Sunday, February 25, 2018

Shock Doctrine. Indeed.

Per Naomi Klein's book, this past decade was textbook corporate Shock Doctrine, post-Lehman. The cost of this vacation from reality is measured in mass shootings and fentanyl-assisted suicides...

The "ethos" that belies the global economy right now is the re-marketing of proven failure as success - to the benefit of an ever-more miniscule segment of society. Warren Buffett just announced that the Trump tax cut was responsible for almost half of his wealth gain in 2017. He forgot to mention that the 2008 bailout was responsible for the rest. But he agrees that printing money is the secret to effortless wealth...

What began as the rapacious liquidation of the economy to the benefit of the stock market, will only end up with the dumbfucked realization that neither was spared. The most common refrain in this era, among the geriatric-set is that "this will all end badly, but not in my time". If the Baby Boomers had a generational slogan, that would be it. Suffice to say there is ample opportunity for surprise.

Globalization was the liquidation of the local economy to the benefit of the pseudo-global economy, aka. corporate profit. A debt-conflated economic failure from inception, which came crashing down in 2008. The subsequent 0% capital that flooded the globe post-Lehman was testament to the fact that return on capital was now consigned to the same fate bestowed upon return on labour. But, Bernankenstein and his League of Extraordinary Money Printers had one more trick up their sleeve: The Jedi Mind Trick - expansion of the money supply to levitate risk assets. A dumb enough idea in its own right, but made far worse yet by the fact that it papered over yet another obligatory round of corporate Shock Doctrine. Globalization was the obligatory conflation of Supply and Debt with Supply and Demand. Global debt levels have risen in lockstep with global asset values. The only difference being that liabilities are contractually constrained, whereas collateral in a down market is not. The global billionaire oligarchs and their errand-boys in politics have unlimited capacity to accept humanity suffering in the cause of their wealth accumulation.

At this latent juncture, what is even more ludicrous than the fact that they believed their gambit would work, is the fact that they are now actively unwinding that asset levitation stimulus under the assumption that the casino won't collapse. Two weeks ago, witnessed the lowest liquidity in two decades - as measured by the depth of the S&P futures order book. A widely ignored warning that this delusion does not go in reverse.

Below is the chart that gamblers, had they had any inkling to care about reality, would be most concerned about. This shows the net effect of the Trump tax cut. For the first time since 2008, cash is now yielding more than the S&P 500. Which means that stocks are now going up solely due to the greater fool theory. 

Contrary to popular belief, this mass delusion is no longer about Central Banks priming the pump. This is solely about a demented society believing that this will be the first expansion in world history that lasts forever - the cycle is no longer cyclical. Profits have reached a new permanent plateau. Deja vu of 1929...

Friday short-covering aside, here is what we learned this past week:

"This will be one of the more hawkish Feds we have experienced in 20 years"

"The Fed now faces pressure to move more quickly to guard against a possible overheating of the economy"

In 2008 the Fed was preoccupied with inflation...[Bueller?]

In his first months as a Fed governor back in 2012, Powell was among those who pressured then-chair Bernanke for more clarity on his plan to “taper” the central bank’s bond buying"

Liquidity is at record low levels, but unlike 2012, no casino bailout is on the table this time. Thanks to fake reflation aka. Trump tax cut, and the most hawkish Fed chief since Paul Volcker. 

We've all heard of "90% down days" - 90% of total volume in declining stocks.

What is coming are 100% down days. But don't take my word for it:

"Higher interest rates could lure cash out of the stock market and into bonds as yields rise." 

There's no such thing as free money. All children know this... 

"Reagan was cutting taxes, the Fed was raising interest rates. There was a new Fed sheriff in town, Alan Greenspan. He was tested immediately"

Saturday, February 24, 2018

Occupy Peak Phoney

This low volatility dumb money trap was only ever about one thing: Wall Street...

Way back in late January of this year, world's largest hedge fund manager, Ray Dalio, warned that the casino was about to surge and anyone owning cash was a putz. The casino promptly surged lower -10%, the most in two years. This week he was out again, saying that there is no sign of a bubble or a recession. He has thereby confirmed that the only bubble left is the dumb money bubble:

Crypto bubble
Short volatility bubble
Dumbphone bubble

The dumb money bubble visualized:

"Global sales of smartphones to end users totaled nearly 408 million units in the fourth quarter of 2017, a 5.6 percent decline over the fourth quarter of 2016, according to Gartner, Inc. This is the first year-on-year decline since Gartner started tracking the global smartphone market in 2004."

"We're going to need another toy to keep the sheeple from rioting"

Apple is using higher unit revenue to paper over unit sales collapse.

It's a tried and true way to fail:
"Nokia waited too long in the days of Symbian. Palm waited too long. Motorola, Siemens, [BLACKBERRY/RIM] and other trend setters all gorged on profits and became too slow to react as sales and revenue fell away at an increasing rate. They were not saved by high marketing speeds, new innovations in product lines, or bolstering the existing offerings as a financial base to protect themselves against new entrants."

But here is where it gets interesting:

Way back in 2015 aka. wave 3 S&P, Apple top ticked the S&P 500 peak. Tested the 200 day. Rallied back mightily and then rolled over into smash crash.

Good times.

While we're on the subject of peak phoney, I noticed that the Anti-Social Media ETF made a new high this week:

Which is interesting because it peaked after the S&P in 2016 as well:

Which is all the more interesting because Kylie Jenner imploded Snapchat this week by saying that it's not cool anymore. Or something like that.

Recall that Snapchat went public exactly one year ago this coming week, and it was Wall Street's biggest fucking debacle since Alibabylon. Both of which tanked the S&P...

But who needs Snapchat when Twitter is going parabolic instead. I have news for people like Wally Buffett who think that the stock market has anything whatsoever to do with economic fundamentals: Skynet is an asset levitation program. And it doesn't give a flying fuck what pile of shit has to be moon launched to keep this circus going...

The Twitter safe haven doesn't work. Don't ask me how I know...

This low volatility dumb money trap was only ever about one thing.

Wall Street

"Dropbox has been one of the most anticipated tech IPOs for several years now"

Friday, February 23, 2018

In A Vacuum Of Bullshit No One Can Hear You Scream

The definition of insanity is shoving your head up your own ass, each time expecting a different result. Clearly, the low volatility vacation from reality can't be over yet - we haven't reached the pot of gold at the end of the rainbow. This past two weeks was the eye of the hurricane. The front wall of the hurricane loosens the structure, the back wall of the hurricane blows it down...

Who remembers the reflationary headfake at the end of 2008? I do. Of course even that con job was more real than the Jedi Mind Trick for serial-conned dunces we have today. Following the deflationary trend-line, we see how dull this geriatric Idiocracy has become over the past decade. How else could they believe that Donny is their saviour?

Replacing the stock/bond ratio with Wells Fargo , gives us October 2008

The heart of the third wave down at all degrees of trend. Which lines up with our wave count below.

But first, I've been five days without Zerohedge, thank you. Detoxed of man-boy bullshit, I'm a new man. I may relapse at any time, but for now I'm supplementing with National Enquirer. Sadly, my artistic ability to produce drunken rants seems to have taken a hit. I know you're disappointed. But you're only thinking of yourself. And anyways we all know that my rage is uncontrollable...

Following a week of back and forth rallies to nowhere, I figured I would give one more signpost for where things stand at this juncture. Going back three weeks now, the casino peaked, broke the trend-line and then went back and forth to nowhere for a week. Bueller?

Daneric marked that week waves '1' and '2'. And of course the following week all hell broke loose. This week, Skynet has been defending the tax cut Maginot Line at all costs, and yet still managed to close lower than the key reversal registered last Friday:

Now you say, what other evidence can I provide that may indicate a similar fate meets this week's backing and filling. After all, bulltards are anticipating the next leg higher. 

What led the upside this week was oil. Which is what led the back and forth three weeks ago:

Europe held its a-b-c island gap higher all week, apparently waiting for something to happen...

Bond yields and $USDJPY have finally agreed that fake reflation is fake...

The crash ratio ended this week at a new cycle low extreme as gamblers crowded into Amazon:

For the week to nowhere, there was more than meets the closed eye...

Thursday, February 22, 2018

Nothing Matters Until It Implodes Spectacularly

What we've learned from this era, is that the Idiocracy can ignore any amount of risk...

Stop me any time:

For months and years, various outlets warned about the low volatility fad that was taking over the markets. As recently as this past October, the IMF warned:

"The IMF has issued a warning on low volatility products, saying they could present an "unknown risk" to financial markets, and may prompt a severe shock."

Of course that warning fell on deaf ears and seemingly didn't matter, right up until February 5th when the VIX doubled and the inverse volatility trade lost -90% overnight. Handmaiden to the low volatility trade has been the mass inflow into passive ETFs. They have been a "symbiotic" pair trade wherein passive inflow has been a key factor in generating persistent low stock market volatility. And while the short vol trade may have just imploded, gamblers in passive ETFs took no notice.

For months now I have warned that due to passive indexing the market was becoming increasingly top heavy, as indicated by the Russell / Dow ratio. However, that too didn't matter until February 5th:

Here we see that the Russell / Dow ratio has not improved much at all during this recent rally:

The consequence of this large cap overweight is that large cap volatility exploded relative to small cap volatility, despite having been comatose for two years straight. Which also explains why the S&P VIX had an outsized move relative to the drop in the S&P. For example, when the S&P dropped -20% in 2011, the VIX hit 50. On Feb. 5th, VIX 50 was reached on a -10% drop. Basically double sensitivity:

Putting it all together is where it gets interesting. Because, recent events have proven that the "low volatility" passive ETF fetish actually created higher volatility. But don't take my word for it:

"Trading in ETFs designed to buy less volatile stocks, known as minimum volatility ETFs, are suggesting a trend more ominous right now: There's no place in the market that's safe to hide"

This inevitable outcome was already long since predicted of course:

July, 2017:

Flows from active to passive funds increased to nearly $500 billion in the first half of 2017.

"From an aggregate point of view it is frightening. It means that at one point you will not have the active end in the market to stabilize it. You would have just the passive guys getting into herd mentality,"

Investors into passive funds can choose risk strategies allowing them to sell out completely if their investment drops by a certain amount, and this can cause a cascade effect, where small market moves are amplified if passive funds automatically sell off assets."

What he is referring to are stop losses at the 200 day moving average, just as there were in 2015. First off, they didn't work that well, since the S&P was plunged below the 200 day. Secondly we see that two weeks ago was really just the warm-up. Thirdly, volatility is going to be a tad elevated. 

Now we know why Skynet hates the 200 day:

Well, at least some people got the memo that "passive" investing is a disaster wanting to happen.

All One Panic Collapse

Recession stocks are pointing to recession. So gamblers have been exiting dividend-paying stocks to seek the safety of companies with no revenue. Why? Because what has been MIA from the casino for two years straight is the slightest amount of fear or panic:

Most people don't believe that Social Mood drives markets. Which is the reason it works. The same people get conned over and over again - selling at the lows and buying at the highs. Someone should figure out why that keeps happening, because Wall Street thinks they're an ATM machine.

I wasn't going to write today since today was an exact replica of the past three days - gap and run higher, close on the lows.

In other words, multiple daily key reversals in a row. Which is called "three black crows". And it's not generally considered bullish. The 50 day is key resistance:

Getting back to Social Mood, what was missing from the recent mini crash was any sense of panic. Quite the opposite, gamblers took the opportunity to sell the highest quality stocks to rotate into their favourite junk names. 

Think rotation from Johnson & Johnson into Netflix. JnJ used to be a very reliable indicator that the party was over. I suggest that it still is:

Here is where it gets interesting. I noticed that BitCasino is now lined up with the S&P 500. As we see it peaked before the S&P, cratered, rallied, up down all around. Until now, they are both aligned. To the downside.

This is what Prechter means when he says that "Risk is all one market". Social Mood entices gamblers into any risk asset or Ponzi fraud that will take their money. Which means that on the way up, risk assets have low correlation - each has its own cycle of slow, medium, fast melt-up. However, on the way down, they have a correlation of one. Apparently margin clerks are not that discriminating when it comes to liquidating accounts into a down market. This last leg down in Bitcoin was correlated to the S&P, as was the counter-trend rally:

All of which is the long way of saying that the impending "retest" won't be a retest at all, it will be a panic out of junk by overleveraged speculators. The last junk that happens to be holding up the casino.

The fake reflation trade is imploding deja vu of last March and more importantly December 2015:

These are the riskiest stocks in the casino. And yet, the latest "correction" didn't even break the uptrend:

There is no momentum in momentum anymore

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...