Wednesday, July 15, 2020

Prepare For Systemic Meltdown

Artificial intelligence is set to explode. Human and machine alike...

Another prediction I made during the March implosion that was delayed, but not denied, was machine meltdown. Notwithstanding multiple overnight limit down futures sessions, and a few day session trading halts, Skynet managed to keep from exploding. My prediction now, along with gambler panic calls for wholesale Skynet meltdown.

Since March, the likelihood has increased 10x for the following reasons.

1) As JP Morgan points out, eMini futures liquidity has subsequently collapsed. In addition, summer is the lowest liquidity of the year, and earnings season means stock buyback blackout.

2) The well-documented stay-at-home gambling frenzy means that the market is massively over-leveraged to idiots. Novice investors have piled into the same handful of Robinhood stocks leaving them vulnerable to panic. Margin works great on the way up - as prices increase, the amount of margin buying power increases funding even more buying. On the way down however, the virtuous circle goes in reverse - lower prices beget more selling as margin buying power collapses. 

3) Then of course there is the well documented Mega Cap Tech overweight risk. Back in January, the Tech overweight was already "unprecedented". However, since the March mayhem, Tech overweight has only increased dramatically, due to the outperformance of the Nasdaq.

As of today's close we see the Nasdaq up 18% on the year, the S&P breakeven, the NYSE Composite down -12%, and the average U.S. stock down -17%. There is a 35% gap between the cap weighted Nasdaq and the average stock.

In other words, the dumb money bubble grew much bigger since March. 

It's this chasmic breadth divergence that will ensure this crash is far more severe than the one in March. There are no more perceived "safe havens" from COVID lockdown. The Stay-at-home bubble has run its course. 

This chart shows that the NYSE composite peaked five weeks ago, and so far the Nasdaq peaked Monday. The past three days have seen a massive rotation out of Tech into cyclicals. I believe this rotation is only getting started. Not to say that cyclicals are safe on an absolute basis, only that they will outperform on a relative crash basis. Unlike the February top, this top features a Tech bubble implosion in conjunction with a broader market about to implode in third wave down at ALL degrees of trend.

To further confirm this interpretation, here we see that the call/put ratio hit a record high TWICE in this rally. Once five weeks ago when the NYSE peaked, and again this week with the Nasdaq blow-off top.

What about the "fundamentals?". Once again, I almost left out the Madoff-like Magic 8 ball predictions that are driving today's mass insanity. 

We currently face an unknowable future economy currently operating on maximum stimulus and about to lose the majority of fiscal stimulus by the end of this month. Despite depressionary unemployment. Future earnings are totally unknown to 80% of CEOs, by their own admission. The other 20% are liars. Cycle high corporate defaults are taking place how soon is NOW. The post-COVID economic re-opening operation is a globally uncoordinated clusterfuck on an epic scale. Anyone buying stocks now amid all of these risks is merely a Wall Street useful idiot. 

In summary, massively complacent novice gamblers are piled into the same junk stocks in a casino held aloft by a handful of trillion dollar mega caps. Liquidity has collapsed and global policy-makers squandered their ammo to create this bubble.

What comes next will make the March debacle seem like a picnic by comparison.

This will be a global clusterfuck on a biblical scale.

Tuesday, July 14, 2020

From Manic To Panic

Those of us traditionalists who are STILL not converted to the newfound belief that printed money is the secret to effortless wealth, are now a rounding error in the grand scheme of things. From Wall Street to media pundits, economists, academics, and every moron in between, they ALL have 100% faith in easy money. They are united in their shared belief that they alone will get out at the top ahead of everyone else...

Back in February I predicted that stoned gamblers would panic when the market went bidless limit down. And yet, despite the biggest limit down clusterfuck in U.S. history, the sheeple didn't panic, they bought the dip with both hands. On their gamified gambling app, Robinhood. What else? The same app that was offline on the biggest down days of the collapse. Apparently, the best way to prevent people from selling, as invented in China circa 2015. Fortunately for the zombies, central banks panicked on their behalf. Which has now given them a total sense of invincibility in their lifetime pursuit of being a willful idiot. 

Be that as it may, such unparalleled gullibility has given us skeptics of money printing the unheard of opportunity to make an even larger bet on the exact same event in a span of months, therefore, my prediction remains the same - someone is about to shit a brick, and it won't be me.

Any questions?

As of yesterday's high, Tesla was up 80% in the first 9 trading days of July. Yes, you read that right. However, late in the day (Monday) the entire Nasdaq inadvertently blew up and scored a MASSIVE daily reversal of fortune. 

Here we see Tesla and yesterday's tall wick on the daily on massive down volume. A 15% intra-day u-turn from up 12% to close down -3%.

The Nasdaq (100) was imploded below the melt-up trend line, however today it's backtesting from the underside. If it doesn't take back that uptrend line, it's a long way down to support as we learned at the first COVIDIOT top:

The Tech versus rest-of-market breadth divergence is deja vu of the February top. And yet the key takeaway is - don't worry, be fat and happy. 

Given the Tech reversal of fortune yesterday, today Skynet turned to the banking sector and bank earnings to bailout the casino. Somehow, JP Morgan, America's largest bank and prime beneficiary of 2008 meltdown, just recorded record revenues in the worst unemployment crisis since the 1930s. 

It turns out that massive loan loss provisions taken in the retail banking division were more than offset by massive credit underwriting fees and by proprietary trading revenue. Thank you Trump and the demise of the Volcker rule. 

As bullish as that all may sound, most of the Q2 profits were one-time fees and capital gains, offset by a highly uncertain future for core banking revenues. As we see from the chart below, it seems unlikely that large banks will carry leadership from Tech.

In summary, combine Y2K

With 2008

To get to the 1930 experience

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.