Tuesday, May 22, 2018

Creative Self-Destruction

Disintegration is masquerading as progress...

What passes for innovation and "change" today is really just cannabilization of the future. Fifty years ago, rocket scientists were figuring out how to slingshot a six million pound rocket 200,000 miles to the Moon and back at the speed of a bullet. Today, Silicon Valley gurus are perfecting ride-sharing apps for dumbphones. Lowering costs by obsoleting existing jobs and industries has been conflated as "innovation", whereas on today's accelerated timescale it's known as "insolvency"...

After 2008, the left and the right veered off into their separate ad-spend galaxies, licensed to fabricate their own specious narratives. The left subsequently schismed into Bernie Sanders socialists versus limousine liberals. The right splintered into Bannon/Trump nationalists versus traditional Republicans. All sides believe they are right and everyone else is wrong. So everyone gets to pick their own version of what won't happen.  

The inconvenient truth was wholesale abandoned down the Grand Canyon middle, having no paid audience and therefore no media coverage. What the entire political spectrum shares in common is an assiduous blind spot for reality - all sides assuming that the indefinite future can be endlessly re-hypothecated into profit, debt, and mass consumption. Collapse being the second derivative, has been re-packaged as "disruption".

So it's a sign of the times that the number one company on the "disruptor" list is a private company barely picking up where NASA left-off forty years ago. The next several "disruptors" are cannibalizing the taxi industry and the hotel industries. Featuring four ride-sharing companies among the top six:

 For the record, we had ride-sharing too, before the advent of the ubiquitous homicidal maniac:

It's an article of EconoDunce faith that disruption is always good in aggregate. Sure, when companies find new and creative ways of bypassing the entire U.S. economy there are bound to be dislocations to workers and investments, but those downsides are more than offset by the benefits to "consumers". Rinse and repeat for forty years straight and act surprised when everyone ends up a Starbucks barista.

So too it is in markets where the foundations of a rally can slowly disintegrate in broad daylight, all while bukkake whores on Wall Street contradict one another constantly. 

Yesterday we saw that short-covering in junk Energy stocks is the leading trade since the beginning of April. These same stocks were leading after the election as well. Subsequently, they are making a lower high, while Consumer Staples are making a lower low, and the over-owned Internet stocks are at all time highs. 

Over the course of this rally, the market now embeds disintegration - leadership by the junkiest stocks, record crowding into the largest cap stocks, and implosion of the safe haven stocks:

China Tech is three cents away from a death cross. De minimis.

Company founders and venture capital firms are keeping companies private longer so they can reap larger percentage gains when the company goes public. Because most of a new company's growth occurs in the early years. However, this strategy is now backfiring:

"In case you missed it, the peak in the tech unicorn bubble already has been reached. And it's going to be all downhill from here. Massive losses are coming in venture capital-funded start-ups that are, in some cases, as much as 50 percent overvalued."

May 19th, ZH: 80% Of IPOs Unprofitable. Most Since Y2K

"Put a slightly different way, 2017 was the biggest "money for nothing" year since Pets.com...Remember the only reason "the water is warm" is because it has been 'chummed' by the the last greater fool"

Unfortunately, the two most crowded bubbles in this era: Long mega cap Tech, short Treasury, don't solve for a happy ending.