The U.S. is 100% Ponzi now. Ponzi-borrowed GDP to cover up recession, and Ponzi stock market, to cover up declining corporate earnings.
Biggest lie in U.S. history:
U.S. GDP growth this year will be entirely borrowed money, and then some:
"As a candidate, President Trump promised to wipe out not only the deficit but the entire federal debt"
Larry Kudlow, the top White House economic adviser, claimed just last week that the tax cuts were on track to pay for themselves."
In this post-2009 "free money" mega bubble, two kinds of people have made money in asset markets 1) Insiders who already owned shares and sold into bubbles: for example venture capital firms cashing out of record IPO exits this year and/or corporate managers right now cashing out of record stock buybacks 2) The other people who made money are speculators who got in ahead of everyone else, and got out ahead of everyone else. Everyone else loses money when the asset bubble implodes. Those who are promoting these inflated assets, are this era's Bernie Madoffs. Instead of one con man, there are industries full of them, all dispensing the central bank Koolaid.
The amount of openly accepted fraud taking place right now is unprecedented:
"An out-of-nowhere upside earnings surprise from trucker J.B. Hunt (JBHT) is putting investors on track for a new way to make money: Transportation stocks."
Freightwaves:
"J.B. Hunt posts earnings of $133.6 million in second quarter, down 10 percent from a year ago...the company’s earnings per share fell short of analysts’ expectations"
No market has gained more from global central bank largesse than U.S. stocks. By operating the tightest monetary policy, the U.S. has been a safe haven from competitive debasement of global currencies. Which is why global central bank liquidity has pumped up U.S. stocks to record margin-adjusted valuations, predicated upon the "TINA" trade - there is no alternative. In the process driving a chasmic gap between fantasy and reality, as deteriorating fundamentals are assiduously ignored.
The theory of the day is that valuations no longer matter, because central banks can prevent bubbles from bursting. Unfortunately, that theory was proven very wrong in 2015, when the Chinese central bank inflated a bubble and then did everything possible to keep it from imploding. It didn't work. The PBOC even asked the U.S. Federal Reserve how to stop bubbles from popping. The Fed admitted you can't.
The U.S. stock market is this era's Shanghai Surprise - this abiding belief that liquidity can offset deteriorating fundamentals.
It appears I have the right blog name for these times. Because all of the various pump and dump schemes operating currently are merely legalized Ponzi schemes in nominal disguise. Case in point crypto currencies. At current count, there are now 2236 crypto currencies and probably a few more just now created. There are zero barriers to entry. Most of them are crashing as I write. Over seven hundred of these have multi-million dollar market caps, and yet collectively all "alt-coins" are worth less than Bitcoin. Bitcoin was the original, it has institutional buyers, it has futures. It also has major flaws that will prevent it from ever being a real currency. First and foremost it's too volatile, which means that unhedged merchants who accept Bitcoin are speculators whether they know it or not. Meaning they could make a lot of money or go bankrupt as their payables will be in say dollars and their receivables will be in Bitcoin. Profit margins could fluctuate 20% in a day. The other problem for Bitcoin is that it was never designed to be an actual functioning currency. It can't scale to process transactions, because it was designed to increase in mining cost over time. When Bitcoin hit its all-time high of $20,000, the cost per transaction was $55. Can you imagine paying that much to buy a cup of coffee, just for the transaction fee?
Where U.S. stocks and Bitcoin are similar is in their (over) reliance on technology-based liquidity. The assumption that machines will be the buyer of last resort. On the Bitcoin side, as the price falls, the profitability of mining falls commensurately. In a high volume sell-off when price falls by a large amount, transaction liquidity aka. "Hashrate" falls. Here we see that the price of Bitcoin and Hashrate are highly correlated. An extreme sell-off could trigger what some call a "Chain death spiral" aka. inability to sell.
Likewise in stocks, the transition from human traders to machine-based trading means that liquidity is the highest when it's least needed, and lowest when it's most needed.
There have been two major flash crashes in the past ten years. And many single stock crashes. All assiduously ignored. The problem has become far worse over time.
April 2019:
"The negative correlation between volatility and liquidity has been getting stronger over time, according to the JPMorgan Chase & Co. global head of macro quantitative and derivatives research. As volatility rises, market depth declines exponentially, exacerbating price moves"
The shift to passive investing from active management, specifically the decline of active value investors, reduces the ability of the market to prevent and recover from large drawdowns"
“Liquidity has become to a large extent driven by market volatility.”
The problem it appears is that Skynet does not like being the buyer of last resort. Especially when insiders are bailing at peak valuations.
BBG: Liquidity Is An Illusion
"In the fourth quarter, the firm’s measure of market depth based on S&P 500 e-mini futures dropped to less than one-third the average seen during other sell-offs of the past decade."
The only reason the wheels didn't come off the bus in the fourth quarter, is because hedge funds monetized their hedges
