Sunday, July 12, 2020

Here Comes Extreme Deflation

Global central banks have now squandered their ammo creating a global asset bubble in the midst of economic depression. Global GDP is now inversely correlated to asset prices for the first time in human history. As long as Go Daddy doesn't roll over, this will all be fine...

Global Japanification is now complete: The total reliance upon ever-greater stimulus to give the illusion of a functioning economy. There has been zero inflation in Japan for thirty years straight. Today's global policy-makers are going to have similar difficulty keeping prices from collapsing. 

Good news right? Lower prices for everything. Not when the global debts are tied to today's price levels. In that situation, real liabilities rise. Already, real interest rates are rising despite global interest rates at the lowest level in centuries. Prices can and will go negative, however, negative interest rates don't work in the real world.

This is all setting up the ultimate liquidity trap. Borrowers unwilling to borrow in an extreme deflationary environment. Purchases delayed indefinitely on the expectation of lower prices. We face a global glut of everything. 

Universal basic income which is most likely inevitable, probably won't generate the widely expected inflation either. Why? Because, the universal income would need to exceed today's full employment income in order to create the necessary supply/demand imbalance, and yet that would be a major political hurdle. If the universal income is set at the current median household level ($50k/year), and if unemployment begins rising for high income households, then average incomes and aggregate demand will fall. In the U.S. average income is skewed massively towards the 1%. 

But, won't all that extra printed money remain IN the economy? The money will flow back to the banks in the form of deposits. If the banks can't/won't lend, then the money will go nowhere. The velocity of money will collapse. Again, classic liquidity trap.

All of today's technology and all of this "free" automation has created the lowest capacity utilization in U.S. history. Meaning the highest true unemployment. Whereas the official unemployment rate takes discouraged workers out of the ratio, the capacity utilization indicator doesn't lie:

Today's economists only focus on the quantity of jobs. Over the past several decades, the quality of jobs has collapsed with respect to real wages, benefits, and full time employment. On the basis of the quality of jobs, this post-2008 stimulus sham has been the worst economy since the Great Depression. It took only six weeks under COVID to obliterate an entire DECADE worth of junk jobs. 

“The problem is that quality of the stock of jobs on offer has been deteriorating for the last 30 years,”

 The “whole story” told by the index, he adds, is “the devaluation of American labor.”

Also, in this cycle, reflation peaked at the beginning of the cycle, which is contrary to every other economic cycle since WWII. Typically, reflation peaks at the end of the cycle.

I think we all see where I'm going with this, below. Today's "reflation" is a figment of the imagination. The only reflation is in global asset prices. The only control central banks can now exert is on gambler delusion. Which right now is at a record high relative to reality.

Ironically, as I write this, Tesla just took down the price of their latest car model due to falling demand. In other words, the stock price is going vertical while sales volumes and prices are falling.

As I said, central banks now only have control over misallocation of capital. 

The entire alternative energy sector is on fire currently, as it was at the last top in February. Two delusions for the price of everything:

There has been much discussion recently on this misallocation of capital and what it portends for the future:

"In recent months, the stock market has seen a boom in retail trading. Online brokerages have reported a record number of new accounts and a big uptick in trading activity. People are bored at home, sports betting and casinos are largely off the table, and many look at that $1,200 stimulus check they got earlier this year as free money. Some are taking cues from mainstream sources like the Wall Street Journal and CNBC, others are looking at Reddit and Barstool Sports’ Dave Portnoy for ideas (and entertainment). And commission-free trading on gamified apps makes investing easy and appealing, even addicting."

 A big draw appears to be options trading, which gives traders the right to buy or sell shares of something in a certain period"

“There’s a lot of risk involved, and you can definitely see why people get into the gambling side of things. It’s definitely the rush”

ALL of the MAGA (Microsoft, Amazon, Google, Apple) stocks made new highs this past week. As Barron's points out, due to dumb money indexing, all passive investors are Tech investors now:

"Like it or not, we’re all tech investors now"

The first MAGA crash was -20%, and the second was -35%. I will put this one at -50+%

Switching gears for a moment, today Florida had as many new COVID cases as all of Europe. The death rate typically lags new cases by two weeks. 

In summary, post-COVID crash, central banks have made the dumb money bubble much bigger and much more fragile.  Although they couldn't have done it alone. They had ample help from stay at home gamblers using options to manipulate stock prices. Or have we already forgotten about that trick also evident in late February. 

"Strategists have been cautioning on tight liquidity and fragility for some time, citing everything from the growth of passive investing to high-frequency trading as factors that could exacerbate market stress, particularly when volatility spikes.

Market depth for E-mini S&P 500 futures remains about 60% below levels seen before the March correction"

Saturday, July 11, 2020

BEWARE Competitive Self-Destruction

Given a tree, a horse, and enough rope, today's sheeple know what to do, without assistance from anyone...

My blogging has become far less frequent as I have come to realize that the sheeple don't want facts, they seek opinions. More specifically, they want opinions that override facts. I have neither the will nor ability to compete for mind share on that basis.

"Go placidly amid the noise and the haste, and remember what peace there may be in silence...whether or not it is clear to you, no doubt the universe is unfolding as it should"
- Desiderata

The alt-right today blames the Deep State for imploding Trumptopia. Trump's latest reality game show was going so well, before it got hijacked by D.C. bureaucrats. Sadly, history will not agree with that asinine version of events. This latest incarnation of MAGA - not to be confused with Reagan's MAGA, or Bush Jr's - was merely the last arrogant fantasy.

Fortunately for the GOP, the Democrats are working harder than ever to get Trump re-elected. If they could only shut down CNN and MSNBC for four months, the Dems would have a cakewalk. These toxic culture wars are turning this election into a real contest. This amount of forced change is suicidal ahead of an election. In 1968, the riots and protests got Nixon elected. The same will happen today, if this keeps up. 

Moving past these two incompetent political parties, neither the culture-warrior left nor the Idiocratic right determines elections. The center does, at the last minute. Which means that social mood is large and in charge. Which way will the wind blow ahead of the election? Who knows. It will come down to a combination of the imploding economy, the exploding stock market, and of course the current level of rioting and looting. The more the better as far as Trump is concerned.

All of which means that today's much beloved opinions are worthless crap. Both Maddow and Hannity are preaching to their converted. Everyone else is avoiding those two rivers of continuous bullshit like the plague. When you have million dollar media pundits explaining away reality to their devoted fan base, you get the sort of fantastical divergences in opinion we are seeing now.

Most people don't give a damn about freedom. They want to be told how to live their lives, or better yet just copy other idiots. Given more range of choice and most people will make bad decisions - particularly around their health and wealth.

Globalization is disintegrating in real-time, and yet thanks to record monetary euthanasia, the masses haven't take notice. At any other time in history, the current set of headlines would strike profound fear in the hearts of sheeple. Today's masses are are too stoned on monetary euthanasia to notice. 

History will say that the Coronavirus pole axed an aging corporate society which was boxed in by a lifetime of bad choices. Climate change was not fixed by flaccid climate conferences, it was fixed by too many Big Macs. Mother Nature pulled a punch and the corporate Idiocracy blinked. Today's youth have decided that 2020 will not be the year of celibacy and so they are refusing to flatten the curve while the beaches beckon. Mother Nature wins again. 

According to the law of unintended consequences and arrogant bullshit, given enough opportunity and Trump's entire corrupt platform will explode spectacularly with no help from anyone else. His de-regulation of the Energy industry has now officially bankrupted Big Oil. Long before Coronavirus, U.S. over-production had removed any and all pricing power from the oil market. Turning it into a global land grab for market share. Now of course, all of these insolvent companies must continue over-producing merely to stay alive a few weeks longer. The fact that collapsed oil prices have not led to a commensurate decline in supply is a "feature" that most of today's EconoDunces have not factored into their coconuts and bananas textbook models. When one company continues over-producing to stave off bankruptcy, the strategy can work, when they all continue over-producing, they all implode. 

Got irony?

However it's financial de-regulation that will be the end of this corrupt Idiocracy. For those who are just joining us, we have seen this same cycle repeat over and over again these past few decades - each time with more fraud and corruption. And yet each time with fewer consequences for those responsible for managing the pump and dump.

History will say that MAGA was the endgame for widely embraced corruption.

"Sheila Bair, who served as chairman of the Federal Deposit Insurance Corporation during the financial crisis, told CNBC that she believes the changes are “ill-advised” because “that $40 billion that will no longer be in banks to protect them” will expose the government to more risk."

Friday, July 10, 2020

Waiting For Disney World To Explode. Again.

What comes next won't be so much a crash as a global explosion of massively over-leveraged risk asset markets...

This set-up evokes the ghost of Hugh Hendry circa New Year 2015:

"There are times when an investor has no choice but to behave as though he believes in things that don't necessarily exist. For us, that means being willing to be long risk assets in the full knowledge of two things: that those assets may have no qualitative support; and second, that this is all going to end painfully. The good news is that mankind clearly has the ability to suspend rational judgment long and often...Today there is no stimulus program that our Disney markets will not consider to be successful"

With regard to total lack of qualitative support for today's Disney valuations, today's casino class are assiduously unaware that fully 400 of the 500 S&P companies are no longer providing forward earnings guidance. Meaning that Wall Street's earnings estimates have the veracity of a Magic 8 ball. It's what today's investment advisors call "fundamental investing". Not to be confused with Haitian Voodoo, despite their obvious similarities. Fortunately, ahead of the impending disastrous news, as usual Wall Street massively lowered the bar for "expectations". Meaning that companies will soon be seen as "beating" recently collapsed bogus earnings estimates. Picture multitudes of companies having -40% collapsed revenues and facing imminent bankruptcy yet still "beating" the quarter. Whether Wall Street's usual chicanery will pay off, we will soon find out. Of course my opinion is that the combination of summer low volumes, the earnings buyback blackout window, and over-leveraged gamblers will coalesce into the mother of all bidless crashes.

As far as the economy, the best way to describe it is widely ignored implosion. As long as "stocks" are perceived to be going higher, then the economy is free to implode in the background.

"We have never seen this extent of eviction in such a truncated amount of time in our history. We can expect this to increase dramatically in the coming weeks and months, especially as the limited support and intervention measures that are in place start to expire. About 10 million people, over a period of years, were displaced from their homes following the foreclosure crisis in 2008. We’re looking at 20 million to 28 million people in this moment, between now and September, facing eviction."

Picture what happens to real estate prices when all of these people are evicted. Commercial real estate will be a colossal disaster. Residential real estate will be the next shoe to drop.

Which gets us to the parabolic casino:


I would be remiss if I did not point out that Wall Street is taking full advantage of this current sugar high, featuring maximum IPO pump and dump.

"July started with some IPO fireworks before the Independence Day holiday. One IPO scored a moonshot. But the story behind the news was at the SEC’s filing window, where the line looked like cars in bumper-to-bumper traffic headed for the Jersey Shore"

Heavy traffic at the SEC’s filing window indicates a steady flow of IPOs over the next several weeks"

IPO junk stocks are massively outperforming the broader market this year:

Treasury bond yields are heading back to the implosion zone

In summary, we are one Tesla margin call away from global explosion.

Just remember, yet again:

"No idiot saw it coming!!!"

Wednesday, July 8, 2020

Robbing The Poor To Pay The Rich

...has been the signature GOP strategy for decades. Why stop now?

First, on the political front, one more meager stimulus package is planned ahead of the election later this month. Even if it passes - a big if - it will be far too little, too late. Whatever stimulus "plink" the GOP has planned will be trivial relative to the ending of supplemental unemployment benefits set to end this month. Picture a -50% drop in income for tens of millions of unemployed minimum wage slaves.

In the meantime, the global Tech-only melt-up continues mid-week. Here we see that U.S. internet stocks are outperforming the average U.S. stock by a net 50% year-to-date.

As we see above, the average stock is down -20% which coincides with Warren Buffett's performance for the year. Which is very interesting, because we just learned that he has almost HALF his portfolio in Apple stock. Yes, you read that right.

It took almost his entire lifetime - 90 years this year - for Warren Buffett to embrace Tech investing. Why? Because he has admitted many times he knows absolutely NOTHING about technology. And yet now he has made the largest bet of his storied career on dumbphone 11.

"Warren Buffett once said that “diversification is protection against ignorance. It makes little sense if you know what you are doing.” The take-away: Load up on what you know.

"My flip phone is permanently gone"

[We'll get you an ATM card next and then you will be a fucking Tech genius]

Earlier this year, Buffett explained to CNBC how critical the Cupertino, Calif.–based technology behemoth is to Berkshire’s overall performance. “I don’t think of Apple as a stock. I think of it as our third business”

Dave Portnoy - Ponzi schemer for the masses - is right about one thing, Buffett has totally lost his mind.

Below are some more charts to show the global Tech mania now going late stage parabolic:

Online retailers are in the stratosphere awaiting re-entry explosion:

Likewise, Chinese Tech and EM Ecommerce stocks (mostly Chinese) have temporarily left the atmosphere, deja vu of the last two global crashes:

The Nasdaq breadth ratio is diverging deja vu of February

The equity call/put ratio is likewise deja vu:

The breadth crash ratio is back to super crash levels

As we see below, gold is tracking internet stocks higher.

Which means that the divergence between bond yields and gold is now chasmic. 

There is no reflation whatsoever in the MAGA Kingdom. All of the money flows to the wealthiest individuals and the wage slaves are left with a "plink" to the forehead.

Those who don't realize that the GOP strategy has ALWAYS been to rob the poor to pay the rich, are about to learn the hardest lesson of a lifetime.

Monday, July 6, 2020

A Very S3XY Shanghai Surprise

Shanghai Surprise is the term I use to describe idiots bidding up their own assets while pretending to be wealthy...

When policy-makers such as Trump get desperate, they use measures such as promoting stock market bubbles in order to bolster their approval ratings. Trump learned well from the Chinese who first invented the Shanghai Surprise back in 2015, the heyday of Imagined Realities:

"The dramatic moves in Chinese stocks over the past week are inviting comparisons with a bubble that burst spectacularly five years ago."

The advance is also being aided by an enthusiastic chorus from the nation’s influential state media. A front-page editorial in the China Securities Journal on Monday said that fostering a “healthy” bull market after the pandemic is now more important to the economy than ever. Chinese social media exploded with searches for the term “open a stock account,”

Of course this time around, the bubble in China is minor compared to what is taking place in U.S. Tech. Whenever Chinese markets implode the U.S. implodes at the same time: 2015, 2018 etc. The largest Chinese Tech stocks are all cross-listed on the U.S. Nasdaq:

When the bubble burst in 2015, the PBOC which had sponsored the chimerical bubble, did everything possible to stop it from bursting. Including mega stimulus, trading halts, banning short selling. Nothing worked.

In the litany of things that can and will go wrong, is the fact that Trump is currently mulling over the best way to monkey hammer the Chinese economy:

Getting back to the virtual economy: Today's bulltards are of the belief that more stimulus is imminent and hence today's ludicrous stock market valuations are justified. They are completely ignoring the now toxic level of political acrimony taking place ahead of the election. 

The abiding belief among America's casino class is that these millions of jobs lost to date are low wage inconsequential jobs that are irrelevant to the economy and corporate profit. Amid the now chasmic wealth divergence they are of the belief that their well-paid jobs are safe. Unfortunately that is the assumption that is about to get tested. And fail. Corporations have laid off their contractors, and hourly workers and in the next round of layoffs to make the quarter they will be cutting into the salaried ranks. 

The existential bet of this era is that the losses will always fall on the same silent middle class while the gains accrue to the same vocal winners.

Unfortunately, this impending second mass layoff to meet the quarter will not be accretive to GDP nor multinational corporate revenue. Combined with the fact that the personal savings rate is at an all time high, leaves the economic multiplier collapsing like a cheap tent. Add in widely ignored corporate debt defaults that have only been forestalled by onboarding massive amounts of new debt. A one time trick that will not be repeated.

And of course, the massive new COVID spike is also being ignored by greed-addled "investors".

The holiday weekend saw a new surge to record high daily cases:

What this all adds up to is a third wave down in the S&P 500:

And a global COVID Tech bubble now going late stage parabolic:

"The red satin shorts with gold trim, available for $69.42, feature a Tesla logo on the front left side and have “S3XY” written across the back"

Today, Tesla is trading three times as much dollar volume as the Nasdaq 100 market ETF (QQQ). The last time we saw this was in February just prior to super crash. Good times. 

Skew - out of the money option bets on a crash - now back at February COVIDIOT levels:

In summary:

See the bubble, or be the bubble

Wednesday, July 1, 2020

There's No Way Out Of Trump Casino

“The great enemy of truth is very often not the lie--deliberate, contrived and dishonest--but the myth--persistent, persuasive and unrealistic. Too often we hold fast to the cliches of our forebears. We subject all facts to a prefabricated set of interpretations. We enjoy the comfort of opinion without the discomfort of thought."
- John F. Kennedy

Profound, and yet we are constantly besieged with Trump's asinine lies. Eagerly propagated by his loyal base of useful idiots. These lies are all predicated upon the myth, and hence they are persistent, persuasive, and extraordinarily arrogant. Far too much, to their own demise, Trumpfuckistan enjoys the comfort of bullshit without the discomfort of inconvenient reality. 

This COVID pandemonium is going to fix all of that. And it's going to fix them too. There has NEVER been as much arrogance and stupidity in one place as there is right now, and it's all about to get harvested for fun and profit. And no small amount of sequestered carbon. Those denialistic MAGA geezers who ignore the COVID risk, are putting their own lives in extreme jeopardy. The remaining greedy geezers who STILL believe in Trumponomics, are right now flushing their financial assets down the toilet. Either way, the price of this arrogant delusion will be wholly unaffordable to those who believe in it.

Now, back to the Casino:

A Tech bubble inflated by unprecedented fiscal and monetary policy during a global depression. What's not to like?

It's easy money...

The algos have had a great time this week crushing short sellers amid holiday thin volume and end of quarter window dressing. Every headline is another excuse to ramp the illiquid S&P futures to drive more momentum.

Any questions?

Unfortunately, under the surface of this greatest fraud of all time, things are starting to disintegrate. Here we see a chasmic divergence between the Tech heavy Nasdaq and the cyclical heavy NYSE. Even within the Nasdaq, as we see in the lower pane, new highs are lagging badly:

It's this chasmic divergence that ensures this crash will be even bigger than the March implosion:

Within Tech, there are of course many smaller junk stocks going parabolic, but among the big names one stands tall among the rest. The stock that embodies the virtual economy better than any other:

The other "must own" stock of course is Tesla. Taken together, Amazon and Tesla traded 4x more dollar volume than the Nasdaq 100 index ETF (QQQ):

Move along, nothing to see here:

Most Tech ETFs hold the same group of momentum stocks, but a look at the Cloud internet ETF gives an idea of the froth. What took over a year last time took only three and a half months to eclipse, this time:

While Tech mania is robbing all of the media attention, banks got crushed today and are late stage imploding:

This is the long-term view of the above chart:

In summary, it's a bifurcated market consisting of bidless cyclicals and parabolic Tech stocks.

When it explodes, the fireworks will be phenomenal and well worth the wait.