Friday, February 2, 2018

Time For The Shitting Of Bricks

A minor "plink" in wages from Donny's tax cut, is now imploding the casino. The irony is biblical:

Everyone who said up until today that the market hasn't done anything "wrong", is now wrong:

While we wait for Amazon to implode, a brief discussion on how the Idiocracy got here...

Any questions?

Don't try this at home:

In a nutshell, the Idiocracy doesn't understand how financial assets "work". Even the self-nominated gurus such as Bill Gross, Gundlach, Dalio etc. are getting conned this time.

As I write, bond yields are bolting higher as stocks get pole axed. In other words, the bond gurus eschewing Treasuries in favour of stocks, will be "right" up until such time as higher interest rates trigger meltdown. Once upon a time higher bond yields were taken as a signal to rebalance from stocks back to bonds prior to the end of the cycle. To "de-risk". But those days are long over. 

A few people get it, to be sure:

Where was I...

Contrary to what Mark Cuban thinks, stocks are not like "baseball cards", they're not just worth what the next dunce will pay. Just because someone pays a million dollars for a brick, doesn't make the brick worth a million dollars. Stocks are priced off of discounted cash flows, which decrease in value as interest rates rise. Bueller?

Benjamin Graham said it best when he said that in the short-term the stock market is a voting machine, but in the long-term it's a weighing machine. Meaning that gamblers can chase valuations to any level they want, but once liquidity runs out, stocks must return to their inherent valuations. 

Which is why this cycle is different than any other, because gamblers have been conned into chasing stocks at the end of the cycle when they should be rotating back into bonds. The rise in yields was their clue that the cycle is ending.

Unfortunately, home gamers are taking advice from car salesmen turned investment gurus who've told them that stocks can be "bought and held" through the entire cycle, no rotation required. This buy and hold mantra has been so firmly embedded that we now witness record stock market exposure by every metric.

Which means that even as bond yields soar ever higher, it's now too late for gamblers to rotate from stocks back to bonds without causing a collapse. Which is what makes "melt-up" rallies lethal.

Meanwhile, all of this could have been learned via the BitCon. As we saw with that Ponzi toy, once every dunce was found, it rolled over and headed straight down.

It just tagged the 200 day, so it's only a matter of hours or days, before it heads to approximately zero. Note that throughout this Madoff-inspired con job, those of us who didn't imbibe, were told that we "don't understand crypto". We don't get it.

"It's a currency. No wait, it's a store of value. No wait it's a safe haven. No wait it's a Ponzi scheme. But it's a good Ponzi scheme, not like those old fashioned ponzi schemes" 

This is "Buy and HODL" visualized:

This is what the tax cut driven rise in yields is doing to fixed income:

And high yield stocks:

The lesson learned from 2008:

"We only need one retailer. As long as we all own the same one"

Aside from Amazon which is doing yeoman's work to keep the casino from collapsing, the final bubble is now unwinding:

Shocking, I know:

Which means that the casino door is closing:

There's nothing left for them to do, but shit a brick...