Monday, February 26, 2018

Y2K x 1987 x 2008 = 1929

Housing is imploding again, Dow up 400. Our "system" of rapacious capitalism is predicated upon mass ignorance. If you're not part of the dumb money bubble, don't take it personally...

Warren Buffett just strongly endorsed the two dumb money ideas I've said will implode this entire ponzi scheme with extreme dislocation - passive indexing and over-allocation to stocks. Only one of us can be right, untold zombies will be wrong. Of all of the bubbles in this era, none is more crowded and popular than the dumb money bubble. Needless to say, this is a very expensive vacation from reality. Unaffordable to be exact. As usual, over and over again, the Idiocracy is looking the wrong way down the tracks for inflation while deflation is coming from the other direction. Recession will be there to greet them when they finally figure out they're wrong again:

"What happened: Sales of newly-constructed homes tumbled unexpectedly at the start of the year. January’s selling pace was 7.8% lower than in December"

"At the current sales pace, it would take 6.1 months to exhaust available supply, a sign of a well-stocked market."

Now for the non sequitur:
"Market reaction: With so much demand and lean supply, shares of large publicly-traded builders are crushing it"

Stop me any time. Please.

There can be no sustained reflation in a late cycle debt-laden economy, amid rising interest rates. It's not possible. Until everyone starts getting a "basic income" check in the mail - no doubt what will occur in the collapse phase of this debacle - there can be no sustained reflation. 

Meanwhile, bulls are already declaring victory and a steady march to Dow 30,000, leave aside the fact that the casino is still -4% below the prior high. The bears are already wrong. Again.

I had to adjust the count slightly, but I came to the conclusion last night that this mass delusion has nothing more to do with than trend-lines. As long as the trend-line is intact, the bullishit can flow freely. When the trend-line breaks we get a blissful respite from the non-stop bullshit while the bulls change their underwear...

Beyond trend-lines, the one thing Skynet hates is volume, because volume is the enemy of liquidity. Liquidity measures how much can be sold at a given price, whereas volume measures how much has been sold at a given price. The more volume chews up the order book, the less liquidity remains.

So, no surprise volatility tracks volume:

Volatility however is the real enemy of mass delusion because that evinces a loss of control by Skynet, putting the all-important uptrend at risk.

And that's where it gets interesting. Because on an hourly basis, realized volatility continues to be elevated to say the least.

So I find it curious that bulltards are declaring victory when the casino doesn't have control at these levels, it is merely renting the illusion of control.

At their expense, while they still have capital to throw away at the casino...

But it's their vacation from reality - they paid for it - so they may as well enjoy it. Until the trend-line breaks, and they realize they're going to need more underwear.

Speaking of dumb money. This past weekend, bailout king Warren Buffet, explicitly endorsed the two idiotic ideas that I've been saying will implode this entire delusion. The first is this one:

"Buffett is a stock picker, but he’s adamant most investors are better off sticking with passive, low-cost, index-tracking products"

Over time, "passive indexing" pushes more and more money into fewer and fewer large cap stocks, until such time as the casino implodes. Market cap weighted indexing is to assume that a stock deserves more inflows just because it's larger than other stocks; hence it only grows more over-valued over time:

During the course of this rally, the over-crowded tech trade just became more over-crowded:

"Favoring large-cap technology stocks proved a winning strategy during the recent bout of volatility that sent the stock market into correction. But the risk of a crowded trade, one that could be ripe for reversal, in tech remains"

The S&P 500 is up 3.4% since the start of the year...The much-beloved tech sector — up nearly 9% year to date — accounted for more than 60% of those S&P gains"

Let's try this again, but this time with the other 60% of downside volume:

The second thing Buffett endorsed that will implode this entire delusion is over-allocation to stocks:

“It is a terrible mistake for investors with long-term horizons—among them, pension funds, college endowments and savings-minded individuals—to measure their investment ‘risk’ by their portfolio’s ratio of bonds to stocks,” he said. “Often, high-grade bonds in an investment portfolio increase its risk.”

When one person increases their allocation to risk, that's not a problem. When everyone increases their allocation to risk at the end of the cycle. That's 1929 all over again.