Tuesday, July 23, 2019

The Grapes Of Wrath 2019

The lessons from the last bimbo in office are long since forgotten...

Trump is setting himself up for a level of rage we've never seen before in our lifetimes. The gap between what he has promised economically versus what he has delivered, is now record wide. An expert con job achieved via maximum fiscal and monetary stimulus gimmicks. One that has managed to con the overwhelming majority of economic "experts" across academia, business, and media. When the sheeple figure out that their "best and brightest" are neither, the underwear will be mighty stained...

GOP GDP aka. "Debt"
Notice the difference from the last two cycles - the deficit improved towards the end of cycle. Not this time:

To date, Trump has eased banking regulations and eliminated the Fiduciary rule for Wall Street, opened up Federal lands to oil drillers, cut taxes for billionaires, and now he's coercing the Fed into rate cuts to inflate stocks. On the other side of the ledger, he did everything possible to kill healthcare for working people, he defrauded millions out of tax refunds, and now he's cutting food stamps for the poorest. He's a true Banana Republican in every sense of the word. The GOP has become the party of corruption and fraud. A party void of conscience and soul, overwhelmingly supported by sanctimonious religious hypocrites, who are bounding down the road to Perdition, behind their pussy-grabber-in-chief. 

Trump wants to kill foodstamps for 3 million people - many of whom are children - to save $2.5 billion, which is .05% of his latest Federal budget. A rounding error.

Meaning this is just an election stunt to drum up more of the evangelical vote who are pro-life but not pro-living.

Budget retailers are taking a hit on the news...

Close-up view:

Monday, July 22, 2019

"Fool Me All The Time, Shame On Me"

Liquidity is collapsing ahead of next week's Fed meeting as gamblers begin to hit the exits ahead of the stimulus "news". You know, same as last time...

We're on the right shoulder of the third rally of the third mega bubble. No amount of warning could waken these zombies...

ZH: Even The Machines Are Selling Ahead Of Time

Remember January 2018 when stimulus junkies were told that the big Trump tax cut was going to bring a massive dose of fiscal stimulus to the casino and set off a big rally? Gamblers went ALL IN, only to find out that was the end of the rally, not the beginning. The smart money had been selling into the rally ahead of the news.

Fast forward to now, and once again stimulus junkies are lubed up over a big dose of monetary stimulus. Meanwhile, liquidity is already collapsing, as yet again, the smart money is selling ahead of the news. The definition of insanity is doing the same thing over and over again, each time expecting a different result...

Here we see via the Hedge Fund VIP (Most owned) ETF, two nearly identical melt-up rallies. Double tops:

The major difference is that liquidity is much lower this time around, as we are further into the gambling cycle. Liquidity has been falling for a year and a half straight.

The market has a technical problem. It's called "sell":

"The market’s so-called depth has become so shallow that stocks are increasingly vulnerable to exacerbated moves"

As we know, breadth has also collapsed over the past 18 months, even as the casino continued to make new highs:

eMini futures open interest has collapsed:

As each asset bubble runs its course, more gamblers exit the casino

Persistent distribution by large institutions to final bagholders is weighing on liquidity

"If fund managers are getting out of the stock market and a correction is imminent, how can individual investors spot this ominous trend?

The answer, in a word, is distribution"

Fund managers are usually silent about those big decisions, and in public they may even be talking up stocks."

Distribution days can occur even as the major indexes are still climbing to new highs."

Often, the index closes low in its daily price range as buyers walk away from the market in the final hours.

Money flow measures where in the daily price range the market closes. Weak closes indicate distribution.

Word on the (Wall) Street is that this is a fool's rally

The MAGA Kingdom: End Game

In each bubble, the lies and fraud keep getting larger, by necessity. It takes greater lies each time to con the masses. At this latent juncture, the MAGA Kingdom is wholly desensitized to fraud and deception. It's just "corruption as usual"...

Anyone who would trust Trump would trust anyone.

"Something" happened after 2008 whereby this society - monkey hammered by two asset bubbles in a row - decided to turn its back entirely on reality.

Five of the top ten grossing movies of all time are comic book movies from the past decade. Four of which are the Avenger series. Those numbers are nominal, not inflation adjusted. Nevertheless, we see below that within the comic book genre itself, movie receipts have sky-rocketed in the past decade ~500%. Bearing in mind that 2019 still has some ways to go:

In other words, fifty years ago, the U.S. was launching 6 million pound rockets to the moon and back, at the beyond Earth's orbit speed of 25,000 miles per hour, 15x speed of a bullet. Now we have record numbers of Disney comic book movies for adult audiences. The Saturn V remains the most powerful rocket ever launched into space. Do the words "what the fuck happened" ever come to mind?

The past five decades has been a worldwide regression into Never Never Land. No wonder these zombies now have unwavering faith in printed money.

There is not one aspect of this way of life that isn't fake and fraudulent - from the fake food, fake news, fake markets, to the reality TV game show host in the White House.

And the addictions to corporate-sponsored death candy keep getting worse. They locked up El Chapo this past week, but let the Big Pharma opioid drug dealers kill off 100,000 people. In the same way they locked up Bernie Madoff for his pissant Ponzi scheme ten years ago, then they bailed out Goldman Sachs for almost bringing the global financial system down. 

Trump won the election based upon his mantra "Drain the swamp", yet there has never been a more corrupt president with more business conflicts of interest than Trump. His hotel in Washington has become an extended guest room for the White House. His entire cabinet is stacked with crony capitalists strip mining the Federal government.

This society is wholly desensitized to fraud and corruption. This article about Britain's mini-Trump says it all:

"Boris Johnson, to whom lying comes as easily as breathing, is on the verge of becoming prime minister. He faces the most complex and intractable political crisis to affect Britain since 1945."

"That should be concerning enough. But given Britain’s political system — which relies for its maintenance on the character and disposition of the prime minister — it carries even graver import. Mr. Johnson, whose laziness is proverbial and opportunism legendary, is a man well practiced in deceit, a pander willing to tickle the prejudices of his audience for easy gain. His personal life is incontinent, his public record inconsequential."

These are the type of people at the highest echelons of society now. Which is why ten years later, the global debt bubble is far bigger. Because this is the first society in human history that is borrowing its way out of a debt crisis.

As it was in 2007, lenders are Ponzi lending to their own clients to paper over the erosion of solvency. Neither side wants to admit the party is over.

Remember the ratings agencies that lied in 2007 and said all of that subprime alchemy was 'AAA'? Well, they are lying again, because they have a conflict of interest in keeping this party going as long as possible.

Global debt is certainly higher and riskier today than it was a decade ago, with households, corporates, and governments all ramping up indebtedness,” S&P Global Ratings credit analyst Terry Chan said in a statement.

“Although another credit downturn may be inevitable, we don’t believe it will be as bad as the 2008-2009 global financial crisis.”

Because everyone knows that more leverage equals less risk:
"The amount of leverage, or debt to GDP, is up less dramatically, from 208 percent in June 2008 to 231 percent in June 2018."

Conflict of interest:

The agency itself, along with competitors like Moody’s and Fitch, came under fire after the crisis for not sounding alarms about the debt buildup. During the crisis, big Wall Street firms issued securities composed of mortgage bonds that got high grades from the ratings agencies but eventually blew up and caused systemic damage that spread from the U.S. globally."

One of the areas of particular worry that S&P cited was corporate debt"

Corporate debt to GDP:

Median home price (blue)
Two year Treasury yield (red)

"No ratings agency saw it coming"

Sunday, July 21, 2019

"No One Saw It Coming"

Belief that Fed-printed money is the secret to effortless wealth is unquestioned now. A delusional bubble made ever-larger by a decade of monetary bailouts...

mor·al haz·ard:
"lack of incentive to guard against risk where one is protected from its consequences"

Barron's June 24th, 2019
Easy Money Is Here Again
"The biggest thing is to fight the urge to get too bearish...You really have to stay appropriately bullish in the face of nothing but bad news.” 

Meanwhile, everyone thinks that they alone will get out at the top. Which means they all have something else in common - they haven't thought it through that much. It was the exact same way at the top in 2007/2008. Rampant denial. Rampant bullshit. Followed by the shitting of bricks.

We've never seen this much volatility in a market that is trending higher:

I was reading NorthmanTrader's latest missive, and I found it altogether far too ambivalent. Clearly he is getting a tad frustrated by algo-driven Disney markets. Because as he states, if you "get it wrong", you get ridiculed. Having nominal audience and no comment section, I don't have that problem. As a certified perma-bear I have always made it clear that this would end with extreme dislocation. The fewer people who see it coming, the more extreme. Meaning, right now historically unprecedented shock and awe are forthcoming. 

Looking at the above chart, and considering this year's fund (out) flows it's obvious that some smart people have figured this all out. They've been quietly exiting the casino all year. That does not mean there is a consensus among any cohort of investors on CNBS - far from it, mass confusion reigns supreme. It simply means that classic value investors are responding rationally to the risk:reward ratio amid the current profit collapse, and they are rebalancing accordingly. Seeking the best risk adjusted rate of return, which is no longer in stocks. These are people who despite having underperformed the market for a decade straight, still adhere to traditional investment discipline.

For example, the world's most famous value investor who is sitting on record cash and has been underperforming the market since 2008

Berkshire Hathaway, Buffett's holding company, is light on Tech and heavy on economic cyclicals. It has not confirmed the recent market highs.

The problem is that the vast majority of do-it-yourself investors are on passive auto-pilot mode. And they have been brainwashed to never "time the market". Those are the people who yet again will get hurt the most. They are part of the "TINA" trade who have been convinced they will never retire if they don't keep most of their money in stocks. Hence, they are the ones pushing the bubble to unsustainable valuations in front of recession.

"Last year, the Trump administration abandoned a regulation designed to protect U.S. savers from conflicted investment advice. Known as the fiduciary rule, it would have required more brokers and insurance agents to disclose when they’re getting paid to steer people into certain investments. It also would have banned the sale of certain retirement products when they aren’t in savers’ “best interest.”

Sales of potentially questionable investment products have soared, and retirees stand to end up billions of dollars poorer."

Trillions poorer.

“Low-vol tends to perform the best when the economy is decelerating or contracting”

The rush by investors into low volatility ETFs has bid valuations of the underlying stocks above the broader market"

The Ponzi takeaway: Valuations don't matter
"As long as demand remains high for these stocks, valuations should remain high as well."

In other words, in this cycle the choice was to be an active trader by front-running the gullible into and out of asset bubbles. Bernie Madoff style. Or, be a classic value investor thereby missing out on a large portion of the market gains by exiting early. Or, be a typical zombie and ride the escalator up and the elevator right back down with advice from the usual psychopaths.  

Or, be a perma-bear with adequate conviction and capital to outlast yet another irrational mega bubble. Third in two decades. 

But ahead of the July 31st "all-important" Fed meeting, with gamblers lubed up to the maximum, what this all comes down to at the end of the day is very simple:  can the Fed save the markets and the economy with only 2% dry powder and human history's largest asset bubble which is driven by the now ubiquitous belief that the Fed can save the market with only 2% dry powder?

The answer is no. 

But you can't tell people that. I've tried. They're all going to get out at the top, ahead of everyone else. 

"No one saw it coming"

Hell Week

"No stop signs, speed limit
Nobody's gonna slow me down
Like a wheel, gonna spin it
Nobody's gonna mess me around
Hey Satan, paid my dues
Playing in a rocking band
Hey mama, look at me
I'm on my way to the promised land"

I predict a half point rate cut from the Fed, just not from this level. Gamblers must traverse the valley of ignorance and arrogance to arrive at their free money promised land, which they've been front-running for seven months straight. The pre-meeting cone of Fed silence has begun...

While oblivious U.S. gamblers are super lubed ahead of the Fed, the global noose has tightened inextricably. The delusional theory of U.S. "decoupling" is ubiquitous.

"We're decoupled. From reality"
"There is no alternative"

The level of risk and complacency right now cannot be explained in any rational terms. Not only is the UK mired in an escalating conflict with Iran in the Persian Gulf, but the Conservative Party is set to pick their new leadership candidate on Monday. The British pound is at a 27 month low threatening the all time lows from post-Brexit. Ahead of the vote, the Party is stacking itself with pro-Brexit delegates, making the likelihood of a hard Brexit more and more likely.

"Morgan Stanley said the pound has come under “intense selling pressure” since Theresa May announced last month that she will step down"

Meanwhile, a quarter of the S&P 500 reports earnings in the week ahead, with key reports from Google and Amazon among other big names. 

But the real action will be in semiconductors which have had a massive short-covering rally off of the May lows. These, along with massively overbought software stocks are the keys to the Tech bubble:

"First the global slowdown clobbered them at the end of last year, then the China trade war intensifying clobbered them again in May, then the Huawei ban, then Japan’s export restrictions against South Korea."

Wall Street has been cutting estimates like mad. Pre-tax profits for semiconductors for just the second quarter is expected to contract from 36% to 29.3% year over year, a 20% reduction"

The ECB meets on Thursday this week, but well-conditioned gamblers have been front-running this key meeting, as yields have collapsed over the last three months. Setting the stage for a spike in yields deja vu of July 2016. Which will monkey hammer global bond markets. And "low volatility" bond proxies.

“People have been trading on the assumption of more QE before year-end and maybe jumping a few steps ahead”


U.S. capital markets have been the prime beneficiary of global central bank money printing, driven ironically by Fed policy divergence. Something Trump is no way capable of understanding. He complains constantly that U.S. interest rates are too high, but U.S. stocks have outperformed the rest of the world since 2009 by a huge margin. 

In particular, the Yen carry trade is the conduit for BOJ stimulus flowing into the S&P futures. Now, the Powell pivot is unwinding that trade.

USDJPY has flash crashed once already this year back in January. Long forgotten.

The weakest link in the global daisy chain is of course China, which just recorded its weakest GDP in 27 years. Which makes this all imagined realities 2019.

There were strong indications this week that the U.S.-China trade war is spilling over to the rest of Asia:

"Singapore saw exports fall for a second month in a row, this time by 17.3% in the month of June compared to a year ago"

The city state is one of the most trade-dependent economies in the world, and is often seen as a global indicator for trade."

Indonesia, which counts China as its biggest trading partner, also saw exports fall by 8.98% in comparison with the same period last year. And South Korea also saw exports fall by 13.5%."

Something's going to break. Hard.

OECD (2019), Composite leading indicator (CLI) (indicator). doi: 10.1787/4a174487-en (Accessed on 21 July 2019)

World's largest economies:

Don't worry, the Fed put will kick-in post crash. It always does...

Rest In Peace Voodoo Economics

After 40 years of Supply Side Voodoo Economic failure, the U.S. conservative movement is finally figuring out it doesn't work...

Some people don't learn too good. An entire lifetime of fraudulent belief, unceremoniously flushed down the toilet of history.

The right wing movement held their first ever "Nationalist" conservative conference this past week. With many high profile Trump acolytes in attendance. The goal of the conference was to cleave the Party from its ignominious past and chart a new path forward under nationalism. The Republican "Big Tent" just became very small indeed. I will say this much, the U.S. conservative movement is nothing if not ideologically "flexible".

“We declare independence from neoconservatism. We declare independence from neoliberalism, from libertarianism"

Leaving aside the thinly veiled racism underlying this new "approach" which  leaves at least two thirds of the U.S. outside the new tent. Where it gets interesting is the venn overlap on the economic side between the far right and the far left. Which are both converging towards the center from opposite sides.

"The once-heretical notion that the free market may not be conservatism’s friend was discussed"

“Market economies are not going to give us what they want on their own”

The debate unfolded in a dense blizzard of references to economic indicators and quotes from the Federalist papers"

In a vote, the protectionist side won handily, 99 in favor and 51 against."

It gets better. The star of the show was Tucker Carlson who launched a tirade against corporatism entitled "Big Business Hates Your Family". Basically what I've been saying for ten years non-stop. Last month Carlson went on a tirade against the Koch Brothers.

This is a quote from the conference:

“The main threat to your ability to live your life as you choose, does not come from the government, it comes from the private sector,” he declared. “I can’t believe I’m saying that!”

I can't believe it either. It was a very timely rejoinder in a week when we find out that Big Pharma accidentally killed off a large chunk of the country. I've said all along that "free market" healthcare is going to be the leading cause of death in the U.S. in tandem with junk food.

"The market responded as one would expect to increased 'demand'"

"America’s largest drug companies saturated the country with 76 billion oxycodone and hydrocodone pain pills from 2006 through 2012 as the nation’s deadliest drug epidemic spun out of control"

which has resulted in nearly 100,000 deaths from 2006 through 2012"

Federal Data Shows Opioid Shipments Ballooned As Crisis Grew"

Getting back to the conference, also in attendance was Peter Thiel, Trump's Tech whisperer. This past week, he had this to say about the Democratic gong show. Again, I wholeheartedly agree that Elizabeth Warren is by far the most impressive candidate.

TUCKER CARLSON, FOX NEWS: I assume you’re watching the Democratic primaries unfold; who’s the most impressive candidate in that race, do you think?

PETER THIEL: Well, I’m most scared by Elizabeth Warren.  You know, I think she’s the one who’s actually talking about the economy, which is the only thing that I think -- the thing that I think matters by far the most.

CARLSON:  I think that’s right. 

This is what Tucker Carlson had to say at the conference about Warren:

An audience member asked if he saw Sen. Elizabeth A. Warren, whose economic plan Mr. Carlson has praised, as a “potential ally for national conservatism.” Carlson called her “a human tragedy” and a “joke,” but said her 2003 book, “The Two-Income Trap,” was “one of the best books I’ve ever read on economic policy.”

“The single biggest change to our society, and it got almost no press, was the moment where it became impossible for the average person to support a family on one income”

Good riddance Ponzinomics. 

Saturday, July 20, 2019

Global Warning Ignored

Never before have so many believed so fully and completely in something that is entirely fraudulent. The impending shock and awe will be cataclysmic...

This is the era of industry mass deception. A period in which the corporate owned Borg of all-knowing idiots does everything possible to preserve and protect their corporate overlords from self-destruction. Including lying non-stop to paper over economic collapse amid Trump's never-ending trade war quagmire. And they are doing a fantastic job of it. Now that they've decided that all bad news is good news, they can sit back and relax. Their job has never been easier...

"The reading of expectations for personal finances rose to 136, matching the highest level since 2004"

The data follow Bloomberg’s weekly comfort gauge, which climbed last week to a fresh 18-year high on stronger views of the buying climate and personal finances"

Wall Street's role in this delusion is to lower estimates ahead of the quarter to the point where even a recession can go hidden behind manufactured estimates. 

Notably this past week in banks:

"We haven’t seen the worst yet in our view. We still expect rates to go lower putting further pressure on bank earnings.”

Clearly a strong buy at the worst point in the cycle for banks.

Tech earnings are expected to be down -11.9% this quarter, but you would never know it...

"Record gains are coming"

And of course in Transports where gamblers are ignoring imploding global trade and Dow Theory non-confirmation by the Transportation sector:

"Unfortunately, macro [data] was right and J.B. Hunt missed sales estimates and struggled with falling margins in the second quarter. The goods news is that the stock jumped higher after earnings"

"This month, multiple organizations that track the trucking industry reported the sector is heading toward, or is already in, a recession."

"First, it was 'We don’t expect growth to be as strong as 2018, but see no reason to predict a recession," he wrote. "Now, it’s 'in almost every sector, in every mode of transportation, in every part of the globe, freight flows are signaling economic contraction.'"

Today's gamblers are ignoring Dow Theory - one of the oldest and time proven tenets of the market. It posits that the Dow Industrial Average and the Dow Transports must confirm new market highs.

The Transports are right now confirming that the December low is about to be re-tested imminently:


One of the reasons gamblers are ignoring the trucking industry is because the railroads are still making new highs.

To find out the last time we saw such a divergence between rails and trucking, we have to go back to October 2008:

In the broadening top, smart money is out of the market. Participation at the later stage is by the general public.

aka. "the usual bagholders"

Just remember one important point:

None of this deception and delusion was "man made"

...and global collapse