As the wipeout gains momentum, just remember the party line:
"This isn't happening"
Speaking of corruption:
"Too much? Is this that democracy thing again?"
"President Trump on Saturday said the United States would no longer host next year's Group of Seven (G-7) summit at his Doral resort after intense backlash from Democrats, ethics watchdogs and some Republican lawmakers."
They finally found a Republican with a hint of morality intact. Amazing. Still looking for three wise men and a virgin.
In his own polite way, Big Short protagonist Michael Burry recently warned that the passive indexing bubble is the next subprime locus of implosion. He was assiduously ignored in 2008 and he has been assiduously ignored now. In other words, we are not alone.
“This is very much like the bubble in synthetic asset-backed CDOs before the Great Financial Crisis in that price-setting in that market was not done by fundamental security-level analysis, but by massive capital flows based on Nobel-approved models of risk that proved to be untrue.”
Nobel-approved models. Stop me any time.
IMF this week:
“The search for yield in a prolonged low interest rate environment has led to stretched valuations in risky asset markets around the globe, raising the possibility of sharp, sudden adjustments in financial conditions”
The net effect of passive indexing is to boost the averages to all time highs while leaving more and more stocks out of the rally. Until such time as the entire market is supported by a very small number of recession stock called "safe havens" that are now at 41 year highs in valuation. All to "shun volatility".
Michael Burry:
“The theater keeps getting more crowded, but the exit door is the same as it always was"
No, the exit door is much narrower than it has ever been, and liquidity has already collapsed:
All of which can only lead to this obvious conclusion heading into the last two weeks of October and the last two months of the year:
As I was saying, the dumb money bubble is the last to explode.
Per his talking points above, I won't discuss gambler positioning again. I've shown that is just short-term data mining. The animal spirits have been pumped and dumped across every major risk asset market on the planet.
Take FinTech for example. Peaked three months ago:
As far as credit risk - risk spreads in bond markets are merely compressed due to central bank yield compression as the IMF warned above. Why people don't acknowledge that fact and stop viewing credit spreads as a sign of low (credit) risk, is not for me to say. It's the same as bidding up recession stocks and assuming they are safe havens. In any case, the total shutdown of frackers, IPOs, and leveraged loan markets are the dead canaries in the coal mine.
I don't discuss "calendar" considerations. Last year we were told the same bullshit - expect a fourth quarter rally. Which ended down -20%. Other notable down years in the fourth quarter: 2008. 1929.
The fact remains that the casino has not had one -10% correction in all of 2019, which is a rare occurrence, leaving the casino overbought going into the Santa season.
The passive indexing bubble hides the rot that lies beneath the surface. In the economy, and in the broader stock market.
Do you ever get the sense that this was all just a big pump and dump at public expense?
I do
