Tuesday, June 26, 2018

The Magic Kingdom

Unfortunately, America has devolved into everything that is fake and fraudulent. Rule #1, never go full Disneyland...

A combination of lethal factors have coalesced to portend an amount of rage that can't even be fathomed. It took ten years, plus Trump, plus rising interest rates, a global economic slowdown, and a global trade war, to generate a level of optimism not seen since the top of the last cycle. Their entire delusion now rests on Netflix. And the pixie dust is wearing off...

The gap between fantasy and reality has never been wider, as we're now surrounded by human history's largest cabal of con men. 2008 unleashed Pandora's box of licentious criminality. They symbolically jailed Madoff for scamming thousands, so they could give Wall Street a free money bailout for bringing down the global financial system...

"Such men being past feeling have abandoned themselves to impurity, greedily indulging in every kind of profligacy"

And yet, in the Magic Kingdom that is today's pseudo-economy, that leading fantasy stock, in all senses of the word - Netflix, was bludgeoned -7% yesterday. The pixie dust is wearing off. As of this writing, the Dow and S&P are both perched at critical support. Skynet is working double overtime, because below this level, it's panic time...

The Dow is perched at the 200 day:

On a long-term basis, this would be the first break of the 200 day since the 2016 global meltdown.

The key investing theme of 2018 is trade wars and how best to profit. You can't possibly make this shit up:


Although the US economy is relatively insular with domestic demand generating approximately 90% of the US GDP, the US equity market is quite a different matter. The S&P 500 is comprised of many multinational corporations and 50% of US company profits come from abroad.

This is the theme of my recent posts: whatever Trump attempts to do on the economic side will have direct and disproportionately negative effect on the capital side. Which is fine too, however, suffice to say gamblers are not positioned for that outcome.

How do we know? Because as we learned yesterday, global trade wars are viewed very positively.

In summary, it took ten years, plus Trump, plus higher interest rates, and a global trade war, to generate a level of optimism not seen since the top of the last cycle:

"Fifty-four percent say the economy is good or excellent, the highest recorded by CNBC in the 10 years of the survey."

Meanwhile, China is devaluing the Yuan at the fastest rate in history - faster than 2015, just prior to the smash crash. Because China knows the best way to hit the U.S. is to implode the Dow...

"This is a clear signal from the central bank to the US President Donald Trump that China could lead the yuan lower as revenge for the trade war sparked by the US. "

Meanwhile back in the casino...
Monday's selloff of course was widely considered a minor event, despite the fact that it was focused on technology, which was down three days in a row.

As I've reiterated previously, this past five months has been all about Wall Street. World stocks, the Dow, S&P peaked five months ago. This last stage in the rally was a rotation to pure junk: overvalued internets, revenueless Biotech, and short-covering in junk retail stocks.

All of which allowed 75 IPOs - mostly internet and biotech - to take place between February 1st market peak and now, despite the deterioration in every other sector. Yes, you read that right. A 34% increase over last year, year-to-date. 

Looking at what, up until the past three days, was the leading sector - technology, here is breadth:

Nasdaq 100 above 200 dma (red):

And here is the breadth oscillator

Solve this equation for a happy trade war...

NDX McClellan Oscillator