SYSTEM RISK

The beloved "System" is maximum leveraged to Bozo the Clown. "No one" sees it coming...

MAGA is the seven deadly sins, personified by Trump: Greed, Gluttony, Pride, Wrath, Envy, Sloth, Lust. Packaged in continuous deceit. 

“We need to free ourselves from the clutches of consumerism and the snares of selfishness, from always wanting more, from never being satisfied, and from a heart closed to the needs of the poor.”


Sorry Pope, they had exactly ten years to learn that lesson and it was squandered digging a bigger hole. Those who wasted the past decade by still wanting more and never being satisfied, will find this unburial a tad more challenging. Meanwhile, we were also inconveniently reminded of the true cost of the "system" this week, as deaths of despair have doubled in the U.S. since 1999. Because after 2008, the system had to go into full Lord of the Flies mode by way of proving that it works. 

"Dr. Miller attributed the increasing disparities in health care and inequalities in income as crucial factors in the feelings of despair, loneliness and a lack of belonging that contributed to suicides among many Americans."



Getting back to the circus...
MAGA is system risk, period. Nothing more, and nothing less. It's the lethal combination of leveraged hubris and risk that puts this circus at the brink of extinction, consisting of: Extreme leverage, extreme complacency, and higher interest rates.

This multi-month stock rally was predicated upon the end of the trade war, which we are told is imminent. And yet ironically, we learned this week that the U.S. trade deficit is record wide. Eclipsing the 2008 low. The net effect of Trump-o-Nomics has been to make the U.S. less competitive. The trade war did nothing to improve the balance of trade, while the tax cuts drove interest rates and the dollar higher aka. "Free money".   

This is MAGA in a nutshell, farce and fraud on an epic scale, attended by manic speculation, and rampant denial. 

For those who want a president who does the exact opposite of what he says he will do, Trump is the guy:

"We have a massive trade deficit, and I'm going to fix it"

Speaking of fraud, this week is the tenth anniversary of the post financial crisis bull market:

This just in:

And yet, despite the myriad warnings to date: consisting of global stocks peaking over one year ago, U.S. stocks tanking -20% in the fourth quarter, the housing market imploding, retail sales imploding, and finally Ponzi GDP imploding - even at this late juncture, the bimbos on CNBC are selling the dream.

And the sheeple are buying it with both hands:

Ten years later, and faith in Ponzi capitalism is now at existential risk. What I call "system risk". As we didn't learn in 2008, it's no one's job to manage systemic risk, so they don't. Instead what they do, is they keep selling to make the quarter. They keep stuffing Mr. Creosote with more leverage until he explodes. All the while ignoring the fact that he's getting fatter and fatter. And when it explodes, they say "no one saw it coming". That's the "system". 

This set-up appears to be a lethal combination of VolPlosion 2018 and Smash Crash 2015. I've maintained all along that the machines can't handle the endgame of this circus, and I mean that now more than ever. 

From an investment standpoint, I never give advice, but I will say this - the one thing I have learned this past decade, is spread your bets.

Why crash is extremely likely is because from a sector standpoint, there is no place left to hide. The great rotation from stocks back to bonds is already underway, as bond yields fall. Which means that the "safe haven" stocks are the final leg of the stool.

Here we see the equal weight S&P. Interestingly, the last time it was rolling over from this level was one year ago (February). That Friday pointed to by the arrow was the jobs report, as is tomorrow the jobs report. Monday was implosion. The casino this time is declining at a faster rate than last time:

Transports are now down ten days in a row:

Healthcare already rolling over:

Oil is a coiled spring:

Financials kissed the 200 dma goodbye, are now back in December mode:

Overnight risk comes via China and Emerging Markets:

The other overnight risk comes via Europe as the ECB just confirmed that the European economy is imploding.

The beloved IBD momentum stocks are right at the 200 day:

Utilities new high today, clinging to support:

The last safe haven:

Throughout this era of rampant denial, the cost of (not) hedging has been constantly rising in the background. 

This shows the S&P volatility (VIX) relative to VIX volatility. 

Basically indicating that the options market is ultra-sensitive to changes in volatility.

"I can free you from the clutches of always wanting more and never being satisfied"

It's called "MAGA"

Prepare For Hard Landing

Ironically and fully in keeping with the front-running hypothesis, rumours of an imminent trade deal have brought selling on the news...

"We're finally here. It's like we're at the finish line [on a trade deal]. The stock market has to reconcile with the bond market how the downward trend is going to reverse on a trade deal. Bonds are not smoking the same kind of optimism pipe that stocks are smoking."

"By the time you get through all these meetings and Chinese denials, you already did harm to America's businesses and workers. This is the U.S. going back to the Obama and Bush era...we're setting up a mechanism which is very similar to past mechanisms where we failed to enforce our laws."


Where this gets "interesting" is that the largest weighted Dow stock is also the one that is most leveraged to a trade deal. Boeing, which is now 11% of the Dow - almost twice that of the next highest weighted stock - has been viewed as an industrial safe haven from trade wars. For what reason, I don't know.

In addition to weighting and trade leverage, according to NorthmanTrader Boeing is arguably, the "U.S. market's most dangerous stock" from a technical perspective. 

He compares Boeing to Cisco circa March 2000 the Y2K Nasdaq top:

"Aerospace giant is arguably the U.S. market’s most dangerous stock, and puts the Dow at risk"


This stock is up 50% in two months:

Via the first article above:


"Traders are getting cynical about the China deal in the sense that they think what [Trump] really wants is a North Korea deal and he needs China to get that done. instead of getting a terrific deal with China he might do things that helps [Chinese President] Xi [Jinping] feel better about things," said Art Cashin, UBS director of floor operations. Cashin said a North Korea deal could help trump get re-elected."

What company is both a major commercial industrial AND a major defense contractor

Boeing

But is this really about one stock ready to implode?

No, this is about the last stock(s), overbought and overowned, imploding.

Because everyone is crowded into the exact same trades:

"Great minds think alike"

Fools seldom differ

We Have Nothing To Fear. But Fear Itself

"We have now sunk to a depth at which the restatement of the obvious is the first duty of intelligent men" - George Orwell

For most of the past seventy years the greatest threat to this species and planet was thermonuclear warfare. Now, the greatest threat to this species and planet is the corporate way of life. Globalization is a human and environmental disaster on an unprecedented scale. The failure of which was self-evident in 2008, and yet compliments of ongoing monetary bailouts, the disease was allowed to continue to consume the planet. Fear is the overriding human emotion, and right now fear is existential. Manifest in obligatory denial. 

Unacknowledged by the Idiocracy at large, during the past decade, Globalization has collapsed the developed world down to Third World status. Which has been merely papered over using every device known to man and many previously unknown: bank bailouts, chasmic deficits, zero interest rates, record monetary expansion, and serial asset bubbles.

And yet for all of the gimmicks, just so long as the contours of global slavery remain intact the sheeple continue to believe in Globalization. It's when would-be reformers start talking about "socialism" that fears the Ponzi scheme might collapse take hold. 

Therefore as Orwell reminds us, the depth of depravity is such that the accepted narratives must be of an amnesiac nature to forget the sequence of failure that led to this juncture. Which is what allows failure to be recycled. Corporate Disneyland is final imploding, yet the burden of proof remains on us realists, because the corporate propaganda machine is cranking like never before.

Sadly, the trade wars, rising nationalism, rising hate crimes, and societal acrimony are not a figment of the imagination. They are merely assiduously ignored. Ironically, Trump's election itself was a marker of Globalization's failure, capitalizing on rural deaths of despair; and yet no surprise, his presidency is just another deceptive gambit by the world's rich to plunder the middle class. Under the auspice of being the working man's last, best hope.

The notion of a spoiled dilettante serial business failure being the saviour of the working class, is beyond farcical. Illustrative of the depths of despair.  

Trump's popularity comes down to the fact that he has tapped into the existential fear:

"Trump models a simplistic way to vanquish self-doubt and defend oneself against existential anxiety.

In times of enormous demographic shift and economic uncertainty, populism exerts a strong appeal for the anxious voter

Trump relies on righteous indignation, blame, and contempt as weapons of war"

Make no mistake, this IS an existential moment, however contrary to popular belief the two opposing sides are not Democrats and Republicans. That's merely the circus spectacle while corporate Disneyland self-destructs in the background. Neither side is prepared for what comes next.

The true enemy is the competitive consumption lifestyle itself, something that myriad addicts don't ever want to admit. They're hooked. They love their corporate infotainment spectacle. They love fake news and fake food. Fake education. Fake science. They love consumption.

But mostly, they love fake reality:

The Learning Channel:

And yet, the cost of this circus keeps mounting in terms of morbid diabesity, mental health disorders, fentanyl suicides. environmental collapse, and mass shootings. All of which is a mere down payment on what is actually owed for the past decade of abject denial. 

This is an existential moment for a species that turned its back on reality in order to have mass produced corporate replicas of what used to be real. Watched as it blew up in their faces, and then stewed away for another decade in a toxic waste dump until there was barely anything left to recover. 

Disneyland is a choice. And for those who can't give it up, a terminal one. I predict nature will win and the carbon record will be thick. Those who would tell us any different, are just members of the Mickey Mouse club.

And their fear level is about to skyrocket. 

What A Beautiful World This Could Be

MAGA has turned its back on science and reason, placing its faith in con men, greed, nihilism, and corruption. For true believers, it will be a one way trip of their own making. Carbon levels will plummet, making us alarmists feel like fools, as denialists layer themselves into the archaeological record, gamed by the rules of their own "system". They placed their fate in the hands of Donald Trump on the basis that he's a sociopathic liar who figures out what they want to hear and works backwards to the lie...

At this late stage the Financial Services industry has earned the credibility of Bernie Madoff. However, mass delusion is the last functioning investment strategy so for now they're in their element. It's compliments of trust in serial psychopaths, that the sheeple don't see this coming:

Fortunately for the industry that must "dance while the music is playing", Trump killed the Fiduciary Rule, giving free reign to imagined realities:

"The “fiduciary rule” is officially dead.

The Labor Department rule, conceived by the Obama administration, was meant to ensure that advisers put their clients’ financial interests ahead of their own when recommending retirement investments.

The rule’s fate was all but sealed with the election of President Donald Trump, who generally opposes financial regulations. Just two weeks into his presidency, he ordered a review of the rule"


Blind cynicism being the order of the day, conflict of interest is assumed and therefore ignored. 

As Janet Yellen said this week, Trump is as ignorant on the economy as he is in business. He excoriated her for NOT raising interest rates and now he's excoriating his own Fed candidate FOR raising rates. Duly worried that his sole accomplishment - a bigger, fatter, uglier con job, will implode. His management style consists of blaming other people for all the problems he creates. 

Which is why he has the least competent administration in history:

Trump: "America is now booming like never before"

Herein lies the problem, whereas historically stocks have been leveraged to the economy, in this era due to rampant asset bubbles created by money printing, the economy is now leveraged to stocks. We now have what I call Ponzi GDP: Economic growth leveraged to the S&P futures. Which is why GDP fell off a cliff over the past few months. It's the fake wealth effect going in reverse. Also why today's economic growth predictions have the veracity of a fortune cookie.  

What went wrong?

Over-confident buffoons, born under a reserve currency, that's what went wrong. The more certain of future utopia they became, the more they swapped effort for bullshit - now Trumptopian scale. This species has unending capacity to layer in fellow humankind as another carbon brick in the archaeological record, by exploiting poverty as a line of business. While constantly blaming the monetized people who fall to the bottom for their predicament.  

At this latent timeframe: 

Delusion and arrogance paper over reality.
Asset bubbles paper over slavery.
Entertainment spectacle papers over collapse.
Continuous lying papers over inconvenient truth.
Pseudo-science papers over corporate interest
Cynicism papers over corruption. 

Which gets us to rampant speculation, the order of the day. Because central banks bailed out gamblers in 2016, this time around instead of de-risking, fearless gamblers are front-running central banks.

Into the riskiest junk they can find.

To paraphrase Jeff Gundlach, there is nothing new under the sun in speculation. It's strictly about delusion and momentum. 

Led now by the 5G Telecom trade war:

Ciena:

Xilinx

Fintech assisting insolvency

"Total outstanding U.S. consumer loans hit a record last year, driven by digital-first lending options."

Financial technology, or fintech, companies now make up 38 percent of the personal loan market — up from just 5 percent five years ago"

Meet the new subprime

This is the era of stoned complicity

Because unfortunately, nothing has changed in the past sixty years. The TCP/IP backbone that Facebook rides upon was invented in the 1960s. 

Goodnight Moon

Goodnight noises everywhere

Judge Not. Lest Ye Know What's Coming

Sadly, for sanctimonious hypocrites, the days of following the avatar of void morality are ending right back at the Faustian Bargain struck ten years ago...

Sean Hannity reminds me of what would happen if you pumped hot air into a pile of dog shit. A desecration of the truth that must not go unpunished, for this world to have the least semblance of right or wrong. 

And unfortunately, not everyone has more decades to lose chasing empty souls down the road to Perdition.

Over the past four decades the U.S. stock market has gone full Ponzi. Stock buybacks are now 4% of GDP, equal to the U.S. Federal deficit by way of the tax cut. Whereas previously it was a means for investment, now it's become a means for disinvestment:

American Prospect: The Tax Cut Is Not About Investment:
"The Republicans’ Tax Act is supposed to provide companies with extra after-tax profits that, through productive investments, will create jobs for Americans. Instead of helping to rebuild the vanishing middle class, however, the tax savings will further enrich shareholders through stock buybacks and cash dividends. With share prices inflated by stock buybacks, the richest U.S. households will extract even more value from the economy"


Now we know why they purposefully accelerated large tax refunds. Its wasn't for the optics, it was to bolster the imploding economy:

Of course, compliments of Trumptopian smoke and mirrors, the Federal deficit aka. "Keynesian stimulus for hardened criminals" is obfuscating what is taking place in the real economy. Because if we take the Atlanta Fed Q1 GDP estimate and subtract out the chasmic deficit, we get this:

What I call "Honest GDP":

Getting back to the Hunger Games casino, once upon a time the stock market was primarily intended as a way of raising capital for companies - be that through initial public offerings or secondary stock placements. In other words, it was about facilitating real investment. Starting in the early 1980s, stock buybacks were legalized and the concept of maximizing shareholder value took center stage in corporate finance. From that point forward, the stock market became more about companies shrinking equity capital than raising equity capital. In other words, instead of facilitating investment the casino now facilitates disinvestment. 

The agency theory of management posits that the shareholder is one level removed from the "unseemly" decisions that may have to be undertaken by management. For example outsourcing the entire company. Agency managers are incentivized to put shareholder first, country not first. I think we all see where I'm going with this. Privately held companies concerned about ongoing market access would have been far less likely to have undertaken the actions that have now led to trade wars. Whereas public corporations worried about next quarter's profits and operating under "free trade" had no such qualms. All of this economic dislocation took place under the imprimatur of MBA Finance. Conflict of interest is now embedded in the U.S. political system on a scale that no other country endures. Those Americans paranoid about trusting government need to start thinking about who is actually controlling it.

Now, under the auspice of "MAGA", the apologists for endless greed and free trade have re-invented themselves into stalwart patriots tasked with closing the barn door now that the horses are out. Trade wars to pretend that they were never willing accomplices to human history's largest estate sale. Be that as it may, their habitual plundering of the Treasury has taken the Hunger Games to its logical bad ending. 

In taking their customary corruption to level '11' Full Donny, they have now put the all or nothing "system" at risk. 

The "system" is now binary leveraged to the overnight futures market. 

Along similar lines to what I said above, IPOs used to be about raising capital. However, the new breed of +$1 billion "unicorn" IPOs is all about insiders cashing in after a prolonged incubation period as a private company. This allows the insiders to keep a much larger share of the pie. 

Which is why this entire New Year rally is compliments of Wall Street's IPO pump and dump machine. By way of priming the pump for record supply. 

"We are about to get hit with a perfect storm of IPOs, and regardless of how good this new merchandise might be, I’m concerned that the market won’t be able to handle it all without taking, maybe, all stocks lower” 

"Lyft publicly filed its IPO registration on Friday, kicking off what could be a record-setting year for multibillion-dollar private tech companies hitting the public markets."


I hope you enjoyed it

"I’m concerned that the market won’t be able to handle it all without taking, maybe, all stocks lower”

Overnight:

"Brendan Ahern, chief investment officer at Krane Funds Advisors in New York, which manages the KraneShares Bosera MSCI China A ETF, said: “I am almost crying. We have built the (ETF) in anticipation of this event."

KBA is up 24.6 percent so far this year."

Friday afternoon:

The all time high level of cash balances was March ten years ago.

The all time low level of cash was this week:

For the sanctimonious hypocrites aka. The conservative movement. The good old days of playing stupid are over.

Sadly, not everyone has another half century to waste wandering in the desert of failed ideas.