Sunday, January 31, 2016

The Biggest Short

Deja Vu of 2008, Wall Street is going ALL IN betting on global financial collapse.  

China Capital Outflows Rise To Estimated $1 Trillion in 2015
China's currency reserves extend slump 

ZH: Jan. 31, 2016

"Kyle Bass’s Hayman Capital Management has sold off the bulk of its investments in stocks, commodities and bonds so it can focus on shorting Asian currencies, including the yuan and the Hong Kong dollar."

Yuan devaluation speculators just got a MASSIVE boost from the Bank of Japan on Friday...

"China will have no choice but to further devalue its currency as CNYJPY rose 75% from 2011 to 2015 and fell by only 12% since June. Further devaluation is inevitable and its impact on global markets will be negative, including the rising yen."

Meanwhile, as I showed earlier, a bet against Yuan is a bet against commodities:

"Every 1% drop in currency leads to 0.6% loss in raw materials"

Also helping the one-way bet is the relentless weakening in the Chinese economy...

Jan. 31, 2016

In summary, global speculators are going ALL IN against the Yuan which goes down or remains "stable", but can never go up. It is a one-way bet. However, it's the one-way bet that is directly correlated to every risk asset on the entire planet. So when it gives way, so does everything else...

Yuan with S&P:

Aside from U.S. stocks and commodities, the closest longer-term correlation I can find is to Aussie/Yen. So, basically the Yuan is devaluing in line with global carry trades, meaning that Yuan devaluation speculators will get paid sooner rather than later...Because via competitive devaluations, Central Banks are now competing for who can obliterate Globalization the fastest...the Bank of Japan just accelerated Yuan outflow by making China less competitive.

"RISK OFF" Visualized
"The Yuan is stable"
Yuan (red) with Aussie/Yen (black):

Social Mood Versus Skynet

Big Cap Tech is going late stage parabolic. Now we're going to find out how Skynet likes taking down all of the mega-caps at the same time...

These are the top ten U.S. stocks by market cap ($millions):
Data from:

Apple -27% 551,787 
Google -5% 502,995 
Microsoft -4% 424,238 
Exxon -22% 329,371 
Berkshire -16% 315,866 
GE -8% 293,774 
Facebook +1% 278,189 
Amazon -16% 277,975 
Johnson & Johnson  -2% 273,623 
Wells Fargo -14% 258,659 

Weighted by market cap, these stocks are down -12%, but the S&P is down -9%, so clearly Skynet is working its magic on select corners of the market such as Telecom, Utilities etc. 

Nevertheless, only half of these stocks are outperforming the S&P, and those are the ones we're going to look at...

Google long-term:
First wave down is complete

Google short-term
Second wave is wrapping up...

MonopolySoft Long-term:
"It peaked twice with the market. That's so fucking bullish"

When in doubt, Skynet's go-to Tech Moonshot...

MonopolySoft short-term: Mind the gap...


The last two times Fadebook gapped up coincided with peaks in the market. I'm sure it will be different this time...

"Quick, global markets are collapsing, grab some Facebook..."

GE looks like the S&P, so I'll skip that one...

Johnson & Johnson
I used to say, JnJ always peaks last...I probably shouldn't have stopped...

JNJ ratio of S&P:

Self-Bankrupting Greed aka. "Sumamabitch!!!"

"At the end, the corporations put themselves out of business with special dividends and stock buybacks... "

But first: The top newsletters recommend "Buy the fucking bear market"

"No blind man with his head up his own ass saw that coming"

"Do I have enough Facebook?"
The FTSE All World Index -20%:

How much is $29 trillion? It's a fuck ton of money...

"Leverage at companies worldwide swells to highest in 12 years"

"Strains are emerging in just about every corner of the global credit market. Credit-rating downgrades account for the biggest chunk of ratings actions since 2009; corporate leverage is at a 12-year high; and perhaps most worrisome, growing numbers of companies -- one third globally -- are failing to generate high enough returns on investments to cover their cost of funding"

"Debt at global companies rated by Standard & Poor’s reached three times earnings before interest, tax, depreciation and amortization in 2015, the highest in data going back to 2003"

"Much of the cheap credit accumulated by companies was spent on a $3.8 trillion M&A binge, and to fund share buybacks and dividend payments"

LTM: Last twelve months 

But this is the worst news of all for dopium junkies:

"But, who's managing the short squeeze desk, this month?"

"The U.S, Japan, euro zone have no February central bank meetings"

Fortunately, the Commie Capitalists in China meet ever :15 minutes to Central Plan their collapse, and we know how well that's going...

"Buy The Fucking Dip": Last Temptation of the Idiocracy

It's called survivor bias...the market timers with the best records are the ones betting it all on Central Banks:

MW: Jan. 30, 2016
The Top Market Timers Are Advising "Buy The Dip"
"The stock market timers with the best records are bullish, on balance, while those with the worst records are bearish."

'Granted, being perma-bullish is not 100% foolproof:'
" not a foolproof market-timing system...It continued to be bullish throughout 2011, for example, when —  the broader market fell by 20%."

"Double down on collapse, bitchez"

Central Banks have conditioned gamblers to onboard risk. The BOJ purposely ambushed shorts this week to teach them a lesson for not embracing risk.  Being bearish has been a sucker's bet since 2008. Even last year's sideways market was a dead draw for bulls and bears. The Dow traversed 50,000 daily points and ended flat to down.

In other words, more and more people have been tempted to buy in to the fantasy. Risk is fully embraced...

S&P with range of average stock:

The red line is the four week moving average % bearish sentiment for Individual Investors with the Value Line Arithmetic average. This week registered 40% bears. Meanwhile, the VLA indicates that the average stock has gone nowhere since July 2013. When the VLA broke its neckline in 2009, bearish sentiment was in the 60% range...

The ISE Call/put ratio, I showed earlier:
Sentiment surveys aside, bulls threw a ton of cash at this thing last week - more than in December...

NYSE New Lows
8 week moving average:

The Value Line and new lows reveal the extensive damage that's hidden beneath the surface of the S&P.

It's all up to Facebook (Apple, Amazon, Netflix, Google, Microsoft, Exxon)
S&P equal weight/cap weighted ratio...

And it's up to Central Banks to con more shorts into covering.

Globalization Is Insolvent

Bernie Madoff is wondering why he's the one in jail

Central Bankers don't understand the difference between solvency and liquidity. Solvency implies the ability of a borrower to self-service their debt, whereas liquidity is merely additional financing. Since 2008, Central Banks have papered over insolvency with liquidity under the assumption that all borrowers have equal access to credit markets. Which is asinine of course. Already, marginal borrowers are facing higher capital costs in areas such as the Energy sector, M&A, IPOs, stock buybacks, debt-funded dividends, and marginal sovereign governments. 

Globalization is inherently insolvent. It places production in the cheapest locales which have no spending power, and it places "consumption" in the developed world which face ever-rising unemployment. The entire Ponzi scheme is brokered by debt. The reason why developed nations have the ability to lower interest rates to 0% and print money, is because they are locked in an inexorable state of deflation. Meaning their output gaps are large and growing. Too little money is chasing too many goods. They're going out of business slowly but surely. Whatever job creation they've had since 2008 was merely debt funded via colossal doses of Fiscal stimulus - meaning this "growth" is ephemeral. Once the economy slides into recession, these deficits will no longer be stimulative and the capacity for additional borrowing will be gone. As it was with the Bush fake recovery, the McJobs will disappear within months. Keynes never said anything about growing the economy forever using Ponzi borrowing. Deficits were intended to be counter-cyclical to alleviate poverty, not pro-secular to fund fake "growth". He also didn't recommend "Keynesian" military blunders and massive tax cuts for money heading to the Cayman Islands. For some reason he didn't recommend printing money to buy stocks while the economy is outsourced. In other words, he didn't predict there would be so many idiots in the future.  

Central banks are the biggest Ponzi schemers in the history of the world, they make Bernie Madoff look like a rank amateur. The margin call for insolvency is already underway featuring receding liquidity and capital access for marginal borrowers. Once the weakest dominoes fall, then the capital markets will slam shut overnight locking out those entities that need continual access to capital markets to rollover their debts. Which includes almost every sovereign nation on the planet. 

You know you're a Ponzi borrower when, you need continual access to credit markets to service your debt:
Oct. 15, 2015
Treasury Secretary, Jack Lew, sent this letter to Congress informing them that without further borrowing (higher debt limit), the U.S. would be in default within days...

"Based on our best and most recent information, we now estimate that extraordinary measures will be exhausted no later than Tuesday, November 3.  At that point, we expect Treasury would be left with less than $30 billion to meet all of the nation’s commitments—an amount far short of net expenditures on certain days, which can be as high as $60 billion."

I call this self-imposed default, because in this case it's not the capital markets imposing the borrowing restriction. After all, the U.S. dollar is the primary reserve currency, therefore the rest of the world finances U.S. deficits via their dollar currency reserves. I only offer this to say that the U.S. is the largest Ponzi borrower in human history. It won't be the first to default, however other nations are far less secure in their ability to secure financing through all economic and financial "conditions".

Central Banking Bernie Madoffs didn't get the memo, because they're really not that bright after all. They'll be the last to figure out that they're Globalization's hangman, and the noose is tight. 0% poverty capital was a Faustian Bargain and the bill is due. 

Saturday, January 30, 2016

The Lying Game: 100% RISK

What happens when all global risk assets fall at the same time? We're going to find out...

Japanese Central planners said they had no plans for negative interest rates, therefore hedge funds had raised their Yen longs (Dollar/Yen shorts) to four year highs. At which point they got monkey hammered on Friday. 

Via ZH: Jan. 21, 2016:

Fast forward to Friday:

"Governor Haruhiko Kuroda on Friday called time on that spurt [of Yen strengthening], announcing a negative deposit rate that none of 42 economists surveyed by Bloomberg predicted"

Which brings up the obvious question, in the global currency wars, which other Central Bank lies every day that their currency will not be devalued? China.

This is the Chinese Yuan (red) with oil.
What we see is that the PBOC controls the currency for a while at an enormous cost to currency reserves, then they let it float in 100% correlation with global risk markets, at which time shit breaks, then they control it for a while longer. Right now, we're in a "control" phase. 

The Central Bank Lying Game visualized
"The Yuan is stable. Today"

The key takeaway, is that EVERYTHING RISK is 100% correlated and wants to go lower and will...Central Banks are now resorting to lying in order to trick the markets. Friday was about the BOJ luring shorts into the Dollar/Yen to a four year high and then forcing them to all panic cover at the exact same time. A one and done strategy for asset levitation.

A most dangerous phase. 

Central Banks Are Out of Ammo

The Bank of Japan's latest gambit barely moved the Nikkei, much less the rest of the world's risk assets...Central Banks went ALL IN this week to save the casino. Now they have no dry powder left over for when shit goes sideways to down...

Global RISK OFF due to insolvency was deemed unacceptable to Central Planners hobnobbing at Davos. So Kuroda san was nominated by Super Mario to obliterate all shorts and thereby flip the switch back to RISK ON, if only for a few hours...One Central Bankster to control $200 trillion in global assets by taking interest rates to -.1%. 

Let's see what happened to "RISK"...

Here below is the ratio of the Japanese Nikkei to the JPY. If you squint with a magnifying glass, you may be able to see the latest rally...meaning that the amount of monetary juice it takes to move the needle keeps going up.

RISK OFF visualized:
Rollover of the Nikkei/JPY ratio coincides with S&P tops...the tail is no longer wagging the dog...

S&P is in black

The S&P with Dollar/Yen

Aussie/Yen: A key RISK ON carry pair
Tracked the S&P as usual, on Friday:

Aussie/Yen medium term...the fifth lower high in three years...

Submerging Markets:
Skynet will have fewer shorts to pay out at the bottom thanks to the BOJ

West Texas Intermediate Crude with USO ETF volume overlaid
"You'll never see these prices again"

Junk Bonds...
"Why are we covering?"

Leveraged loans aka. Mergers/Acquisitions, stock buybacks, special dividends...

"ALL IN? Yeah, we're fucked..."

EM Debt
"Hey, we're back to last Tuesday"

EM Currency
It's an IQ test for Central Bankers...

Because "More" Was Never Enough

Human history's biggest circle jerk is ending. Don't tell anyone, it's a secret. 

Demographics are the reason why the Titanic is heading straight to the bottom by the fastest way possible...

"Full steam ahead"

The reason why nothing ever changes, even while game show hosts talk constantly, is primarily due to demographics. We live in an old age home, where NOTHING is allowed to change that could affect the almighty Dow casino...

In this aging society the largest voting bloc has a preference for capital gains over wage income; Therefore, they cheer every time a bad jobs report signals more Fed easing, and then they buy more Facebook. They have zero incentive to "fix" the status quo. Why? Because their time preference is "NOW", and therefore the children and grandchildren went under the bus a long time ago. It's the same in every other developed nation, even more so in Japan which is the poster child for a failed society. 

Now, the geriatrics have the circus to amuse and delight. In total, there will be 12 Republican debates - one per month through December 2015, two in January, three in February, two in March. It is Roman spectacle on steroids. Nothing gets resolved, nothing new comes to light, it's just circus clowns eviscerating one another in front of a geriatric Idiocracy.

The real problem is not the clowns in the circus, it's the clowns watching the circus...

On the Democratic side, it's much the same, only with far fewer candidates. Young people overwhelmingly favour Bernie Sanders, because they haven't been adequately brainwashed to believe that "Socialism" is a bad word. Or maybe it's because they view Central Bank QE and Lockheed Martin "Keynesianism" to be the ultimate forms of corrupt "Socialism" for the rich. Versus what I call "anti-riot" insurance aka. foodstamps for the outsourced masses. 

Trump and Sanders are the only two candidates who admit that the status quo is fucked up beyond all recognition. And they're the only ones who don't recommend rearranging the deck chairs for another four years. Obama-style. Which is why the establishment is shitting bricks right now.  

Nevertheless, until the economic reset monkey hammers the old age home into fucking oblivion, NOTHING will change regardless of who is in office. And when the day of reset is already arriving albeit wholly "unexpectedly", those who say that Socialism is just redistributing wealth from one person to another, need not worry. because there won't be any fake wealth to "redistribute". 

The Big Bang Theory: Volatility Explosion Revisited

Central Banks have conditioned gamblers to short volatility even as risk is rising...I'll go out on a limb and say it will end badly...

This is the ISE Put/Call ratio 12 week moving average:

This is the same ratio with the VIX:

This is realized volatility (red) with the VIX
Skynet and Gamblers are shorting options volatility as risk increases...something we didn't see in 2008...for a good reason. 

Oil volatility with stock market volatility
"It was a bad time to be 100% correlated to oil"

2016: The Year Of the Hairless Monkeys

"Global Central Banks coordinated to ensure that everyone was taking the maximum risk possible while the Global economy imploded..."

World Ex-U.S.:

The PBOC pumped
The ECB fake promised
The Fed held Police Squad policy steady
And then the BOJ monkey hammered (Dollar/Yen) shorts to impress Super Mario...

ZH: Jan. 29, 2016
"People close to Kuroda say that Davos - where he mingled with central bankers such as ECB President Mario Draghi and leading company executives - likely prompted him to pull the trigger"

Central Banks are ALL IN now. And so is everyone else...a necessary and sufficient condition for collapse...

Global Central banks culminating with the Bank of Japan,  just sponsored a massive Global short-covering rally...Let's see, the last time we saw "the world saved" was during the Wall Street (TARP) bailout short-covering rally two weeks after Lehman (circled below)...after which we witnessed RPM: Rapid Price Movement. Therefore, I will go out on a limb and say that prices should move quickly on this next leg down. Would I be a fool to believe that will happen AGAIN, or a far greater fool not to believe it will happen...

Global Dow:

"China's fixed"

"Oil is fixed"

Deja Vu

S&P with Yen:


Facebook is holding up all Global risk assets
With a picture perfect fifth wave blow-off top...that will have the shelf life of a rotten banana...