Sunday, October 10, 2021

The Wall Of Shame

Last updated November 1st, 2021

Over time as organic economic growth has slowed, industry salesmen have been competing on the basis of ever-increasing fraud. Monetary market manipulation is a con man's paradise as conflict of interest has reached every corner of every market. Investors conflate their own misallocation of capital with economic improvement while ad-sponsored media pundits make their living telling investors what they desperately want to hear, afraid that if they tell the truth they will lose subscribers. In this ongoing post I will document all of today's industry assholes and their transparent criminality. What all of these economic predictions have in common is that they are all predicated upon an ever-increasing misallocation of capital. What I call "Ponzi Reflation". As we've seen over and over again, these reflationary asset bubbles are illusory. The market is now the economy which means that every rosy economic prediction is one RISK OFF event away from turning positive to negative. And when this final bubble explodes, it will reveal a level of fraud none of us have imagined in our lifetimes...


This week (Nov. 1st), top prizes go to first Wall Street for predicting a year-end melt-up. 

"...Much of the latest rally comes down to the return of animal spirits. Take the options market, where traders piled into bullish calls to juice rallies in stocks like Tesla Inc. Inflows into equity funds also climbed to a seven-month high, as a majority of bears were forced to convert to buyers"

I showed on Twitter that going back 75 years there has never been a rally of this magnitude in such a short amount of time.

Therefore bulls are betting that this record win streak continues for another full two months:

Secondly, we have been inundated lately with non-stop disinformation over the various supply chain issues. Every time a company misses earning expectations, they blame lack of supply. So, I decided to go on Fred and do some fact finding. And what I found out is that supply (and demand) are literally off the charts. Worse yet, many pundits expect this spending spree to continue.

I'm not going to delve into the intellectual contortionism this author uses to justify this fantasy. I am not that malleable. Instead below is Fred data going back 75 years showing this latest surge in durable goods quantity. 

What this chart predicts is an imminent collapse in demand due to panic hoarding, the collapse in consumer sentiment, the rolloff of pandemic fiscal unemployment, and record asset valuations.

In other words, we are a mere market crash away from the largest drop in demand in U.S. history. 

This week (Oct. 17th), Goldman Sachs gets top prize for predicting that the housing bubble is set to continue its parabolic ascent in the year ahead aided and abetted by the usual belief that "this time, it's different again".

"Numerous experts have predicted not to expect a housing crash like in 2008, given that the current market is so different"

This week, top dumbfuck prize goes to none other than the IMF. On Tuesday October 12th they made two major predictions. One that the China Evergrande real estate meltdown would NOT get out of control and cause global contagion.

On the exact same day, the IMF predicted that global real estate (and stocks) are primed for meltdown anyways. No contagion necessary:

"The International Monetary Fund warned of the risk of sudden and steep declines in global equity prices and home values as the Federal Reserve and other central banks withdraw the support they’ve provided during the pandemic"

Let's get this straight. China has withdrawn support from the Evergrande meltdown. Therefore, it's the Fed's impending taper that will cause all the problems. Because technically, it's not contagion if everything was poised to collapse anyways.

Here we see OECD (wealthy country) home prices as a ratio of rents, which is a proxy for the relative magnitude of each global asset bubble. 

The second runner-up goes to this recent prediction by JP Morgan that oil prices will hit $200 in a super spike. This call is reminiscent of a similar call by Goldman Sachs back in mid-2008. The main difference is that back then oil was 100% higher than it is today. 

All of these oil predictions are solely based on the supply side and are ignoring the demand side. They automatically assume that oil demand will continue to increase in the future when it still hasn't recovered from the pandemic.

Recently we learned that Wall Street is using used car prices in order to predict inflation. The global semiconductor shortage has driven a shortage of new cars, which in turn has caused a shortage of used cars as well. As we've seen with every other supply chain bottleneck during this pandemic, the chip shortage will get ironed out in due time however in the meantime, the prices of new and used cars has skyrocketed as has dollar sales volume AND loan issuance:

Now we learn that Wall Street is using record used car sales volume to predict future inflation.

"I’ve never spent so much time looking at it,” said Robert Rosener, a senior U.S. economist at Morgan Stanley. “I don’t think I’ve ever spent so much time talking about used car prices in my life, either"

Here we see via Fred that used car sales dollar volume is off the charts and loan issuance is the highest in 20 years:

With the Evergrande crisis growing in the background, this Wall Street analyst is recommending investors overweight banks in order to capitalize on what he calls "credit euphoria". 

He also cites a record stock market and its attendant record overvaluation as reasons for optimism.

"You have credit euphoria. I mean this is night and day versus the global financial crisis"

Goodnight Moon

JP Morgan came out with a note this week recommending Bitcoin as a better hedge against inflation than gold. I suggest that's because, as I've shown, gold is informing us that inflation is not the problem.

Crypto currencies are this era's purest form of Ponzi scheme. Not to be confused with central bank assisted stock market manipulation which is another type of widely embraced transparent fraud.

Crypto madness will play a key role in the impending meltdown, as investors are now using various forms of crypto loans to increase their leverage vis-a-vis the most volatile asset class.


This past week, Cramer predicted that Tech stocks are making a bottom at these RECORD levels.

This chart shows that over the past decade, Tech stocks have accounted for nearly the entire market gain. The average U.S. stock dipped to 0% gain on a decade basis at the pandemic nadir.

We also see that Nasdaq breadth has deteriorated substantially to a level preceding the two prior crashes (2020, 2018):

Wednesday, October 6, 2021

The China Lehman Moment

The China Lehman event came and went but this society was too stoned on monetary heroin to notice. History will say that as the world fell apart, this generation did nothing to stop it. Convinced it was just disintegration as usual...

The universal ideology is denial. It's the one thing both political parties have in common - central to their party platform. Both sides are now playing the victim card. One side blames the past for the problems of today, the other side blames the problems of today for erasing the past. Neither side has a path to the future beyond pointing fingers and accepting zero responsibility. 

Denial of course extends beyond politics. It affects the environment, the economy, mental health, physical health, mass shootings, and of course Ponzi markets. Denialists inform us that the problems of today are no different than the problems of the past. Which is true. The only difference is that now these problems can no longer be ignored. They are all backing up like a sewer at the same time. But these hoarders revel in squalor so they don't really notice.

Taking the easy way out is now the universal way of life. 

Case in point, there has never been so many shit jobs in U.S. history. The number of shitty jobs now outnumbers the people who want a shitty job by 10:1. Yet no pundit can figure out why so there are so few takers. The Bureau of Labor Statistics (BLS) doesn't include gig jobs in their payroll tally, and yet roughly 60 million Americans now have gig jobs. Which means they are contractors and hence not picked up in BLS surveys. In addition, the younger generation aka. "Generation Gamble" has figured out that it's more lucrative to gamble in Bitcoins and Reddit pump and dump schemes than to work a dead end job on a fast food assembly line. Add in the millions of women who left the workforce during the pandemic, and the millions more older men who took early retirement, and how about all those job stealing Mexicans who headed home during the lockdown. I bet those GOP governors wouldn't mind getting a few of those people back now. There's your "labor shortage".

Zerohedge posited that the labor shortage was all due to pandemic unemployment benefits, but that turned out to be just another massive lie. In my next life I am going to monetize useful idiots and then I will never have to be right in markets ever again. Which gets me to the point of this post, denial is an extremely lucrative business. There is no demand for truth and reality. Which is why we are now surrounded by industry sociopaths inventing whatever delusional theory will make them the largest profit.

As it was in 2008, these sociopaths have successfully convinced the masses that we are in a highly inflationary environment. Which per Econ 101 SHOULD be a warning that it's the end of the cycle. Commodities are leading which is another end of cycle indicator. Oil peaked in September 2008 right as the wheels came off the Lehman bus. This highly successful disinformation campaign and its attendant misallocation of capital, will ensure that the impending dislocation is far worse than it otherwise would have been. These people have created buying panics in everything from Bitcoins, to McMansions, cars, commodities, and of course stonks.

Unfortunately, with capacity utilization at an all time low and monetary policy solely welfare for the rich, it's impossible to create sustained inflation in this economy. The speed limit for the economy has been falling for decades and now the bond market controls monetary policy not the economy. The downside of this multi-decade supply side economic catastrophe is that we now have a lost generation attempting to gamble their way to prosperity. 

Given this society's addiction to denial, it can come as no surprise that this meltdown in progress will come as a complete surprise.

There have been three China-led global implosions over the past six years - one every three years. And each time, U.S. gamblers have increased their allocation to risk:

The IMX index indicates how a large sample of Ameritrade investors are actually positioned in risk assets. We see in the lower pane that while there is a general understanding that risk has increased over time, it's currently deemed to be low. 

This chart shows via real copper prices that reflation peaked in 2011. Wave 'a' was the 2018 tax cut, and wave 'c' is now. China led the world out of depression in 2008 and now they are leading the world back into depression by taking a laissez-faire attitude towards the Evergrande collapse.

China is now more capitalist than the U.S. where continuous monetary bailouts for the ultra-wealthy are expected. Now Chinese authorities chide the U.S. and Europe on creating extreme moral hazard. 

As we see above, it's way too late. 

As far as Tech stocks go, Cramer is exhorting his followers to BTFD. He says the market is finding a bottom right now.

Here we see deja vu of 2018 that Nasdaq new highs peaked this past February, and October was not a good time to buy Tech. Or anything else for that matter.

In summary, ALL of the risks from the past decade are now concentrated in this month. Add in a super Tech bubble and a super housing bubble, and there has never been as much denial as we are seeing right now. Nothing even comes close.

What once was deemed an asset - ignoring risk - will soon turn into a life long liability.  


Friday, October 1, 2021

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. 

Wednesday, September 29, 2021

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:

Friday, September 24, 2021

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.