The goal of this era clearly has been to force as many skeptics as possible to capitulate, thereby making the remainder of us look like paranoid idiots. The end result being a seamless Borg of Kardashian-stoned drones oblivious to any and all risk. After all, what better way for the Fates to monkey-hammer a fake society and fake way of life into fucking oblivion?
As I said before, we are reaching the moment of binary truth - either us skeptics are right and reality is extremely fashionably late, or every oblivious dumbfuck we ever came across, is vindicated for having their heads shoved squarely up their own asses...
Evaluating the HALO Crash Hypothesis
Herein, I will revisit the concept of the HALO crash and outline why it's not only possible but essentially unavoidable. First, the concept of a HALO crash is a massive financial market collapse that seems to "come out of nowhere". Literally everyone - save for the most die hard and "depressed" skeptics - is taken by surprise. It's a high to low domino collapse that starts in one asset class and region and spreads like an epidemic globally until it consumes currencies, banks, stock markets, bond markets and entire nations.
Fundamentally, it's the psychology leading up to the collapse that makes it likely to occur. It can only occur if everyone believes that it can't happen. Coming out of 2008, the predominant emotion was economic fear. Then 2009 passed, 2010 passed, and fear eventually morphed into lingering skepticism. Then 2011 came along and things got rocky in the markets again. The Arab Spring flared up and the U.S. had the debt ceiling debacle resulting in a debt downgrade. Occupy Wall Street was born. Markets tanked ~20% on the Dow, but they didn't collapse. So then came 2012 which was another rocky year - Spain, Italian default concerns. The "fiscal cliff" in the U.S. But all of that got "resolved" (aka. papered over) so when 2013 came along and the Mayans were proven "wrong", then skepticism finally morphed into greed and manic exuberance.
The Borg is the Illusion
Fundamentally, it's the psychology leading up to the collapse that makes it likely to occur. It can only occur if everyone believes that it can't happen. Coming out of 2008, the predominant emotion was economic fear. Then 2009 passed, 2010 passed, and fear eventually morphed into lingering skepticism. Then 2011 came along and things got rocky in the markets again. The Arab Spring flared up and the U.S. had the debt ceiling debacle resulting in a debt downgrade. Occupy Wall Street was born. Markets tanked ~20% on the Dow, but they didn't collapse. So then came 2012 which was another rocky year - Spain, Italian default concerns. The "fiscal cliff" in the U.S. But all of that got "resolved" (aka. papered over) so when 2013 came along and the Mayans were proven "wrong", then skepticism finally morphed into greed and manic exuberance.
The Borg is the Illusion
But that's only half the story. Because even in late 1999 and late 2007 when skepticism had morphed to greed and exuberance, there were many skeptics around to point out the massive risks. Even in the lamestream media there was a lot of skepticism back then. And therein lies the fundamental difference. 1999 was a Dotcom bubble and 2007 was a "Housing Bubble", however in the minds of most people today is just "business as usual". When Billy Bob next door borrows too much money, that's considered blatantly asinine. However, when an entire nation is Ponzi borrowing, that's called "Keynesian" stimulus. So, the real differentiation is that this current bubble IS the status quo and Globalization - the imbalances of which have been growing steadily for thirty+ years. People don't view Globalized slavery as grotesque, abnormal, or doomed to fail, because they've taken it for granted their entire lives. The Borg believes the illusion, the Borg propagates the illusion, therefore the Borg IS the illusion.
Ok, let's cut to the chase. Let's assume no one sees it coming, what else needs to happen? Below are the critical risk factors all of which are coalescing into one massive shit storm:
Ok, let's cut to the chase. Let's assume no one sees it coming, what else needs to happen? Below are the critical risk factors all of which are coalescing into one massive shit storm:
A Market at All Time Highs
The number one factor. Of course you can't have a crash from all time highs if the market isn't at all time highs. However, this test passes, because the Dow which is the public's key index, and the S&P 500 which is Wall Street's key index are both clinging to all time highs. The Dow has been at this same level for almost 4 and a half months straight.
Mega-Overbought
As I wrote recently, like 1929, the Dow has found a "new permanent plateau", that was over 100+ years in the making. The U.S. market is at the most persistently overbought extreme in its entire history. The significance of being overbought is that the market has taken in an unprecedented amount of capital, leaving little if no cushion on the sidelines. Everyone is ALL IN.
Underlying Weakness
Despite the key indices being at all time highs, there has to be major structural underlying weakness to the market internals. This is manifesting currently in the tech, momentum, small cap sectors which have been hammered. Meanwhile, the leading sectors lately have been Utilities, Transports, Consumer Staples and Energy - all of which are late cycle sectors. I've shown many charts on this topic, but just today ZH reminds us that the R2K small cap index is now at a 6 month low. As of today's close, only 58% of stocks are above their 50 Day Moving Average.
The Elliot B Wave
As regular readers know, I don't subscribe to all aspects of Elliot Wave Theory, however, just like George Bush's rally was a fake 'B' wave that collapsed below its origin, this wave too has a three wave corrective a-b-c pattern that indicates it's fake as well (see below). Which means that it too will collapse below its origin aka. 666 on the S&P 500.
Mega Correlation: Binary Risk
I've discussed this many times as well. The various Central Bank liquidity programs have driven stock sector correlations to essentially 100%. However, beyond just stocks, all risk assets are now trending in unison which is a critically deadly factor when things start to go sideways. A true liquidity crisis across all asset classes can only occur when correlation reaches 100%, as it has in this cycle more than any other.
Zero Hedge - In absence of forward selling, there will be "spot" selling i.e. into the collapse
I've shown this a lot too. There is no hedging because there is extreme incentive not to hedge. Artificially compressed volatility makes it financially suicidal for fund managers to hedge, so they don't. Again, it's all about the incentives that have been put in place in this cycle to ignore risk. A total lack of hedging assures that there will be selling below current levels, as the only means to protect capital.
Financial Deathstar 2.0: Insane Leverage
Half this entire blog tees off on this topic. Suffice to say that in this cycle 1% interest rates were lowered to 0% and in addition, the largest experiment in money printing to levitate financial assets was undertaken. Levitating financial assets using printed money while the economic solvency of those assets is deteriorating in the background is, the dumbest fucking idea ever conceived. Meanwhile, ZH reminds us that there has been $10 trillion in monetary expansion (aka. money printing) so far by the U.S./Europe/UK and Japan. Add in China and there's your $25 trillion Financial Death Star 2.0.
Mass Complacency
That's essentially the theme of this entire post. However, in addition, the Options volatility index (VIX) hit an ultra-low 13 today, when the 7-year range is between 11 and 90. Considering the situation in Ukraine, an economy now shrinking, Treasury bonds rallying and small caps getting bludgeoned, it's a clear sign that risk is totally ignored.
A Weak Economy Leading the Stock Market
Another critical aspect of a HALO crash is that the economy must already be weak ahead of the stock market. This is a very rare if not unprecedented condition. and yet, it's already taking place as Q1 GDP "growth" was -.8%. Adjusted for the plundering-of-the-grandchildren (aka. the deficit), and year-over-year growth would be -5%. This is the epicenter of the entire illusion. Companies have been manipulating their earnings by every financial trick possible - leveraged stock buybacks etc., but revenues can't grow, because the economy is fundamentally dependent upon the ongoing accumulation of debt.
Fed Normalizing Policy
The Fed just recently realized that they need to "normalize" policy before something bad happens, otherwise they will have no capacity to add monetary stimulus. Hence, the now four-month-old monthly "tapering" down from $85 billion to $45 billion. However, deja vu of 2007, it was Fed policy back then - raising interest rates - that killed that economy. Well in this cycle monetary policy has been solely aimed at financial markets which only now are starting to realize that their monetary heroin is being reduced.
Skynet
Artificial Intelligence will bring the end of these markets and the end of this era - I am referring to Harvard-spawned Artificial Intelligence of course. On the computer side of AI, just the fact that High Frequency Trading (HFT) has been a documented problem for seven years and still hasn't been addressed, shows how corrupt, lazy and incompetent this fat fucking society has become.
The Last Temptation of Wall Street
No discussion on financial risk could be considered without bringing the Temple of Greed into the equation. Nothing. I mean less than nothing. Has changed since 2008. So anyone expecting any different outcome than what we saw that time, is fundamentally delusional. The very definition of insanity is to do the exact same thing over and over again, each time expecting a different outcome.
Fool Me Three Times, Shame on Me
The Inflation-Adjusted Dow
3% higher than it was 15 years ago.
The most expensive illusion in human history at the expense of all future generations:
Yen:Dollar - Master of all carry trades
Right at support
The Almighty Dow
Wedging to a flat top. Using up a lot of capital to go nowhere for 4 and a half months straight.
Mass Complacency: Why is the VIX so low? Hit 13 just yesterday.
The seven year range is between 11 and 90
The VIX is always the lowest at tops and highest at bottoms, which is totally asinine and further sign of totally fucked up markets that systematically mis-price risk
Municipal Bonds
Since the Detroit bankruptcy, Munis have been rallying in an a-b-c correction
Unfortunately, like everything else, the risk never went away it has only been ignored
Financial Risk
Another major widely ignored risk is the breakdown in the financial sector
JPMorgan, Citigroup, Bank of America and Goldman Sachs are all below their 200 DMA
Goldman w/200 DMA:
Spain at all time high
Just yesterday, I showed Spain's stock market hitting a new all time high, however the German DAX can't get out of its own way:
The number one factor. Of course you can't have a crash from all time highs if the market isn't at all time highs. However, this test passes, because the Dow which is the public's key index, and the S&P 500 which is Wall Street's key index are both clinging to all time highs. The Dow has been at this same level for almost 4 and a half months straight.
Mega-Overbought
As I wrote recently, like 1929, the Dow has found a "new permanent plateau", that was over 100+ years in the making. The U.S. market is at the most persistently overbought extreme in its entire history. The significance of being overbought is that the market has taken in an unprecedented amount of capital, leaving little if no cushion on the sidelines. Everyone is ALL IN.
Underlying Weakness
Despite the key indices being at all time highs, there has to be major structural underlying weakness to the market internals. This is manifesting currently in the tech, momentum, small cap sectors which have been hammered. Meanwhile, the leading sectors lately have been Utilities, Transports, Consumer Staples and Energy - all of which are late cycle sectors. I've shown many charts on this topic, but just today ZH reminds us that the R2K small cap index is now at a 6 month low. As of today's close, only 58% of stocks are above their 50 Day Moving Average.
The Elliot B Wave
As regular readers know, I don't subscribe to all aspects of Elliot Wave Theory, however, just like George Bush's rally was a fake 'B' wave that collapsed below its origin, this wave too has a three wave corrective a-b-c pattern that indicates it's fake as well (see below). Which means that it too will collapse below its origin aka. 666 on the S&P 500.
Mega Correlation: Binary Risk
I've discussed this many times as well. The various Central Bank liquidity programs have driven stock sector correlations to essentially 100%. However, beyond just stocks, all risk assets are now trending in unison which is a critically deadly factor when things start to go sideways. A true liquidity crisis across all asset classes can only occur when correlation reaches 100%, as it has in this cycle more than any other.
Zero Hedge - In absence of forward selling, there will be "spot" selling i.e. into the collapse
I've shown this a lot too. There is no hedging because there is extreme incentive not to hedge. Artificially compressed volatility makes it financially suicidal for fund managers to hedge, so they don't. Again, it's all about the incentives that have been put in place in this cycle to ignore risk. A total lack of hedging assures that there will be selling below current levels, as the only means to protect capital.
Financial Deathstar 2.0: Insane Leverage
Half this entire blog tees off on this topic. Suffice to say that in this cycle 1% interest rates were lowered to 0% and in addition, the largest experiment in money printing to levitate financial assets was undertaken. Levitating financial assets using printed money while the economic solvency of those assets is deteriorating in the background is, the dumbest fucking idea ever conceived. Meanwhile, ZH reminds us that there has been $10 trillion in monetary expansion (aka. money printing) so far by the U.S./Europe/UK and Japan. Add in China and there's your $25 trillion Financial Death Star 2.0.
Mass Complacency
That's essentially the theme of this entire post. However, in addition, the Options volatility index (VIX) hit an ultra-low 13 today, when the 7-year range is between 11 and 90. Considering the situation in Ukraine, an economy now shrinking, Treasury bonds rallying and small caps getting bludgeoned, it's a clear sign that risk is totally ignored.
A Weak Economy Leading the Stock Market
Another critical aspect of a HALO crash is that the economy must already be weak ahead of the stock market. This is a very rare if not unprecedented condition. and yet, it's already taking place as Q1 GDP "growth" was -.8%. Adjusted for the plundering-of-the-grandchildren (aka. the deficit), and year-over-year growth would be -5%. This is the epicenter of the entire illusion. Companies have been manipulating their earnings by every financial trick possible - leveraged stock buybacks etc., but revenues can't grow, because the economy is fundamentally dependent upon the ongoing accumulation of debt.
Fed Normalizing Policy
The Fed just recently realized that they need to "normalize" policy before something bad happens, otherwise they will have no capacity to add monetary stimulus. Hence, the now four-month-old monthly "tapering" down from $85 billion to $45 billion. However, deja vu of 2007, it was Fed policy back then - raising interest rates - that killed that economy. Well in this cycle monetary policy has been solely aimed at financial markets which only now are starting to realize that their monetary heroin is being reduced.
Skynet
Artificial Intelligence will bring the end of these markets and the end of this era - I am referring to Harvard-spawned Artificial Intelligence of course. On the computer side of AI, just the fact that High Frequency Trading (HFT) has been a documented problem for seven years and still hasn't been addressed, shows how corrupt, lazy and incompetent this fat fucking society has become.
The Last Temptation of Wall Street
No discussion on financial risk could be considered without bringing the Temple of Greed into the equation. Nothing. I mean less than nothing. Has changed since 2008. So anyone expecting any different outcome than what we saw that time, is fundamentally delusional. The very definition of insanity is to do the exact same thing over and over again, each time expecting a different outcome.
Fool Me Three Times, Shame on Me
The Inflation-Adjusted Dow
3% higher than it was 15 years ago.
The most expensive illusion in human history at the expense of all future generations:
Yen:Dollar - Master of all carry trades
Right at support
The Almighty Dow
Wedging to a flat top. Using up a lot of capital to go nowhere for 4 and a half months straight.
Mass Complacency: Why is the VIX so low? Hit 13 just yesterday.
The seven year range is between 11 and 90
The VIX is always the lowest at tops and highest at bottoms, which is totally asinine and further sign of totally fucked up markets that systematically mis-price risk
Municipal Bonds
Since the Detroit bankruptcy, Munis have been rallying in an a-b-c correction
Unfortunately, like everything else, the risk never went away it has only been ignored
Financial Risk
Another major widely ignored risk is the breakdown in the financial sector
JPMorgan, Citigroup, Bank of America and Goldman Sachs are all below their 200 DMA
Goldman w/200 DMA:
Spain at all time high
Just yesterday, I showed Spain's stock market hitting a new all time high, however the German DAX can't get out of its own way:
