Wednesday, February 21, 2018

Letting It Ride On The Tax Cut

The Croupier-in-chief and his gambling acolytes are not bright enough to figure out there's no such thing as *free* money. This will complete the education they missed while partying at college...

Today the casino melted up into the FOMC meeting minutes, tagged +300 on the Dow, and then cratered to the lows of the day -166 Dow. If Daneric's wave count is correct, then today's key reversal of fortune began the third wave down at all degrees of trend. Which assumes that the fifth wave melt-up rally in January was a manic blow-off top in every asset class known to man. Which of course it was...

Donny's tax cut came into effect February 1st, the day the wheels came off the bus. As long as the 200 dma holds, this should all be fine. Otherwise, it's game over man...

I've variously compared this juncture to 2014 for its deflationary brick wall. 2008 for the end-of-cycle Fedplosion. 2015 for the smash crash. Y2K for the tech bubble. 1987 for the mega crash. And 1929 for the depression that followed. This will be the sum of all of the above.

Here is where it gets interesting. The casino just fell -10% and rallied back to the .618 fibo retracement line. Which is what happened both in 2015 and 1987. So, what is it going to be, door #1 or door #2?

But first, a typical bedtime story from the car salesmen who have herded the sheeple into record risk at the end of the cycle:

"Until recently, the U.S. stock market had been the gift which keeps on giving. Investors loved the compelling simplicity of record highs, which handsomely rewarded them as the market trekked higher without a pause.

Then in January the Dow experienced its biggest one-day drop ever. The subsequent recovery since has made for an extremely volatile investing climate, reinforcing the belief for many that this bull market has finally reached the end of its golden era. Hogwash"

In other words, he starts off by admitting that the market just performed an historically unprecedented levitation trick. But then he concludes with "And they lived happily ever after".

Comparing now versus 1987 and 2015, the first thing we notice is that in 1987, the casino had not yet pierced the 200 day. In other words, then as now, gamblers had been "handsomely rewarded as the market trekked higher without a pause". However, when the rally off of the initial dive stalled at the 50 day, the casino exploded when it hit the 200 day:

Below, 2015, using S&P instead of Dow, same idea. Here we see that the initial crash took place below the 200 day. In other words, in both 1987 and 2015, the 200 day was combustible. Nevertheless, in 2015 the market successfully double bottomed on the retest. 

The real recession stocks (Consumer Staples) have already tapped out. So, the next rotation is back to bonds...

China is back online, so should be an interesting next 48 hours...

This portends badly for happily ever after...

Entering The Lehman Moment. Yes Again...

Reflation is a serial hoax foisted on proven dimwits by proven psychopaths. Higher bond yields were the last chance to sell, inconveniently mistaken as the last chance to buy...

"The yield on the two-year Treasury note hit 2.282 percent Tuesday evening, its highest level since Sept. 19, 2008."

Trump represents the vacation from reality at the end of the ten year vacation from reality. A well deserved trip, compliments of mega-buffoonery. Stock gamblers may as well enjoy the vacation, because there is no way back...

Trump's tax cut which drove higher bond yields, combined with the obligatory attendant belief that this expansion will last forever, has meant that not only is a crash inevitable, but it has also meant that buy and holders will be overloaded with the junkiest stocks going into recession.

In other words, this will be a crash, followed by panic, followed by a much bigger crash.

The problem is no longer higher rates, it's lower rates, which will mean recession...

"U.S. stocks briefly entered correction territory earlier this month after concerns of rising inflation sent interest rates surging."

"On Wednesday, the benchmark 10-year U.S. note yield and the short-term two-year yield traded near multiyear highs."

"While rising long-term rates will ultimately become a negative for profits and multiples, we do not see current levels as a reason to de-risk and sell equities" 

"Lower rates will just mean that profits are returning to zero. So don't worry yet, you have time to bid up your stocks"

Here we see forward reflation expectations (red), and the stock/bond ratio (black). U.S. reflation expectations have been falling since 2008, due to imported poverty. This current reflationary bounce is a farce relative to the last three. Meanwhile, now the stock/bond ratio is stratospheric meaning there is no way that reflation can roll over here, without exploding the stock market. Because it would mean that bonds are massively underpriced and stocks are massively overpriced. The rebalancing will make two weeks ago seem like a picnic. 

Notice the difference now versus 2008 when the stock/bond ratio had already priced in recession ahead of time:

While we wait for the FOMC meeeting minutes, I will put up this bonus chart showing the big three Central Bank meeting dates for 2017-now:

When was the last time the S&P failed at the 50 day?

August  16th, 2017:

Tuesday, February 20, 2018

The Jobless Consumer Shrugged

All nations rise and fall based upon their junk ideologies. The definition of insanity is trusting the same psychopaths over and over again, each time expecting a different result...

The jobless consumer is the mythical Ayn Randian protagonist and beneficiary of all *Free* trade agreements. This incredible individual is able to withstand serial job/income "right sizing" and boom/bust cycles while maintaining his/her prior spending, merely by borrowing themselves into oblivion. It's the dumbest fucking idea ever conceived, but then again look who we're dealing with.

Today, Walmart confirmed that the jobless consumer is tapped out. It appears that Trump's tax cut "plink" and collapsing personal savings rate were not enough to offset rising interest rates at the end of the credit cycle. Who knew? Not one economist, we know that much. 

Any questions?

Of course, this news from Walmart only confirms what we learned last week from the Commerce Department. Wherein, retail sales implausibly missed all expectations, posting their biggest decline in 11 months.

As usual, gamblers are seeking the safe haven of 300 P/E Amazon, the only retailer not expected to turn a real profit - during their 25-year "monopolistic grace period" during which time they are destroying the rest of the retail sector. Regulators used to call that predatory competition. Unfortunately the regulators left the building when the adults departed this farce decades ago. 

Unfortunately, there is one fly in the ointment:

Hiding in 300 P/E stocks at the end of the risk cycle is a bad idea. Don't ask me how I know...

Monday, February 19, 2018

Retesting Globalized Fraud

To see who shits a brick...

Globalization is the biggest con job in human history without any comparison. Of course, that was readily apparent in 2008. Fast forward ten years, tens of trillions of more debt, and tens of trillions in printed money. And here we go again...

Europe has broken the two year trend-line and the 35 week moving average (200 day):

Nanex posted a tweet on Feb. 17th indicating that since 2005, Europe has accounted for 50% of the S&P futures gains. 2am-3am is the European open in New York:

Of course that sword cuts both ways - Sunday night (Monday, Europe), the S&P futures traded off 15 points beginning at 2am.

It appears that Europe is already heading into "retest" mode. However, the margin of error is a tad slim:

Meanwhile, in buy-every-dip-land, we see what I was talking about previously - large caps were not a part of the recent welcome "correction":

One of these is not like the others:

China is taking holidays for Lunar New Year, but will be back on Thursday to join the retest:

Hong Kong is back from the holiday:

Canada just boomeranged back below the 200 day, but that has only imploded the U.S. every other time. So who knows what will happen this time...

Japan is ready for the re-test. Of course the last two breaks of the 200 day (red line) likewise imploded global risk:

Apple. Good to go...

High Beta. Ready

"Minimum Volatility". What else?

In summary, as long as Netflix doesn't implode. 

This will all be fine...

"Liquidity has recovered to normal levels"

Buried By Voodoo Economics

"Best case" scenario, we'll borrow 5% of GDP, to have 3% GDP "growth". Recession is not an option, which is good since Donny has banished recessions. You just can't make this shit up. What Trumpism represents is abdication of responsibility taken to level '11'. FULL RETARD...

America's forty year slide into degeneracy is a cautionary tale for any future nation state tempted to rent the mantle of empire at exorbitant cost, ending in collapse. The reason why so many on the right are vociferously casting about for scapegoats is because they can't stand to bear what their failed junk ideologies have wrought, and what history will say about them. 

This will be a deep burial for both:

What forty years of Supply Side economics represents is organized theft. What Republicans have proven is that democracy fails when you can con a large segment of society over and over again into voting against their own interest. All compliments of junk food and junk culture, and an education system devoid of education. The systematic raiding of Social Security and Medicare to fund tax cuts has been ongoing since the 1980s. It's outright theft. 

There is no line item on the paystub that says "Tax cut for Bill Gates". And yet somehow Social Security and Medicare are the "entitlements" in the Republican lexicon. These are not entitlements these were trust funds that were entrusted to organized criminals.

Now, of course RepubliCons need to blame "The deep state" for this entire debacle. Because it can't be due to some inherent failure in morality germain to the "American Dream". A proven nightmare that will in no way be repeated by any other country in the future this side of an aspiring banana republic. 

If it is in fact the deep state causing this strip-mining of the public treasury, then why is even Goldman Sachs forced to warn the Idiocracy of the impending catastrophe.

You see, all of Donny's projections for a best case -5% deficit, are exactly that, best case scenario. They leave absolutely no room in the equation for the impending recession. As always, don't take my word for it:

"President Trump, who sees himself as the toughest guy in the room, is, along with his GOP allies in Congress, disarming the federal government’s ability to respond to a future economic slowdown."

 The administration gets the 2019 deficit to 4.7% of GDP only by assuming well over $100 billion in spending reductions. But they are more than a little hard to imagine given that a bipartisan majority in Congress just increased spending by more than $300 billion."

Trump's budget assumes economic growth of 3% annually for the coming decade, despite the fact that this is already the third longest expansion in U.S. history. And despite the fact that Obama did not have one year at 3% growth. So no recessions, and the highest growth in the past three decades.

In other words, you have to be a full retard to believe this shit:

And that's exactly what this entire experiment represents.

Full Retard:

Sunday, February 18, 2018

Idiocracy Meet The Brick Wall Of Deflation

Contrary to ubiquitous belief, raising interest rates at the end of a ten year debt binge is not "reflationary"...

One of the undertold stories of the past year has been the absolute obliteration of the U.S. Dollar, which has attended the global risk rally. When global growth expectations are strengthening, the dollar weakens, when global growth expectations weaken, the dollar gets stronger. This week, the dollar put in a triple bottom. The S&P 500 is trading inverse to the dollar...

When the dollar strengthens, commodities and oil fall, Emerging Markets take a hit, and corporate profits translated from FX back to dollars fall. Volatility rises.

The S&P 500 versus the $USD:

Here we see the $USD, with copper as proxy for global growth. For a while, the dollar strengthened with copper due to Fed tightening, but that correlation reverted back to the normal negative in 2017:

Copper with EM stocks:

EM stocks with S&P volatility:

Instead of worrying about the dollar going down, gamblers need to worry about the dollar going up...

Why? Because it's the end of the cycle:

U.S. factory output was flat for the second straight month in January, raising questions about the manufacturing outlook as production dropped in the aerospace, plastics and food industries.

The lack of growth in U.S. manufacturing, reported on Thursday by the Federal Reserve, confounded analyst expectations for a 0.3 percent monthly gain

The industrial sector has received support over the last year from a strengthening global economy."

Here are some bonus charts:

I was reading a blog on today, and here is what he had to say:

"History and Fibonacci Say We Topped Friday" (Tom Bowley)

"The last time we saw panicked selling (before the past few weeks) was in August 2015.  Let's take a trip down memory lane:"

I re-created his chart from 2015:

"The drop was a little more than 10%, the VIX spiked to 50, a major counter trend rally topped at the 61.8% Fibonacci retracement level...all with a topping shooting star candle"

And here is the chart from now:

"The drop was a little more than 10%, the VIX spiked to 50, a major counter trend rally has potentially topped at the 61.8% Fibonacci retracement level...all with a topping shooting star candle"

Of course, there's only one problem with the re-test thesis, which is that it's not 2015, and large caps did not participate in this decline.


Nor did Emerging Markets. Because there's a global synchronized reflation. Don't you know?