Going Up Like A Rocket

Trump's tax cut election-rigging bubble sent the casino down -20%. This rate cut election-rigging bubble will send it down 2-3 times that amount. If it's one thing Trump has proven, he knows how to drive casinos into the ground...

Seven months ago at the lowest point of the decline (Dec. 26th), Trump realized his 2018 tax cut scam was a bust, and he needed a Fed bailout to rig the 2020 election. So he told gamblers to "BTFD" and let him handle the Fed. It's been a rocket ride higher ever since, as well trained chimps have been front-running the Fed the entire time.

Needless to say they are well lubricated for what's coming...

BTFATH: "Buy The Fucking All Time High"

The background story of the week has been the growing question of Fed independence. Something that has never been seriously questioned by any president prior to Trump. One of Trump's lackeys - Supply-Side Ponzi schemer Arthur Laffer, went so far this week as to say that the Fed should be under Presidential control instead of being apolitical.

For that, he was awarded the medal of Freedom. 

You can't make this shit up:

  

What is truly frightening at this juncture, is that with only a 2% Fed Funds rate, the Fed can in no way afford to cut rates merely to buy the election and boost stocks. The amount of economic dry powder at this point in the cycle is without comparison the lowest in U.S. history. And yet gamblers and Trump are clamoring for lower interest rates.

By politicizing monetary policy in such an overt fashion, what they are really asking for is the hardest landing ever. Because they are misusing monetary policy not for economic purposes, but to hyper-inflate the asset bubble. After all, this is the greatest 'Conomy ever. 

Which gets us back to the casino, and the blow-off top taking place in real-time.

Start with BitCasino, always a good indicator of global risk appetite. Here we see that it put in another shooting star on the daily just today. To finish a three wave retracement that started ten days ago:

Here we see momentum Tech. Notice at the October high, MoTech made three lower highs. This time, three higher highs. That portends rapid reversal of fortune.

Unlike the rest of the market which pulled back hard in May, the "minimum volatility" complex has not corrected since December. Driving an ever-narrower rising wedge:

U.S. cyclicals are rolling over, led by Transports, which are deja vu of December

Overnight futures have been down four days in a row, bought with both hands in the U.S.

The rest of the world has been rolling over since the G20.

China Tech is clinging to key support

Here we see leading sector (REITs)(black) overlaid with China Tech:

Here we see the sugar high

Notice that Coke drove to one high on the left shoulder, two highs last Fall, and so far, three highs on the right shoulder.

Delusion has grown with each successive rally:

The news of the day as believed by the sheeple:

Begin countdown...

Massively Leveraged To Collapse

Having failed in their last two efforts to implode, Wall Street has been refining their strategy...

Two years ago this month, Zerohedge wrote, "This Is What Happens If Volatility Goes Bananas". The author predicted the volatility short trade would implode overnight. And it literally did only a few months later, during VolPlosion 1.0. But of course, it did not end the volatility short trade by any means. Volatility gamblers were taught another good lesson in the fourth quarter, but they didn't learn from that one either. They have become systematically desensitized to ever-greater risk...

Despite the sea of tranquility at all time highs, the Wall Street Journal has noticed a "gamma trap" door lurking below the new "permanent plateau":

CNBC Discussed this phenomenon here as well:

To paraphrase, large institutions - having traded out of stocks and back into fixed income - have decided to leverage their returns by selling put options below the market. Basically saying,  "We don't like stocks at this level, but we would own them lower. In the meantime, we will collect fat option premium". All well and good, however, this tsunami of put selling has artificially levitated the casino, as market makers are forced to hedge the other side of the position by buying stock. This large scale "dynamic hedging" has served to massively increase sensitivity (gamma) to underlying market moves. Now reaching an extreme level, despite or because of the sea of tranquility. Meaning their collective actions have artificially collapsed volatility while amplifying sensitivity to volatility. But what could go wrong?

As expected, this systemic risk amplifying strategy is now being marketed as a risk-reducing strategy. In other words, a way to increase commissions when institutions are largely "RISK OFF".

Rewind to the May sell-off:

"The options-selling strategy, now a multi-billion dollar juggernaut, was one way Wall Street warded off steep losses this month."

Real money and hedge funds have heeded Wall Street advice to systematically sell insurance against price swings as a way of getting exposure to the bull market."

While estimates are hard to come by, the amount of institutional put-selling is anecdotally vast enough to push down implied volatility in U.S. stocks, potentially creating an illusion of market serenity. And should stocks drop dramatically, dealer hedging may exacerbate losses, a phenomenon dubbed a gamma trap.


Under the banner of "what could go wrong", tomorrow Powell addresses the House, and FOMC minutes are released in the afternoon. 

Here are a few more things to consider:

In summary, there is no such thing as a "Fed put". Yet another Wall Street imagined reality at client expense... 

Only Denial Can Fix Denial

Driving through downtown D.C. today, we experienced what can only be described as biblical flooding. I've never seen anything like it in my life. The sky was black at 9am in the morning. The street lights were still lit. Visibility was nil...

I realize that random biblical weather events have 'nothing' to do with climate change, as we are informed by the least healthy and least educated denizens on the planet. The same ones who are convinced that Donny is their trusted saviour. 

Be that as it may, it seemed very timely to be canoeing through town while the Empty-promise-in-chief was extolling his environmental dealership.

"Streets and sidewalks along the National Mall also flooded, as did the White House basement"

The Capital Weather Gang reported "3.3 inches of rain in ONE HOUR at Reagan National" airport, calling it an "astronomical rainfall intensity."

"U.S. President Donald Trump boasted about his administration’s environmental record on Monday, saying America can lead the world in fighting pollution at the same time it is promoting fossil fuels, in a speech green groups derided as “utter fantasy.”

“There has never been a president who has actively pursued an agenda so hostile to the environment and public health at the behest of polluters than Mr. Trump”



Here is where a decade of denial doesn't pay off:

“Over the past 10 years, 40 of the largest independent oil and gas producers collectively spent roughly $200 billion more than they took in from operations, according to a Wall Street Journal analysis"

"The hunt for yield is making parts of the U.S. corporate bond market look a lot like 2007"

That means that investors are increasingly taking on more apparent risk to find greater coupon payments."

Later in the day the skies cleared, the temperature dropped back below Congo rainforest intensity, and it was a beautiful day. For the first time in a long time I was optimistic about the future. 

Why? Because we are finally seeing the very necessary culmination of denial and duplicity that will teach Disney World its final lesson.

The lesson that clears the decks. Sequesters the carbon. And otherwise proves that denial is not a river in Egypt.

This has all moved beyond the realm of the political, to the realm of the biblical.

The Smart Money Has Left The Casino

It took ten years and a very skilled con man to regain their trust in Supply Side Ponzinomics...

Now featuring a record gap between fantasy and reality, measured in terms of economic data, fund flows, and delusion:

"The economy served as the only issue where a majority said they approve of Trump's performance, according to the poll"

Morgan Stanley just came out with an unprecedented "sell" recommendation on global stocks, because apparently, escalating trade wars, earnings recession, global slowdown, and U.S. economic implosion can't be offset with a quarter point rate cut. Especially in light of the fact that the last two easing cycles ended down 50%+. In other words, they are not falling for Trump's so-called "trade truce" coming at a higher level of tariffs...

“A US-China trade deal that was widely expected to be resolved led instead to a new round of tariffs. Global PMIs have continued to fall. And Morgan Stanley’s Business Conditions Index, a survey of how our equity analysts feel about their companies, suffered its largest one-month decline ever in June"


This reversal confirms the broadening top "megaphone" formation:
"It is a common saying that smart money is out of market in such formation and market is out of control.  In its formation, most of the selling is completed in the early stage by big players and the participation is from general public in the later stage"

Meanwhile, there are indications that Morgan Stanley's advice to clients is coming late in the game. As it appears that Wall Street has been fading this rally for quite some time now:

ZH: Global Stock Market Outflows Largest On Record

"...there is now a record disconnect between flows & returns in 2019"

The article offers its own explanation, however, in my opinion, the reason for the year-to-date melt-up in the face of consistent selling by institutions:

1) Record stock buybacks

2) Short-covering

3) Global central bank easing, algo-driven momentum

4) Passive indexing

5) Manic speculation

Factors one and two are not sustainable long-term, while it remains to be seen if global central banks can keep this party going. Clearly, Morgan Stanley doesn't believe so:

"The Morgan Stanley strategist argued that investors still haven’t learned that when easier policy meets weaker growth, the latter tends to matter more for stock market returns"

“The market is underpricing the risk that companies lower full-year guidance"

Another factor not discussed in the above article is the crowding into "low volatility" recession safe havens. Which has created an extremely narrow market supported by very few overvalued stocks. Further exacerbated by passive indexing.

With regards to manic speculation, there are signs that the speculative fervor is once again burning out.

Here we see the equity call/put ratio tracking the Value Line Geometric Average lower:

Consistent with declining speculative fervor, most of the selling year to date appears to be in the most speculative market, the Tech-heavy Nasdaq:

"Apple shares fell more than 2% after an analyst at Rosenblatt Securities downgraded them to sell from neutral. The analyst said the stock will “face fundamental deterioration over the next 6 to 12 months ” as Apple’s iPhone sales disappoint and growth in other products slows down."

“Risk is increasing in tech, especially with high priced stocks,” Sacconaghi wrote in a note Monday."

Betting The Party On Trump

Trump is using every stimulus gimmick in the book to rig the 2020 election, which has driven a record gap between fantasy and reality. The fatal delusion is believing the stock market is a proxy for the real economy - when nothing has been further from the truth. If he can keep this epic con job working for 16 more months he can win re-election. If it spontaneously implodes as I fully expect, he takes the Banana Republican Party down with him.

The stakes are high, almost as high as clueless gamblers...

Democrats are beginning to despair on 2020. It appears they too have fallen under the spell of the Trump Jedi Mind Trick. The Democratic primary gong show has done nothing to alleviate concerns. Sadly, 2016 proved that the U.S. is not ready to elect a woman, much less an intelligent one. It can come as no surprise the country is void of compassion - not one female president in all of history. Better to elect Bozo the Clown instead. The country now run by Breitbart. 

The post-truth world is a con man's paradise. Facts and reality need not apply. The further from the truth, the better. The more delusional, the better.

The stock market only goes up on bad data, but now it's a "signpost" of a healthy economy:

"The economy under Trump has shown few signs of slowing down. The economy gained 224,000 jobs in June"

"The stock market, if not a bellwether, is clearly the signpost of a healthy economy"

The author seems to have omitted the fact that stocks were down on Friday. And this entire rally got launched one month ago with the May jobs implosion.

The real reason stocks are at record highs:

GDPNow Latest Q2 forecast: 1.3 percent — July 3, 2019

Somehow Trump has successfully conned the masses, markets, and the Fed, into believing that "the greatest economy ever" requires a Fed Funds rate below 2%. Both of those facts can't be true at the same time. If he's right on Fed policy, then this is the weakest recovery in U.S. history without comparison. Getting weaker by the minute. 

The entire deception, which sponsored a 28% first half rally - the best in 22 years - is dependent upon record stock market stimulus gimmicks to rig the 2020 election:

Federal Reserve policy reversal, coerced by Trump

4% of GDP budget deficit. Record outside of recession

Record 4% of GDP stock buybacks

Record profit margins, compliments of tax cut

"The yawning gap between the stock-market’s gains this year and the steady disappointment of U.S. economic data now ranks as the biggest in history"

"...outside of the labor market, economic data has deteriorated markedly. In particular, investors have focused on the growing cracks in the manufacturing sector"

"Stocks are a signpost of a healthy economy"
"Or, record fucking bozos who will believe anything and anyone"

Priced For Implosion

"You know I hate, detest, and can't bear a lie, not because I am straighter than the rest of us, but simply because it appalls me. There is a taint of death, a flavour of mortality in lies - which is exactly what I hate and detest in the world - what I want to forget. It makes me miserable and sick, like biting something rotten would do. Temperament, I suppose. Well, I went near enough to it by letting the young fool there believe anything he liked to imagine"

- Joseph Conrad, Heart Of Darkness

Gamblers will now ride the biggest (over) valuation bubble in history, through the worst earnings season in three years, to get to a rate cut the likes of which ended the last two bull markets. They are trapped between the Scylla and Charybdis of their own delusion. 

It's times like now, when we must be reminded that the house ALWAYS wins.


Trump Casino is no different. 

Yesterday's jobs report inconveniently collapsed the odds of a 50 basis point rate cut down to near zero. Which is why gamblers had a conniption, until the casino was rescued by event-driven volatility compression algos. Worse yet, between now and the free money bonanza 25 days hence, the casino must navigate the worst earnings season in three years, amid rampant denial:

"77% of companies issuing pre-announcements say their profit picture will be worse than Wall Street is expecting. That’s the second-worst quarter on record going back to 2006, according to FactSet."

“When stocks are priced for perfection, even little things become insurmountable.”

Analysts and gamblers are praying that the bad news is already priced in. However, with the "Margin-adjusted" P/E ratio higher than both 2000 and 1929, that's a tall order, given that NOTHING is priced in. Hussman also reminds us that the last two bull markets ENDED with Fed rate cuts. 

John Hussman, July 2019: Beware Fed Rate Cuts
"...the Fed initiated rate cuts at the very beginning of the 2000-2002 and 2007-2009 bear markets, and persistent easing did absolutely nothing to stop the collapses"

"It’s understandable why investors would want to rule out the possibility of a market decline on the order of 60-65%, simply to restore pedestrian, run-of-the-mill historical valuations. But history has never been kind to the assumption that hypervaluation will be followed by a “permanently high plateau.”



First some perspective is in order:

The new highs list is roughly always the same small set of names.

At the very top of the list sorted by number of new highs is ironically Booz Allen Hamilton, where I spent the largest part of my IT career. That stock has made more new highs in the past year than any other stock on the planet: 72 as of Friday. I am daily reminded how different my life would have been had I only drank the Kool-Aid and "stayed in the game". 

Focusing on the biggest names gives a sense of what miracle must occur over the next 25 days to keep this algo-driven delusion levitated. I showed Procter & Gamble and Starbucks yesterday, both usually on the list. 

Visa and Mastercard are two more perpetual motion machines. As the entire "Fintech" space is on fire:

McDonald's another top performer

I think we all see where I'm going with this:

The Iraq blunder was hatched during recession. The next blunder will likely be borne of the same "Keynesian" motivation.

At least that's what Lockheed Martin is telling us.

Last retailer standing:

"You never count your money while you're sittin' at the table, there'll be time enough for countin' when the dealing's done"

New all time sugar high

In summary, I cite Neil Young's perspective on life:

"Heart of Gold put me in the middle of the road. Travelling there soon became a bore so I headed for the ditch. A rougher ride, but I saw more interesting people there."
- Neil Young

In the end, the ditch is safer than where a young fool will go, believing anything he liked to imagine.