A Gong Show Grand Finale

Never before have greatest fools and Nobel economists been in such cozy intellectual consensus. A combination of factors are coalescing to ensure that this crash is the one that pulls back the curtain on this central bank con job. This impending magnitude of dislocation will ensure everyone realizes that transparent criminality is profound evil packaged as virtue...

"So our wisdom, too, is a cheerful and a homely, not a noble and kingly wisdom; and this, observing the numerous misfortunes that attend all conditions, forbids us to grow insolent upon our present enjoyments, or to admire any man's happiness that may yet, in course of time, suffer change. For the uncertain future has yet to come, with every possible variety of fortune; and him only to whom the divinity has continued happiness unto the end we call happy; to salute as happy one that is still in the midst of life and hazard, we think as little safe and conclusive as to crown and proclaim as victorious the wrestler that is yet in the ring"

- Solon by Plutarch

Former hedge fund manager Hugh Hendry warned back in late 2014 that central bank alchemy would have a Keynesian body and an Austrian tail. Meaning that it would last long enough to convince the masses that it was working and then it would final monkey hammer them at the end. It would all end in tears at some "unknowable" time in the future. He was right. Despite the roller coaster ride since 2015 when China's last bailout failed, the S&P 500 has churned out new highs, sucking in the capital and the dreams of those who have complete confidence in record alchemy. Drugged by the virtual simulation of prosperity and its acolyte QE. Central banks being nothing more than monetary drug dealers administering euthanasia to the zombified masses. 

It's clear that gamblers still haven't figured out that 0% interest rates imply 0% real economic growth. Or maybe they don't care that all returns are a zero sum game. Only their own RECORD misallocation of capital has been driving this Ponzi market ever higher. All convinced in this zero sum game that they will cash out for maximum profit. Unfortunately, they will all soon realize that the only thing more painful than wasted money, is wasted life. 

So what are these "unique" risk factors that I speak of. First and foremost, Millennials discovering investing at the end of the longest cycle in U.S. history are the biggest single risk to these markets. We already saw a glimpse of this earlier this year during the Gamestop debacle. ALL of the major online brokers experienced outages when that pump and dump scheme exploded. Pundits described it as the "democratization of markets". They extolled the boiler room on Reddit as the "future" of markets. 

"A message board destroys a top Wall Street hedge fund. You’ve surely heard about the WallStreetBets/GameStop saga by now. Many investors see it as a sign markets are headed for a crash"

Google searches for “stock market bubble” just hit the highest level ever. And a new E-Trade survey found two-thirds of investors think the market is in a bubble"

Then he goes on to explain how this is all very bullish. Of course he has been right so far in 2021, although September just recorded the worst month since March 2020. We saw this same pattern back in 2018. Google trends "stock market bubble" peaked in February and was trending lower when the market unexpectedly tanked in the fourth quarter. The same pattern is happening now. 

Meanwhile, the amount of dislocation we saw back in February vis-a-vis online brokers was unprecedented even relative to the COVID collapse in 2020. A single stock pump and dump scheme caused more dislocation than a global pandemic.

Here in this chart below, I use Ameritrade as an example, but ALL of the online brokers experienced volume-related outages back in February and March of this year. Even more so than in 2020. Why? Because of the massive volumes of newbie traders democratizing pump and dump schemes.

Millennials have never seen a bear market before, which is why they believe that down markets and margin calls are mere folklore. They are convinced they can ride out any market on maximum leverage. All they need to do is double down and ride it out.

Here we see the equity put/call ratio remains near record lows relative to other major selloffs:

While invincible retail gamblers have been loading up on risk, institutions have been taking down their exposure. This can be seen in this chart of up volume / total volume. The divergence relative to recent all time highs is massive:

The market is disintegrating in broad daylight. This most recent rally high was led by a handful of massively overowned Tech stocks. Now, amid the Fed's impending taper, these last mega caps are starting to lose their bid. It's only a matter of time before the algos step back from this Disneyfied "market" and it goes bidless.

In summary, us "perma bears" have been "wrong" all this time while the masses added record leverage to their Ponzi scheme during a depressionary pandemic. This monetary-fueled asset mania coming at the end of the longest cycle in U.S. history has served its purpose of concealing the weakest and fakest economic recovery in history.  The CBO predicts that the 2021 Federal deficit will be 13.4% of GDP, while the GDP growth rate will be 7%.  Had the same amount of stimulus been applied in past recessions, there would have been no recessions in U.S. history. 

Why mass deception is considered good economic policy is not for me to say. 

Millennials are nothing more than the latest cannon fodder for Wall Street's massive money machine which thrives on monetizing ignorance. And in this society, there is a bull market in ignorance because the IQ bar keeps going lower, and lower, and lower.

Any questions?

"CNBC Documentaries presents “Generation Gamble,” a comprehensive look at the proliferation of online investing, crypto and sports betting apps and how a new generation is being encouraged to act more aggressively towards money and risk. Reported by CNBC’s Melissa Lee, this hour-long original documentary explores a new era where the boundaries between gaming, betting and investing are blurred, and younger consumers are being targeted"

It's transparent criminality, America's latest business model. 

Global Warning Ignored

Denial is now the most popular ideology. It's the only "principle" that Democrats and Republicans share in common. Only the details around avoiding reality differ...

The World ex-U.S. has rolled over every three years for the past decade. This year it finally eked out a new high above the 2008 prior all time high, and now it's rolling back over again. Everything about the past decade+ since Lehman has been a con job propagated against the middle class by the very people they bailed out post-Lehman. A mistake that won't be repeated.

China's honeymoon with crony capitalism is ending in real-time. Whereas U.S. policy-makers give scant lip service to tackling wealth inequality, the Chinese government is taking definitive steps to close the gap. Will it work? Yes, but the exact opposite way they expect. Sadly, Ponzi schemes don't go in reverse, therefore they will be successful in wiping out the majority of investors. 

In my last post I asserted that the greatest market risk is due to the moral hazard arising from continuous monetary bailouts. Now, in relation to this Evergrande collapse the PBOC agrees:

"China has sent a “clear message” over its disapproval of expansionary monetary policies, especially the asset purchases widely favoured in major Western countries"

“The long-term deployment of asset purchases could harm market functions...blurring of the boundary between tackling market failures and monetary policy could trigger moral hazards”

Too late. There have already been far too many monetary bailouts during the past decade, and the PBOC participated in the majority of them. Where do they think the name "Ever Grande" came from? At the end of the credit cycle they have decided now is the right time to remove QE asset value support. 

As Warren Buffett says, the wise man does at the beginning, what the fool does at the end.

The U.S. on the other hand is pursuing a model that I call "transparent criminality". There is an abiding belief that as long as everyone knows the system is rigged then it's ok. Everyone knows QE is welfare for the rich. Everyone knows that wealth inequality is at a record high. Everyone knows that Fed members are front-running the stock market. Everyone knows that Robinhood is a front-end to Citadel's HFT dark pool.  Everyone knows that Wall Street is profoundly corrupt and rife with conflict of interest. 

Therefore, it's all ok.

Case in point, housing bubble 2.0 has now achieved dimensions that dwarf the first bubble. But everyone knows it's a bubble, so it's apparently not a problem this time around.

"It's surprising the timing of this," Shiller said. "It came starting in a recession. We're supposed to be depressed and yet we seem to be exuberant in the market."

I have spoken many times about the "politics of inflation". Those seeking to cast aspersion on Biden's policies have succeeded in convincing the masses that prices will ONLY go higher from this point forward. And therefore, buy NOW before it's too late. Coming at the end of the cycle this widespread buying panic can only backfire in the worst way possible.

Any questions?

Similarly, in the oil market we hear the same thing about record inflation. Here is a note from Morgan Stanley claiming that these current oil prices are stifling demand.

However, the inconvenient truth is that today's oil prices are HALF what they were in 2008, not adjusting for inflation. Adjusted for inflation, today's "recovery" oil prices are the lowest since 2008. Meaning this is by far the weakest oil price recovery in the past decade despite RECORD stimulus.

In this geriatric old age home of a society, the bar keeps going lower, and lower and lower. 

Which gets me to this backup in yields that is taking place this week. We've seen this movie before and a few of us even remember the ending.

Specifically, the last time oil stocks led the market such as now was June 2020 just as yields peaked and then imploded.

As yields climb however, they have had the effect of monkey hammering Tech stocks. Here we see that the IBD 50 is back below the February breakout line in what can only be described as a very violent reversal of fortune aka. bull trap:

Has there been a time when reflation plays, Tech stocks, and safe havens rolled over at the same time?

Not since March 2020.

We learned recently that year to date NET stock market inflows in 2021 now exceed the past two decades combined. All it took was a global pandemic. 

What the wise man does at the beginning, the fool does at the end. 

In summary, inequality in the U.S. is going to get "fixed" the same way it's going to get fixed in China - the exact opposite way anyone expects. 

China's crackdown on crypto Ponzi schemes, stock market scams, over-leveraged property developers, Tech oligopolies and wealth inequality is a widely ignored warning as to what is coming worldwide. The U.S. ideology of mass denial is lethal when combined with the policy of transparent criminality. 

The policy and ideology divergence that has opened up between the Fed and PBOC will be a critical factor in this impending meltdown. Per the rules of Globalization, the supply side (China) must not grow slower than the demand side (U.S.), otherwise the currency flows ("hot money") will implode Emerging Markets:

Manias, Pandemics, And Crashes

We have achieved perfectly virtual markets to match the virtual economy. The Monetary Cargo Cult is convinced they have discovered the El Dorado motherlode...

The pandemic was the most deflationary event in modern history - an unprecedented lockdown of the global economy. An event that spawned the final epic stage of the post-2008 global credit bubble as record liquidity flowed out into every asset class, secured by a larger tranche of debt. The exact same central bank bailout cycle we have witnessed multiple times over the past decade. Each time amid the abiding belief that we have successfully borrowed our way out of a debt crisis. 

China Evergrande is a mirror image of the global economy. A property developer that has piled on ever-more debt with each successive round of monetary bailout until it reached its Madoff Moment wherein asset values have now fallen below liabilities leading to negative equity and an incipient margin call.

The majority of pundits were claiming last week that the Chinese government would never allow Evergrande to default on its debts. However, this week the company began defaulting on its debts. Now, these same morons are claiming that this Evergrande default is NOT another Lehman event. They claim that this is an isolated event that will have no systemic impacts. They ignore the fact that Evergrande is merely a symptom of a much larger problem.

The problem is moral hazard and the fact that central banks have orchestrated non-stop monetary bailouts since 2008. Now, global speculators no longer fear risk or leverage. They embrace both. Ironically, it's precisely because markets did not sell off this week on news of the default that Beijing has been emboldened to pull the plug on this massive Ponzi scheme. Had markets feared default and sold off into the event, then the PBOC would have orchestrated yet another bailout. Moral hazard complacency has now reached back into the central banks that created it in the first place emboldening them to pull the plug on their own Ponzi scheme. 

Likewise, the Fed this week warned that QE "tapering" is coming at their next meeting which is a mere five weeks away. Deja vu of September 2008, they were more concerned about "inflation" than the dominoes already falling in China. There was not one mention of Evergrande or contagion. 

We must remember that the same "relief" rally took place in September 2008. October however was not quite as kind.

We also learned this week that U.S. margin debt hit a new all time high in August:

Sadly, the price-weighted Dow is now a better indicator of overall market health than the market cap weighted S&P 500. The inevitable result of a central bank manipulated liquidity rally concentrating all gains into a handful of massively overowned deflationary Tech stocks. The prime beneficiaries of the virtual economy.

Here we see this is by far the Dow's longest stretch below the 50 dma in 2021. If this wave count is correct then the next stop is the 200 dma (red line) which is -10% from the top. If that line is breached then the wheels come off the bus.  

This chart shows that the 90 day average of down volume over total volume is the highest since the 2020 crash, and before that the 2018 crash. We have never seen this much down volume on such a nominal pullback in the market - an indication that institutions have been selling into strength. To the usual end-of-cycle bagholders. 

What we have to realize is that there is a class of "investors" who have been told that they MUST own stocks no matter how much risk there is in the market. They have been brainwashed to believe that buy and baghold is the only way to increase wealth.

They will soon be disabused of this misdeception.

As a measure of complacency and delusion, we can see that the largest IPO pump and dump in history is only "getting started". Looking back at this "Black Swan event", market historians will cite the mass overload of junk supply as a key factor in this impending meltdown.

Wall Street will continue to dump junk until the casino breaks,  which by the looks of market breadth, will be anytime soon.

Gold is continuing to warn that "inflation" is a hoax propagated by those who traffic in conspiracy theories and ad-sponsored disinformation.

Likewise, Bitcoins are heading for a third wave down at all degrees of trend. The clearest indication of imploding social mood:

In summary, this society specializes in turning a blind eye to deflation and  mass poverty. For them, exploitation is merely a business model.

It is their FATAL blindspot and indicative of Third World values.

Momentum speculators took this Evergrande default as an opportunity to bid the riskiest stocks further into the stratosphere.  The pattern is deja vu of 2018, however, this time gamblers have made an ALL IN bet on central bank welfare for the rich.

I predict that this time around it will be all central banksters can do to keep the Treasury bond market from exploding. By the time they get that under control, everything else will be a smoking crater. 

As always, the burden of truth falls on those of us not suffering from dementia.

The Global Minsky Moment

The incipient China Evergrande default finally caught up with global markets. The $200 trillion question on the table IS - is this the global Minsky Moment and is hyper asset deflation imminent?

Today Zerohedge was boasting that they had "predicted" the Evergrande global contagion. And yet they continue to constantly push their hyper-inflation hypothesis. If this IS a global Minsky Moment then we are on the verge of hyper-deflation, not hyper-inflation. Hyper-deflation being a situation in which EVERYTHING is on sale at the same time and no one wants to buy ANYTHING because they are all busy raising cash.

The "trigger" for this event may well be the most leveraged property developer in world history (Evergrande), however from there the downstream effects will ripple out to EM currencies which have been rolling over for months. And from there, crypto currencies will be another domino that already entered bear market back in May of this year. From there it will be a short jump to retail speculators many of who own both stocks AND cryptos in their Robinhood accounts. Of course the Gamestop debacle way back in January was a widely ignored warning of potential retail panic turning into stock market systemic risk.

Remember this?

What we saw back in March 2020 and what we are witnessing again, is that cryptos and stocks are highly correlated. To the downside. We see in the top pane, S&P breadth began rolling over back in May at the same time that crypto peaked. And then they both bottomed at the same time. And then both completed a second wave retracement to a LOWER high:

Nevertheless, U.S. stock bulls remain sanguine as they bought the overnight Evergrande dip amid no signs of panic whatsoever. Here we see via the % of S&P stocks above the 200 day moving average, that breadth is the weakest of 2021:

It should be noted that Dow Transports never confirmed the late August "Jackson Hole" high in the S&P 500. Now we see Transport breadth is back in the crash zone. 

As I noted on Twitter, Bill Gross top ticked the S&P Jackson Hole high with his "Cash is trash" comment. The same way Ray Dalio top ticked the market in 2018 AND 2020 just before the pandemic meltdown. Meanwhile, for those who will say there was "no warning". Record option skew was right AGAIN. Albeit it was the second high that accompanied the rollover. The same as last times. 

In summary, the Fed is on the verge of tapering their monetary policy at a time when the markets are already beginning to crumble. 

Capital markets are now 100% dependent upon monetary welfare for the rich. 

Which is by far the biggest unspoken risk - social mood collapse as evidenced by decade low consumer sentiment and impending bailout failure. There is no way under these conditions that billionaires will get another bailout. The losses will fall where they may. 

Worse yet, the economy that essentially drove the entire world out of deflation in 2008 was China. This time around, China is the weakest link. Therefore they will be flooding the world with deflation on a massive scale via competitive debasement.

Now imagine all of this dislocation taking place while Chinese markets are on a two day holiday break. They will be back in session Wednesday morning Asia Pacific time.

The Fool Or The One That Follows?

Sadly, in an Idiocracy, there is no strength in numbers. Far too many people nowadays are seeking consensus from like-minded fools. On the 13th anniversary since Lehman, these corruption zealots STILL haven't learned that con men can't be trusted. The revelation will be biblical in scale and impact...

As the world implodes in real-time, led by the second largest economy and the most important economy from a marginal demand standpoint, still there remains a steadfast belief in "inflation", bought with both hands by true believers in serial fraud and criminality. 

In my last post I laid out the case for why we will soon see record deflation as China implodes for the last time in this "cycle". Ironically, it was the U.S. property market that imploded in 2008, while China led the world to recovery. This time around, China is the weak link as their property market has continued to become ever more over-leveraged since Lehman.

Too many people nowadays have been convinced that a collapsed standard of living is driving "inflation". They believe that losing a full time job with benefits and turning to gig work is driving up their cost of living. Hence they believe the inflation hysteria. However, on a macro level, millions of people losing full time benefits and turning to marginalized "gig jobs" which generally pay a fraction of the wages and ZERO benefits, is highly deflationary. It takes a huge chunk out of long-term demand. 

Nevertheless, the inflation hypothesis is rampant and of course it's politically motivated to cast aspersions on Joe Biden's economic program. And therefore it's self-fulfilling, people are told there are shortages so what do they do they hoard merchandise - homes, and cars, and AR15s etc. In the process THEY are creating the self-fulfilling "inflation". Nevertheless, it's not sustainable by any means. It's solely a function of cheap money and record leverage and collapsed morality.

"Never seen anything like it," Musk tweeted on Wednesday. "Fear of running out [of computer chips] is causing every company to overorder — like the toilet paper shortage, but at epic scale."

"That said, it's obviously not a long-term issue".

There is nothing obvious in an Idiocracy. They specialize in ignoring obvious risks and they've been incentivized by central banks to do so.

Semiconductors are at the intersection of the spike in car prices and the spike in Tech stonks. Last week, China fined three auto parts distributors for hoarding semiconductors in order to drive up prices. I know. 

When semis reverse this rising wedge, the auto bubble AND the Tech bubble will explode at the same time. There is no way a hundred dollar part is worth an additional $8k for a $35k car I was checking out recently.

In the deflationary collapse, cars will be selling for cents on the dollar.

There are only two real sources of sustainable inflation in this  pseudo-economy - college tuition and healthcare. These two eminently corrupt cartels have far outstripped the rest of the economy in price increases year after year. And in doing so they have forced the middle class to cut costs in every other part of their lifestyle. Again, that is not overall inflation.

This hoarding obsession at the brink of the most deflationary crisis in world history can only end catastrophically for those people who believe in it. The deflationary instinct is to cut debt and leverage and reduce lifestyle, which is what the masses should be doing right now if not the past decade since the Lehman warning. The inflationary instinct however is to expand debt and hoard merchandise, which is what the sheeple have been doing. Once again, Wall Street's penchant for being wrong at the end of the cycle is coming around one more time for bailout. And this time who can the sheeple blame but themselves for believing today's ubiquitous con men. The inflation hypothesis which is spewed forth by Faux News, is now rampant. Aside from politics which infects every viewpoint nowadays, the reason so few investors see this coming is a function of lack of empathy for the working class who are now drowning in this post-COVID virtual economy. Removing unemployment support while there are near record numbers of long-term unemployed is greatly exacerbating the deflationary impulse. Add in impending Fed taper, the debt ceiling stalemate, record asset valuations, record IPO issuance, and record leverage, it's a disaster wanting to happen. Decade low consumer sentiment can only go lower from here, which portends badly for bailout addicts.

The fact that markets are already overweight Tech stocks while this fake inflation thesis abides, is a glaring warning as to what happens next. When the deflation freight train arrives from the other direction, there will be NOWHERE to hide.

As I pointed out recently on Twitter, the low vol recession "safe havens" have seen the lowest realized volatility in three years:

While U.S. gamblers have been buying the overnight dip every day since the Jackson Hole high, Asian markets have been rolling over again, led by Hong Kong.

The IBD 50 growth index is carving out the same pattern as 2018 the last time global deflation was ignored in the U.S.:

Overlaying the IBD 50 behind the MSCI China stock index shows the magnitude of denial.

In summary, it's FOMC time again: Fear Of Missing Crash.

The Most Deflationary Event In History

The COVID pandemic accelerated all of the deflationary factors that resulted from decades of "free trade" which culminated in the desperate gambit of using homes as ATM machines. This time, the internet virtualization of the economy went into overdrive during the COVID lockdown phase amid global mass layoffs 4x the rate of 2008. And yet today's economic illiterates see nothing but "inflation", which they are praying will keep a bid under their hyper-inflated risk assets...

The only disagreement is from the bond market. 

For the record, the COVID pandemic was the most deflationary event in modern world history. How do we know? Because oil went negative for the first time ever. Now it has recovered back to the pre-pandemic level and copious morons are convinced THIS is inflation.

Here we see that reflation expectations and the oil market track each other 1:1.

Last year's deflation "event" is quite clear on this chart.

There is no doubt that on the supply side, bottlenecks in the global supply chain have been exacerbated by this halting clusterfuck of an economic restart as Keystone Kops policy-makers use "science" as an excuse to implode the economy.

Unfortunately, as indicated by decade low consumer sentiment, there will be NO demand-side follow-through to keep this level of "inflation" sustained. Even less likely now that the pandemic emergency unemployment program has officially ended. 

Nevertheless, it's clear that today's economic illiterates still haven't learned that "inflation" is always highest at the end of the cycle and lowest at the beginning.

With the CPI report due out this week, I have no doubt that we will be hearing plenty of inflation hysteria. All of which is highly reminiscent of September 2008 when the collapsing banking dominoes were ignored due to end of cycle inflation concerns.

Needless to say I am dubious of this strategy of bidding up every asset class ahead of what will soon become the NEW most deflationary event in global history making last year's gamble-from-home vacation seem like a picnic. 

I can't see how artificially bidding up prices to unsustainable levels AND thereby maximizing liabilities ahead of a burgeoning global debt crisis makes any sense. One thing we know for certain is that it has certainly raised the political stakes resulting from the fallout of this failed gambit.

Here we see that auto loans have been going parabolic since the pandemic began. At a level not seen since the Y2K Tech bubble:

I believe this is a bad idea. 

Auto loans, $ change billions

Gamblers are also ignoring the fact that the prime beneficiaries of this "inflation" bubble have been the mega cap Tech deflation trades. Stocks that have been on a parabolic rise higher since the pandemic began.

This chart shows that the average U.S. stock gave up ALL of its past decade gains during the pandemic. It shows that Tech stocks accounts for virtually of the "market" gains. Which means that the S&P 500 has turned into a closet Tech bubble.

Another warning sign. IGNORED.

I've heard many people claim that this is a "stagflationary" event. However, the stagflation of the 1970s took place when capacity utilization was near record highs AND labor share of the economy was AT record highs. Today, both are at RECORD lows.

Imagine how happy Jeff Bezos is now that he has millions more drivers to deliver bon bons in real-time. Now yuppies can click a button and hear the doorbell ring :15 minutes later.

True paradise.

In summary, this is all very reminiscent of September 2008, only this time the stakes are 10x higher.

"Evergrande has the distinction of being the world’s most debt-saddled property developer and has been on life support for months. A steady drumbeat of bad news in recent weeks has accelerated what many experts warn is inevitable: failure."

Observers are watching to see if Chinese regulators make good on their pledge to clean up the country’s corporate sector by letting “debt bombs” like Evergrande collapse"

Back in September 2008, the Fed let Lehman collapse. And then the Disney markets shit a brick when they realized there IS such a thing as real losses.

Position accordingly.