly gaining support"


Once again, we see that for Banana Republicans, ideology is no match for existential elections.

Switching topics from printing money back to the collapsed economy, what this Coronavirus has achieved is the final and total Amazonification of the economy. Stoned gamblers sitting at home day trading stocks, receiving printed money by PayPal, and ordering everything online, while the real economy final implodes.

The retail sector was already on its last legs BEFORE this virus, now it has received its final death blow.

Getting back to Trump Casino:

Today's close brought the S&P 500 down to just above the critical 2018 low which was never successfully re-tested. Algos will attempt to support this level by every momentum device possible. Which means it could hold up for a few hours or maybe even a close. However, beneath this key level it's clear blue sky down to the pavement below. Bear in mind the Dow and small caps are already through this level - as are Financials, Transports, Retail, Autos aka. the economy. So it's only Tech holding back now.

Speaking of overbought Tech, volatility has now reached lethally explosive levels.

Whereas I've previously shown VVIX (Second derivative volatility) has been lagging due to the lack of panic, today, it rocketed to a new all time high going back prior to 2008.

Options implied volatility is now hypersensitive to changes in the S&P 500:

Here we see that "BTFD" is still the order of the day, despite the fact that the Fed is entirely out of ammo.

Belief in imaginary bailouts is the order of the day:

We may back-test this key support line, and then you know what...

Trump has now joined the pantheon of highly esteemed crash test dummies:

  


"We have one more chance to prove we can lead"