High On Collapse

There is nothing this society loves more than liquidity-driven asset bubbles. Bubbles give sheeple that warm and fuzzy feeling of fake wealth, no matter how fleeting...

There is no part of this house of cards that resembles reality...

Ironically, a surprisingly strong jobs number pounded stocks at the open. Yet again reinforcing the Faustian Bargain between casino and economy...Gamblers still haven't figured out that central bank liquidity can't generate long-term prosperity amid ever-declining fundamentals. 

What central bank liquidity CAN do however is push gamblers further out onto the risk curve, hence driving a chasmic gap between fantasy and reality. Case in point the regions/countries pumping the most monetary liquidity right now, have the weakest economies and stock markets - Japan, China, and Europe. The U.S. has the tightest monetary policy, and is out-performing all of them - economy AND stocks.

This latest global moonshot was sponsored by European economic collapse driving German bund yields to record (negative) yields, causing a tsunami of capital flow further out on the risk curve, across every global market. Which is why right now, everything is bid at the same time.

"German factory orders slumped in May in the latest sign that global trade uncertainty is turning Europe’s temporary slowdown into a more serious downturn."

 The year-on-year decline of 8.6% was the biggest in almost a decade."

Here we see the chasmic gap between fantasy and reality driven solely by the ripple effect of excess liquidity, in turn driven by economic collapse:

On the subject of delusion, last weekend's "trade truce" didn't even last a week:

"However, Trump said after the G-20 meeting that the 25% tariffs currently imposed on $250 billion in Chinese goods will not be reduced."

Any questions?

Getting back to fake wealth, we now know that 2018 was the largest year for stock buybacks in U.S. history. As of now 2019 is on pace to beat that record. And yet, we see below that during the highest quarter for stock buybacks in U.S. history - fourth quarter 2018 - the market was down -20%. Which speaks to the fact that for every buyer there is a seller - in this case an insider looking to cash out at the top.

In addition, just because some moron paid a million dollars for a brick, doesn't make the brick worth a million dollars. It certainly didn't in 2007 and 2018.  

Which gets us to the index mega bubble - the largest bubble in the world right now, which has been driven by passive investors pushing money into cap-weighted indexes. These index funds in turn push ever-more money into the largest stocks REGARDLESS of valuation. The end result is that the stocks experiencing the least "volatility" grow larger and larger capitalizations, until such time as they are massively over-valued. At that point, they are neither growth stocks nor value stocks. They have no rational investment thesis, so when they lose momentum, they crash.

Here we see the differing effect of the 2016 Shanghai Accord and the 2019 Shanhai Discord vis-a-vis the yet-uncorrected "low volatility" complex. 

The new "Nifty Fifty".

Which due to extreme valuation, no longer lives up to its name, as we see in the lower pane: 

In short, global gamblers are over-caffeinated, and hence due for a crash landing back to reality.

"Greatest 'Conomy Ever"

It was inevitable, given the conditioning, that impending recession would ignite a late stage manic melt-up...

Given last month's weak non-farm payrolls, and today's weak ADP report, Friday's jobs report has the potential to final implode this delusional rocket ride. One thing we know, hedges are minimal going into it.

May's meager overthrow of the October top was a bull trap, we'll soon know if this is another one. The best June in 80 years, and yet "the rally hasn't even started":

"A melt-up or mini bubble is considered a sharp move higher driven by investors late to the game looking to get in on a momentum shift. It’s often a sign of a late-stage bull market"


I couldn't have said it better myself. 

Bernie Madoff would be proud. The U.S. 'Conomy is now nothing more than a massive circle jerk. A society of salesmen conning one another. Today's Idiocracy has finally winnowed all of life and the economic future down to just one Ponzi-chasing metric of success - the S&P futures. New highs, now synonymous with "greatest economy ever". All fueled by momentum algos and gamblers competing to bid up their own assets.

The belief in "free money" now total:

"Stocks traded higher on Wednesday as investors bet on a potential rate cut from the Federal Reserve later this month after the release of weaker-than-expected economic data.

Private payrolls in the U.S. increased by 102,000 in June, ADP and Moody’s Analytics said. Economists polled by Dow Jones expected growth of 135,000"

In a repeat of last November, the G20 cyclical trade war relief rally lasted less than a full day on Monday. The past two days has been a blow-off top in the recession rally. Rampant global deflation is now the only game in town.

The Nasdaq scored a new all time "closing high", having just filled the last open gap from May, leaving five open gaps below the market.


"New record high"

All Ponzi schemes are about pure momentum. 

This one is no different. Only a handful of stocks making new highs:

Software is seen as a safe haven from trade wars AND recession

Back in May, Jeff Gundlach asserted that U.S. stocks are already in a bear market. He used the NYSE Composite as proof that both the October high and the May S&P high were both fraudulent. He was right both times. 

He blames social media for creating an echo chamber of like-minded idiots propagating Trump's Twitter bullshit. What I call the circle jerk. Everything he said two months ago is even more true today:

“The market hasn’t gone anywhere in 15 17 months.”

"U.S. stocks are still in a bear market because the NYSE composite index has fallen “over 20% and has failed to return to its high.”

“It’s unbelievable the twilight zone that we’re sort of living in, where people just say things and it gets repeated. I think probably we’re numb dumb to that because of social media,”

Trump is making another attempt to stack the Fed with dovish lackeys so he can rig another election. Russian campaign assistance and well-timed tax cuts were just a warm-up for the main event.

Which speaks to the obligatory delusion of the day that a 2% Fed rate is enough dry powder to offset a recession. The overriding goal of Wall Street to squander what's left of Fed dopium inflating larger asset bubbles. 

Worse yet, the rest of the world is entirely out of dry powder. Where they go next to stimulate growth is "tbd".

Global yields are now in a death spiral, as the global hunt for yield has capital bidding away its own yield, with central banks leading the way.  

Semiconductors are rolling over

China Tech deja vu

European stocks were moonshot today on news that Christine Lagarde may be the next money-printer-in-chief at the ECB.

The Dax is set up for another reversal of fortune:

Which leaves the ultra-crowded recession trade:

The balance of trade is following 2008 very closely. Bottomed in 2018 and is now rising with the expectation of Fed easing:

28 days until free money bailout...

Mind the gap

Fireworks Are Coming To The Magic Kingdom

The conjoining of Trump's Disney World with Central Bank sponsored Disney Markets is denialistic paradise for the generation that wants it all "to just go away". The ultimate vacation from reality and responsibility. After the George W. Bush corruption racket imploded, it took eight years, and the coming and going of a Kenyan Commie, to make them true believers in grand larceny again. 

Now doubled down on Forrest Trump, expert in managing casinos into the ground

Recall, last month's jobs implosion launched this orgy of denialistic speculation:

This Friday is the next jobs report. Bulls are praying for more job losses this time around. Amid collapsing global growth and escalating trade wars, there is no longer any cogent fundamental nor technical argument for owning stocks now.

The last great bullish argument is that collapse is "great for my portfolio". Considered in the context of record stock buybacks, the incipient profit collapse is far worse than advertised, due to record smoke and mirrors. 

“We’re so focused on money printing and this mythical China deal that we just don’t seem to be paying attention to earnings"

Speaking of smoke and mirrors, I've said many times, that when the stoned masses wake up to the fact that the U.S. headline employment number is the biggest lie ever sold, the streets will light up like the Fourth of July. The only reason unemployment is at a "fifty year low" is because so many people have left the workforce, due to "early retirement".

Here we see the official unemployment rate (U3) in blue, with the age 25-54 labor participation rate in red. For obvious reasons, these two data series used to be inversely correlated - higher labor participation equated to lower unemployment. However, in this past cycle, as labor participation fell, so did official "unemployment". Only an economist or a fool would believe that unemployment goes down when fewer people are working:

One of the unintended consequences of rate cut fever is that everything pertaining to the real economy has lost its bid.

Meanwhile, it appears that the post-2009 "stress test" has been relaxed somewhat:

"A dozen of the nation’s largest lenders said they will boost payouts through dividends and stock buybacks 18% to more than $173 billion, a record for the group."

 A decade after the annual tests were introduced, the exercise no longer appears to invoke as much anxiety for the industry"

The results were a particular win for Deutsche Bank AG after it repeatedly failed past exams."


"You seem to have cleaned up your act, now is a good time to pay out your excess capital"

BI: Record Stock Buybacks In 2019:
"Financials have been the biggest contributors to the total buyback landscape so far this year with 35% of all share repurchases, BAML found"

On the topic of cyclicals, the OPEC "deal" extension agreed upon yesterday is already turning into a pumpkin.

“It was the bare minimum OPEC could agree on in order to prevent a major meltdown in prices"

Or not.

The Bitcoin "safe haven" bubble is also imploding, just as gamblers get comfortable with maximum leverage aka. maximum margin calls:

The IPO bubble is next in line:

In summary, the groupthink U.S. "TINA" trade is extremely crowded. Within the U.S. market, the "low volatility" recession trade is ultra-crowded. Meanwhile, economic cyclicals are bidless. Clear sign of good things to come. 

CNBC: U.S. Gains Will Accelerate In The Second Half, While Rest of the World Collapses

"From the 1960s, the yield curve indicator has been reliable in terms of foretelling a recession, and also importantly, it has not given any false signals yet."


Still, many economic forecasters do not see a recession on the horizon"



"You never told me bad news is bad news"
"I was predicting a large bonus on the horizon"

Imagined Reality 2019

This is the biggest algo-driven delusion in world history...

100% Fake.

"New all time high"

Disney markets gapped vertical today on the art of no deal, as Wall Street took the "good news" as opportunity to final lubricate the masses...

Any questions?

Only the S&P 500 made a new all time high today, unconfirmed by the Dow, Nasdaq, Russell small cap, and entire rest of the world (dollar basis). Within the S&P 500, only the Tech sector is making new highs. Unconfirmed by Apple, Google, Facebook, Amazon, and Microsoft - the largest stocks in the market...

In other words, due to algorithmic sector rotation, this is the clearest wave count we are going to get:

Semis and EMs are now synchronized:

As of today, the U.S. has now achieved the longest expansion in U.S. history. Capped off by the best June stock market rally since 1938. Two record achievements with no combined precedent. Which means, now is the time to get greedy:

The best first half since 1998 will bring acceleration in the second half.

"Half of respondents say they expect Q2 earnings to top expectations"

Tech is the top-performing sector this year after gaining 26% — the sector’s best first half since 1998 — and a majority of respondents indicated that they believe the group will continue to lead, with 84% calling it a top pick."

"With earnings season looming, 77% of companies issuing pre-announcements say their profit picture will be worse than Wall Street is expecting"

In terms of sectors, the two with the biggest negative pre-announcements — information technology and health care"

"The S&P 500 is at a record, but areas of the stock market with a reputation for economic prescience are sending warning signals that hearken to the global financial crisis.

It’s small caps and transportation stocks, whose performance has deteriorated at a much faster clip than other parts of the market. Relative to the S&P 500, each group is on the brink of hitting its lowest point since 2009."

In summary:
"There are times when a money manager has no choice but to behave as though he believes in things that don't necessarily exist. For us, that means being willing to be long risk assets in the full knowledge of two things: that those assets may have no qualitative support; and second, that this is all going to end painfully"

"Third, it's not our money, and we are under no obligation to tell the truth or serve client interest"

"No one saw it coming"