The Hall Of Smoke And Mirrors

After 2008, the economy was never coming back from stock buyback land, so Central Banks engineered human history's largest short-covering rally. Sector by sector was pumped and dumped, leaving active managers fully obliterated. The market is currently led by serial laggard revenueless Biotech. What could go wrong?

But first, the dogs of the Dow are the highest yielding Dow stocks. The ETN that tracks them is now up 82% YTD, providing about 5 years' worth of yield in 5 months...

Desperately seeking yield:

Hyper-deflation visualized
German Bund Futures (bond price) are enjoying a one-way rally, compliments of Europe's experiment with paying people to borrow printed money. And charging people to save aka. total desperation. 

Really, what could go wrong?

The last shall be first...
The leading stock sub-sector this past week:

The Clinical Trials Biotech ETF is up 30% in three weeks, consisting of stocks that have no product, no revenue, and no customers...

Aside from the freak show, I leave you with this chart of the Dividend Yield Fund. Or what I call "VIX 200"...

Aside from Municipal Bonds, this is the most over-crowded trade on the planet. And there's no way out.

As long as revenueless Biotech doesn't roll over, this will all be fine...

JnJ was the leading large cap today...

Globalization Is Unwinding

Japan and China have lost control of their respective currencies. It's clear that a large portion of Japan's $3 trillion in monetary hot money went to China. Now China fears a rate hike and Japan fears China fearing a rate hike...

The PBOC's efforts to strengthen the Yuan (red bars) are less and less effective...They reversed it hard yesterday, but it's already weakening again...

Accelerating outflows ahead of the Fed visualized:

Yen / Yuan (red) with S&P:

Stock gamblers are decoupled from reality
USDJPY versus S&P:

Skynet is trying to squeeze shorts following the OPEC non-event. But volume is heavy indicating liquidation. 

Closing all gaps ahead of the jobless report

Flash Crash / No bid market is inevitable

New Total Market 52 week highs (50 dma) with S&P 500

Nasdaq

FINAL DETONATION: Just Add Panic

We don't know the precise time zone, we only know there will be no going back...

CN Yuan @ Maximum Risk

JP Yen @ Maximum Risk

Europe @ Maximum Risk

Oil 3x leveraged to bullshit


DVY / Dividend : Re-test of Overthrow @ lower momentum

XLP / Staples: Third weekly lower cycle high

FANG / Facebook, Amazon, Netflix, Google:Imminent Reversal

IBB / Biotech : Fourth lower high in past year

Retail: ex-Amazon, full obliteration

XLE / Exxon : Stalled at lower yearly high

Mega-Caps: All Peaked

Brewer stocks: Blow-off top

IWM / Small Caps / Breadth: Rolled over

QQQ / Nasdaq 100 / Relative weakness (Microsoft, Apple, Oracle, Cisco etc.)

Financials: Third lower high, rally reversal

Munis / Yield: Rolling over at maximum overbought

Buyback "Achievers": Third lower high

Junk Bonds: Rolling over at lower high

(Volume is weekly, not complete for current week)

Berkshire: Diversified Cyclicals

Lockheed Martin et al.

Denial Phase: Why They Can't See It Coming

Gamblers are over-committed and blowing smoke up each others' asses non-stop...

First, this just in:

Today's Groupthink EconoDunces presume that because Monetary stimulus is still at crisis levels, the "recovery" is proceeding. Unfortunately, they understand nothing about financial markets. Or the economy for that matter...

Speculators buy financial assets AHEAD of the recovery under the assumption that fundamentals will catch up later. However, unlike every other cycle in U.S. history, in this cycle, that never happened. Nevertheless, that did not stop them from mis-allocating capital:

The cycle of greed and fear with Average stock (red) and Fed Funds rate (black):

Credit markets go through their own "Minsky" cycle:

In this cycle, we face Ponzi risk from subprime auto loans, junk bonds, Municipal bonds, European Ponzi bonds, corporate buyback loans, Emerging Markets, Leveraged loans, and China. 

http://www.levyinstitute.org/pubs/wp74.pdf

"Hedge financing units are those which can fulfill all of their contractual payment obligations by their cash flows."

"Speculative finance units are units that can meet their payment commitments on "income account" on their liabilities, even as they cannot repay the principle out of income cash flows. Such units need to "roll over" their liabilities"

"For Ponzi units, the cash flows from operations are not sufficient to fulfill either the repayment of principle or the interest due on outstanding debts by their cash flows from operations."

"Over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance."

"The financial instability hypothesis is a model of a capitalist economy which does not rely upon exogenous shocks to generate business cycles of varying severity. The hypothesis holds that business cycles of history are compounded out of the internal dynamics of capitalist economies, and (ii) the system of interventions and regulations that are designed to keep the economy operating within reasonable bounds. "

This is not a Ponzi scheme, this is a super Ponzi:

What To Expect From OPEC

What did countries representing 70% of world oil output agree to on April 17th in Doha? Nothing.

What will countries representing 40% of world oil output agree to tomorrow in Vienna? Less than nothing. 

Shorts got burned after the Doha circle jerk.

I'm not sure that's going to happen this time.

The Status Quo Is 3x Leveraged To OPEC

Shorts covered ahead of the OPEC circle jerk, because really what could go wrong?

JPY was strong overnight versus USD and Chinese Yuan, indicating RISK OFF at the U.S. open. I mean buying opportunity...

3x leveraged speculators have been throwing money away for four months straight in anticipation of this non-event:

WTI crude with 3x leveraged ETF volume (UWTI):

Retail ex-Amazon imploded due to Nike and Under Armour. Amazon reversed into the close. 

Auto sales for May tanked, hammering automakers

Big Cap Tech lagged notably

Skynet pulled out all stops to manage a green close

Dividend/recession stocks re-tagged their overthrow high:

Small caps led

Europe rolled over again at resistance

Brewers went late stage parabolic

Much ado about collapse

The Jobless Consumer Bubble Is Set To Implode

"They successfully bypassed the entire economy and invested their 'savings' in the S&P 500. They were not the sharpest tools in the shed by any measure"

EVERY other retail has rolled over. Next comes Amazon. 

In 2015, Nike, Under Armour, and Home Depot were top retail performers...

Now only Amazon is holding up the entire retail sector...

Amazon versus Sears

Macy's, not so much:

"They bet it all on the jobless consumer, because no one told them there's no such thing"

Consumer sentiment

And Another Bubble Bursts

June 1, 2016
U.S. Auto Sales Slumped In May

General Motors Co. said sales skidded 18% in the month

Meanwhile, the biggest recipient of 0% retail loans was...

The rate of seriously delinquent subprime car loans soared above 5% in February, according to Fitch Ratings. That's worse than during the Great Recession and the highest level since 1996.

Fitch blames it on a dramatic rise in loans with lax borrowing standards that have helped fuel the recent boom in auto sales. More Americans bought new cars last year than ever before and the amount of auto loans soared beyond $1 trillion.

Car Max (National used car dealership)

Auto Nation (National new and used dealership)

Global Automakers index

Volatility "Expansion" Phase aka. Overnight Risk

First line support is only 10% lower...

Shorts are covering ahead of the OPEC meeting (tomorrow), in case they accidentally agree upon something. 

Back-test of trend-line. Check.

"Prepare for rapid descent"

Fill today's opening gap. Check.

1s and 2s down on the :30 minute. Check.

Amazon key reversal. In progress.

The Third (Last) Detonation Sequence Is Underway

The first two (August/January) didn't garner much attention, but this will...

JPY was notably strong overnight versus the dollar and the Yuan. Meanwhile oil is down -2%, hence 3x leveraged oil is down -6%:

Yen / Yuan (with S&P)
China and Japan combined are spending asinine amounts of money to prevent this from happening...

Globalization unwinding:

"It's a simple formula that applies to all politicians, whatever they say, believe the opposite"

On a totally separate yet 100% correlated note, I was reflecting on what it means for Amazon and the other internet stocks to be outperforming at this late stage...

Internet Fund

Nasdaq 100

Up next, the running of the bulltards
No sound necessary...