Tuesday, December 14, 2021

Conditioned To Implode

This set-up has the potential to be the fastest and most violent high-low crash in history, and yet investors are buying it with both hands. Why? Because in the era of psychopaths, they've been conditioned to implode...

These are the primary factors that will drive record crash:

1) Largest annual inflows on record

2) "Cash is trash" inflation hysteria

3) Accelerating monetary liquidity reduction

4) A Fed boxed in by inflation

5) Record asset over-valuations

6) Mass complacency

Deja vu of 2008, history will say that pundits and the Fed were far too concerned with economic inflation and far too ignorant of asset inflation. The "cash is trash" mentality that is now ubiquitous will drive record wealth destruction. 

"That tops other worries, like outliving their money, increased health-care costs or job security"

The greatest risk to retirement plans - monetary asset inflation - didn't make the list. Why? Because it's not viewed as a risk it's viewed as the secret to effortless wealth. 

Here we see that investors are buying asset inflation with both hands, as "BTFD" just hit a record Google Trends score:

Those who don't believe inflation is transitory were not around in 2008, or they have amne$ia. Back then inflation was far worse than it is right now. Oil prices were DOUBLE in 2008 ($150/bbl) versus now. However, the year over year increase is larger now due to the pandemic oil collapse so the % CPI is higher now, which is a very misleading indicator.

Back in 2008, China was booming. That country led the world out of recession in 2009. Now China's GDP is at a multi-decade low and the country is facing a nascent real estate crisis that will make the U.S. housing bubble seem like a picnic by comparison. Construction equals 25% of China's GDP versus 6% in the U.S. This past week Evergrande was finally deemed to have officially defaulted on its dollar debt by ratings agencies after having missed several payments. And yet the Chinese authorities still believe they have this situation under control - or at least that's what they tell investors. It's a slow motion train-wreck that is about to pick up speed during the impending global margin call. Pundits will be shocked at how fast a major risk that has been on their radar for months all of a sudden exploded.

The locus of risk of course is EM currencies which are now hanging by a thread ahead of the key FOMC (double) taper decision this week.

Meanwhile, Millennial Margin Call is already well underway in crypto currencies, SPACs, EV/Tesla, Ark ETFs, Biotechs, Cloud internets, Fintechs and all of the other junk assets they love to buy on maximum margin.

Fittingly, the pump and dump stocks that got 2021 off to a start are now final imploding, led by Gamestop, the stock that "democratized" pump and dump schemes. 

Back during the Gamestop debacle last January, the CEO of Interactive Brokers warned that these types of flash mob pump and dump schemes could bring down markets. His warnings of course were ignored, as Congress instead wanted to know why newbie investors were prevented from taking part in the Gamestop frenzy. 

Feb. 2021:

Now, the Fed is about to reduce liquidity to the lowest point in the cycle at a time when S&P futures liquidity is at a DECADE low.

Which will trap investors in the Hotel Californication. 

In summary, this cycle is ending the exact same way the last cycle ended - with the Fed ignoring a collapsing asset bubble.

For some reason investors bought the first taper event with both hands. Then it imploded. Now, they've bought the second taper event with both hands, this time expecting a different result. Why? Because they've been conditioned to implode. And the only warning they've received and heeded, is NOT to own cash. 


Saturday, December 11, 2021


Either bulls are right and they just bought the dip prior to a new breakout high. Or they're wrong and they just tightened the noose for the biggest high/low crash in history...

In this era, wrong is right. And the masses question none of it. 

This week was the mirror image of last week's crash - A face ripping rally higher. Last week hedge funds panicked when the newly re-instated Powell came out swinging and hinted that an accelerated taper was coming. It was a reverse "gamma" squeeze, meaning put options drove the market lower as market makers shorted stock to hedge their side of the trade. The low of the week was Friday (opex). Then when the VIX hit 35 hedge funds saw their P&L spike so they all dumped their hedges en masse fueling a gamma squeeze higher as the market makers bought back stock to unwind their hedges. The high of the week was Friday (opex). It was a round trip to nowhere, however, it seems to have escaped everyone's attention that in the meantime the double taper risk has increased while market divergences have reached a record extreme, particularly in Tech stocks. The net result is that going into potential accelerated taper, hedge funds are no longer hedged and BTFD chimps are doubled down.

The table stakes are Millennial margin call.

Normally in this type of market, growth stocks are out of favour due to the fact that the Fed is pulling rate hikes forward. The rising discount rate means that long duration assets are valued lower. Which is certainly the case for the vast majority of growth stocks. However, at the same time, the declining market liquidity is sending a handful of late stage mega caps into the stratosphere led by Apple. Recall that back on Dec. 1st, Apple warned its suppliers that demand for iPhone 13 is slowing. The stock tanked for one day and then subsequently ramped +13%. The stock is approaching $3 trillion in valuation which is the annual output of the German economy. Of course none of it makes the slighest amount of sense - that a slowing growth mega cap Tech stock would be driving the entire market higher at a time when growth stocks are going out of favour. Which is why several times this week the number of Nasdaq stocks BELOW the 200 dma at an S&P all time high, reached a twenty year record. With the largest divergence on Friday:

Which is why I call this situation "fatal inequality", because the markets are now as fragile as the underlying economy. They exhibit an over-reliance on a handful of ultra-overvalued mega caps while the rest of the market is crashing.

Zooming out, we see that Nasdaq breadth has deteriorated going into this "double taper" event, while positioning is the second highest in recent history (IMX index). Investors who were told that monetary policy is the primary reason to own stocks, are now doubling down on the removal of monetary stimulus. I've said all along that continuous monetary bailouts would lead investors to onboard too much risk, due to moral hazard. But I never predicted they would double down on the REMOVAL of Fed stimulus. 


But won't cyclicals benefit from the rotation out of growth stocks? They certainly did in Y2K. However this time cyclicals are also record over-valued. Meaning there is no real concept of "value" anymore. There is only "value momentum", which is an oxymoron. There is no such thing in the real world. 

Here we see the S&P retail ETF vis-a-vis retail sales. Both ginned up by Fed policy and the trickle down fake wealth effect.

In summary, the world awaits the THIRD Fed policy error in the past six years - each one three years apart and arriving in December.

A holiday tradition. However, this time sans safety net. 

And really, who can we thank for that?

The people who ignore FATAL INEQUALITY and just assume everyone is enjoying the benefits of Ponzi schemes. 


Tuesday, December 7, 2021

FOMC: Fear Of Missing Crash

There is only one week left for incipient meltdown to convince Powell that he got conned by the inflation Mafia. Otherwise, he will go forward with accelerated taper and explode the global Ponzi scheme. Bulls are deciding which option makes them the most money...

One thing the Fed and PBOC have in common right now is that they don't care how many investors they obliterate. The Fed is now solely focused on inflation and the PBOC is focused on "common prosperity" which means imploding wealthy investors.

This chart is a warning to investors as to what is coming to every risk asset class: Crash sans bailout. Chinese internet stocks have now erased their entire post-COVID gain on liquidation levels of volume. 

Never before have we seen such an asinine amount of risk get eagerly bought with both hands. S&P futures net speculative positioning is at a three year high (not shown). And the Ameritrade proprietary "IMX" indicator for November has the second highest reading since it first was published. Meanwhile, the stock market now resembles the overall economy - a handful of ultra-wealthy oligarchs (mega caps), and then everyone else getting bilked constantly by an efficient Ponzi market that takes in cash and sends it to the Cayman Islands.

When it all explodes "unexpectedly", gamblers will finally discover the sell order only to realize there is no one on the other side of the trade. The Bank of Madoff has no more cash.

Here we see Nasdaq breadth is camped at the December 2018 pre-policy error lows ready for the Fed to pull the trigger. AGAIN.

Among the sectors that are already in a bear market as defined by -20%+:

Cloud stocks, Fintech, Biotech, SPACs, EV/Green Energy, Chinese internet stocks, Crypto currencies, crude oil, and Tech IPOs...

The most lucrative year for Wall Street since 2009, is a bear market for the bagholders at large:

Below (lower pane) we see that T-bond shorts have their largest net short futures position since Feb. '20 when they got demolished. They have a proven track record for being wrong when it hurts the most, so why stop now? In other words, the "inflation" hysteria got bought with both hands ahead of what will likely be the largest "policy error" in history. And by policy error, I mean the largest and most obvious risk in financial market history - now being assiduously ignored by  the terminally conflicted interest Wall Street and their acolyte pundits. And when that explodes, "policy error" will be primary legal defense. Because soon the only people making money on the "long" side will be the lawyers. 

What we see below from T-bond inflation expectations vis-a-vis rate hike policy error circa Dec' 18 is that reflation expectations "shockingly" imploded when the Fed raised rates. For all the reasons I discuss all the time - structural deflation, low capacity utilization/employment, EM currency implosion, U.S. dollar rally, global RISK OFF, unwinding carry trades, commodity collapse etc. etc. What this therefore points to is an impending spike in REAL yields, wherein inflation expectations fall faster than nominal yields - which will obliterate all of today's over-leveraged inflation trades faster than a macro tour guide can say "pivot". For their part, Wall Street didn't skip a beat, they've just pivoted to imagined realities. Meaning, "Don't fight the Fed" just flipped 180 to become "buy the double taper with both hands". And of course, no one questioned it. 

Millennials can be forgiven for not seeing this coming. After all, this is their first trip to the cleaners, so they have yet to discover the pleasures of waking up bankrupt. One young troll recently told me my charts are "scary", please take them down. I had to tell Grover there's no monster at the end of this book. It's clear why CNBC devolved into pablum for weak minded fools, because the truth had no audience. Culminating in a populace happily ignoring a level of risk unprecedented in market history while excoriating anyone who tells them anything different. 

In summary, in the denialist tradition ALL of this past decade's risks have been crammed into this month of December: China meltdown, debt ceiling/fiscal cliff and Fed (double) taper. Each of these on their own ALREADY caused a crash. The Fed will now detonate ALL of them at the same time. 

And yet not one denialist moron will see it coming.

Sunday, December 5, 2021


In April 2021 Bernie Madoff died. This past week was the same week in 2008 when he ran out of money. Authorities locked him up at the same time as they were bailing out Wall Street for the malfeasance that exposed his Ponzi scheme. Now, the consequences of that bailout and the continuous monetary welfare for the rich since then will be revealed. Back then as now, NONE of Madoff's investors questioned the fraud. Why?

Because they were making too much money from it. Or so they believed...

It's clear that this society no longer has any concept of right or wrong. To be sure I don't know as much about Wall Street's inner alchemy as some pundits, but it appears I know more about right and wrong than most of them. And maybe that's all you really need to know. This society has devolved into a Third World zero sum game in which pump and dump schemes are rampant. What's worse is that few people seem to believe there is anything wrong with it. 401k gamblers see their wealth rising  and they are fat and happy so they don't question any of it. These people are BLIND to poverty.

Be that as it may, the coalescing of risks have reached a point at which biblical levels of fraud will explode this Global Ponzi scheme with unprecedented dislocation, and there won't be anything central banks can do about it.

This past week we learned that hedge funds sold at the fastest pace since March 2020 while retail speculators doubled down at an "unprecedented clip".

In 2021 ultra-wealthy insiders have been selling at a record pace. 

History will say this past decade was the largest wealth transfer from the middle class to the ultra-wealthy in human history. When this all explodes, the middle class will have nothing to show for it. First they came for the unions and the pensions, and when no one really pushed back, next they came for the 401k retirement accounts and bilked them dry.

Some pundits claim that it doesn't matter who owns the stock because it must all be owned in aggregate. That's actually not true - it DOES matter WHO owns the stock. Ultra-wealthy insiders getting stuck with their own massive amounts of overvalued junk stock does not pose a risk to the economy or society. However, as this bubble has grown in magnitude, more and more of that overvalued stock has been "distributed" to the public in exchange for hard earned cash. At the end of this record pump and dump scheme MILLIONS of people will watch their retirement plans disintegrate. 

And maybe they deserve it for not questioning mass fraud and criminality. For believing in "corruption as usual". Nevertheless, we know that when the wealth effect crashes, consumption demand will collapse at the fastest rate in history and policy-makers have no more dry powder.

Basically what happened is that the pandemic shut down supply chains and depleted inventories. This created a massive temporary supply demand imbalance. Profiteers took advantage of the situation by raising prices, which set off a buying panic that was accelerated by the wealth effect. Here we see below that wholesale inventories have recovered and retail sales are now diverging massively from consumer sentiment. 

This entire con job is now contingent upon the mega asset bubble which is already imploding in real-time. It appears "someone" already knows what's coming:

Meanwhile, a combination of factors have ensured that this "bailout" will be nothing like the ones in the past. First off politically it will be untenable as the middle class watches their retirement implode in real-time. Secondly, Biden has already said there will be no lockdown under Omicron, so the Fed won't have cover to re-start their *special* bailout programs used in 2020. And lastly of course, this fake inflation theme has ensured the Fed remains sidelined until such time as they realize they abandoned the "transitory" concept at the exact wrong time. Why anyone believes inflation is no longer transitory when the Fed is finally slamming on the brakes, makes zero sense. Therefore it's totally unquestioned. 

Which is why retail gamblers took down the biggest load of stock in 2021 this past week. JP Morgan was out this week telling everyone to buy the dip, but only retail bagholders took the bait. In record size.

What could very soon be the WORST market call in human history:

Skipping the Omnibomb macro tour guide bullshit, here is the convoluted investment rationale which I pulled from this separate but related article which argues that an accelerated taper is somehow "good" for markets. (As you can tell from the title of that article, not everyone agrees with JP Morgan. Some pundits see sky-rocketing REAL yields, due to Fed tightening even as nominal yields could still be falling). Here is JP Morgan's imagined reality:

“Usually, central banks are there as a put option for the equity markets; they are there to support if there is a loss of liquidity or if there is a shock. To argue in the developed markets that central banks will drive the equity market weakness next year, that’s not what happens all that many times historically.

The Fed has monkey hammered global markets twice in the past six years at a time when Emerging Markets were already imploding, as they are now. 

Historically speaking.

Here we see via QQQ dollar volume, hedge funds hit the dumb money bid in record size this past week, confirming record distribution.

In summary, 2021 will go down as the year of Madoff, featuring record fraud and Ponzi schemes at the END of the cycle. A year in which Millennials were coaxed off the sidelines by the "gamification of markets" for their turn to get bilked by bailed out criminals and other con artists. It wasn't enough that they are facing record student loans and record home prices, this year they were fed to the Wall Street wolves under the auspice of the "democratization of markets". You can't make this shit up.

I usually say con men, but that's not entirely accurate in Cathie Woods' case. Also this week was the first week that Robinhood insiders were free to dump stock. Can you tell?

Interesting fact: Bernie Madoff invented payment for order flow. However, Robinhood/Citadel perfected it and brought it to the masses as "commission free" gambling. 

"Madoff advanced the proliferation of electronic trading platforms and the concept of payment for order flow, which has been described as a "legal kickback"

Contrary to what JP Morgan is telling retail muppets, this will not be an easy landing.

Why? Because the same bulls that have been pushing the "inflation" theme are now trapped by their own BULLSHIT. 

And when they finally realize that inflation is no longer the problem, they will ALL learn the consequences of four decades of wealth transfer from the middle class to the ultra wealthy. 

Friday, December 3, 2021

DENIALATION: The Problem That Fixes Itself

For a society that specializes in finding the easy way out, this is NOT it. One could not imagine a more lethal set-up than this one. Still, to the masses this will be a "Black Swan" event. Why? Because they've been well trained to ignore all risk...

This week, Omnibomb hysteria is imploding the reflation trades while inflation hysteria is simultaneously imploding the Tech/deflation trades. Neither risk poses any real threat to society at large. Each side of the political spectrum can take credit for ramping hysteria to lethal levels - the left on the pandemic and the right on inflation. Both sides politically motivated to stir up their base and serve their own agenda. What they have in common is that they have not even the slightest clue as to the financial consequences of their mass hysteria. Quite the opposite - central banks have given them the illusion that their pandemonium has been extremely lucrative. 

Negative real yields as generated by commodity speculation will be their death trap. Today's policy-makers continue to ignore the relationship between commodity speculation and inflation. As commodities rise they feed back into CPI, driving real yields lower. This in turn accelerates the asset flows to commodities. This asset-driven inflation spiral continues until such time as prices are fully disconnected from fundamentals. Then the bubble bursts and the spiral goes in reverse. OPEC is the latest party to succumb to inflation hysteria, promising to proceed with an output increase in January despite the risk of Omnibomb and the FOMC. Fooled by speculation and the negative yield feedback loop. Oil demand is nowhere near where it was pre-pandemic and oil volatility has exploded as the speculative premium unwinds.

Now, compliments of artificially collapsed real yields, the financial industry has convinced their clients to avoid cash. Yield seeking has reached the same excesses that attended the 2007 top. According to Ray Dalio, cash is "dangerous". Dalio has an unbeaten track record for trashing cash at key market turns. I suggest this will be his last and greatest opportunity. Going into the (second) most deflationary event in history after COVID, this crash will prove that nothing is further from the truth. Central banks can pivot and macro tour guide pundits with no skin in the game can pivot, but masses of investors cannot “pivot”. A hyper-hawkish Fed is not something that is "priced in". 

Jan. 23rd 2018: Holding Cash Will Feel Stupid

2018 was the market's first down year since 2009.

Jan. 21, 2020: Cash Is Trash

He said that at Davos when the pandemic was already well underway globally

And this week...

Cash Is Not A Safe Place Right Now

Why is it not safe? Inflation of course...

"You can reduce your risk without reducing your returns"

But that's not all, get 6 free ginsu knives if you call now...

Dalio's hedge fund strategy is based upon "Risk Parity" which is essentially a 60/40 stock bond allocation. What he is saying is basically being repeated by every financial advisor right now - the safest thing to do is to ignore risk and stay fully invested in highly correlated trades.

History will say that the true policy error was ignoring fatal levels of asset inflation and then freaking out at the first sign of price inflation. QE should have been ramped down a long time ago when Market cap / GDP first reached record levels. If it had been, then it's unlikely that tsunamis of retirement capital would STILL be rushing to accelerate history's largest bubble on the belief that it's increasing their likelihood of early retirement. For some reason people don't mind paying massively inflated values for overvalued stocks, but they freak out when the price of eggs goes up 50 cents. Apparently, they're not understanding the impact the former will have on their dining choices for YEARS into the future. If they were, then they wouldn’t be panic buying lost decades worth of return, while being mesmerized by unrealized gains.

Meanwhile we learned this week that insiders are rushing for the exits at a record rate. 

The list of widely ignored risks at this juncture are quite extraordinary by any standard. Taking any one on its own would not be so much a problem as taking down all of them at the same time:

Inflation mania/Fed policy error

Debt ceiling/Fiscal Cliff

China/EM Plosion

Asset super bubble/Y2K 2.0


Consumer sentiment collapse

OPEC output increase

Record margin, inflows, valuations, issuance

Which gets us to the casino...

What's interesting about this week, is that despite the news of the COVID variant AND the news of Powell's new double taper, Emerging Markets outperformed the rest of the world on the week. Why? Because last Black Friday, EMs had a washout bottom having led the world down for several months. Subsequently, they have bounced this week in a three wave correction back-testing the key support line.

Bullish? Not necessarily. Here we see that worldwide Google searches for "BTFD" are the highest since 2018:

Another interesting piece of news this week is that after having been told there is a worldwide chip shortage, it turns out that Apple is seeing weakening demand for the iPhone. 

This article asserts that Apple has a problem with supply AND demand. Really? They just told their suppliers to dial back production, so I suggest the market is moving into equilibrium.

"CEO Tim Cook said the company’s last quarterly earnings took an estimated $6 billion hit due to the semiconductor supply shortage

If Bloomberg’s report is accurate, though, it suggests that the iPhone 13 demand might not meet Apple’s initial expectations even without the supply crunch"

The supply problem has been solved. 

Tech gamblers will be happy to know that after the morning  gap open crash, Apple rallied back all day yesterday and is now three wave corrective from the prior melt-up. All while Nasdaq new lows expanded to the highest level on an up day since March 2020 (I showed that chart on Twitter). 

The Nasdaq is heavily oversold and due for a bounce at any time. Nevertheless, the fact that it hasn't been able to rally for any sustained length of time is extremely bearish. 
The market has been extremely volatile this week, with alternating rallies and crashes. However, the crashes keep growing larger as the market stair steps lower. What it points to is the fact that the alchemy of index manipulation is no longer having an effect on the broader market as breadth disintegrates. Throughout this momentum rally, the various means of manipulation - central bank liquidity, momentum algos, and options manipulation have given investors a false sense of security. Now investors are fat and happy in a casino that is increasingly getting out of control as global risks coalesce to asinine levels in the background.

All of which points to the fact that the only true shortage in this world is in IQ. And that supply shortage is going to be exorbitant.

No sound required. I am not endorsing financial products.

Tuesday, November 30, 2021

Policy Error 2.0 aka. SUPER CRASH

This will be the fastest demand collapse in U.S. history...

Zerohedge and their vast array of useful idiots won. Their success is self-evident in the number of fools to follow. Testament to the strength of numbers. Ironically, they DOOMED their own prediction of runaway inflation by luring the ultimate fools - the Fed itself. In the event, they officially assisted the Fed to make the EXACT same mistake they made post-Lehman 2008 which is to believe that inflation is the greater threat to the economy and therefore ignore all of the risks that have coalesced at the end of the cycle. These people don't know that inflation ALWAYS peaks at the end of the cycle, because they banished cycles with printed money. Be that as it may, inflationist pundits can now take FULL pride in having trapped a generation of gamblers in dead end trades that are set to explode with extreme dislocation. A true measure of success. Now Powell is OFFICIALLY boxed into the fake inflation narrative. He is at least two steps away from realizing his colossal mistake as he contemplates accelerating the taper:

"The economy is very strong and inflationary pressures are high, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at the November meeting, perhaps a few months sooner,”  Powell said in testimony before the Senate Banking Committee.

In a sign that elevated inflation could persistent for longer than expected, Powell conceded that it was “good time to retire that word [transitory].”

I was wondering today how many GOP Senators pounding the table for a tighter Fed right now are about to get wiped off the map financially? All of them. And the other side of the aisle won't be spared either.

Which raises the question, how DO we measure success under this form of casual fraud? I suggest this will be a Pyrrhic victory. 

To be sure, Zerohedge is the Jim Cramer of financial blogs. They are ad-sponsored entertainment and they reserve the right to change their mind with every trading day to ensure they are always "right". They are not per se "macro tourists", they are macro tour operators, because why pay for the ride when you can be the one leading it?

Unfortunately, this type of casual deception is now commonplace across the financial culture due to the fact that capitulating to this tsunami-magnitude mega bubble and ignoring risk is by far the most lucrative path forward. Which unfortunately leaves the sheeple ONCE AGAIN at the mercy of known con men. History will say that in the year Bernie Madoff died, the sheeple having been skeptical of markets since 2008 then crammed two decades worth of cash into stocks at the end of the cycle. Proving that in 2008 policy-makers took down Madoff's petty theft while bailing out the much bigger crime. The magnitude of which will now be revealed in biblical fashion to a society assiduously ignoring "corruption as usual".

Not only is inflation transitory, but all real-time indicators show that it has already peaked and is very quickly receding. The CPI that so many bloggers today refer to is stale data, weeks and months old. There are several indicators that track much more closely to inflationary trends.

First and foremost is Treasury inflation expectations themselves.

These have already peaked and they are starting to head in the direction of EM currencies which are collapsing like a cheap tent. 

Pundits appear to forget that it was EM currency collapse - led by China that caused the Fed to pause their tightening campaign in September 2015. Then they raised rates in December and exploded global markets. 

Here we see Brent Crude is deja vu of Q4 2018. Earlier on Twitter I showed Nat Gas getting monkey hammered the most since December 2018. This is the longest weekly losing streak for Brent since December 2018.

And why is December 2018 important? Because that is the last time Powell was forced to reverse policy and stop tightening because markets were imploding.

He will ultimately be forced to do the same thing all over again, but today's events just doomed bulls trapped in the casino unknowingly.

The correlation between oil and inflation is lock tight:

Here we see Gold / CPI. Is this a good time to buy?

According to those who believe in inflation...

YES it is!

The Baltic Dry Index is another leading indicator of inflation.

We just got news that Black Friday in-store sales were down -28% versus pre-pandemic and we also got news that online sales for Cyber Monday fell for the first time in history.

Which means it's becoming clear that the consumption orgy that fed back into inflation via the fake wealth effect, was merely demand pulled forward at the behest of con men looking to make sales. 

Consumer sentiment has only one way to go.

In summary, the Fed and the majority of consensus pundits were wrong last time when it hurt the most. The question is will their strength in numbers come through for them this time?

Or, will the sheeple FINALLY learn that the REAL policy error is trusting proven psychopaths.

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

Monday, November 29, 2021


Fittingly this orgy of consumption is self-destructing due to maximum excess. Far more biblical is the fact that most gamblers don't see it coming. Why? Because they expect infinite return on inequality.


For a multitude of reasons, the pandemic took World inequality from asinine to lethal levels. Most pundits today blame central banks for pumping liquidity into bond markets and setting off a global hunt for yield that has bid up every asset class on the planet. They assiduously ignore their own role in embracing this asset bubble and informing us that anything that goes wrong with it is a "policy error", their legal escape clause from culpability. However, we know that these people are addicted to monetary stimulus. Had QE not been used then there would have been a lost decade for stocks post-2008 and there would be a retirement crisis right now. Therefore the ONLY risk that gamblers today worry about is monetary policy. They are now of the belief that the Fed alone controls the stock market. Which is why small increases in inflation set off mass hysteria within the financial community. At the 0% bound, asset prices have a theoretical infinite valuation, and per the textbook discount cash flow (DCF) model the only risk is rising interest rates. The bubble can grow to infinity so long as interest rates never rise again for any reason. The growth of said bubble does not in and of itself pose any risk. All of these investors and pundits are of course assiduously ignoring default risk. They ignore the fact that this so-called model puts all of the burden of deflation on the middle class. These bubbles increase the wealth of the rich while increasing the liabilities for everyone else. So why would the wealthy see default risk if they have been bailed out every single time that markets crash? The belief is that lenders can be bailed out every time while borrowers take on ever larger debts. 

I put my chart on Twitter of the OECD price/rent ratio as a means of showing the RELATIVE increase in the global property bubble over time. One troll said that rents will rise and flatten the curve. That's my point. The landlord receives the asset increase and the renter gets the liability increase. And we are to believe this can continue indefinitely. As I said in my last post, today's pundits are blind to risk. They are pandering to their audience which sees this consumption orgy continuing forever. We learned this past weekend that consumption among the wealthy has DOUBLED since the pandemic began, while consumption among the less well off has been reduced by HALF. Which absolutely proves my hypothesis that the wealth effect is driving consumption, NOT wages as is widely assumed.

"Higher-income households in the U.S. plan to spend five-times that of lower-income households this holiday season"

“While everybody is going through their day-to-day, super excited about this holiday season, we have a whole community of folks who are stressed out,” said Hilliard in a phone interview. “We’re seeing more [charity] demand this year than we’ve ever seen.”

“What starts off as a health crisis turns into a financial crisis if you’re in the lower-income [bracket].”

Now that the rent moratorium is gone, folks are freaking out.”

There are two sides to the price/rent ratio. One side is partying like it's 1929 and the other side is skipping the holidays this year.

And of course what is taking place within the U.S. is also taking place across the entire planet. Developed world nations are enjoying a massive recovery while Emerging Markets are imploding in broad daylight.

"Emerging market equities are now trading at their deepest discount to developed markets since 2004"

"The latest survey showed 37% of investors expect emerging market growth to accelerate over the next 12 months, down from 60% in July"

Here we see Chinese stocks are deep in the red zone on Monday morning, even as the major U.S. indices are bid. Nasdaq breadth (lower pane) is as of Friday close. 

Getting back to the casino:
Writing on Monday (mid-morning), the S&P futures bounced Sunday night at the 50 day moving average. We've seen this movie before several times this year. Each time, bulls won the battle of the 50 day and the market made a new all time high. Therefore the 'BTFD' team is betting it will happen again as complacency is rampant. 

Most of my technical indicators won't update until after the close, but I will give a sample at what I am looking at now.

Per the theme of this post, "inequality", the Russell small cap VIX just saw its largest one day rise on Friday since 2018. In addition, the growth index is camped right at the 200 dma on Monday morning:

You will notice that Cloud stocks have a familiar pattern deja vu of this past February. A high, a higher high and then implosion  down to support, which is where we are now. After that another leg down. It's extremely rare to see two Tech tops in one year. I'm sure it will end happily every after.  

Note the expansion of new lows this time versus last time:

Oil is bouncing back on Monday, but last week oil vol reached the highest level since April 2020 as WTI crude pounded the 200 day. 

This chart of Tesla shows that the current blow-off top is deja vu of the one in February 2020: A 3 sigma high early in the month, a lower high late in the month attended by numerous Hindenburg Omens. 

And then the wheels came off the bus.

Biotechs are in late stage meltdown mode:

And fittingly, on Cyber Monday, online retailers are imploding, which can only mean one thing.