Thursday, May 5, 2022
THE BIG LONG 2022
Tuesday, May 3, 2022
BLACK SWAN DIVING INTO PAVEMENT
The plans are now set for a hard landing at the zero bound.
Everything EXCEPT, seeing it coming...
With each FOMC meeting, the Fed keeps upping the ante. Now, the stakes have NEVER been higher, but you would never know it by today's circus quality financial commentary - by far the dumbest we've seen in our lifetimes. The longest bull market in history has succeeded in making everyone forget what a bear market looks like. The crash in March 2020 was of such short duration that it doesn't even show up on a monthly chart. All it was is a corrective pullback on the way to a pandemic-driven Tech bubble blow-off top.
Deja vu of Y2K:
Contrary to popular belief, the Fed's REAL mistake was keeping their balance sheet inflated for far too long while investors gambled with impunity. Investors only finally took notice when inflation seeped into the actual economy. Prior to that there was no complaining as profits and stocks sky-rocketed to RECORD highs.
NOW, EVERYONE knows the Fed made a big mistake. So to make up for it the Fed is making a much bigger mistake. And the same people who ignored the first mistake, are ignoring this one as well.
NONE TOO BRIGHT.
Unbeknownst to all of today's pundits, in the period while the Fed was asleep at the wheel, the bond market did their job for them. The two year sky-rocketed at the fastest rate in history.
Here we see the two year yield is above the Fed rate by the most since the last two recessions.
Which is where this all gets interesting. In the sense that watching an Idiocracy self-destruct is fascinating.
The Treasury market has collapsed. Therefore the spread between junk bonds and Treasuries has narrowed. Which gives the Fed the illusion of LOW credit risk. Usually spreads compress when the junk bond market rallies. This time, spreads are compressed because Treasuries have collapsed.
Which is why the Fed's proprietary financial risk index is at RECORD lows despite the largest bond market collapse in HISTORY.
Giving a totally erroneous signal of "low risk". When nothing could be further from the inconvenient TRUTH:
The stock bulls' case is that despite the obvious risks, there is too much pessimism in the market to allow a meaningful break lower. So far in 2022 that has been the case. The market has pounded the FOMC support level multiple times this year only to bounce higher. Which has kept everyone guessing: is this a correction in a bull market, or a top in a bear market? Most of today's investors are in the former camp - short term bearish and long-term bullish. They see this FOMC rate spurt as a mere speed bump to the next bull market.
IF the bulls are right, there is currently TOO much bearishness. for a bull market. However, in the context of a bear market, there is not nearly enough bearishness to keep this market from breaking lower.
LONG-TERM active manager risk exposure has been above 50% for seven years straight:
The abiding delusion is that in the event of major selloff the Fed can pivot from max hawkish to max dovish quickly enough to keep markets from exploding.
Which is why we find ourselves camped at a similar breadth level as 2018. EXCEPT, back then, the Fed rate was ALREADY at 2.5%, the balance sheet had been reduced considerably, inflation was muted, and of course Trump demanded the Fed reverse policy.
This time NONE of those factors apply. And yet, today's investors are even MORE sanguine than they were back then, now facing DOUBLE the level of tightening.
It's MORAL HAZARD on steroids. Investors have been bailed out so many times that they no longer manage risk. So much for the "too bearish" theory.
In summary, despite the Fed's KNOWN prior error in keeping policy too loose, and their latest error in tightening TOO fast, today's investors maintain their belief that central banks are INVINCIBLE. And can bail them out of every situation, even when they themselves are no longer hedging. It's the imaginary Fed put.
The Fed on the other hand is hellbent on restoring their LOST credibility. Therefore, they are not focused on the implosion of global markets and the Nasdaq.
So it is that we are pile driving straight into the zero bound at MAXIMUM VELOCITY.
And so it is that no greater fool wants to see it coming.
Thursday, April 28, 2022
PAINTED INTO EXPLOSION
When I tell people that market explosion is inevitable, they always ask me "when is that?". The fact that most people will get wiped out by it is apparently of no concern...
Most people these days assume the past is the future. They are set in their ways and have no intention of changing. Therefore, they happily extrapolate mass insanity into the indefinite future and sacrifice their mental health on the altar of mass consumption. A lifetime of bad habits doesn't change at the end. The idea of adapting to a new reality of less is more or quality over quantity, is never under consideration. This society has been brainwashed from birth to consume at any cost.
We see this all around us at the personal level, people consumed by their addictions. But we see it at the societal level as well. No politician or pundit on either side can tell the public what they don't want to hear. There is no market for the truth these days.
Meanwhile, the average IQ has been collapsing, thereby front-running the next level of widely ignored corruption. Which has left us skeptics of rampant fraud constantly playing catch-up to the next level of delusion. Our many critics claim we have been "wrong" timed in our prediction of the inevitable. Their ONLY concern is "when" NOT "if". The fact that this will all explode one day with extreme dislocation can wait another trading day. In the meantime, THEIR beloved financial weapon of mass destruction grows from one magnitude of destruction to the next.
Granted, no one can predict the future with 100% accuracy. The best we can do is measure the amount of buffoonery that precedes collapse. Which in the current case is on the scale of biblical. Through necessity, the level of buffoonery has had to increase from one larger bubble to the next, according to the law of magical thinking. Central banks in their infinite hubris have constantly bailed out the masses from impending reality. And in doing so they have painted this society into a corner. At this latent juncture, rampant corporate profiteering has forced the Fed into record tightening. They are now hellbent on creating a global depression. At the same time, home gamers are widely told to expect a "soft landing".
Today we got news that Q1 GDP was NEGATIVE. The first quarter of incipient recession. The Dow gained 700 points on the news.
THIS will be the epitaph for this era:
A Fed worried about inflation expectations becoming embedded in a COLLAPSING economy, oblivious to the fact that inflation expectations are ALREADY embedded in inflated stock market valuations:
"The analysis of SEC filings for 100 US corporations found net profits up by a median of 49%, and in one case by as much as 111,000%. Those increases came as companies saddled customers with higher prices and all but ten executed massive stock buyback programs or bumped dividends to enrich investors"
The level of denial is very similar to 2008.
We are constantly told "The consumer is strong", but it's a massive lie as anyone can see:
The Nasdaq is at critical support:
Globally things are far more dire, as the relentless dollar rally collapses the various dominoes which are heading inexorably towards U.S. markets:
Beneath this market is a wall of put options. Bearishness is the highest since October 2008. For a time, a high level of hedging can keep the market from imploding, especially around a major event such as this impending FOMC meeting, which is what happened during the TARP bailout of October 2008. Back then, many investors hedged that meeting so the market rallied into the news. Soon after, the puts expired and the market collapsed.
The next major financial event is what I call "Millennial Margin Call" or MMC. It started last year with the Gamestop debacle and so-called "democratization of markets". Which was merely a euphemism for the ensuing RECORD Wall Street pump and dump.
2022 has the dubious distinction of having the WORST Nasdaq breadth (highs - lows) in market history:
So far miraculously across Cryptos, Biotechs, junk IPOs, SPACs, Chinese stocks, and Ark ETFs there has been NO capitulation. These newbie investors have been taught to "HODL" which means hold on and never sell. Because as long as you never sell, you never have a loss. Of course, this theory means nothing to margin clerks:
"The number of active users fell 8% as compared with December 2021, mostly thanks to users with lower balances engaging “less in the current market environment”
Tuesday, April 26, 2022
WORST CASE SCENARIO
Up until now the bullish pundits have been causing all of the problems, with their perpetual Disney World bullshit. However, now it's the latecomer bears with their half-assed predictions who are causing the most confusion...
So allow me to elucidate what's coming:
It's called THE WORST CASE SCENARIO. Featuring a Fed tightening into global meltdown.
Any questions?
Let's see, worst Nasdaq selloff since 2008. Biggest commodity spike since 2008. Worst consumer sentiment since 2008. The most global rate hikes since 2008. The biggest housing bubble since 2008. The most institutional selling since 2008. And the largest recession stock outperformance since 2008.
Therefore, it MUST be a soft landing, with an 11% probability historically:
"On the morning after Lehman Brothers filed for bankruptcy in September 2008, most Federal Reserve officials still believed that the American economy would keep growing despite the metastasizing financial crisis"
Thursday, April 21, 2022
FOMC: FEAR OF MISSING CRASH
The consensus RISK ON stagflation trade is not only lethally crowded, it's lethally cornered. Entering the lowest liquidity period of this CYCLE, gamblers are piled into end of cycle dead end trades...
By sheer coincidence, the stagflation hypothesis is the only market prediction that could keep the stock market RISK ON this late in the cycle. It's the same theory that abided in 2008 and we know how that turned out. Or do we? Apparently, most people have amnesia or dementia these days.
Zerohedge didn't exist back in 2008, which is why they can recycle this stagflation CRAP with plausible deniability.
The stagflation trade means buying stocks and dumping bonds because only stocks can "grow" their earnings in this environment. Leave aside the fact that profit margins are already at a record high. The stagflation trade means carrying minimum cash balances. It also means that MASSIVE Fed rate hikes will slow growth but will NOT create a recession.
Act now and you will get 6 free ginsu knives...
But that's not all:
We are now to believe as a worst case scenario that the Fed will raise rates 12-16 times in 2022, followed by a mild recession in 2023. Conveniently, by that time the Fed will have normalized policy enough to start cutting rates and therefore moderate the recession. In the meantime ALL asset prices will stay permanently high as will store prices, crude oil, commodities, real estate, and most importantly record corporate profits.
It's the Cinderella story propagated by Wall Street and the mainstream financial media. Questioned by almost no one.
What they are ignoring of course is RECORD policy divergence between the U.S. and China and Japan. Europe sliding towards recession with the ECB tightening and the EU attempting to embargo Russian gas and oil. Emerging Markets imploding due to the sky-rocketing dollar.
And they lived happily ever after.
Here is MY alternative prediction: I see a Third Wave asset meltdown across all risk assets at the same time coinciding with a Fed intent on tightening liquidity at the fastest pace in U.S. history.
In other words, I predict that all of this end of cycle profiteering will backfire disastrously, leaving a totally bidless market. Which will cause asset shock on top of oil shock, inflation shock, rate shock leaving the "consumer" imploded.
You see, once again, ALL of today's "experts" forgot the most important variable in their economic models: The middle class.
These elitist assholes have not even the slightest clue how much pain the average household is experiencing right now. So of course they assume that the U.S. can embargo Russia, implode China, and take money in from Emerging Markets ad infinitum. While households double down on end of cycle risk.
It's the biggest con job ever bought and sold.
These fools have already forgotten that last year was the biggest growth stock pump and dump in history. RECORD IPO and SPAC issuance for record Wall Street profit. In addition to Crypto Ponzi schemes and myriad other Social Media ordered scams.
However, THIS year it's all about the inflation scam. Which, is 10x larger in magnitude.
Already we are seeing a consumer slowdown in durable goods AND a nascent slowdown in the housing market.
Notice where "Current conditions" sentiment was at during the last two real estate bubbles. It was only AFTER the bubble popped that sentiment collapsed. This time, sentiment is collapsing BEFORE the bubble has popped. Which means all of that new housing supply will be dumped onto a collapsing market:
Now consider stock market liquidity vis-a-vis the S&P (eMini) futures. When today's investors finally realize that "stonks" are not a safe haven from meltdown, who will be on the other side of the trade?
No one.
These people are all now cornered into a massively crowded panic trade.
This chart shows the past two FOMCs (blue circles) and then the second Thursday prior to the meeting, where we are today (blue down arrows).
I see this as wave i (blue) of 3 (red). 4x Tightening means the Fed PLANS to double tighten on the short end and the long end at the same time. Currently, there is a 95% chance of double rate hike in May, which is the first double rate hike since May 2000.
Momentum stocks are even more dire as they now have a corrective fractal very similar to the one that imploded in January AND the final stages of a one year head and shoulders top:
Crude oil:
The March rate hike is circled.
The March rate hike is circled:
The world (stocks) ex-U.S., crashed both times prior to the FOMC meeting (circled):
In summary, this week is Earth week and the hairless monkeys have ignored all warnings.
"Once I stood to lose her
When I saw what I had done
Bowed down and threw away the hours
Of her garden and her sun
So I tried to warn her
I turned to see her weep
Forty days and forty nights
And it's still coming down on me"