Human History's Biggest Dumb Money Bubble. Is Over

The problem with enjoining a dumb money bubble is that there is no one to warn when it's ending. There is no safety in numbers...


There is only a daily reminder of what they bought.

Trump 2020

As always, we go back to Hendry for his perspective on skeptics of money printing as the secret to effortless wealth:

ZH: Hugh Hendry Chooses The Blue Pill For Maximum Bonus:

They, as the "enlightened" [skeptics], chose red, and so are convinced that they understand everything which has become illusory about today's markets. Their truth is Austrian economics. They know that today's central bankers are spinning a falsehood of recovery; they steadfastly refuse to be suckered in by the euphoria of a monetary boom; and they are convinced that they will therefore be spared the consequences of the inevitable crash. Everyone else, currently drugged by the virtual simulation of prosperity and its acolyte QE, will be destroyed, leaving them the skeptics alone, to re-invest when markets finally get cheap. They will once again be masters of the universe."

But I no longer think that anyone can say when..."

"When will the money printing delusion end?"

Unlike Y2K with its speculator-driven Tech bubble and crash. This cycle has lasted much longer, aided and abetted by at least five major sources of dumb money:  Central Banks and their untold printed trillions. Stock buybacks ~$6 trillion. Program traders/algos/Skynet and their various momentum strategies, now comprising 80% of all trading volume. Momentum speculators pumping and dumping one asset class after another. And last but not least self-managed retirement gamblers aka. passive investors. 

Is it any wonder that fundamentals and valuation ratios are a quaint concept?

Zerohedge: The Dumb Money Is All In

And, more importantly, no one sells because they've been told that the ONLY lesson stemming from 2008 was never to sell.

He then shows a chart of the bear/bull asset ratio. However, it's indecipherable because the ratio is so puny now that it's hard to see.

So what I do instead is take a similar ratio that takes the bear assets AND money market funds as a ratio of bull assets, but I take the inverse: Bull / Bear + MM.

Here we see the bull horns from 2015 and from 2018. And we also see that gamblers are no longer as heavily "ALL IN" as they were last October. Why? Because they realized significant losses in December and have not recovered.

These are speculators:

This idea that imploding bubbles don't hurt investors is another lie of this time. They cause significant erosion of investor confidence and capital.

Here we see TD Ameritrade's proprietary positioning index:

"The Investor Movement Index, or the IMX, is a proprietary, behavior-based index created by TD Ameritrade designed to indicate the sentiment of retail investors"

Two three wave retracements, each of a lesser magnitude. 

These are the clearest Elliott Waves we will see:

ZH: Algos Have Driven A Record Divergence Between The Economy And Stocks

The bond market knows more than all of the dumb money gamblers combined:

Northman Trader:
"What happens if everybody long suddenly wants to sell for whatever reason? One has to wonder."

When The Last Fool Was Found

"our wisdom, too, is a cheerful and a homely, not a noble and kingly wisdom; and this, observing the numerous misfortunes that attend all conditions, forbids us to grow insolent upon our present enjoyments" - Solon, by Plutarch

This society is wholly desensitized to fraud and deception - Fools bidding up their own assets, pretending to be wealthy. Now using recessionary interest rates to justify infinite valuations...

"No one saw it coming"

Y2K was a stock bubble implosion. 2008 was a credit bubble implosion. This is both - a stock market bubble driven by a credit market bubble. End-of-cycle liquidity is now papering over insolvency giving the illusion of "low risk"... 

Despite record leverage, the vast majority of today's market commentators see no risk on the horizon. For several reasons, not the least being they've all been well-conditioned to believe that central bank dopium is the secret to effortless wealth. Hence they are now engaging in the propagation of imagined realities. Nevertheless, those who delve beyond the specious money-printing rationale, partake in yet another form of modern day sleight of hand: the manipulation of the traditional valuation metric, the price / earnings multiple. Which we are told for example by Barry Ritholtz, that it's elevated but not a bubble. 

And via perma-bull Ed Yardeni, observing the numerous fortunes that attend the new permanent plateau:

"Stocks have reached a new permanent plateau" - Irving Fisher, 1929

The first risk these alchemists ignore is the record mega stock buyback bubble that has reduced share count and has been funded by record corporate debt. One can view this current stock market as human history's largest leveraged buyout. Equity swapped for debt. Instant bankruptcy, just add recession.

   
"Funding is coming from a record drawdown in cash as well as a rise in gross debt and leverage"

In addition, alchemists are using a profit bubble to justify a stock market bubble. Not everyone has been fooled:

"Here's a crucial question for investors that the Wall Street crowd seldom addresses: Can corporate profits keep booming by growing faster than the economy?"

Shareholders beware. It's the unhinging of profits from the overall economy that has been propelling stock prices"

The Buffett Indicator: Currently being ignored by Warren Buffett

Here is the Wilshire Full Cap Index / U.S. GDP - now higher than Y2K. Meaning record high:

Third, they have conflated debt as "GDP"

Inter-generational theft is now obscuring incipient recession:

The delusion on the credit market side is just as bad. But far more dangerous to the real economy. When this bubble implodes it won't just be Go Daddy that will suffer. 

Free money has crushed credit spreads and therefore given the illusion of low default risk even though default risk is cycle high:

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

Here we see via the aggregate bond ETF that this delusion carried on all the way through 2007 and peaked at the beginning of the recession. 

And then rolled over and vertical crashed.

"Dance while the music is playing"

Getting closer to the root of detonation, we can note that ALL risk markets are still RISK ON right now. Oil speculators, Volatility shorts. Even suicidal Treasury shorts are pressing their bets into a Fed rate cut. Apparently betting that a quarter point rate cut is going to cause everyone to go shopping.

Here we see via Bitcoin, the same pattern from VixPlosion 1.0: Bitcoin fever peaked before stocks:

The "valuations don't matter" delusion has reached insane extremes:

When the tax cut was implemented, pent-up VolPlosion.

Now the rate cut, pent-up VolPlosion:

Trump Casino: Double Or Dog Food

This should be an interesting week in Trump casino. Zerohedge was right, Trump IS now controlling the Fed. And so far, his election-rigging gambit is going great. He's only crashed the casino twice in the past 18 months...

Sheeple have been well-conditioned to believe that stocks ONLY go up after rate cuts:

"The Federal Reserve will probably cut rates this week. It could be the start of a summer rally in stocks."

"Don't worry, I've only gone bankrupt multiple times"

Below we see the schedule of major central bank meetings. The "Fed pivot" rally had run out of steam into the May 1st Fed meeting. At that meeting, the Fed indicated they were happy with the current level of rates because the trade war was "nearing the final round". Just a few days later, Trump escalated the trade war with China, in line with the Zerohedge hypothesis. By the beginning of June, the Fed was on message with rate cuts. Subsequently Trump has kept up the pressure threatening to fire Powell and otherwise stack the FOMC with Trump-controlled stooges. 

In other words, the bigger, fatter, uglier casino bubble is now managed by the croupier-in-chief. Albeit there has been no sign of untoward market manipulation.

The sectors that will not like a rate cut comprise the entire Trumpflation trade: Transports, Banks, Energy, Retail i.e. anything leveraged to the economy.

Deja vu of May, these stocks have rallied into the Fed meeting. And yet they have not made a new high and therefore have not confirmed the Tech bubble rally.

You know you're an optimist when:

Along with the reflation trade above, the reflation rate has been rallying into this Fed meeting:

We don't know if this (likely) quarter point rate cut is already priced in to bond proxies. We just know they rolled over a month ago:

Nasdaq breadth has round tripped to the same level as May (blue box):

Therefore, this Jedi Mind Trick all hangs on the most overbought stocks in the casino:

Momentum Tech

"This could be the start of a summer rally"

Defense stocks soaring into the latest Ponzi budget that just got approved

Casino stocks:

"Sometimes an investor must believe in things that don't really exist..."

Party Like It's 1929

Two Hindenburg Omens on the Nasdaq now. Another one Friday...

This is for the kill:

There were more warnings last October, only one signal in January 2018, and no warning in May of this year. A function of the ratio of new highs:lows.

Re: Hugh Hendry Embraces The Central Planning Matrix:
"There are times when an investor 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. The good news is that mankind clearly has the ability to suspend rational judgment long and often."


Good news indeed.

Global capitalism is on the ropes. Placed at risk by its own quarterly lies and ad-sponsored delusions. Man boys circle jerking each other continuously.

This entire system is now a call option on mass delusion.  

It's time for this era's sound and fury signifying Trump, to be laid to waste. We can ill afford to have Mr. Creosote running global affairs any longer. 

Deja vu of 2016, sensing deflation, global central banks went to work this year reflating global asset values. Capital is now scouring the globe for the highest rate of return.

Return on capital is now coming sadly at the expense of return OF capital. 

Yes, it's the Hugh Hendry conundrum all over again - Sometimes an investment manager must believe in things that are simply inherently fraudulent. In order to maximize bonus. Knowing full well this will all end badly. 

This happens to be one of those times.

"There is no stimulus program that our Disney markets won't consider to be successful"

Here we see just how similar this current bailout period is to the 2016 Shanghai Accord. The Yellen Fed hiked rates in December 2015, after which the wheels came off the bus in January. The exact same scenario played out this past year. Powell hiked amid global dislocation. And then global central banks eased the spigots and stimulated a massive rally.

But a funny thing happened in late July 2016. The rally ran out of steam.

Of course the magnitude of this delusion is far larger:

This week's Barron's cover story highlights every problem of the current age: Denial, denial, and more fucking denial.

Pacific Gas and Electric is a California utility company that has been bankrupted due to lawsuits stemming from last year's wildfires which were attributed to downed power lines. 

The company went bankrupt, but the stock kept trading at -90% of prior value.

"Now is the time to buy. I mean now. How about now?"

Or, now is the time to acknowledge the fact that the underlying problem has not been solved, because downed power lines were not the true problem. 

No industry exhibits massively leveraged denial combined with misallocated Ponzi capital than the Energy industry. U.S. crude production saw a massive decline this past week as the credit market finally takes a step back from funding a decade-long mistake.

The entire energy industry is now one crude futures margin call away from imploding, even as crude oil speculators remain 3.8:1 long to short. 

Crude oil "peaked" three months ago at a lower level than October:

The biggest difference between 2016 and now, is the quality of the rally, as measured by market breadth - a reflection of how few sectors are now benefiting from Ponzinomics:

You know what I mean

"The big wheel spins, the hair thins

People forget

The news slows

People forget

Shares crash, hopes are dashed

People forget

Forget they're hiding

Behind an eminence front

An eminence front, it's a put on

Bullshit

Bullshit

Bullshit"

An Inconvenient Collapse

This era is the Pyrrhic victory of man-made delusion over reality. Proof that given enough time, hairless monkeys will believe anything and anyone, no matter how corrupt, fraudulent, facile, or buffoonish. A one-way vacation from responsibility compliments of all-knowing circus clowns blowing smoke up everyone's asses constantly... 

Every aspect of this fraud is self-inflicted. No one forced anyone to believe in these well-established con men...

The Roman Circus political diversion taking place right now in no way addresses the chasmic issues facing the U.S. today, much less to consider a root cause analysis. Non-stop campaigning by two sides fixated solely on gaining power leaves no time for problem resolution.

Going back three years to the 2016 election, investors were very skeptical about a continuation of the Obama/Clinton economic status quo. Trump fully capitalized on that disenfranchisement. He somehow convinced people that rampant corruption on a scale never before witnessed, would propel broad-based prosperity. And he succeeded in convincing the majority that his plan is working:

So well in fact, that the Baby Boomer generation is now over their skis on risk taking. Finally feeling confident that their savior has arrived and will usher them back to their 1950s Happy Days utopia. Which is what has bid the market up to insane valuations amid record global risk.

Misallocation of capital:

What is even more amazing at this parlous juncture, is that stimulus gimmicks aside, there is zero evidence of broad-based prosperity. This is truly the triumph of well-managed delusion over reality.

It's all just a stimulus driven sugar high. No more, no less.

Backing out borrowed GDP, we see that the best news is in the rear view mirror. 

Here we see U.S. stocks divided by Federal debt:

To successfully con that many people across all dimensions of society - economic, financial, political, media, academic, is truly shockingly sad and pathetic. A testament to how far down the rabbit hole we've descended since 2009.

The central bank Jedi Mind Trick has Ponzified every inch of this society.

We all have skin in this game now. If the deaths of despair carbon sequestration is high now, what does that portend when this Disney bubble ends? Ten years ago when the last bubble exploded, there was a "boom" in end-times preparations. People expected mass rioting and looting. Societal breakdown. Instead we got a Wall Street bailout and an attendant guarantee of far more criminality yet to come. The feared mayhem all may yet come to pass in some measure. But what we are witnessing right now is already societal breakdown. A total capitulation to corporate indentured servitude. The Pyrrhic triumph of Disney World over nature. The heaviest casualties will not be due to violence. They will be self-inflicted.

The term "zen" has many definitions - all quite similar. The familiar ones being meditation, mindfulness, inner peace, acceptance, gratitude. Another interpretation is that zen means "ultimate reality". Meaning that in every sense of the word zen is anathema to corporate values. The consumption-oriented external gratification lifestyle is inherently anti-zen. It's anti-reality. It's anti-satiety. Which is why it's claiming so many victims. They can't find inner peace. They are not seeking the truth, they are seeking emulation and assimilation. 

What I am trying to say is that this will all be settled democratically, by consumer choice. As always. 

Because what else are we owed beyond the inconvenient truth?