Friday, October 18, 2019

The Trump Carbon Tax Is Due

The oil and gas industry is everything that is wrong with global capitalism - it's corrupt, deceitful, environmentally catastrophic, and insolvent. While this industry was busily bankrupting itself, useful idiots were spreading fairy tales of perpetual growth...

"Increasingly, U.S. shale firms appear unable to pay back investors for the money borrowed to fuel the last decade of the fracking boom. In a similar vein, those companies also seem poised to stiff the public on cleanup costs for abandoned oil and gas wells once the producers have moved on."

By any measure, the amount of private money currently allocated in the U.S. to plug and reclaim oil and gas wells is a small fraction of the real costs. That means oil and gas wells — and the U.S. had one million active wells in 2017, and even more abandoned — will either be left to fail and potentially contaminate the surrounding water, air, and soil, or the public will have to pick up the tab. This represents just one of the many ways the public subsidizes the oil and gas industry."

When oil peaked at $150/bbl in 2008 that was the wake up call to copious dunces that there are not enough resources on this planet to enable the consumption-oriented lifestyle for everyone. For the past decade of subsequent deflation, the economy has been a zero sum game: Robbing Peter to pay Paul, where Peter is the working class and Paul is Bill Gates & Co.

Today's denialists are not capable of accepting facts or reality, nor third grade math. The oil industry has been massively subsidized by creditors, speculators, and tax payers. Losses that are just now becoming known.

A measure of crude futures speculator losses can be visualized by looking at the U.S. Oil ETF which embeds futures rollover losses. Down -90% from the peak.

Another measure of insolvency can be derived via Saudi Arabia's astronomical fiscal deficit. Which was -15% at the lows in 2015. A mere fraction of what is about to come.

Despite record U.S. oil production, the Energy sector's share of S&P market cap is the lowest in 40 years. It's a non-scalable, environmentally disastrous, economically insolvent industry.

Peak oil was reached in 2008; what we've seen for the past decade is MASSIVE subsidization of a failed industry. And a failed way of life. The perpetual growth fairy tale isn't going to raise global living standards, it's going to collapse them.

This failed industry will be the first casualty of the Trump carbon tax.

Desensitized To Corruption

Contrary to popular belief, there are downsides to having the most corrupt people in society running the economy. Now we are going to discover those hidden costs. Sadly, herding is not a safe instinct for those aspiring to sub-par intelligence. There is no strength in numbers...

"Groupthink is a psychological phenomenon that occurs within a group of people in which the desire for harmony or conformity in the group results in an irrational or dysfunctional decision-making outcome. Group members try to minimize conflict and reach a consensus decision without critical evaluation of alternative viewpoints by actively suppressing dissenting viewpoints, and by isolating themselves from outside influences"

Make no mistake, this is how it ends for the Roman Senate: When lying and corruption are the new "integrity".

For the MAGA Kingdom, recession is not an option, any more than reality, truth, or responsibility. Which is why today, never before in U.S. history, has so much effort been put into concealing recession. Trump's entire re-election probability is tied to the Dow, which is tied to Trump's re-election probability. Once the decline begins, it will death spiral lower, along with his approval ratings...

Senescence (/sɪˈnɛsəns/) or biological aging is the gradual deterioration of functional characteristics

Nature is merciful, to the extent that as people age they begin to lose their mental faculties and therefore become less aware of their inexorable decline. This society is exhibiting the exact same characteristics - it's wholly unaware of functional and cognitive decline.

What is extraordinary at this juncture is the amount of complacency attending the amount of risk. Despite soaring record economic policy uncertainty, we learned this week that Trump is a "lock" for 2020, based on the economy. There is a newfound denialistic narrative that we are "talking ourselves into recession". As always, the exact opposite is true - this is the biggest Jedi Mind Trick in human history. Why? Because for the MAGA Kingdom, recession is not an option.

The Faux News echo chamber demands that all true believers ignore any and all negative reports about the economy. Because they are all politically motivated:

Where this gets surreal - and proves the denialists wrong - is the unprecedented amount of combined fiscal and monetary stimulus now being applied to pretend the U.S. is not already IN recession. Never before in U.S. history has this amount of stimulus been proactively applied outside of a confirmed recession. It's all part of the "policy" of ensuring Trump wins the election. And based on Moody's prediction. So far, so good.

Is it irresponsible and asinine, yes. Is it doomed to fail catastrophically, of course. It's all driven by this abiding DisneyLand belief in consequence-free money. Free borrowed money, free printed money. Today's economists are now all drinking the Kool-Aid. Their credibility was sold to the highest bidder. 

Aside from the chasmic fiscal deficit and record low long term interest rates, the biggest divergence from reality is in consumer confidence. Somehow consumers remain confident, even as retail sales are now rolling over. Everyone appears to believe that everyone else is out shopping.

The true Jedi Mind trick however arrives via the artificially levitated stock market. People believe that as long as stocks remain pinned to all time highs, then the economy must be strong. Of course, the exact opposite is true - as the economy weakens, stock gamblers become ever-more addicted to Fed dopium and therefore now view bad news as good news.

This below, is a late cycle "contrarian" argument, offered by a typical super dunce - surmising that if too many people see recession coming, it can't happen: 

"Trade-war tweets, European Union concerns and U.S. recession talk have taken their toll, some claim. But if that’s the case, why are stocks near record highs?"

Free money and too many morons. Case closed.

First he data mines the Active Manager survey - data mining being the last refuge of ALL denialists. 

Here is the long-term version. Which shows plenty of room for downside.

He then posts this chart from Google trends, as if to offer further proof that recession can't be happening as long as too many people see it coming.

Of course it didn't work out that way last time. It perfectly timed the recession AND the top of the market: December 2007.

Apparently we are now in denial of light refraction:

Google Trends: "Recession"

His entire hypothesis is that all of the (smart money) sideline cash MUST come back to an insanely overvalued market and join the dumb money as we enter recession. Sadly, that is not how this ever works. His mistake is believing that today's cabal of groupthink morons is smarter than the insiders fleeing their own stocks at the highest rate since - 2007.

The question on the table for anyone who can fog a mirror, isn't whether all of this smart money will come back at all time highs (because we all know it won't). It's whether or not it will come back after the crash.

As it slowly did in 2009: 

The answer to that question will depend almost entirely on what happens in credit markets. And of course, the rioting. And the free money bailouts - for serial con artists.

In summary, why are markets still at all time highs?

Because there are too many morons, to survive this round of natural self-selection. It turns out that herding is not a good instinct for those embracing sub-par intelligence. Believing there is strength in numbers.

Thursday, October 17, 2019

"Never Try To Time The Meltdown"

You might get out early, and feel like an idiot...

Every fool believes they alone will get out at the top. They spend the rest of their time seeking consensus on the direction of the market. Every fool knows there's strength in numbers. 

The smart money is ALL OUT, the dumb money is ALL IN. At some point between now and the FOMC (Oct. 30th), stoned gamblers are going to keel over and implode. When they realize it's the only way they're going to get another bailout.

Their last bailout arrived down -20%. Their next bailout will be down at least twice that. Assuming the Trump Casino remains intact. Only record hedging saved them last year. 

No leadership, no stimulus reserves, no hedging, no warning. Picture a scenario in which the global economy collapses into recession with global interest rates already at record lows. What we are witnessing is Japanification on a global basis - abject irresponsibility toward the future, in order to have a supernova consumption orgy today. An extended party at the expense of all future generations. MAGA in a nutshell, the culmination of forty years of failed Banana Republican economic policy. From free trade to trade wars.

Now, gamblers are sky-diving into pavement

Trump is the only warning anyone ever needed, to know this was all ending extraordinarily badly. This is the type of corruption that Republicans have come to love and embrace, on their road to Perdition. In Trump, they are doubling down on corruption.

"Donald Trump, who apparently surveyed the scene—the one in which his administration has literally admitted to extorting another country for political gain—and decided f--k it, let’s go for broke."

"Citizens for Responsibility and Ethics in Washington said in a statement, “This is unbelievable. Given the potential consequences the president is facing for abusing the presidency for his own gain, we would have thought he would steer clear of blatant corruption, at least temporarily; instead he has doubled down on it."

Over the coming week, markets enter the Fed's blackout period prior to the FOMC decision October 30th. Also, we are entering the peak earnings buyback blackout season. Which means this latest rally is in no man's land. Bulls see an imminent breakout to new highs. Bears, not so much. Following the established pattern below, sometime between now and the FOMC meeting, major conniption over the receding monetary heroin high will set in. The only way to get more juice is to implode spectacularly. Anything less than spectacular will be insufficient.

After all, the IMF just warned that asset prices are "elevated". Which means they have to get unelevated to get the dopium flowing. 

“Equity markets appear to be overvalued in Japan and the United States,” the IMF said, in its latest Global Financial Stability report.

The IMF said investors seem to believe that the Federal Reserve and other central banks will respond quickly to sharp tightening in financial conditions, “hence implicitly providing insurance against significant declines in stock prices.”

"The belief in a central bank rescue is allowing investors to ignore tensions over international trade policy and uncertainty about the global economic outlook, according to the IMF.

A separate report released by the international agency on Tuesday portrayed the global economy as getting perilously close to recession territory."

Active managers have locked in their profits for the year. You know, same as last year:

Active gamblers are fleeing Trump Casino

Insiders cashed out at the top. Same as last time.

But what do they know?

True believers in fraud and corruption are in it to win it. With no clue that this time there is no safety net - that was the party they just enjoyed.

"I bought for the trade war, but I stayed for the recession"


Wednesday, October 16, 2019

The Efficient Collapse Hypothesis

It was always going to end this way - comatose gamblers buying recession with both hands while demanding lower interest rates...

Complacency is rampant right now, because global gamblers assume that central banks have this all under control. Central banks are not worried, because their record low interest rates have collapsed credit spreads giving the illusion of low default risk. It's a dunce feedback loop. Denial will now be put to the test...

IMF warns on monetary heroin overdose:

"The search for yield in a prolonged low interest rate environment has led to stretched valuations in risky asset markets around the globe, raising the possibility of sharp, sudden adjustments in financial conditions

As we see, the Fed Financial Stress index works the exact opposite of how one would expect. When risks are running high due to loose lending standards and growing default risk, the model shows "low risk".

And then there is a sharp, sudden adjustment in financial conditions.

Getting back to the casino, the momentum trade is officially dead in every direction. Today, cloud internet stocks got pole axed by a warning from Workday.

"The analysts noted that software stocks have collectively pulled back more than 20% from their 52-week highs, but they said they still “see unfavorable risk/rewards for a lot of the high fliers in software.”

Every rally must end with the obligatory volatility compression to punish the non-believers. As we see in the chart below, the current volatility spread is the narrowest since September and before that one year ago at the top.

Which is why gamblers flooding en masse to "low volatility" recession stocks marks the endgame for this entire rally.

"Investors are losing faith in momentum and pouring billions of dollars into low-volatility stock funds, another sign of increasingly defensive posturing as market confidence deteriorates."

The terms "safe haven" and "low volatility" are now going to be put to the test:

"Wall Street banks have labeled them expensive, crowded and dangerous. Yet the boom in low-volatility stocks is intensifying."

the price-to-earnings premium for the (low volatility) investing style is at a four-decade high"

The top holdings for the low vol ETF are almost all Utilities

For the past two years, October marked the turning point for realized volatility

Global markets are a coiled spring

Tuesday, October 15, 2019

MAGA Carbon Collapse Is The Only Future

Trump's promised land based upon fraud and corruption has no future. It exists only in the minds of incontinent geezers whose concern for the future measures the distance to their fork. They won't have to deal with the consequences of this consumption orgy, which is why they don't want it to end. Irresponsibility to the future is their entire way of life. They can't stop now...

Sadly however, MAGA was never anything more than an end of cycle cash out strategy for corporate insiders. Propagated by trusted psychopaths against the usual denialistic Kool-Aid addicts for whom the inconvenient truth is no longer an option. The Trump angel of mercy has succeeded in removing all of the fiscal, monetary and regulatory safety nets. The hook is set. 

This can all end now...

The climate activists are rising to the occasion, unfortunately they have their work cut out for them in a society of cynical locusts hell-bent on consuming this planet. Very similar to Occupy Wall Street protests eight years ago, these climate activists have little chance of altering the course of a stampeding herd of consumption zombies. What is needed to achieve true carbon collapse is a culling of the herd, at the hands of trusted psychopaths.

Let's say for example, an unforeseen mega crash caused by rampant denial of reality, appeared out of nowhere to collapse a big, fat, ugly bubble of arrogance that was assiduously believed by the dumbest and most facile people on this planet. Useful carbon, preyed upon relentlessly by their own trusted Party sociopaths.

“If voters were to vote primarily on the basis of their pocketbooks, the president would steamroll the competition,”

Moody’s based its projections on how consumers feel about their own financial situation, the gains the stock market has achieved during Trump’s tenure...Should those variables hold up, the president looks set to get another four-year term."

“This shows the importance that prevailing economic sentiment at the household level could hold in the next election.”

Stock market levels also are key, and the two are intertwined"

True believers have faith that Trump is their saviour sent to drain the swamp. Somehow not realizing that their beloved pussy grabber IS the swamp.

"As Glantz explains, the very people who profited from the misery of the housing crash are now setting the rules of the financial system in ways guaranteed to create more victims. “Drain the swamp” has turned into “invite the thieves to update your burglar alarm.”

“The deal I just made with China is, by far, the greatest and biggest deal ever made for our Great Patriot Farmers in the history of our Country,” the president tweeted. “

Bloomberg reports that China wants another round of talks before even thinking about signing “phase one” of the trade deal,

Of course, this is far from the first time Trump has lied through his caps when it comes to a trade deal. Back in December 2018, he boasted to reporters that he’d struck an “incredible” trade deal with Chinese President Xi Jinping that blew up in his face a mere 24 hours later. In August, a breakthrough call with China turned out to actually have never happened."

Lies are just part of the appeal of Trump. The inconvenient truth is abhorred by the "true believers" in fraud and corruption. Instead of being concerned over climate change, these aspirational idiots are actively embracing it. Someone who doesn't care about their own health isn't going to care about this planet.

To them, irresponsibility is a way of life.  

U.S. domestic truck / car ratio:

On the other side of this clearly unforeseen collapse, life will continue, albeit at a more moderate level of consumption. What zombies survive will be forced to question their beliefs, their leaders, and their own intelligence. Ultimately they will arrive at the realization that they were the problem all along. And the solution. And, total fucking morons evincing the morality of a nine year old crack whore.

Much of today's surplus carbon will be permanently sequestered, just not in the way anyone expects. In God's way. Democratically, via natural self-selection. The average IQ of the remaining populace will skyrocket. We can hope the cull will be humane via a modest adjustment in the birth/death ratio, but we all know some amount of biblical dislocation will take place. The silent carbon harvest has already started, compliments of Big Pharma and Big Mac: efficiently taking down the most ponderous members of the herd. An efficient and pain free corporate exit strategy for those boxed in by a lifetime of bad choices.

Nevertheless, life is for the living. Those who never got the memo, probably won't mind anyways.

Everyone dies, not everyone lives.

Buy The Disintegration Of Globalization

In a world run by central bank meth cooks, bad news is good news. Right up until the explosion, that no one sees coming. By way of measuring the current level of coma, today's monetary crack addicts have placed their fate in the hands of two separated-at-birth identical circus clowns. The two Russian-installed fake populists tasked with tearing down the Anglo-American world order. Dumb and dumber...

But, as long as only the factory slaves were suffering, it was "all good":

Notice the difference between now and this time last year. One year ago, U.S. markets were negatively correlated to Emerging Markets. EMs bottomed first in late October, which is why global meltdown was prevented. Don't expect the same happy ending this time around. In the everything bubble, everything is 100% correlated. To the downside. 

And the other difference of course is no hedging to buffer the decline this year. The only hedge this year is betting on an imaginary Fed bailout. Hedging went from record high last year, to cycle lows this year. The same way it did in 2008.

The two nations that built modern Globalization out of the ashes of WWII - Britain and the U.S. - are now the ones doing everything possible to bring it down. Both countries led by charlatan political opportunists who have somehow reinvented themselves as men of the people.

It's fitting that today's rally was compliments of news that a deal to remove the UK from the EU is finally at hand. What started three years ago (July) with a global market crash due to an unexpected Brexit vote, is now a buying opportunity upon the fact. Outside of heroin-lubed Disney markets you can't make this up. 

Bearing in mind that the best case scenario, from a markets perspective, is a "new deal" that is far worse for UK trade than what abides today. With that in mind, we see that the dollar-based UK ETF was bid back to a very similar lower high as last October. Again, in dystopia, bad news is good news...

Likewise, it's fitting that the one Tech sector now powering to new all time highs is the one with the most exposure to the trade war, and the worst earnings performance.

"The Information Technology sector is expected to report the second highest (year-over-year) earnings decline of all eleven sectors at -10.2%. At the industry level, four of the six industries are projected to report a decline: Semiconductors (-30%), Technology Hardware (-14%), Electronic Equipment (-9%), and Communications Equipment (-1%)"

We're at the critical turning point wherein the safe havens are now getting sold and the most exposed junk is getting squeezed higher by short-covering. Which is providing temporary illusional support. See chart above.

Here we see Utility stocks rolling over with the Dow in the background, tracing out three lower highs deja vu of last year:

IPO junk is "rallying" three wave corrective. Prior to final collapse.

In other words, everything in the everything bubble is rolling over at the same time. With the final result being the eagerly sought collapse of Globalization. 

In summary, to believe in the status quo, which is being actively disintegrated in real-time, you have to be smoking monetary crack while free-basing Trump's bullshit. Believing that the next bad headline will bring the next shipment.

"It's about damn time"