Saturday, February 17, 2018

A Welcome Collapse

Beware of being on the same side of an overcrowded trade with proven dunces. They have an unbroken history of imploding instantly, with only years of warning. The ONLY correct timing for getting out of a bear market is ahead of the stampeding masses...

"You are now welcome to buy the correction..."

Anyone reading/watching the lamestream media, CNBS,the Wall Street Journal, Zerohedge, or the National Inquirer, has NO fucking clue where we are in the cycle: Beginning, middle, end, up, down, sideways. Everyone subscribing to their own brand of bullshit...

Last week was just another welcome buying opportunity...

Granted, not everyone was buying the usual bullshit.

Correct bear market timing, visualized:

I can forgive the corporate media outlets for being the usual confusion-generating bukkake whores. But when Zerohedge trolled Gartman for his bear market call, it got my bearish dander up. If anything, Gartman was late on his bearish call, not early. Had he predicted a bear market prior to last week's crash, BipolarHedge would have had no call to ridicule him. Buffoonery aside, all of this mass confusion brings up the bigger question, where are we in the economic cycle. And the answer we got this past week is, LATE. In a bear market, it doesn't matter so much when you sell, as long as it's ahead of the stampeding masses.

Many intelligent pundits have decried the mass exodus from active to passive investing, on the basis that people who are not mechanics should not be working on their own car. But they never get to explaining why it will end badly. Herein lies the problem, and why this "passive" investment bubble is about to end catastrophically. As active managers above demonstrate, investors can't be fully dedicated to stocks at all points in the cycle. Sure any one dunce can be ALL IN stocks and blow themselves up. No problem. But when an entire generation of gamblers believes the "buy and hold" bullshit, then there is extreme allocation to risk at the end of the cycle, and no liquidity to get out. Which is the lesson that was ignored from last week. The lowest liquidity EVER, in the stock market:

If liquidity was record low last week, what will happen when there is real selling? Does anyone care to find out?

We now know that everyone wants to find out...

Realized volatility is actual price move. This chart speaks to the amount of leverage currently embedded in derivatives, ETFs, and E*Trade accounts.

No liquidity visualized:

Only persistent BTFD saved the casino last week, amid zero liquidity, but more fun is coming in the overnight. 

Don't ask me how I know:

I've said for quite some time that this period resembles 2014 when the reflation trade last ran into the brick wall of deflation. However, what makes 2018 different than 2014, is +4 years, +more debt, and of course global Central Bank tightening.

Which is why despite the Netflix rampage, certain sectors did not get off the floor this past week. Particularly damaged by the crash was everywhere higher interest rates are not accepted:

Junk bonds:

The Energy sector:

Real Estate/REITS

Auto sales


The reason why subprime blew up in 2007 is because it was a dumb idea from the first day of inception. The reason that the short volatility trade blew up last week is because it was a bet that the VIX would never again get above 20, when the historical average VIX is 20. Again, it was a dumb fucking idea from day one. 

Betting that the Dow will never again touch its 50 week moving average when it's still historically overbought, is likewise, a dumb idea, from day one to when it ends badly...

The common theme of this blog since 2009 is that this money printing experiment has been a dumb fucking idea every day since its inception. And last week did nothing to disprove reality...