Imaginary Tax Cut. Global Haircut

For 35+ years straight, RepubliCons having been taking the U.S. further and further to the right. This time it's going to blow up in their faces...

Does it matter that this imaginary tax cut won't do anything for the economy, even under the unlikely chance that it passes? No, of course it doesn't matter. It won't help autos, it won't help retail, it won't help housing, it won't drive commodity demand, and it won't offset Fed tightening. But don't take my word for it:

Wall Street Journal:

The House just passed its budget resolution, so stocks are going into melt-up mode:

"Almost immediately, disagreements emerged over how much to cut certain tax rates, which deductions could be eliminated, and whether the tax reform package would be revenue-neutral."

"It's called fake reflation. And you need to go ALL IN"

"This is a huge tax cut for the top 1%...Impossible to square with the president's rhetoric."

It's The 'Conomy, Stupid

ZH: Hope versus Reality Record Wide. Greed Record High

The old age home has an intertemporal preference for fake wealth now, over economy in the future. The surprise will be on them, because asset reflation has been confused for economic reflation. Remember the last cycle when the Fed raised rates 17 times in a row, obliterating anyone who borrowed their cheap money? This is that all over again. Since the casino class are not the ones with their balls in a vise, they don't see it coming:

Ironically, the riskiest stocks at this point in the cycle are the high beta financial advisory firms - the same ones assuring their clients that risks are low right now...

Which will make this a rich man's panic

"Great news"

I just read this questionable essay on ZeroHedge:

ZH: What Few Expect: Inflation

Coming, no less, one day after we learn that speculative Treasury shorts are at record highs. Stop me any time...

"Few seem to ponder the possibility that this surplus of everything might be temporary, a brief run of extraordinary luck rather than a permanent abundance. Few seem to ponder what global shortages in key commodities might do to prices."

The first non-recovery in U.S. history amid unprecedented global poverty, that's just extraordinary luck. 

Compliments of tax cut mania, Financials are soaring, as are Autos, left-for-dead Retail, and don't forget Transports, which are off the rails literally. Meaning that the reflation trade is on in unprecedented size. 

Of course, a few of us have seen this movie before, circa 2011. Transports were leading amid fake reflation, just as the Fed started to reduce its balance sheet. Fast forward to now with bond yields much lower and Transports much higher, it's time to try again from higher altitude, at the end of the cycle:

"What if I don't believe in reality, does it still apply to me?"

Don't try this at home again

Getting back to the above article, CPI can only be looked at in the context of year over year change. We've never seen this before, where the CPI is weaker at the end of the cycle than at the beginning. 

The belief stated in the above article is that the Fed is creating deflation using low interest rates (leave aside the fact that rates have been rising for two years now). And shockingly the clueless Fed believes the same thing - that raising interest rates is reflationary:

“Despite weakening inflation...we should be wary of moving too gradually"

Unfortunately for that asinine theory, this below, is why the economy is weak, because the economy has been outsourced, and contrary to popular belief, raising interest rates is not going to help:

"There is not yet “empirical support” for the theory that global trade, worldwide supply chains, and other forces are holding down U.S. prices"

"We need a few more decades of proof"
U.S. capacity utilization with CPI:

Which completely "explains" why the Fed has embarked upon a reflationary campaign, and is wary of moving too gradually:

To be sure, if 35+ years of Supply-Side trickle down Ponzinomics magically gets reversed and the rentier-class begins caring about the middle class, then true inflation could happen. For example, if mortgages and student loans start getting monetized by the Fed in a debt jubilee.

However, while that's not happening, fake reflation will be the order of the day. Meaning tax cut fantasy will be competing with Fed reality.

And when the Treasury short force unwinds, forcing carry trade unwind and igniting the record short volatility trade, then risks assets will be the next thing to deflate:

Another Good Pump And Dump

This society doesn't know a Ponzi scheme when they see one. A ponzi scheme is when the insiders sell at the outsiders' expense. Meaning insiders have information about the intrinsic value of the asset (or lack thereof) that outsiders don't have. Which is essentially how the IPO market operates:

Traditional market makers - which no longer exist - used to add value by trading against the market - buying on weakness and selling on strength. Buffering declines and attenuating momentum. Today's HFT-based "market makers" do the opposite - they sell on weakness and buy on strength. The system "works" to the extent that it accelerates upside momentum while exacerbating declines. As momentum accelerates to the upside, money is forced in from the sidelines and shorts are forced to cover. For active managers benchmarked to the S&P 500 it's a serial nightmare forcing them to sacrifice hedging of capital to save their P&L. Which is why they are leaning ALL IN in the last quarter prior to bonus, they are way behind their benchmark: 

Sometimes I get the feeling that the sole purpose of this new momentum-based "system" is to allow Wall Street to dump junk IPOs into the market. These are the largest IPOs from the past year - each one came at or near a market peak:

Of course, once the animal spirits get flowing, they get a little bit out of control, flowing into any and every asset class that hasn't already been pumped and dumped in the current cycle. In this cycle that means crypto-currencies all around. Over a thousand of them and growing exponentially by the day. The current boy-man fantasy of the day - should I say one of them - is that we will all have our own crypto-currencies that soar ever-higher and never implode. It reminds me of a colleague who once said that in Pakistan everyone has servants - even the servants have servants. I didn't have the heart to tell him he's a fucking moron. 

To be sure some of these currencies will survive, the vast majority will not. They are all to some extent ponzi schemes having zero intrinsic value. Of course, one can argue that all fiat currencies have no intrinsic value - also true - however, they are legal tender, meaning they have monopoly control over the local currency market(s) and are not proliferating like rabbits. There are more crypto-currencies globally than there are fiat currencies. All of the major cryptos have peaked. Most, a long time ago. The best performing crypto this year, Ethereum, peaked in August.

Bitcoin has carved out a head and shoulders top indicating that the third wave down is imminent:

Here is where it gets interesting. Cryptos are linked to stocks via the mining process which is semiconductor intensive. As the number of cryptos proliferated, the demand for semis soared. As this process unwinds, semiconductors - the last sub-sector holding up the Nasdaq, will collapse.

And then gamblers will discover momentum to the downside...

The Last Bull Market Is Bullshit

Today is the ninth anniversary of the TARP bailout. The day global stocks collapsed...

The Trumpian/Fed Jedi Mind Trick for weak-minded fools has worked perfectly. Gamblers are ALL IN fake reflation at the end of the cycle, for maximum pain:

Record net speculative short volatility
Record net speculative long Brent crude oil
Record net speculative short Treasuries
Record overbought small caps...

We've never seen anything this dumb before. Which is saying a lot...

Consumer staples (recession stocks) have not been this weak since the 2008 collapse:

Bueller?

The last time that banks diverged this far from bond yields was the short-covering rally ahead of TARP passage:

All major U.S. indices made new highs Monday, except the most important one, the Nasdaq 100 which embeds the largest cap tech stocks. In fact of the top ten largest cap stocks - Apple, Microsoft, Google, Facebook, Amazon, JnJ, Exxon, Walmart - only Berkshire and JP Morgan made a new high today, both financials:

Automakers are "leading" this week

A few people are questioning this chasmic gap between bonds and stocks:

ZH: In 50 Years I've Never Seen Anything Like This
"Asked by CNBC’s Kelly Evans to explain how US stocks have continued to outperform while the 10-year Treasury yield has remained anchored below 2.5%, Cashin acknowledged that, during a career that's spanned more than six decades, he's never seen anything like today's market"

The assumption across Wall Street is that yields must rise to catch up with stocks. It never occurs to them that in every other case that stocks have collapsed down to yields.

ZH: The Fed's Jedi Mind Trick Worked
"The bank's clients as a whole have dramatically soured on Treasuries...Among those who actively place bets, such as speculative accounts, a record 70% were short, while an unprecedented (and impossible) 0% responded that they were long"

All investors, decade high Treasury short:

"Everyone is on the same side of the boat"

Suffice to say, those betting on higher yields and fake reflation, can't afford to be wrong. Again.

Because fake reflation is an historically crowded trade...

And there's an "invisible" floor below yields aka. 'Conomy

With a trap door behind it...

"Money managers have pushed their bullish bets on the Brent crude market to a record high in the last week"

"when positioning becomes too stretched, this can lead to abrupt shifts in the price"

The Prozac Paradise

Since 2008, what was left of Globalization has been systematically liquidated to make the quarter, meaning that it was a never-ending buying opportunity for denialistic morons. Unfortunately, all-knowing hairless monkeys are not in denial about one thing, they're in denial about everything...

Terrorist attacks
North Korean escalation
Mega hurricanes
Clown president
Junk food, junk culture
Opioid crisis
Imploding economy
Plundering healthcare and grandchildren to fund tax cuts
Central Bank tightening

450 kids shot. Dow up 100 to record highs...

60% of the worst mass shootings in U.S. history came during the past decade buying opportunity:

"It was all going so well"

U.S. equities hit record highs on Monday as Wall Street kicked off the fourth quarter on a high note.

Greg Guenthner of the Rude Awakening blog, says this “trader’s paradise” is just warming up:

"Investors aren’t feeling a lick of discomfort this year. Volatility is dead and buried. Manic market swings are no more. In fact, the craziest thing about this year’s market is that it’s one of the sanest investing environments of all time."


"Investors have devoured every stock market dip"

Unfortunately, due to mass denialism masquerading as a utopian gambling environment, RISK OFF, is no longer an option

"Globalization"

"I’m not predicting that the FAANGs and other year-to-date winners will flame out during the fourth quarter. Ideally, the tech leaders from the first half of the year will simply trade in a sideways range to digest their gains. That’s healthy market action"

"Luckily, the market continues to offer clues as to what stocks and sectors will shine during the final trading months of 2017"

"The energy sector has rocketed more than 10% in September"

"Retail stocks soared 7% this month"

"Bank stocks jumped 8%"

"Small-caps ripped off their lows and posted gains of 6%"

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