Building The Perfect Beast

Four years ago Trump warned that Fed policy had created a bubble that was primed to burst. Hindsight being 2020, we now know that the Obama bubble was child's play compared to the Big, Fat, Ugly Super Bubble that the Casino-Bankrupter-in-Chief has spent four years creating. All true believers will be duly obliterated by it...

Most gamblers seem to forget that central banks including the Fed and PBOC were lubricating markets massively ahead of the first COVID crash in March of this year. The Fed was busy monetizing Trump's massive Treasury issuance in order to keep the overnight repo market under control. Remember the repo crisis? That started exactly one year ago in August 2019. It was caused by the financing of Trump's massive tax cut deficit which was crowding out the sovereign credit market and otherwise imploding global liquidity. Until the Fed stepped in to monetize the deficit. Which drove the FOMO bubble into the February highs.

Good times. 

Fast forward to now, and the amount of central bank lubrication is beyond any prior comparison. Which is why this bubble is reminiscent of the February melt-up except on an even larger scale. 

Central banks have once again succeeded in creating a one-way market. One in which the only asset class is momentum. This last bubble is running on MAGA glue fumes and attendant mythology. The primary myth being that the GOP will agree to bailout the middle class ahead of the election. An asinine fantasy if there ever was one. Which is why, amid a de facto collapse in stimulus, gamblers are STILL hanging their massively leveraged bets on further dramatic monetary and fiscal stimulus. An outcome that ironically has been made far less likely due to the front-running of central banks into risk assets.

Here we see corporate bonds have now exceeded their February highs:

ESG - alternative energy, solar, environmentally sustainable funds - are another bubble going parabolic:

For their part, money managers have no choice but to believe in this delusion. Performance anxiety requires them to believe whatever fraudulent narrative is on offer, no matter how specious. They are as a group, merely trend following chimps. Closet indexers.

On the subject of gold, we are told that gold is at a new all time high. Below we see gold adjusted for inflation. What we notice is that not only is gold NOT at an all time high, but it's also three wave corrective. We also notice via the lower pane that Fed balance sheet expansion does not always correlate with rising gold prices. Note the expansion in 2012 during which gold had its largest decline in decades.

Those of us who predicted the repo bubble would burst spectacularly, were not disappointed. It was the largest and fastest drawdown from a market top in U.S. history. Nevetheless, the scale of this  COVID bubble makes that one look miniscule by comparison.

And of course, the stakes are much higher this time around, given that central banks are now ALL IN. And given that the global economy has been pre-imploded.

Fed Chief Jerome Powell has previously admitted that the Fed is essentially "short volatility". Meaning they are actively encouraging the suppression of risk premia to give the illusion of a low risk financial environment.

This volatility suppression strategy is what creates a binary market. Volatility is artificially suppressed until such time as capital accumulates maximum risk. 

And then it all explodes out of control.

In the meantime - which as we have learned can take quite some time - epic lies are bought and sold at the behest of those who traffic in financial chicanery.

They don't have the facts or reality on their side, however, given enough misallocated capital they can rent prosperity for a while.

Move along, nothing to see here:

What history will say about this MAGA larceny:

Dash For Crash

It appears that the vast majority of today's gamblers don't know a Tech bubble in a bear market when they are buying one with both hands. And why would they? After all, there is an election to rig...

The casino class is well lubricated for what comes next.

This fraudulent rally serves several purposes. First and foremost, it keeps the Idiocracy fat and happy while the real economy implodes in real-time. What I call Monetary Euthanasia, which is now being used on a biblical scale. 

"In the broadening top formation five minor reversals are followed by a substantial decline."

It is a common saying that smart money is out of market in such formation and market is out of control."

Outside of the Tech bubble, this is the third lower high for the equal weight S&P 500:

The second purpose served by this fraudulent rally is that it allows insiders to cash out in near record size:

"The ratio of companies with insider buying compared to insider selling is at 0.27 in July, the lowest level since at least 2000"


Third, it allows major companies to raise MASSIVE amounts of new capital. Meaning that while corporate insiders were leveraging their companies to the maximum extent possible during the COVID depression, they were also selling their stock to useful idiots en masse.

Note the difference between 2008 and now in corporate debt ($ change, quarterly):

Fourth, as I always say, the casino only exists for Wall Street pump and dump. And in this cycle we are seeing a dash for trash on an epic scale:

"The traffic at the U.S. Securities and Exchange Commission’s filing window last week looked like the last turn in a NASCAR race. Sixteen new IPO filings (S-1s and F-1s) rolled in"


To chum the waters for this massive influx of new IPOs, the Wall Street algos are sending Tech stocks into the stratosphere. Not only the MAGA cap dumb money stocks, but also the junkiest crap in the market.

For example, recent IPO Fastly, living up to its name having rallied 1,000% since March:

Part of Cramer's proprietary COVID-19 index:

Docusign, another high flyer on the COVID 19 stay at home implosion bubble

Wayfair didn't make Cramer's list, but it's part of the whole shop-at-home ecommerce bubble:

The bottom line in all of this unhinged speculation is that global RISK OFF, is no longer an option. Because the machines can't handle what comes next.

Going back five years ago to August 2015, we recall that the Chinese tried a similar feat of bidding up a stock market bubble to generate fake wealth. Which I called Shanghai Surprise. They tried everything to stop it from imploding. They finally succeeded -60% lower.

FULL Disclosure: Not everyone has bought into this last pump and dump

Too Many Clowns In This Circus

While the alt-right and alt-left sell fantasies to their devoted bases of useful circus clowns, the long arc of inconvenient reality closes in for the kill...

Our internet devices are overflowing with streaming content in the golden age of fantasy. If this society devoted even a quarter of its time solving real world problems instead of inventing fantasy neverworlds, we might be getting somewhere. Instead, we are stuck between a dystopian delusion of never-ending failure on the right, and toxic culture warriors re-arranging the deck chairs on the Titanic on the left. Astute observers would note that it was not the Federal government that mandated nationwide mask wearing, it was major corporations. Why? Because that's what the United States is now, a major corporation. An extension of the multinationals that are ensconced in the U.S. where they can manage the Federal government to their sole benefit. While useful idiots on both sides pretend that their party has the solution.

Neither party will seriously face down corporate special interest which has grown exponentially since Citizens United. A ruling that will ultimately be seen as the worst and most corrupt decision made by any kangaroo court in world history. 

"Citizens United v. Federal Election Commission, 558 U.S. 310 (2010), was a landmark decision of the Supreme Court of the United States concerning campaign finance. The Court held that the free speech clause of the First Amendment prohibits the government from restricting independent expenditures for political communications by corporations"

Since when was "free speech" conflated with spending unlimited amounts of money to buy votes? How did the U.S. survive over 200 years without this unimpeded corruption?

Speaking of corporate dominance, this past week Congress grilled Big Tech on their market dominance and potential anti-trust violations. Investors were so concerned at these proceedings that they sky-rocketed Facebook and Apple to new all time highs on Friday, while Amazon rocketed back near all time highs. Post-grilling and post-earnings, their combined market overweight predominance only grew larger. A sign of the times in which every signpost of risk is widely ignored.

On the topic of ignored risk, this week the extended unemployment benefits ended sans new stimulus agreement. Which means that millions of families will now experience a collapse in income. Both sides are blaming each other for this political impasse, however, I suggest it is political suicide for the GOP to collapse GDP on this scale ahead of the election. All based upon fiscal principle - their latest election-rigging talking point. The same party that exploded the deficit and spent Social Security and Medicare contributions on tax cuts for the rich, is now concerned about the national debt. Sadly, it's too late for all of that superficial posturing. The Fed balance sheet is now the sole source of "GDP". And if the dopium isn't flowing to the middle class, the economic sugar high will crash:

“A lot of people don’t have very much in savings,” Stettner says. “Unemployment benefits have helped them pay their bills. But when you start taking that away, we could begin to see the same housing risks that we saw during the Great Recession. People are being forced to move in with their families, or they’re living out of a car.”

Picture a scenario in which millions of families experience a crash in income at the same time as parabolic Tech stocks implode global asset markets. In other words, trickle down Ponzi deflation across all households at the same time. One in which asset values implode while liabilities remain at their inflated level. Would that be reflationary? I suggest not. The REAL rate of interest is set to explode higher. Not lower, as today's Idiocracy constantly suggests. Always looking in the rear view mirror while driving forward. It's fitting that gold went late stage parabolic in the exact same week that the middle class was imploded. Gold fully participated in the global asset sugar bubble and now we are to believe that it will be the sole "safe haven" when stimulus is withdrawn and assets crash. Sure, whatever. What we are witnessing is the endgame for Supply Side Voodoo Economics, also known as profound economic illiteracy. The delusional belief that the middle class can be endlessly imploded to the zero sum benefit of the Casino Class.

This will be a lesson these Ponzi schemers NEVER forget. 

This was the Nasdaq's third lower high in the past month, as the second Covidiot top has been somewhat more durable than the first:

This is the Dow re-test chart.

The Rest of the World imploded late last week, but the overnight dip got bought with both hands in the U.S.

What's new?

Fittingly, the economic implosion trade hit new all time highs this week:

In summary:

"One day after the CEOs of four of the world’s biggest tech companies — Apple, Amazon, Facebook and Alphabet —were peppered with hostile questions about their business practices in a House subcommittee hearing that dragged on for more than five hours, all four companies posted stronger-than-expected June quarter results, driving their stock prices higher.

It was a clean sweep. Four for four."

Depending on how you want to look at it, today’s flurry of strong earnings reports either justifies the interest in the companies expressed by regulators and legislators, or it demonstrates why investors have generally reacted to the added scrutiny by ignoring it and focusing instead on their continued stellar financial performance."

Or, more likely it's just a massive COVIDiot bubble in which Tech-addled investors ignore all risks. Bought and believed by human history's biggest cabal of circus clowns. 

Super Cycle Crash

The magnitude of this implosion will be measured by the record numbers of true believers in Disney Markets...

There is no sign of economic reflation, however faith in central banks is now complete. The Fed pumps up asset markets, and rampant bullshit artists explain how trickle down Ponzinomics can replace collapsing businesses and reduced jobless benefits.

Any questions?

“This is really a day that will live in infamy” 

Post FOMC, now we will find out if Disney markets will implode the same as last time (June 10th). Reflationists are having a blast bidding up their own shiny assets. However, they never stop to ask themselves why their gold "safe haven" is now 100% correlated to Go Daddy. Gold has become a dangerously crowded dumbfuck bubble, in the tradition of BitCasino. But don't take my word for it:

Revolutionary indeed.

Getting past gold, here we see that volatility compression has been taking place deja vu of June.

Market manipulation has now become normalized and widely accepted.

No blow-off top would be complete without AMD going parabolic. 

China Tech making three lower highs deja vu of February:

Everyone is betting that the dollar continues to "crash". I am betting it will crash too, in a risk off move that takes down global markets. And then it will scream higher taking out the shorts when everyone realizes that the rest of the world is more fucked up than the United States. Financially speaking of course.

Been there, done that.

In summary:

"But as the economic crisis wrought by the Coronavirus pandemic continues, some current and former financial regulators see the loosening of this regulation as potentially increasing risk in the financial system at a time when there is little room for big losses"

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"