Global Hunt For Implosion

This will be the biggest financial clusterfuck in human history...

Opportunistic psychopaths are exploiting useful idiots, in the American tradition. Morally challenged gamblers are about to learn the lesson of a lifetime...

mor·al haz·ard
"lack of incentive to guard against risk where one is protected from its consequences"

First, on the subject of the exploding mental health crisis. When record Americans believe that the country is heading in the wrong direction, how can anyone be truly happy? Is "happiness" even possible in times like these? It's an important question. Until now I have always been of the belief that we are all ultimately susceptible to darkening social mood, whether we realize it or not. Just the fact that we are constantly subconsciously reminded that everything is terminally fucked up, tends to weigh on the mind. Today's consumption Borg of course finds their own virtual simulation of happiness from the innumerable corporate addictions on offer. All of which are chased down with ever-larger dosages of pharmaceuticals to paper over the chasmic cracks in reality.

Personally, in order to achieve inner peace, I have come to the rationalization that all of this upheaval was a necessary precursor to reaching a better future. In the same way that soil must be tilled before a garden is planted, the failed past and the attendant mythology must be fully imploded in order to make way for a more sustainable future. Whether or not that is sheer fantasy doesn't really matter. Human beings live in a perpetual state of self-delusion, And therefore we are given to attributing reason to explain current events, when in fact it may be above our spiritual pay grade to understand. In addition, I have decided that at this point in my life the inner journey is more important than outside ambition. Especially in a world wherein any form of material ambition could very well lead to over-investment in collapse. In the end, we will be far more rewarded for who we are, than what we are. Nevertheless, this society is so well trained to maintain superficial appearance that no one told them they are now nothing more than useful idiots. Clowns in a circus. The fact that we are currently led by a morally void charlatan who constantly claims success when there is only failure, does not bode well for their future.

  

In summary, we are lied to constantly by desperate psychopaths. And nowhere is that more true than in the chasmic gap between financial markets and the economy.

We must always remember that the vast majority of investors, pundits, and advisors are ALWAYS net long financial risk.

Which is what makes this moment so lethal. By pushing interest rates down to record lows, central banks have forced all of today's participants to fully embrace Ponzi finance. Throwing good money after bad. Worse yet, the COVID virus is now being used as an excuse to explain away the end of the cycle. In other words, the deterioration in financial solvency is being blamed solely on the "transient" virus. Which is how they arrive at their "v-shaped" recovery.

We are in a bear market at the end of the cycle, at the very beginning of an economic crisis of unknown dimension. Central banks are maxed out from an economic perspective. All they can do now is create a larger divergence between financial assets and reality. And in that sense they have succeeded beyond all expectation.

Here we see an example of yield seeking amid the worst corporate defaults since 2008. Global gamblers are now viewing rising default premium as a buying opportunity. 

In 2020 so far, the "smart money" has been looking pretty dumb this year. For the most part these people are merely trend followers - conditioned by over a decade of central bank funded asset Ponzi.

Here we see that active managers sold at the bottom in March and have reloaded again at the top of the rally. They were wrong at the top in February, and they are wrong again now.

They are trend-following chimps:

For their part, the dumb money, meaning Robinhood gamblers,  wisely stayed on the sidelines until the COVID crash but then they rushed into cyclical stocks to be the official bagholders of record.

The top five largest holdings (by number of account holders) on Robinhood are ALL cyclical stocks (as of this writing): Ford, GE, American Airlines, Disney, and Delta Airlines. These stocks all have roughly the same chart as indicated below via the airline index - three wave corrective off of a dead cat bounce. It's clear that these neophyte investors have all bought into the v-shaped recovery 100%.

Recall, that dumb money evangelist Dave Portnoy called Warren Buffett an "idiot" for selling the airlines. However, only a fool claims victory when ALL of the chips are still on the table. The only winner is Portnoy front-running his proprietary herd of useful idiots. 

"Near-term bookings at United's hub in Newark were only 16% of 2019 bookings as of July 1"

On a longer time frame we see Ford below, which is the number one holding on Robinhood. Unfortunately, as it was in 2008, these people STILL don't know a traditional retail bagholder when they are looking at one in the mirror.

Where it gets interesting of course is on the Nasdaq Tech bubble - the U.S. Nasdaq is the ONLY global index that is not yet in a bear market. The only global index making new all time highs.

Be that as it may, below we see on a longer-term chart the massive divergence between the stock index and the Nasdaq volatility index. 

We have NEVER seen this before. What does it mean? It means that hedging is very expensive and therefore the largest and most over-owned stocks in WORLD history, are now largely unhedged.

In summary, the noose has never been tighter.

The beauty about watching U.S. news is that you never have to worry about what is going on in the rest of the world.

Human History's Biggest Clusterfuck

I mean buying opportunity...


The Trump Administration is handing out money at "warp speed" to develop a vaccine to prove that Donny is not totally incompetent. If this gambit fails, he could lose the election. And the few hundred thousand "true believers" who go under the bus, will merely be collateral damage. In the Trump tradition.


It's all fun and games until someone loses a someone. 

We learned surreptitiously today that the backup plan is to shutdown the economy in the Coronavirus "red zone".

Solve this dilemma for the election "win"

Where to begin, really.

Begin with the question, would this economic implosion be so widely ignored if it wasn't for all of this newfound "stay at home" technology? What if instead of being "responsible", we were merely a late stage sedentary Idiocracy massively addicted to COVID risk factors such as eating, smoking, and drinking in biblical excess, now evincing a preference for reclining at home. After all, the hourly workers who were summarily shit canned without a moment's notice had no voice in this entire shutdown. If they all starve to death, how would we know? If a tree falls in the forest and there is no one from the lamestream media around, does it make a sound?

Meanwhile, most of today's cloud technology and ubiquitous broadband was literally only made available in the past several years. Had this virus come along at any earlier time in human history we would have had to decide to just take the risk and keep going to work. Or, "save lives" by starving to death. Which is exactly the dilemma that many developing nations now face. To them this shutdown is far more perilous than the virus. 

In other words, today's "responsibility" was compliments of Verizon FIOS. When the lockdown began in March, we almost blew up the internet, despite having the most advanced network technology in human history. Roughly 10x more bandwith capacity than even one decade ago.

This shows the internet traffic increase due to lockdown:

From a financial/economic standpoint, the biggest difference between now and the 1930s, is that back then the U.S. was constrained by the gold standard and therefore unable to print unlimited quantities of money. The gold standard was a barbarous relic also known as societal responsibility. This society has no such reservations. Today, the Federal Reserve is now an extension of the Treasury department, meaning J. Powell is just another of Trump's many well-trained yes men. Which is why we have never before seen so much combined monetary and fiscal dopium applied at the same time. Today we don't have soup kitchens we have the virtual simulation of prosperity, and its acolyte QE. 

In other words, it was some combination of corruption, denialism, morbid obesity, economic oppression, and wholesale irresponsibility that coalesced to turn this shit show into a magic moment for rampant global gambling.

That and $3 trillion of "free money"

Which gets us to the casino. And the "BTFD" Buy The Fucking Depression opportunity of a lifetime.

I posted this chart below of the Dow on my Twitter account yesterday. In a nutshell, we have seen this exact same movie twice before. Melt-up FOMO rally, "unexpected" crash from all time highs, steep retracement rally (~70%), double top failure, and then "retest". The first re-test came after VixPlosion (Feb. 2018), two months later. That successful re-test launched the tax cut rally which peaked in late September 2018. Then another crash. The second-retest unfortunately blew through the lows in December 2018. Which is what I expect to happen now when this BTFD rally implodes:

The major news this week that had to be assiduously ignored - aside from the Nasdaq blow-off top, was the fact that Hong Kong is now subject to full U.S. tariffs and trade wars:

“The Hong Kong Autonomy Act is a big blow to Hong Kong and China, and is the latest example of the free-fall style of US-China relations”

“To protect its legitimate interests, China will take necessary action to impose sanctions against related US institutions and individuals”

So far, U.S. markets have shrugged off this escalating risk from Asia. After all, there is a Tech/Biotech junk stock rally to chase.

However, the last time we saw a blow-off top in Biotech, AND a melt-up in Chinese Tech stocks, AND a massive increase in risk from China, was exactly five years ago.

THIS WEEK

Back then it took until the third week in August for the imagined realities to explode on a global basis, however, we may not have to wait so long this time. 

What makes me think that we won't have to wait?
Normally, as we saw one year ago below, volatility is hitting the low point of the year right about now. However, in Nasdaq land that is not the case:

"Don't worry about COVID, we have the world's best drugs"

"The U.S. government has dumped billions into COVID-19 vaccine development and manufacturing as part of its Warp Speed initiative. Now, with vaccine makers moving rapidly toward approval, the administration has high hopes at least one shot candidate will start churning out doses within the next six weeks."

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.

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

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"