The Noose Is Tight

The banquet of consequences arising from a lifetime of bad decisions has finally caught up with this denialistic Idiocracy. The Trump carbon tax is due...

We are witnessing lethal amounts of monetary euthanasia papering over economic disintegration, in the Hendryite tradition:

"The worse the reality of the economy becomes, the more we take on the reflexive belief in further and dramatic monetary expansion and the more attractive the stock market looks"


This Jedi Mind Trick for weak minded dunces is reaching its apogee among those who foresee inflation amidst the most deflationary economy in U.S. history - including the Great Depression. The difference between now and every other recession, is that now the economic multiplier has been imploded by the COVID virus and the attendant fear, denialism, Trump incompetence, and mandatory economic quarantine. Now we learn that fully 40% of Americans are at risk of severe COVID complications all due to rampant morbid diabesity aka. personal irresponsibility. This virus selects against those who desecrate their own bodies and this planet. Once again, Mother Nature having her way with denialists. 

Add in extreme election acrimony and the impending fiscal cliff is about to implode what's left of the disintegrating real economy. At this current rate, it could well be another full year before today's ubiquitous comfort seekers emerge from their bunkers intact, or not. The delusion of a near-term vaccine available in ubiquitous quantities, followed by a return to normal consumption patterns, is easily a year or more away. Most small businesses won't make it that long. In the meantime, the U.S. consumer is deleveraging at a frantic pace. Which is why the personal savings rate has soared to the highest level in history. All of which is why the economic multiplier has collapsed, and why the divergence between stocks and the economy has never wider. Meaning that the U.S. inequality gap - which was already at Third World levels pre-pandemic - has been achieving Banana Republican dimensions all year.

What will change, will the economy magically v-bottom out of this deflationary abyss, or will asset values collapse to meet reality? This is the question of the day, and the one that most of today's Idiocracy assumes will be the former, per their beloved Disneyland theory of markets.

Filed under, you can't make this shit up, this era's lead pump and dumpers Trump and Dave Portnoy met this past week to discuss how best to rig markets going forward:

The Fed meets this coming week, which is why FOMC: Fear of Missing Crash has reached a crescendo ahead of the meeting. Per tradition, there has been massive short covering in reflation trades ahead of the meeting. The June FOMC marked the NYSE rally peak, whereas this time around the Nasdaq is peaking. Also note that the market rolled over Feb. 20th and again July 20th, both dates were post-monthly options expiration - more proof that retail gamblers have been using options to move the market.

Here we see the double peak in call option exposure:

The state-sponsored melt-up in Chinese stocks during July was reminiscent of the January melt-up in 2018 prior to VixPlosion 1.0:

Tesla's blow-off top this month has mirrored the Chinese stock melt-up and is identical to the top in February of this year.

In other words the Chinese state media drove this entire global melt-up:

“There’s quite a long history of policy makers using the media to drive up the market. It doesn’t always end very well”

“We saw that back in 2015, exactly the same statements then. They tried to push the market higher. It worked for a while and then the market collapsed.”

Here we see via the solar ETF, the reach for risk this time around was far greater than the last top:

Bueller?

In summary, prepare for the LEAST expected scenario, broad based asset deflation:

The Virtual Simulation Of Prosperity

Tech Stock gamblers are betting on continued deflation, the other side of the casino is betting on continued reflation. As the economy implodes in real-time, what they ALL have in common is 100% faith in further dramatic monetary expansion. The jet fuel that drives ALL Disney markets...

Re: Hugh Hendry On Disney Markets
"Recently I have been asking myself if the equity market might have taken on the characteristics of the gold market...For me gold is the financial equivalent of Disneyland or perhaps a Platonic simulacrum (a false likeness). It is real and tangible, but it only represents reality when viewed from a particular perspective; in this case, what its believers saw as the inevitable inflationary consequences of central banks printing money"


Then, it crashed in 2011. Today's nascent reflationists see a repeat in the offing, this time with a happier ending. However, at the very same time as gold stocks are going parabolic, Tech stocks are going vertical as well. In other words, gold is no longer a safe haven, it's now a highly correlated momentum trade. As it was in February of this year, before it crashed. Per Hendry's musings in 2014, both of these markets are now the financial equivalent of Disneyland, evincing perfect faith in central bank stimulus, at the expense of the real economy.

What we have now is what I call Ponzi reflation. There is no economic activity behind it, it's merely assets bid up by central banks feeding back through the economy in the form of higher prices. From an economic standpoint, it's the worst case scenario. Think rising gasoline prices during an economic depression. Good idea? Not really. Inflationary? Quite the contrary. Absent higher incomes, higher prices of one commodity merely means less spending power available for everything else. 

Here we see the price of oil with Treasury inflation expectations. They are one and the same:

What these people all have to learn the hard way is that Republicans don't believe in economic reflation for the middle class, they ONLY believe in asset reflation for the wealthy. Which is why the GOP are about to reduce the current level of unemployment stimulus by -80%, from $600 per week to $100 per week:

This is the fiscal cliff I have been warning about and that is coming to pass at the end of this month. 

One of these is not like the other:

Which gets us to the Tech bubble. The narrative circulating this week is that this insane melt-up is nothing like 1999. Despite the fact that Mark Cuban opined this week that it's very reminiscent of 1999, Jim Cramer and the rest of Wall Street advise, don't worry. Be fat and happy.

"Expanding on a tweet in which he called the market moves “truly insane,” Cramer said that big surges by major stocks were unlike anything he had ever seen but were substantially different than the tech bubble of the late 1990s. 

“Insanity does not mean it’s over"



Let's compare 1999 to this current insanity:
GDP growth in 1999 was 7%. This year, the IMF puts U.S. growth at -6%. In 1999, the Federal budget was in surplus for the first time in two decades, whereas this year the deficit will be on order of 18% of the U.S. economy. 

"At 17.9% of GDP in Fiscal Year 2020, the federal deficit is almost twice as large than at the worst of the Great Recession in 2009."

In 1999, the employment population ratio was the highest in U.S. history. Today, it's the LOWEST in U.S. history.

There is literally no way to compare 1999 to now. The people who advance these arguments are shameless criminals. I expect there will be SUBSTANTIAL lawsuits when this crash ends.

In the meantime, insiders are hitting the bid at a decade high rate:

"Only twice in the past three decades has the sell-buy ratio been higher than now"

"a similar spike this year and in 2018 foreshadowed equity losses"

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