The Madoff Moment

Systemic risk is record high right now because gamblers have been assured it's low, so they were given free money to leverage up to infinity in a "risk free" market. Bueller?

"Leverage is the use of debt (borrowed capital) in order to undertake an investment or project. The result is to multiply the potential returns from a project. At the same time, leverage will also multiply the potential downside risk in case the investment does not pan out"

Way back in 2008 as the banking dominoes fell one by one, corrupt policy-makers jailed Bernie Madoff for his collapsing Ponzi scheme at the exact same time as they were bailing out Wall Street for imploding the global financial system. It was a reward for corruption that would spawn an ensuing decade+ of ever-increasing decadence that will cost today's true believers in criminality far more than they can afford...

We got news today that Madoff died after serving time in jail for a crime that is now commonplace in today's markets. By today's standards, Madoff was a pioneer in Ponzi markets. A man before his time.

Step back and realize that it's no one's job to predict when it's the end of the cycle. Economists are always wrong in real-time which is why they always back date recessions after the fact. They are always driving the car forward by looking in the rear view mirror of stale data. When they finally realize the economy is off a cliff, it's far too late. Wall Street is even worse. Money managers don't get paid to sit in cash. They are not paid to time the market, so they don't. Which means they will never reach a consensus to sell everything. Or anything for that matter. That's the "buy side". The sell side of course is far worse, since they get paid to sell stonks and bonds to their clients. So their research is riddled with conflict of interest. Therefore what do all of these "experts" do? They ALWAYS assume we are in an expansion and a bull market. Because most of the time they will be right, and if they happen to be wrong, they will all claim that it was a Black Swan event. Nassim Taleb's theory of Black Swan events  has been used to exonerate Wall Street from rampant malfeasance time and again. All of which means that home gamers are blissfully clueless. They  eagerly believe the eternally bullish forecasts they are fed, because don't want to believe anything else. 

What this means is that anyone who wants to REALLY know what is going on in the economy has to do their own research and form their own viewpoint, based upon logic, facts, and history.

The lies that have piled up since 2008 have become ever larger and more ludicrous. Each resulting crash has been more sudden and brutal than the last. The epicenter of today's big lie is very similar to the one perpetrated in late 2008. A fake recovery attended by a failed bailout. As the financial dominoes fell in late 2007 and early 2008, policy-makers remained optimistic that the financial crisis was under control. Even after Lehman declared bankruptcy (Sept. 15th 2008), policy-makers, banksters, and investors were optimistic that the risk was contained. The massive monetary and fiscal bailout had worked and therefore the dreaded end-of-cycle de-leveraging was avoided. Except the bailout hadn't worked, because there had been no real de-leveraging in the mortgage market, in the corporate debt market, and of course in the stock market. 

Sound familiar?

Fed Chief Jay Powell was on Sixty Minutes Sunday Night:

SCOTT PELLEY: "The chances of a systemic breakdown like in 2008 are what today?"

JEROME POWELL: "The chances that we would have a breakdown that looked anything like that where you had banks making terrible loans and investment decisions -- and having low levels of liquidity and weak capital positions, and thus needed a government bailout, the chances of that are very, very low. Very low."

There are many extreme risks being ignored right now. I posted them on my Twitter feed this week, here they are again. 

However, suffice to say that by assuring investors there are no risks and then by inoculating them from losses and providing infinite leverage, the Fed itself is by far the biggest risk. 

"We’ve had many more inquiries over the past year than we would normally about people wanting to utilize their assets to get transactions"

In a bull market, share pledging can make the bets more lucrative...But the risks are also doubling when the market turns volatile"

Fortunately, central banks have dampened volatility and given everyone a false sense of low risk.

On the topic of fraudulent recovery, yesterday we got consumer inflation data and based upon the headlines one would assume the U.S. is becoming Zimbabwe. This latest "surge" in inflation leaves the CPI 4% lower than it was in 2008 right before the Lehman crash. 

Somehow serial inflation fearmongers have never once been right, but they still assume they know what they're doing. As always, arrogance and ignorance are a bad combination. 

What we notice is that even though the CPI is 4% lower than it was in 2008, the concern over inflation via Google Trends (lower pane) is higher today. This is what happens when you impoverish the middle class, even small price increases seem like a big deal. Wages and prices can go lower but they can never go higher. 

Today I had a major epiphany that the Nasdaq and momentum stocks are now 100% driven by the monthly options expiration cycle. Which explains why these tops keep occurring four weeks apart.

The massive call option buying by the Reddit gang is literally pushing the market higher into opex week. And then the "gamma" lift runs out of gas and then reverses creating a gamma crash. Gamma is the variable hedging factor that market makers use to hedge their call option (delta) exposure arising from selling call options. As these options head towards expiration, the amount of stock that market makers must hold to offset their short call position declines with option decay, so they sell. Essentially option gamblers are renting capital to manipulate the market. All of this Reddit-driven market manipulation is of course widely accepted and widely ignored. 

 

What happens at 'c' is TBD. 

This week combined crypto market cap surpassed $2 trillion up from $1 trillion at the start of the year. Up 1,000% year over year.

There are thousands of cryptos now and they are all predicated upon the greater fool theory. 

Looking back on this era, historians will say that ironically the week Bernie Madoff died, is the week that Ponzi schemes became widely accepted.

According to the New York Times:

"Digital currency, once mocked as a tool for criminals and reckless speculators, is sliding into the mainstream"

Traditional banks are helping investors put their money into cryptocurrency funds"

On Wednesday, digital or cryptocurrencies took their biggest step yet toward wider acceptance when Coinbase, a start-up that allows people to buy and sell cryptocurrencies, went public"

Got that? A late cycle tool for criminals and speculators is sliding into the mainstream facilitated by the very first  criminals who were legitimized in this cycle. 

You can't make this shit up.

Party Like It's 1929

Central banks continue to expand their idiot bubble, and it's standing room only. When it explodes this time, they will all learn the hard way there's no one left to implode...

There is no safety net beneath this fool's gambit, there is only human history's largest margin call. 

Over twenty years ago the Fed had kept its policy loose into late 1999 due to the impending millennial date change. It was believed that since most mainframe computer software had been programmed with a two digit variable year and a hard-coded '19' century, that planes would fall out of the sky when the century changed and the year wrapped around from 99 to 00. Therefore, those of us in the IT industry spent the latter half of the 1990s either recoding existing systems or in many cases upgrading to SAP, Peoplesoft, and Oracle ERP systems. In the meantime, the Web 1.0 internet Dotcom bubble was taking off, Cisco, and the other networkers were implementing massive bandwidth upgrades, semiconductor demand was skyrocketing and GDP was chugging along at a 30 year high 7% annualized amid the highest rate of employment in U.S. history (employment/population ratio) and far above anything seen since. Meanwhile the Fed was printing money to ensure systems didn't explode. 

What could go wrong?

While others partied like it's 1999, us geeks were on call that night of New Year's 1999 in case our systems crashed. But as we counted down towards midnight and watched Asia's New Year go off without a hitch, we all started to wonder in what time zone the world was going to end. 

Of course when the New Year passed and there were no planes sticking out of the ground, the stonk market EXPLODED higher into 2000 greased by an overly cautious Fed. It ramped all the way into mid March and then EXPLODED lower. 

Fast forward to 2020 and whereas the Y2K era witnessed the final melt-up in the decade-long Web 1.0 bubble in on premise InfoTech, this era is witnessing the final melt-up in the decade long Web 2.0 cloud internet migration. The COVID lockdown  massively accelerated the migration and adoption of cloud based IT systems. Entering the New Year of 2021, as vaccines arrived and COVID restrictions started to lift deja vu of the Y2K date change, no surprise the Tech sector exploded lower this past February due to the mass rotation back to economic cyclicals about a month ahead of the Y2K timeline. 

I put this chart up a couple of weeks ago showing that the 48 week rate of change in the Nasdaq then and now was identical. We also now know that the rate of change in margin debt is identical as well. 

The Dotcom bubble capped off what was at the time the longest expansion in U.S. history. This COVID bubble caps off the new longest expansion in U.S. history. This era eclipses that era in terms of duration, over-valuation, IPO issuance, fiscal and monetary stimulus overload, and of course this era has zero interest rate safety net, whereas that era had a 6% cushion on rates.

All of which puts this bubble in Ludicrous Mode: 

As I showed in my last post, IPOs this year have already eclipsed the full year Y2K and are closing in on the record full year 2020. Tomorrow happens to be the biggest IPO of the year so far. It's the crypto currency exchange "Coinbase" which is going public at an all new standard for ludicrous valuations in this era.

At its last private equity valuation, Coinbase is worth FOUR Nasdaq exchanges or 1.5 NYSE (ICE parent) exchanges. According to Fortune Magazine, in no sane world does the math compute. What is more, however, is that the entire platform is massively levered to crypto currencies which are in their own mega bubble. In other words, this stock is a mega bubble priced at an insane multiplier of ANOTHER mega bubble.

"Nothing better epitomizes the zaniness ruling financial markets these days than the great expectations surrounding the Coinbase IPO slated for April 14"

"When you do the numbers, there's no way to make an argument for owning this stock with a straight face."

Is it a coincidence that Bitcoin which is the Ponzi foundation for this all new Ponzi scheme has remained well bid into this seminal stock debut? I suggest not. Wall Street is not above bidding up assets short-term in order to keep speculative interest alive long enough to exit their underwriting deals:

The February top which was eight weeks ago in February (16th), was a mere warm-up for what is coming. Last year when Nasdaq breadth crashed (lower pane) panic ensued, whereas this year gamblers bought the dip with both hands. Unfortunately markets don't bottom on mass complacency, which is why breadth is already rolling over for a much larger crash this time around. 

 

In summary, future generations will kind of understand the Dotcom bubble as I described it above. To a lesser extent they will understand the concept behind using homes as ATM machines in 2008. This pandemic bubble however is 100% Idiocracy. 

We are trapped in an idiot bubble and the central bank plan is to keep making it bigger until it reaches the inevitable Minsky Moment. Those gamblers who need to know the exact date of "inevitable" before they stop partying like it's 1999, will soon be wishing they had a time machine instead...

No Respect For Risk

One year ago in late February, central banks were easing heavily, gamblers were partying hard, risks were growing exponentially, and then the bottom fell out with "no warning"...

What has changed in the interim? Last year gamblers were ignoring the pandemic, this year they are ignoring the pandemic's aftermath. The only other thing that has changed is that leverage has increased astronomically. In the spirit of Fooled By Randomness, central banks have created a cabal of over-leveraged morons who believe they are gambling geniuses.

Which is why the revelation that they are not, will be a "Black Swan" event. A large cataclysmic event unforeseen by those who have their heads up their own asses. 

The headlines from January and February 2020 are interchangeable with the ones we are seeing right now:

Jan. 28, 2020
2020 Is Shaping Up To Be a Strong Year For IPOs

2020 was indeed the strongest year ever, but first the market crashed and margined gamblers were wiped out. Minor detail.

In 2021, the market for IPOs is far frothier. As of the end of March, 2021 has already surpassed the entire year 2000 in total IPOs:

4/1/2021:

Compared to 2021, 2020 got off to a slow start even before the meltdown. Wall Street will keep dumping IPOs until the market explodes.

It's a tradition, why stop now?

Options speculation hit records early last year, but this year's surge makes last year's look miniscule by comparison:

Feb. 13th, 2020

"Single stock options volumes have gained 77% in the last six weeks, continuing to gain after starting the year at an all-time high"

As the month of February 2020 wore on and the pandemic grew worse, there was this warning:

Feb. 19th, 2020

Mania Has Taken Over The Market, There Is No Respect For Risk

And then "out of nowhere". Kaboom. The worst high to low crash in market history.

Fast forward one year and Bill Hwang's story is straight out of Nassim Taleb's Fooled By Randomness. An arrogant cocky trader finds early success in the markets, so he keeps doubling down and parlaying his gains into ever larger bets, until he explodes spectacularly.

He lost his entire net worth of $20 billion in two days. 

There are now untold numbers of Bill Hwang's in these markets. Newbies who now think they are investing geniuses. They've been bailed out by central banks so many times, they believe they are invincible.

However the other deja vu story that keeps getting ignored is the fact that corporate debt markets were already on the ropes last year. And ironically, the COVID pandemic saved the Ponzi market, by making it far bigger.

Jan. 22, 2020

"One of the consequences of the [central banks] easing again...is that they’re feeding the zombies, the walking-dead businesses that would be out of business by now if it wasn’t so cheap and easy to get credit"

Today 50 percent of the investment-grade market is rated BBB, and in 2007 it was 35 percent"

Got that? The end of cycle zombies were on the ropes, but they got refinanced one more time thanks to a pandemic. Now the Fed no longer has magical abilities to buy corporate bonds in the secondary market, and the LQD bond ETF just experienced record outflows. What the central banks did was kicked the debt can one more time. 

However we are to believe that the pandemic "fixed" the corporate debt problem by making it far larger. Only zombies would believe such a thing:

In summary, the glue fumes from this latest central bank asset recovery are wearing off, so they need a new excuse to intervene in markets.

In the meantime, the margin clerks will be showing today's newbies how to sell stonks. Because they apparently didn't learn that lesson last year.

When they get wiped out, central banks will come back in to buy the dip again. 

The machines are about to get Bill Hwang'd x 100 and Skynet will be offline by the end of it all.

Position accordingly. 

All Time High Fraud

Central banks are sponsoring mass stupidity and rampant fraud. The masses are now convinced it will continue forever. They are apparently unaware of the cardinal rule of pump and dump schemes - one must get out BEFORE they end, lest they become the greater fool of record...

One thing all of today's rotating pump and dump schemes have in common is that they are driven by fraudulent narratives. From Gamestop to SPACS, to Crypto Ponzi Schemes to Ark Funds, to economic cyclicals, they are all predicated upon a zero sum view of markets. One person's gain is another person's loss, and the losses are piling up silently in the background. Somehow this society's moral collapse has always remained one step ahead of the latent economic collapse, now papered over with 20% of borrowed "GDP". 

We can blame central banks all we want, but no one forced these people to believe these fraudulent narratives. For example no one forced them to believe that the post-COVID economy will be better than the pre-COVID economy, and yet based upon valuations and investor positioning, that is the assumption. 

Notice that the IMX positioning indicator is higher today than it was pre-COVID. Based on the ubiquitous view that only liquidity matters:

I read two bearish articles this weekend and now I understand why people are so one-sidedly bullish. Both articles cited various risk factors but then they concluded in a very ambivalent way that central bank liquidity can keep this party going indefinitely. In other words, today's "bears" share the consensus view that central banks are invincible:

MW: The Stock Market Has A 'Binary' Feel To It

"With all of that said, I could be wrong. This bubble-blowing bull market might rage on for three more years without looking back"

RIA: Market Surgest To Overbought As Investors Go ALL IN

"This does not mean “sell everything” and go to cash. We remain in the seasonally strong period of the year, psychology remains extremely bullish, and liquidity is still flooding markets"

"Over the next few weeks, there is little reason to be “bearish.”

If this is the bearish viewpoint, imagine the bullish views at this juncture. First off, given the murkiness of the economic outlook, today's forward P/E valuations are rife with fraud and deception. As far as technical overbought metrics, those haven't mattered since the election. And today's lopsided sentiment tells us that a lot of people will be wiped out by reversal, but it doesn't pinpoint the date.

Ironically, it's this implicit view that central banks are omnipotent that is by far the greatest risk to markets. This consensus view is encouraging people to do very stupid things with money right now under the belief they will get away with it forever.

In the corporate credit markets all manner of Ponzi borrowers are currently being funded. How bullish is it that central banks are now funding record junk bond issuance?

“It’s really hard to keep up with the issuance...Now the pendulum is shifting a little bit toward more aggressive behaviors”

In 2020, annual sales zoomed past the previous record by over $100 billion"

Emerging markets borrowed record amounts of money in 2020 and now they are facing rate hikes and currency declines, putting pressure on their ability to service their record debt load. All resulting from bullish "free money":

 

The SPAC market I've said many times is this era's stock market version of subprime, riddled with fraud. 2020 was a record year for issuance and 2021 has already surpassed 2020 on IPO issuance and doubled 2020 on impending listings.  

The housing market is now back in bubble territory.

In other words, Gamestop and Bitcoin are chump change next to what is going on in large scale financial markets.

But the biggest fraud of all is this fantasy global recovery that consists of stock market prices front-running a fictional economy.

Deja vu of last time:

"On the morning after Lehman Brothers filed for bankruptcy in 2008, most Federal Reserve officials still believed that the American economy would keep growing despite the metastasizing financial crisis"

"The transcript for that meeting contains 129 mentions of “inflation” and five of “recession.”

What the Fed didn't know in September 2008 is that the economy had already been in recession for NINE months. Why didn't they know that? Because their own crisis-driven policies were bidding up risk asset markets and commodities, creating a feedback loop of market-driven "inflation" having nothing to do with the real economy.

They fooled themselves. 

Meltdown Is A Crowded Trade

Somehow Wall Street convinced the dumb money that a 16 day bear market corrected an 11 year bull market. How did they do that?

We just learned that more money flowed into stocks in the past five months since the election than in the twelve YEARS prior:

Which perfectly fits the definition of a broadening top:

"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. In its formation, most of the selling is completed in the early stage by big players and the participation is from general public in the later stage"

This past year was the Dow's biggest annual gain in history to an all time high. As we note from the chart above, the other two massive gains in the past two decades came at the beginning of the cycle. Which is why today's herd is convinced this is a whole new cycle. After over a decade, they finally came off the sidelines and bid up their own stonks to ludicrous valuations and now they assume there is another fool to follow. 

The last time the Dow gained a similar amount year over year was March 2009 through April 2010. Then the market exploded in early May in the infamous "Flash Crash". Of course, this time around the gain is larger and the risks are 10x in magnitude. 

Picture their reaction when what they thought was the beginning of a new bull market turns out to be a retest of last year's low. And when that fails, it turns out to be a retest of the 2009 low.

Epic shock and awe followed by epic rage.

Still, the vast majority of pundits remain sanguine. Wharton Finance professor Jeremy Siegel sees 30% upside from these levels.

He like so many others is convinced that printed money is the secret to effortless wealth:

"I think interest rates and inflation are going to rise well above what the Fed has projected. We’re going to have a strong inflationary year. I think 4% to 5%”

Got that? The Fed will lose further control over interest rates but stonks will go up regardless. High quality financial insight from a renowned Ivy League Ponzi schemer. 

What I showed on Twitter is that the weekly AAII retail bull - bear indicator is at the highest level since 2018, confirming the Ameritrade IMX positioning indicator:

Bears keep getting stampeded by dumb money, so what we see via the NAAIM survey is that deja vu of last year, active managers have decided if you can't beat 'em, join 'em. This week they took their risk exposure off of crash levels back up to last year's pre-implosion level of fat and happy:

Here we see the current state of large cap Momentum stocks. The largest holdings are: Tesla, Microsoft, Apple, Nvidia, Amazon, Paypal, Adobe, and Google. The Full Monty.

It has now retraced slightly more than .618 fibo of the wave 1 decline. Also we see in the lower pane that new Nasdaq highs have been diverging massively since the top in February. This tells us there are very few stocks holding this gong show up now. Which means that the impending decline will be very fast and catch many people by surprise.

Unlike last year, the divergence between the average Nasdaq stock and the major averages (S&P, Dow, NDX) has grown acute and unnoticed:

My advice to bulls is to enjoy the ride. Because it's a one way trip.

SUPER CYCLE MELTDOWN PREVIEW

The January Gamestop debacle, the February Nasdaq crash, and the March hedge fund margin call should have warned gamblers as to the magnitude of what is coming. This year has already seen far higher volumes and far more brokerage outages than all of 2020. Last year's meltdown set a new record for the fastest high to low crash in history. This year's crash will beat that one by a country mile. Central banks, momentum algos, hedge funds, and over-leveraged newbie gamblers have collaborated to create the perfect recipe for a bidless meltdown of biblical proportions. One thing they all have in common, is that they specialize in ignoring obvious risk...

When Congress held hearings on the Gamestop debacle their sole concern was that brokers had blocked access to the pump and dump. They had no interest in the fact that every major retail broker was taken offline by the massive volumes. Of course that event caused an even greater rush of newbie investors into the casino. When the Nasdaq peaked and crashed in February, the down volume made last year look like a picnic. You don’t have to be a genius to predict what’s coming, but you do have to be able to fog a mirror.

We see via the IMX (lower pane) above that the decline off of the head of the head and shoulders top, got bought with both hands. And we now know that the most popular stocks were Tech stocks. However, one must ask what happens to down volume in this next decline?

It will be cataclysmic. 

Two weeks ago, several institutional brokers (Morgan, Goldman, Credit Suisse, Nomura) fought each other to dump stock from a single shared hedge fund client "Archegos", at any cost. They liquidated all of the holdings at any price to raise cash.

Now picture what happens when that liquidation process is repeated a hundred times over. This time around massively levered Robinhood newbies will be pitted against hedge fund managers who are on their way to new careers bagging groceries. One thing they have in common, they all over-own the largest mega cap Tech stocks.  

Another trade that got very crowded recently is the Yen carry trade. In times of financial turmoil, the Japanese Yen is viewed as a safe haven. However we just learned that hedge funds are shorting Yen at a two year high. They are extremely confident the one year+ RISK ON party is only getting started:

And yet we see here that dollar/Yen is extremely overbought and is already rolling over deja vu of February 2020:

Many people are of the belief that Bitcoin is the new safe haven. Safer than gold. Which is why it's now the most crowded trade on Wall Street:

We also just learned that cryptos took in record inflows during the first quarter: 

"Inflows into cryptocurrency funds and products hit a record $4.5 billion in the first quarter, suggesting increased institutional participation in the once-maligned sector"

When they say that the dumb money comes in at the top, in this case the dumb money are the hedge funds, which waited until it was up 1,000% off of the 2020 lows to finally go ALL IN.

Ever heard of a blockchain death spiral?

Bitcoin evangelists will claim that it's a purely hypothetical event, however it has almost happened several times already. The idea is that if the price of Bitcoin crashes below the cost of mining each Bitcoin, then miners will leave the network en masse and the overall network will grind to a halt. Meaning anyone who owns Bitcoins can't sell them. Regardless of whether or not an outright network halt occurs, the congestion on the network could increase to a point at which there is no liquidity and hence no way to get out. Back in 2018, when Bitcoin crashed, the transaction fee to buy and sell a single Bitcoin reached a ludicrous $34. In other words, Bitcoin liquidity dries up when it is needed the most. When sales transaction volumes spike, miners leave the network.

This inherently unstable Bitcoin design is somewhat similar to high frequency trading in the stock market. Both HFT and momentum (CTA) algos remove liquidity when volatility explodes, because they are programmed to reduce leverage based upon the level of volatility. Which is why flash crashes are so common in today's market. There is no one on the other side of the trade.

It's called volatility targeting and it's a disaster waiting to happen. 

Which gets us to the chart of the day: This week so far has seen the lowest market volatility since the February 2020 top.

A Bollinger band squeeze is an explosive volatility event that takes place when volatility reaches a new six month low.  

Bollinger Band Squeeze:

"While it can be a real challenge to forecast future prices and price cycles, volatility changes and cycles are relatively easy to identify. This is because equities alternate between periods of low volatility and high volatility—much like the calm before the storm and the inevitable activity afterward."

Indeed. 

In summary, Robinhood/Reddit gamblers and hedge funds are all massively leveraged to the exact same Tech stocks and Bitcoins. The recent low volatility has created a feedback loop of ever-increasing complacency and leverage. Global gamblers have not even the slightest clue what is coming. 

When the global Nasdaq was at this level of decline one year ago, we see that bearish sentiment was much higher than it is today:

Due to central bank sponsored moral hazard, gamblers have now onboarded a lethal level of risk. 

Bitcoins, Treasury shorts, Yen Carry trades, Tech stonks, Biotechs, they are all the same trade now called "RISK ON". And it won't matter which asset class crashes first, because they are now all 100% correlated via margin calls. Margin clerks generally sell the strongest assets first. Which means that if they can't sell Bitcoins, they will sell Apple instead.

Conditioned To Implode

Central banks have gamified markets. Social mood has been reverse engineered to suck in as many risk takers as possible. Clueless newbies, propagating self-delusion, are right about one thing - this is nothing like Y2K. In this era there is 10x as much monetary heroin as there was back then. For addicted gamblers, the temptation to self-destruct is overwhelming...

One thing all of today's daytraders, gamblers, and 401k zombies have in common. They all believe that printed money is the secret to effortless wealth, and they've hit the motherlode. 

Before I get to markets, I want to revisit the delusional assumptions that abide this fraudulent "recovery". First off, given the insane amount of combined stimulus, it's impossible to know the state of the underlying economy. It's impossible for economists to pinpoint the true beginning and end of the recession, because it's been papered over with 27% of GDP stimulus. Regardless of whether or not this is  a continuation of the longest cycle in history, or we just experienced the shortest recession in history, what we know for certain is that for the first time in U.S. history there has been zero de-leveraging at the end of the cycle. Which is the key factor that separates this event from 2008. What until COVID was the longest expansion in history, is now officially the longest period of time between de-leveraging events. That distinction only matters if you're a bankster whistling past the graveyard. 

Which is why in his annual shareholder letter Jamie Dimon posits that this debt-fueled "expansion" is only getting started. His unwritten assumption is that we are now Japan and therefore debt no longer matters.

The debt cassandras are wrong again:

What Dimon is describing is what I penned several weeks ago in what I called "The Wall Street recovery". It's another recovery for the rich at the expense of everyone else. Which means that it will not feel like a recovery for most people. 

Dimon's critical miscalculation is to believe that the entire world is now Japan. Unfortunately however, Emerging Markets don't have reserve currencies and the ability to borrow infinite amounts of money. 

We are already seeing the beginning of a deflationary impulse out of China as they tighten up liquidity. It's the key difference vis-a-vis 2008 when China pulled the rest of the world out of recession:

"Credit curbs will drain liquidity from the stock market and pressure sectors with high valuations"

Can the U.S. borrow insane amounts of money from the rest of the world, explode global interest rates and global currencies AND pull the world out of recession? Surprisingly not. 

Which gets us to the markets. 

First, I will recap the first quarter. Markets got off to a vertical start in January fueled by stimmy 2.0. It was all going gangbusters until near the end of the month when the Gamestop pump and dump scheme almost imploded the global financial system amid record Nasdaq volume and widespread broker outages. 

For some reason, that near disaster inadvertently caused an even bigger inflow of gamblers to the casino. The last week in January saw a 500% increase in Robinhood downloads to 2.1 million. However, other brokers saw even larger increases after Gamestop imploded:

"Week over week, Fidelity app downloads increased 900%, E*trade was up 720%, Ameritrade 575%, Schwab 339%"

All of that new money rushed into markets and pushed the Nasdaq to a new all time high in mid-February, and then it imploded giving back three months of gains in three weeks. 

Then began a rally back in what is so far a three wave correction, fueled by stimmy 3.0. In other words, it's Groundhog day. Bulls are ready for new all time highs, except we see there are major breadth divergences developing on the right shoulder:

In addition to the divergences you see above, we have now learned via Ameritrade's proprietary investor movement index, what gamblers were up to during the month of March:

"The Investor Movement Index, or the IMX, is a proprietary, behavior-based index created by TD Ameritrade designed to indicate the sentiment of individual investors’ portfolios. It measures what investors are actually doing, and how they are actually positioned in the markets."

March summary:

"For the fourth month in a row, exposure to equity markets increased in TD Ameritrade client accounts. During the March period the IMX increased 8.74%, or 0.66, from 7.55 to 8.21."

As the summary describes, gamblers put most of their money into Tech stocks in order to BTFD.

Now, we see below that the IMX is at the highest level in three years. Far from capitulating in early March, gamblers doubled down on the Dotcom 2.0 Tech wreck.

What could go wrong?

Now, compared to mid-February, the stakes are much higher. Nevertheless, bulls are recycling the same lies and bullshit that didn't work the last time. This time, there is no stimmy 4.0 to bail them out. This time, Nasdaq new lows will explode. This time NYSE new lows will also explode, as cyclicals will not save the broader market as they did in February. 

This time, gamblers will come to realize they bought the dip for the last time. In Elliott Wave parlance what is coming is known as a third wave down. It means panic mode. 

And it most likely means a re-test of last year's lows, just to make sure everyone wants to own over-valued stonks, in a global meltdown. 

Sadly, the myth of central bank invcincibility dies at the hand of the margin clerk.