Now For The Real Crash

Conditions are eerily similar to March - escalating pandemic and oblivious gamblers. Except this time, there's no fiscal safety net...

The greatest risk markets face is Trump having an infantile hissy fit if he doesn't win re-election. Trump's good Christians are soon going to realize that they are following their avatar of hate straight down the toilet of history.

For 12 years those of us skeptics of Ponzinomics and Japanification have said that these stimulus-addicted policies would end abruptly and badly for the majority of people. During that time, more and more people went under the bus to feed quarterly profit, but there was never a dramatic explosion as expected. Which clearly proved us skeptics "wrong", as the euthanized zombies never panicked, they merely adapted to their new level of squalor. Then they elected Trump to fix it all with more tax cuts for the ultra wealthy. But the main thing that kept this gong show from imploding was the escalating abundance of McJobs. So abundant that some people now have two or three McJobs where they used to have one real job. As predicted by Future Shock: 

"People of post-industrial society change their profession and their workplace often. People have to change professions because professions quickly become outdated. People of post-industrial society thus have many careers in a lifetime. The knowledge of an engineer becomes outdated in ten years. People look more and more for temporary jobs."

California just held a referendum on whether or not gig workers should be regulated as employees, which passed in favor of Uber and Lyft. It was seen as a vindication for the virtual economy and "freedom" to work when and how one chooses. These gig workers have zero degrees of freedom. They live on a subsistence basis. Taking away that gig work would be a catastrophe. On the other hand, putting people in a no-win position of being forced to work as near slaves is not a vindication of the new business model. It's merely proof that the U.S. is becoming a Third World country.

Be that as it may, the ability of this CappuccinoConomy to create new junk jobs ended last March with the COVID onslaught. Six weeks of COVID obliterated TWENTY years of McJob creation. Yes, you read that right. At the nadir last Spring, the number of U.S. jobs was back at Y2K levels. The same thing happened to George Bush, his decade of transient jobs vanished in a matter of months during the Global Financial Crisis.

All of which means that, millions of people are now fully dependent upon ongoing stimulus and a functioning political system. However, we are now entering the lame duck session of Congress and possibly Trump's presidency, which will more than likely see the expiration of all stimulus. 

"America’s economy faces severe new strains in the two months between Tuesday’s election and January...millions of Americans are at risk of having their power and water shut off with unpaid utility bills coming due, while protections for renters, student borrowers and jobless Americans will expire by the end of the year absent federal action."

“All signs suggest that we’re in for the worst of this at the same time the situation in Washington is also becoming its worst and most horrible,” said Michael Strain, economic expert at the American Enterprise Institute"

Several million people will begin to exhaust their base unemployment benefits starting in the middle of December. Absent action, a separate federal unemployment program for as many as 10 million gig workers and others not eligible for traditional unemployment insurance will expire Dec. 31."

Among the biggest mysteries hovering over this uncertainty is what Trump and his aides will do after Election Day, particularly if he loses to Democratic nominee Joe Biden"

It's not a mystery at all. If he doesn't win, Trump is going to throw a big hissy fit and declare this election a coup d'etat. He is not going to sign any stimulus bills nor is he going to compromise with Democrats:

“I don’t think he’s got much interest in stimulus,” said Casey Mulligan, who served as chief economist for the White House Council of Economic Advisers until last year. “He doesn’t like to give anything for free, and I don’t think he’s going to start now. That’s not his style.”

None of this infantile behavior is priced in to Disney markets right now. We are currently having the biggest post-election rally in history compliments of a leaderless White House. So far, Noman is the greatest president in Dow Jones history. Next time, try Woman.

All of which sets up a repeat of last March, but this time with a hard landing. One fraught with record discord and gridlock. Under Hendry's immutable law of Disney markets, today's gamblers have been well-conditioned to ignore economic implosion. 

"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."

YOU ARE HERE:

FOMC: Fear Of Missing Crash

Gamblers are racing back into the imploding Tech bubble to seek shelter from the collapsing economy. It's all monetary heroin and Go Daddy now...

Election day featured the second best election rally in history and yesterday was the best post-election rally in history. All despite still having no confirmed leader. Clearly we are on to something good. If they stopped counting ballots and declared no winner, the Dow would instantly double. We could have a pet squirrel for president.

On the monthly view, since September there was a Trump tax cut rally, a Biden stimulus rally, and this is the no leader, no stimulus rally. Each rally has become more manic and more vertical. What took 10 days to achieve in October, just took 5 days now. All it took was the absence of a leader and no hope of stimulus. The old age home has watched this movie three times now, and they still don't remember how it ends. 

This is the largest rally since the wheels came off the bus in March. The week that also featured the primaries, a Fed meeting, and a jobs report. 

Recall that the month of October was the Biden blue wave reflation rally. The idea that a unified government would bring to bear massive stimulus. Now however stocks are rallying because the risks of having a strong economy are now receding. 

If you don't understand all this, you don't get Disney markets. It's called buy first, make shit up later. And always prefer monetary heroin over a good economy. 

What all three rallies have in common is fear of missing crash. FOMC. What happens when the largest cap Tech stocks are moon shot into the stratosphere? We found out back at the February 2018 VixPlosion melt-up - they return from orbit bidless. Nevertheless, it's highly appropriate that the MAGA caps are leading this last stage glue sniffing rally. Notably however, only Google is at new highs. Amazon, Microsoft, and Apple are well below their September peaks.

Outside of MAGA caps, semiconductors are leading the overall Tech blowoff top:

So far, the wave count remains intact.

Brick shitting panic is on tap when everyone gets loaded up with risk for the end of year Santa rally.

One can make the case that the next geezer for president is already priced in. Markets apparently got what they want, another stimulus stalemate between Pelosi and McConnell.

And a new record pandemic case load.

In summary, the algos are running flat out to get as many bulls onboard as possible. Before they hit the exits and leave the bulltards in a bidless market. Because after all, someone has to be left holding the bag. It's tradition.

Just remember, "No one saw it coming" 

Again.

MAGA Is Running On Glue Fumes

Four years and counting...

Trump is working overtime to sow the deceit that late ballots are now being "dumped" by Democrats to rig the election. Which is why Twitter put an alert on Trump's account:

Warning: Most of what this dunce says is pure fiction. He couldn't get elected with out it. 

Twitter is biased against lying jackasses. It's a conspiracy. What once was freedom of speech is now equal opportunity deception in the hands of an Idiocracy. Who needs Pravda when half the country considers the truth to be liberal? Regardless of who wins the election, we just learned the terrifying truth that after four years of incessant lying, nearly half the country still prefers Trump over reality. Inbound from outerspace, an approaching alien would be making a U-turn right about now, concluding there is no intelligent life on this planet. History will say that we tried having the smart people lead the country and when that failed we opted for the dumbfucks instead. One must exhaust all options. What I want to know is why hasn't the Deep State gotten Joe Biden elected already? You would think they learned their lesson in 2016 when they let King Donny slip through the cracks. These elites are falling asleep on the job AGAIN.

There is a book that was written back in the early 1970s called Future Shock which predicted all of this dumbfuckery would happen. The basic premise is that Globalization brings about so much unprecedented social change that the populace at large goes into a state of shock. They become fearful of the future. Society basically disintegrates:

"Alvin Toffler argued that society is undergoing an enormous structural change, a revolution from an industrial society to a "super-industrial society". This change overwhelms people. He argues that the accelerated rate of technological and social change leaves people disconnected and suffering from "shattering stress and disorientation"—future shocked"

Society experiences an increasing number of changes with an increasing rapidity, while people are losing the familiarity that old institutions (religion, family, national identity, profession) once provided"

All very prescient, and yet we face a choice to accept this change and manage the consequences, or curl up into the fetal position and find solace in the fabrications of a known con man. Recycle the same failed policies over and over again each time expecting "reflation". Each time ending up closer to a banana republic. 

Which gets us to where we are today post-election. No surprise, $350 trillion in global capital just decided today that gridlock is the best thing for asset prices. Which is surprising because just yesterday they were bidding up the reflation trade.

Nothing lies more than misallocated capital at 0% interest rates. At the END OF THE YEAR. It's Santa time, so untold amounts of sideline capital is now flowing back into Trump Casino to partake in the gridlocked deflation rally. I fully expect that by the end of this week we will find out that not only have shorts covered, but active managers are back to 110% fully loaded. The call/put ratio will be back in the stratosphere. Every investment advisor on the planet is right now telling their clients the coast is clear. 

Meanwhile, the real economic disintegration will accelerate into year end. Starting now:

The fantasy of a quick stimulus dies hard, even as it slips away:

“Now having (a stimulus package) done in early January or February becomes a big feat” 

No surprise, banks stocks are getting monkey hammered today. Deja vu of June's fake reflation rally.

That was the mid-point of the rally and this is the endpoint of the COVID rally:

This is the final rotation for the Virtual Economy, because guess what, there's no such thing.

My wave count for Tech is nested 1s and 2s, just waiting for the glue fumes to wear off:

Among the other early casualties of gridlock and deflation are gold and gold stocks. 

And gridlock won't be friendly to the top performing trade of the year, alternative energy, as solar stocks and Tesla are selling off today:

Chinese stocks have already decided Biden will win. But in reality now, no matter who wins, they are primed to implode. The last Vixplosion took place on the Monday after the jobs report and FOMC meeting. Just stating a coincidence. 

Because it might not take that long.

In summary, this fake rally is led by MAGA Tech, under the assumption that they are now protected from anti-trust legislation by the newly re-elected Sith Lord Mitch McConnell.

Sniff glue at your own risk.

And bear in mind, this is now the Y2K scenario. A contested election coming at the end of the biggest Tech bubble in decades. 

Except this time instead of 30 year high GDP and a Federal surplus, there is negative GDP and a -17% deficit. An accelerating pandemic, mass unemployment, record low interest rates, inadequate fiscal stimulus, and impending riots.

Otherwise pretty much the same. 

100% fantasy and misallocated capital.

NO LEADERSHIP

Current markets are a reflection of current politics - no leadership...

In my last post I predicted an epic clusterfuck out of this election. So far, it's been a clusterfuck. I'm not sure I would call it epic. There is something about a global superpower with 10x the population of Canada that has its entire election held up by a handful of ballots in the middle of nowhere that makes one think, maybe this is the problem:

Writing early Wednesday, clearly this a fluid situation, however these are my thoughts relative to the election and markets, "post-election" whatever that means. 

First off, the blue wave fantasy is over. In the middle of the night as odds of a blue wave collapsed, the Nasdaq went parabolic as the deflation trade came back on in size. I attribute most of that move to short-covering, however, it may continue for a while longer. After a momentous occasion such as this one there are massive amounts of option "gamma" to unwind meaning two-way volatility could linger for the remainder of the week. That said, per my last blog post, regardless of who wins at president, if the Republicans maintain the Senate then the outcome will be gridlock and more deflation.

As far as the presidential race, it's still too close to call. Trump has already signaled that he will attempt to delegitimize any votes that come in after the election. Meaning, the closest scenario we have to compare to is again the Y2K scenario between Bush and Gore. Meaning that notwithstanding some short-term options-induced whiplash, the overall trend is down.

The fact that yesterday was the second largest election day rally in history, behind November 2008, was apparently no cause for concern. Most people apparently don't know that the biggest one day rallies are always in bear markets.

Nevertheless, as I predicted, under the divided Congress scenario, the reflation trade went bidless. Just as the Nasdaq (futures) soared, the Dow (futures) and in particular small cap (futures) crashed.

The record net Treasury shorts got pole axed.

Even before the election, the commodity trade was already signaling that reflation was a fantasy, even under the best case blue wave scenario:

The key takeaway from a political standpoint whether or not Biden wins, is that Trump's presidency is effectively over. The Democrats strengthened their control over the House, which means that Pelosi will have no problem blocking McConnell and Trump on further criminality. 

Of course a Biden win would be fantastic, however, unlike year 2000, this time both sides are committed to the fighting for the presidency to the end. Which could drag this out for several weeks. In the meantime, the deflationary forces of a collapsed economy, non-existent stimulus, and soaring COVID will be raging in the background. Ultimately these forces of reality will be the deciding factor on impending economic policy. 

Meanwhile, from an optics standpoint, the collapse of the MAGA stock bubble on Trump's watch would be highly preferable to a collapse under Biden. I could just hear my MAGA in-laws telling me for the rest of time that Biden crashed the stock market, because it was all going so well otherwise. I can't argue with that kind of logic.

This week is also the FOMC decision (Thursday) and the jobs report Friday, so the potential for options manipulation for maximum pain is enormous. So far, however, the March primaries analog is still on track. We can expect a lot of "gamma" unwind to drive the casino today:

Finally, with respect to rioting and acrimony, we can fully expect that the pressure cooker combination of a contested election and a lack of stimulus is going to raise the temperature substantially between now and year-end. If Trump loses, he has already conditioned his base to believe it's because the election was rigged against him. If on the other hand, through all forms of criminality, Trump steals the election, the alt-left will likely pick up where their most recent anarchy left off.

Either way, we can expect rising acrimony into the end of the year.

With the election date passed, the wildcard is the Fed who may decide to increase quantitative easing over the next several weeks. Which may goose markets for a few days, but will do absolutely nothing for the economy. Monetary policy is no longer effective without its fiscal counterpart. Which means that gridlock has rendered the Fed inert. Ironically, the Fed has been pounding the table for more fiscal stimulus, yet it's only because they boosted stocks into bubble highs that more fiscal stimulus hasn't arrived already. The irony can't be overlooked. They are the ultimate sponsors of the virtual economy.

Other factors to consider are European implosion shown below and the impact on Chinese markets should Donny get re-elected (not shown).

In summary, notwithstanding a massive options unwind, markets are as leaderless as the White House at this juncture. The reflation trade is over and the Tech bubble will resume imploding once this final rotation ends.

As far as this Tech bubble for all ages, what we now know is that four years of Supply Side MAGA accelerated the deflationary economic decimation that ensued after 2008. Over more than a decade, each false dawn of reflation has sponsored a larger and faster rotation into the Virtual Economy. Then COVID came along at the end and put the entire insanity on steroids.

All that's left now is an imploding Tech bubble in a collapsed economy, amid mass delusion. 

Epic Clusterfuck: Base Case Scenario

All of the pundits are out war gaming the election scenarios and market outcomes, so I have to do my part. The biggest risk markets face is the fact that if Circus Donny doesn't get his way, he is going to have a biblical temper tantrum...

Soon we will know whether or not human history's largest pump and dump will continue. Or explode.

First off, we know that with less than two months to go Wall Street is leaning hard into the end of the year. They can't afford another SNAFU like 2016 when Trump won and the market exploded higher to everyone's surprise. Which is why CNBS all star bulltards such as Tommy Lee are saying that every election scenario, including a contested election will bring a happy ending for gamblers. This guy should have never quit his day job as drummer for Motley Crue. Nevertheless, he predicts a blue wave as his base case scenario, so let's start with that possibility.

He admits that under a blue wave scenario the Democrats are going to come out swinging against the mega cap Tech cartel. So take the largest sector off the table. He neglects to mention that Democrats are also going to monkey hammer Wall Street back to Dodd-Frank land. So take the second largest sector, Financials, off the table. Then they will go after the healthcare cartel, so take the third largest sector off the table. After that they will put taxes back to where they should have been this entire time. What the barely recognizable drummer from Motley Crue turned investment guru forgets is that before any of the aforementioned takes place, Big Donny is going to have a big hissy fit and pass nothing until inauguration. Leaving the cyclical trade also bidless.

That's the best case scenario.

The second scenario he posits is a Trump win. For some reason, Lee doesn't consider who wins the Senate. He fantasizes an even bigger rally than the blue wave, so we have to assume a red Senate, meaning the exact same gridlock we've enjoyed for months now. First off, what no one expects is that China will implode if Trump wins. The top performing stock market of 2020 will get monkey hammered one day ahead of the largest IPO in history. 

Meanwhile, the stimulus impasse that has continued non-stop since stimulus lapsed at the end of July will continue. McConnell has already said there will be no stimulus until 2021 at the earliest. A Trump win will only encourage him to continue his overarching goal to implode blue states. In that scenario, bond yields collapse, the muni bond market explodes, and the cyclical trade goes bidless. 

The scenario that Tom Lee omits is a Biden win with a red Senate under McConnell. In that scenario, stimulus impasse deepens and Trump throws a bitch fit until inauguration. Not pretty.

Last but not least is the wholesale clusterfuck that I expect. A contested election that drags on for weeks. Tom Lee expects markets to defy the Y2K analog and rally, albeit on a muted basis. One would have to be smoking crack to believe this guy, which is why he is the go to guy on CNBS.

If we look to one chart that sets the table for Tuesday, it would be this one of the almighty Dow.

The Shanghai Comp is standing by to get monkey hammered by an unhinged nut job and history's most leveraged IPO:

“This is huge: the largest IPO ever, priced at the top end and now this huge premium in the gray market,”

“It’s pretty extraordinary given the backdrop and it shows you how much Asia is decoupling from the United States.”

What could go wrong?

The virtual economy is at the precipice

In summary, we are about to find out whether or not four years of incessant bullshit is about to turn back into a pumpkin.

The Global Dow peaked in early 2018, almost three years ago, when the rest of the world decided they had seen enough greatness to know that it should never get re-elected.

"Seven Billion Morons Can't Be Wrong"

Yes they can...

Archaeologists will want to know how so many people bought into human history's biggest con job. We have a society unwilling to change, which is why this had to go down the hard way.

Future observers will look back and wonder how so many people bought into this delusion of a virtual economy. The central bank Jedi Mind Trick that has kept asset prices inflated while the real economy imploded in broad daylight. Now, all that's left of the virtual economy is a collapsing Tech bubble. Japanification has taught us that an aging population has an extreme preference for return on capital over return on labor. In today's situation, at the expense of return on labor. Which is why so many people are oblivious to the decimation of the real economy under COVID. 

Today's sheeple are on 100% auto-pilot. When people are historically illiterate and amnesiac it's clearly impossible for them to recognize the disintegration of society taking place on a day to day basis. Like frogs in boiling water they continually adjust to their new circumstance. A much more intelligent society would have revolted a long time ago. However, today's sheeple are of the well-cultivated belief that strip-mining the middle class while bailing out billionaires, is proof of the superiority of capitalism.

Some people tell me that I should not be angry about things beyond my control. These people believe that we should all just try to be fat and happy with whatever comes our way. However, history is made by people who know right from wrong, not left from right. By people who believe in absolute morality not relative decadence. What we are witnessing is the ubiquitous belief that if enough people are doing something wrong, then it must be right. Monkey see, monkey do.

I can't live like that. I want to face my grandchildren and say I was against this corruption the entire time. Revolutions begin with ideas. Beginning with the idea that exploiting people for zero sum gain is immoral. We live in a society that believes in caveat emptor, meaning buyer beware. A belief that has morphed into a con man's paradise. 

COVID 2020 has pulled back the curtains on this failed model. Not only do we have an aging society riddled with bad lifestyle choices, but we have an exorbitantly priced private healthcare model that is bankrupting people at a staggering rate. The combination of "consumer choice", corporate frankenfood, and widespread healthcare coverage gaps, is a death sentence for millions of people who will die young and bankrupt. For most of human history, eating whole foods was the only choice available. Today, eating whole foods is considered an elite extravagance. The people with the worst healthcare coverage are the ones forced to eat a toxic diet. Expendable guinea pigs to the corporate meat grinder. 

At some point along the line, the conservative movement jumped  the shark from doing what's right, to doing what is expedient. While adopting a delusional fantasy of returning to the fictional past. A movement that is now obsessed with pro-life at the expense of pro-living. A movement that has become far too comfortable with embracing human squalor as the price to pay for failed capitalism. 

They have Third World values. Which is good because that is their destiny.

Rapacious Criminality Rigged To Explode

When Trump heads to jail, Banana Republicans will forever be known for their corruption and criminality. With this election, they will now showcase their unlimited talent for skulduggery.

While markets explode...

If it's one thing we can expect from Trump supporters it's heinous criminality and corruption. In 2016, they used every KGB election-rigging trick in the book to barely win. Trump himself admitted that the election was rigged. But when he won, the rigging no longer mattered:

In 2018 they timed the tax cut for right before the election and Mnuchin rigged tax withholdings to give the illusion of a larger tax cut. What the middle class thought was a tax cut in their paycheck was actually just their next year's refund pulled forward:

January 2018:

"The agency is under pressure to take as little as possible so people will see big increases in their take-home pay ahead of this year’s midterm elections. But that would come at a cost: smaller or even nonexistent refunds next year, though millions rely on them to plug holes in their family budgets."

In 2019, when the Mueller report found no direct evidence of Trump's participation in the rampant election interference that took place in 2016, his people rejoiced. They totally ignored the fact that Russia was now running U.S. elections, and instead focused on Trump's exculpation in the process. Who cares about democracy as long as your own tinpot dictator gets elected? Feeling vindicated, Trump picked up the phone and called the Ukraine to demand they fabricate dirt on Joe Biden's son in exchange for U.S. military aid. For that admitted act of corruption he was impeached by the House of Representatives. 

The key risk in this election are the record mail in ballots that were made necessary by the COVID virus. All year since the pandemic began, Trump has been undermining the trust in mail-in ballots, even though he himself has used them in the past. People outside the United States can't believe the level of criminality taking place in broad daylight with the dumbfuck-in-chief:

August 2020:

"President Donald Trump frankly acknowledged Thursday that he’s starving the U.S. Postal Service of money in order to make it harder to process an expected surge of mail-in ballots, which he worries could cost him the election"

On election day this coming week, the opportunities for disruption are far greater, although they vary on a state by state basis. Each state has a different process for counting the mail-in ballots. Some states count them ahead of time. Other states count them only AFTER all of the in-person votes are counted. Since mail-in ballots skew Democratic, many fear that Trump will pre-emptively declare himself a winner before all of the mail-in ballots are counted. There are many other ways the GOP can interfere with this election, but we would have to be criminals to understand them all. What we know for certain is that there is no level they won't stoop to in order to steal this election.

"Trump has privately talked through this scenario in some detail in the last few weeks, describing plans to walk up to a podium on election night and declare he has won"

 Trump's team is preparing to falsely claim that mail-in ballots counted after Nov. 3 — a legitimate count expected to favor Democrats — are evidence of election fraud."

Many market pundits are using the 2000 year election between Bush and Gore as a template for how this could all play out. However, there are a few things they have neglected to mention. First off, Al Gore graciously conceded on December 12th even though he still had legal options to pursue. He felt that it was not in the best interest of the country to drag out the election. Had he known at the time the level of criminality that was about to ensue under GWB, Gore would have pursued the presidency to the ends of the earth. How many people in the Middle East and U.S. military are dead now because of that election? Nevertheless, we need have no fear that Trump will graciously concede until every possible obstruction of demoracy is exhausted. 

The other major difference these Y2K comparisons omit is the fact that the Tech bubble back in 2000 peaked in March and was well off the highs going into the election. Whereas the work-from-home Tech bubble peaked just two weeks ago.

Here we see the Y2K scenario:

This time around, as we see below, the market was pricing in a contested election in September. But then shorts got rinsed at wave '2' in October, which is why the contested scenario is not anywhere near priced in:

This past week, despite the largest decline since March, S&P futures net speculative reached a two year crack high ahead of the election. Since the RNC in August, futures positioning turned from net short to net long into the decline:

I predict the market will be hard down until Biden is confirmed. A record dislocation generated by record GOP criminality, bringing record COVID deaths and record financial and economic collapse. 

Every single day Banana Republicans will be reminded of the true cost of criminality. 

When the smoke clears, not one clown will be left smiling.

October 20th, 2016: