Idiots. Conned By Idiots. All Over Again.

Hard to believe, I know...

Sadly, in an Idiocracy, there is no strength in numbers. When today's Idiot Class finally accepts the fact that their leaders are as dumb as they are, the underwear will be PERMANENTLY stained:

From an economic standpoint, Trump's entire presidency will be remembered for its ever-greater abuse of stimulus, driving an ever-greater speculative bubble.

Which went late stage full retard this past week:

Social media? Reality TV? Dumbphones? Corporate fake news? Or some combination of the above. I will leave to the archaeologists to determine how this happened, however, needless to say the Idiocracy arrived 500 years ahead of schedule:

"An American soldier takes part in a classified hibernation experiment, only to be accidentally frozen for too long and awaken 500 years later in a dystopian world where commercialism has run rampant, mankind has embraced anti-intellectualism, and society is devoid of such traits as intellectual curiosity, social responsibility, justice, and human rights"

Bueller?

Now we are inundated with dumbfuck conspiracy theories. When the intellect is entirely collapsed and the recollection of history is non-existent, enter conspiracy theories to explain how we got here. We couldn't possibly blame it on personal irresponsibility, mass consumption, and epic greed. 

Unfortunately for these dullards, history won't be as dim-witted. It will place their existential gullibility at the epicenter of collapse. Useful idiots. History will view this era as the sum total of bad decisions that took place over decades. The over-commercialization of society to the benefit of ever-fewer people. Culminating in human history's largest leveraged buyout. Leaving the traditional bagholders holding the bag at the end of the cycle.

Speaking of idiots, central banks don't have control over markets, they only have control over copious fools and their misallocation of capital. First Japan and then China learned the hard way the limitations of trickle down Ponzinomics. Now it's Europe and America's turn.

When the markets crashed in March the Fed was concerned that the debt mega bubble was imploding, so what to do but bailout lenders, again. This is their only strategy - to prop up the supply side of the debt bubble. Borrowers were left to the vagaries of Congress. At first, the COVID collapse was well funded on the fiscal/demand side, however now since the beginning of August that demand side support has collapsed.

Which leaves an EVEN bigger debt bubble than before and even worse insolvency on the part of borrowers. And yet there is no concern on the part of those holding these inflated (bond and stock) assets.

This is what copious Ponzi schemers buying "stocks" at all time highs were telling themselves this week:

“The $600 top-up in unemployment benefits is critical for those getting the funds, but its absence means less to overall retail spending than many opine...More critical to the revival in retail spending is the recovery in the equity market, a recovery itself owed to the Federal Reserve"

It’s not just the well-known “wealth effect” that comes from seeing one’s one portfolio doing well that keeps the economy humming, Blitz noted. More critically, the stock market’s performance is what he calls “a conveyor of confidence.”

Indeed, a conveyor of false confidence. A Jedi Mind Trick for weak minded dunces.

Below we see that back in February as bond (prices) rose, the dollar (black) fell in inverse proportion. As these two assets moved in opposite directions, "real yields" temporarily fell, as inflation expectations rose in line with risk assets. It was believed as now that the dollar is doomed due to inflation. However, the only inflation was in asset prices, debt and of course latent insolvency. Now we see the same thing on a larger scale, except today there are millions of people unemployed and their stimulus has run out.

When the asset bubble bursts, not only will the "wealth effect" implode, but Ponzi-levitated reflation expectations will instantly collapse, as will confidence. The dollar once again will explode higher.

And then those who believe that "stocks", fake wealth, and fake confidence are more important than incomes will learn the hard way that they are lifetime idiots.

Speaking of exploding asset bubble, the story of the week of course was the continued out-of-control rallies in Apple and Tesla. What these two stocks have in common, aside from being late stage parabolic, is that they both have an impending stock split. This week Apple cleared the $2 trillion mark and kept rolling - this Monday is the date of record for their upcoming stock split. For Tesla, the date of record was yesterday (Friday).

We have never seen a "market" more dependent upon a miniscule handful of parabolic stocks. Combined, these two stocks traded 8x more dollar volume than the Nasdaq 100 ETF (QQQ):

And yet we saw the exact same pattern in February. Whereas the S&P 500 is roughly the same level, Tesla is over 100% higher than the February peak. To give an idea of the interim increase in market leverage:

As another example, here we see the Momentum stocks as a whole took 3 months to obtain the same level they achieved in 13 months last year. Since reaching the February crack high, they have continued to melt-up higher:

Even as these last Momo stocks soar, here we see Nasdaq breadth has already rolled over deja vu of prior peaks.

For most of this past week breadth was negative on both the NYSE and the Nasdaq. 

Economic cyclicals have left the building

Granted, not everyone got fooled

Option skew measures the extent to which out of the money put options are higher priced relative to call options. 

"The CBOE Skew IndexSM - referred to as "SKEW" – is an option-based indicator that measures the perceived tail risk of the distribution of S&P 500 ...Tail risk is the risk associated with an increase in the probability of outlier returns, returns two or more standard deviations below the mean. Think stock market crash, or black swan"

Skew peaks before the market, then the weak bears get rinsed and it makes a lower high at the actual rollover.

What it all points to is an algo-driven central-bank Frankenmonster momentum rally that is now totally out of central bank control. They achieved their purpose of misallocating epic amounts of capital. 

Once again, copious fools believe that central banks can stop margin calls, stop losses, and flash crashes despite the fact that capital is now 100% RISK ON. We learned this week that at this new overthrow fake high, short interest is lowest on record.

Picture short interest at an all time low, in a bear market which is about to go third wave down at ALL degrees of trend.

I predict that by the end of this dislocation even today's biggest clowns will no longer be seeking the advice of fellow dumbfucks. 

The Madoff Moment

Never before have so many lies been bought and believed as are owned now. For today's Idiocracy who are 100% convinced that printed money is the secret to effortless wealth, this revelation can only come as a total shock...

Mad Man infotainer Jim Cramer is of course well renowned for his circus antics and his unique ability to contradict himself from one day to the next, as required by bipolar Disney markets. What can be viewed as good news one day - rising unemployment/more Fed dopium can be just as easily construed as bad news the next, depending upon which way the algos are flowing. Today's rally was sponsored by the first monthly rise in weekly claims since March. Bearing in mind, that at 1.1 million, today's level of jobless claims is STILL higher than in EVERY week of 2008/2009. 

So how can it be that EVERY week the NEW (initial) unemployment claims exceed the maximum reached in 2008/2009 amid a stock market rally? For that we turn to the Mad Man himself, who once in a while stumbles upon the inconvenient truth and lays it out in a way that few of today's pundits would dare to suggest. Here in this diatribe, Jim Cramer sets forth the reason this is the most dangerous delusion of our lifetimes.

“We’ve had a magnificent V-shaped recovery in the stock market, but the stock market’s not a great reflection of the broader economy anymore”

“Just look the stocks that have brought us to these levels — they’re not the recovery plays. In fact, they are the opposite." 

“The winners in this market are the companies that are most divorced from the underlying economy. The actual economy is in precarious shape, especially now that the government’s stimulus package has run out and Congress went home for the summer rather than trying to come up with a replacement”

Take a step further and realize that the new technology companies leading this rally are gaining market share at the expense of the real economy. As small businesses fail by the millions, the largest public companies are now taking market share from the collapsing businesses. 

This entire rally is a celebration of collapse, the likes of which we have never seen before.

So we clearly see that things are "different" than they used to be, in more ways than one. However, another major difference has been in the corporate reaction to the COVID collapse versus what was seen in other recessions. During ALL prior U.S. recessions, corporations were actively deleveraging their balance sheets and preparing for economic downturn. However, in this worst recession since 1930, they are adding new debt at the fastest rate in history. 

Why? Because they are convinced this is NOT the end of the cycle. 

https://fred.stlouisfed.org/graph/?graph_id=530726&rn=281

You see, most independent bloggers on the economy and markets now hold this view that the world is controlled by "the elites" and the "Deep State" - Jeffrey Epstein (who is dead by the way), Bill Clinton, and George Soros etc.

Unfortunately, the people who believe all of that crap are total fucking idiots. Super dunces who confirm today's Idiocracy. Roughly speaking, there are now only two classes of people from an economic standpoint - those who garner their wealth from their jobs aka. the working class, and those who garner their bulk of wealth from Fed policy aka. the Casino Class. The Casino Class are in the upper echelons of everything - business, academia, finance, media, government etc. These are the people who have come to believe that stocks are more important than jobs, as they watch their Monetary-inflated unrealized gains increase day in and day out, compliments of ever-worsening economic news, 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."

However, what these people don't know is that they are taking part in the largest economic blunder in world history.

Where this gets interesting, is that as of this week the S&P 500 has now charted a double top with a slight overthrow. Overly aggressive bears who believe that stocks follow the economy, have been summarily monkey hammered. And newfound bulls are convinced this is a new bull market.

Which sets up maximum pain all around, in the tradition of Disney markets. 

The last time we saw such a rapid (albeit on a smaller scale) short-covering retracement rally, was at the top in 2007. The market peaked in July, crashed, and then final peaked in October led by Tech stocks. Bears got rinsed and bulls went ALL IN at the all time high.

Similar to right now:

Sound familiar?

Zooming back to the one year view, here we see that S&P breadth rolled over ahead of the market in February of this year, and bottomed ahead of the market in March. The pattern is repeating now:

A third wave down means that this decline will make February's record-setting clusterfuck seem like a picnic by comparison.

Some people like to learn the hard way. Rest assured, this is the hard way.

What this society has yet to figure out is that there was not just one Bernie Madoff, there is an financial entire industry full of Bernie Madoffs. Who have been emboldened by Trump's deregulation of their industry, to now be lying their asses off, in the Wall Street tradition.

Circa July 2007:
Citigroup's CEO Chuck Prince Wants To Keep Dancing While the Music Is Playing. Can You Blame Him?

"The Citigroup chief executive told the Financial Times that the party would end at some point but there was so much liquidity it would not be disrupted by the turmoil in the US subprime mortgage market."

In summary, these massively leveraged "stocks" people now own without any regard to over-valuation, are all just call options on the end of the cycle.

Which contrary to popular belief, is now. 

We are about to see a seismic financial dislocation on a biblical scale. One that finally resolves today's chasmic wealth inequality.

Just not in the way that is expected. 

Smash Crash 2020

The length of time this takes to implode, is measured in the number of dumbfucks piling into Trump Casino. Don't blame me, you know these people too...

Five years ago this week, Hugh Hendry's imagined realities 2015 came crashing down. It all started out so well - 25 year low GDP in China, a massive melt-up liquidity bubble, global RISK ON party. But then it all exploded "without warning".

2014 End of Year Shareholder Message:
"China is set to record its weakest growth in GDP in 25 years. Yet it seems to have entered a bull market and may be where we deploy much more of our risk capital next year. That's because the recent exuberant run up in onshore Chinese equities seems to me to amply demonstrate the power of imagined realities."

The Chinese state is the largest shareholder in the Chinese financial system. That surely makes its ability to stave off a liquidity crisis pretty much limitless"


Come to find out by August 2015, it wasn't limitless after all.

Good times:

The main difference between then and now is that risks are 10x greater now, as is the Tech driven liquidity bubble. We learned yesterday that this is now officially the longest Nasdaq melt-up in history. The prior longest melt-up in history was the rally that exploded spectacularly in February of this year:

"The Nasdaq-100 just set a new record: Its 20-day simple moving average (SMA) has been rising for 89 consecutive days.

The prior record ended at 88 days on Feb. 21. We remember well because stocks went into free-fall thereafter."

In other words, the two longest melt-ups in Tech history, in the same year. The chance of that happening outside of Fed balance explosion, is the limit approaching never happened before.

Looking back in retrospect, market pundits will realize that the COVID crisis sparked the final cycle rotation out of value stocks into a fifth wave stay-at-home Tech stock blow-off top.

MACD lower pane, shows the streak above the 20 dma as the net difference between one day and 20 dma > 0:

For the past week the S&P 500 has been staging an epic battle with its February all time high - Amid chasmic divergences, the likes of which we have never seen in history. Which is why I am not calling for a crash, I am calling for a binary explosion of risk.

Here we see that the algos have crushed volatility down to the same level that attended the February top. 

Today, the S&P 500 finally closed above the February high. Unconfirmed by the Dow, the Russell 2000 small cap, banks, transports, mall retail, defensive stocks, and global stocks.

Here we can see that the average U.S. stock has been trending lower for three years now.

"Safe havens" are ready to roll.

Over.

I don't know if gold will make another new high, before it implodes again. Or not. 

Banks are at the key uptrend line. Notice the double fractal - the rally into June is the larger fractal, and the rally since June is a smaller version of the same rally. Indicative of economic cyclicals in general.

As it was in February at the S&P top, the PBOC has been juicing global markets. Which is why gamblers are well lubricated for what comes next:

"PBOC adds most money to markets since early February"


Those who evince ultimate confidence in central banks to create bubbles and keep them permanently inflated, are about to learn their final lesson.

The one they didn't learn in 2015 and in February 2020:

$USDJPY already going RISK OFF

Even within the Tech sector, the majority of Tech stocks are already rolling over. 

What is still driving the Nasdaq is a rotating handful of parabolic stocks, led by Tesla. Yesterday, Tesla traded more dollar volume than ALL of the MAGA stocks and the QQQ combined. Yes, you read that right. A function of its stratospheric price x above average volume.And Robinhood gamblers going full retard.

Yesterday's most actives:

Overstock.com gained another 25% yesterday.

And fittingly, Dave Portnoy lead gambler, is getting richer by the day in Trump Casino. Because that's how ALL pump and dumps work. A handful of con men followed by multitudes of dumbfuck acolytes. 

In summary, this is a final Tech blow-off top in stay-at-home stocks while the economy implodes in broad daylight. The rally since the March low amply demonstrates the power of imagined realities and conflict of interest:

"While Wall Street has gotten more excited about the economy since March, U.S. household sentiment remains depressed"

The Big, Fat, Moron Bubble

Never before have so many been conned by a well known con man. Trump's big, fat, ugly bubble is by far the biggest bubble in human history without any comparison...

‘Never before have I seen a market so highly valued in the face of overwhelming uncertainty’

The GMO investor said that only the Great Financial Crisis of 2008-09 represents a parallel to the so-called V-shaped, fast and potent, bounce higher that we have observed in the market."

I suggest that is not actually true. The only "V-shaped recovery" was in Tech stocks

Here we see banks are three wave corrective at multiple degrees of trend:

Put it this way, there is so much uncertainty, we don't even have a clue how overvalued the market is right now. Currently, Wall Street analysts are tripping over themselves to raise price and earnings estimates in a vacuum of suspended forward earnings guidance and economic information.

For those who don't understand Ponzinomics, here is how it works, however don't be surprised if you still don't understand it, because you would need a PhD in economics in order to comprehend something this stupid.

When the economy is fully imploding as it was in early March, investors panic sell risk assets causing massive financial and economic dislocation. As the selloff progresses, it becomes incumbent upon central banks to buy up Treasury bonds in the secondary market in order to provide surplus market liquidity. That bond buying forces the sellers of said T-bonds to ripple further out onto the risk curve into municipal bonds, junk bonds, dividend stocks, S&P futures and eventually high flying junk stocks. The goal of the central bank is to reverse the capital flows out of markets and push capital back INTO markets. All while the economy implodes in real-time.

Here we see that the gambit worked fantastic:

Full Retard asset managers who sold at the bottom are now fully back to locked and loaded at the top again. Don't let anyone tell you that fund flows don't matter - they do. When everyone is hitting the bid or heading for the exits at the same time, that moves markets. To extremes. 

Let's step back to the economy for a moment. We now know that the vaccine won't work on fat people which is about 80% of the U.S., ballpark estimate. Throw in the anti-vaxxers who are 1/3rd of the country, i.e. every Faux News viewer. Throw in young people who won't get vaccinated, don't respond to polls, and don't believe in forced celibacy. Which means I (unscientifically) estimate that only a small subset of the population will be vaccinated and/or immune one year from now. Which means the forced economic lockdown will continue. 

In addition, summertime is peak economic activity in the travel and leisure parts of the economy. Bars and restaurants have the use of outdoor patios to further distance their customer load. However now we are going back into the dark months amid a virus spike and sans a viable vaccine. You don't have to be a genius to figure out that this economic implosion is going to continue for at least another year. 

Meanwhile, policy-makers are still FAR behind the curve on providing adequate fiscal stimulus to keep the economy afloat. And even if they eventually do, under the current lockdown regime what part of the small business service economy exists one year from now, is unthinkable. 

All of which is highly deflationary, and explains the chasmic divergence between stocks and bonds.

One of these is not like the others:

There are far too many economic divergences to list, think Energy stocks, airlines, banks (shown above), hotels, restaurants, mall retail etc. 

However, one of the largest divergences between economic and financial reality has opened up in the housing market:

Here we see collapsed housing starts and parabolic homebuilder stocks. Which used to be highly correlated:

Here is the short-term view of homebuilders.

Any questions?