Saturday, August 17, 2019

Judge Not, Lest Ye Not See What's Coming

"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"
- Joseph Conrad, Heart Of Darkness

It looked as though George Bush would end this Roman Circus. He took a pretty good shot. But compliments of deaths of despair, the Idiocracy found another gear lower on the dumbfuck scale. An expert at evading taxes of every kind. MAGA is maximum regression and irresponsibility in every direction. Which means that this is going to make 2008 seem like a joyride by comparison.

Corporations are extremely efficient at killing off this species. We are no longer humans, we are "consumers". We now exist solely to be fed back through the meat grinder to prove that economists and their failed ideas are not entirely morally and intellectually bankrupt. The main lesson not accepted from 2008.

I get why the shrink-wrapped zombies need to be South Park cocained in their moments away from the burrito assembly line. Being used up to make the quarter leaves no room for questioning the official narratives. Fifty years ago, we were sending real men to the Moon. Fast forward a half century and today's Lost Boys question that it ever happened. Their ritalin-collapsed brains in no way capable of understanding what it would take to get there again. Even as today's Jimmy Kunstlerite reactionaries throw away what's left of their hour strutting and fretting the demographic destiny of the "progressives". Sound and fury signifying the Donny Dump. All the while, intentionally blind to the freight train of deflation commissioned by their own sanctimonious regressives. Those wholly incapable of charting a path to a better future that doesn't include them at the center of the universe. 

All of which speaks to Japanification - The stagnation of a society by and for the benefit of an old age home incapacitated by self-inflicted change. The downside of denial being the avoidance of adaptation. Adaptation, essential to human survival.

In the race to the bottom certain countries will always reach that point first. The weakest links break the chain.   

Globalized Capitalism Is Destroying Wealth

August 2011 featured a Treasury funding crisis. August 2015 featured a Yuan devaluation. This August features both, for maximum deflation...

Under the current "system", the hardest working people get paid the least, while robber barons sit around getting monetary bailouts. Asset bubbles create permanent liabilities offset by temporary asset prices, leading to what used to be called "indentured servitude", before this generation of locusts took control. Meaning that globalized capitalism destroys more wealth than it creates - now wholly dependent upon ever-greater central bank bailouts to keep from imploding. Until policy-makers put more purchasing power in the hands of the middle class, the battle is lost. Contrary to ubiquitous belief, sugar high asset crashes are not "reflationary":

Post-2008, global central banks coordinated liquidity to boost asset prices, creating the all-important trickle down fake wealth effect. The early holders of Bitcoins, pot stocks, venture IPOs, and corporate insiders were the beneficiaries, leaving the latecomers holding the bag. Late in the cycle, Trump's tax cut went straight to the Cayman Islands.

Now, they are out of ammo:

"If ever the U.S. economy could use a strong tax cut tail wind, it could use one now as conditions weaken around the world.

But the tail wind isn’t there."

Increased demand was itself limited by the fact that so much of the tax cut proceeds went to higher-income households with lower propensity to spend."

Borrowed tax cuts for rich people are highly deflationary, as we saw this week. The death of the U.S. Treasury market, predicted by almost everyone on the planet - including the master deflationist himself, Robert Prechter - has been greatly exaggerated.

And has greatly annihilated anyone who bet against Treasuries:

Enter Peter Schiff - master inflationist - to spin record deflation into record inflation. His shiny gold investment that is about to go "ballistic" by coincidence happens to be the only thing he ever owns.

A few facts followed by his usual non sequitur conclusion:

‘This is going to be the inflationary recession, there’s no way out and it’s a political disaster for Trump because the recession is going to start before he finishes this term, which means he won’t have a second term.’

I 100% agree. It's the timing, that is going to be "tricky". Because between now and "inflation" stands asset crash and rioting, neither of which will be reflationary.

This is where it gets interesting, because the 2011 analog is still 100% in play. Way back in August 2011, the U.S. Congress FAILED to raise the debt ceiling, which caused a technical default in the Treasury market. Contrary to popular belief at the time, Treasury bonds skyrocketed as yields and stocks collapsed. Gold had been rallying into the event and continued rallying into August, and then collapsed around the third week.

Here below we see that gold is now the most overbought it has been since the peak 2011 (RSI, top pane). 

"Peter Schiff can't always be wrong"

Since 2009, each round of quantitative easing (bond buying) paradoxically has led to LOWER Treasury bond prices, higher yields and higher stock prices. Because it was reflationary. Likewise, Trump's deficit-driven quantitative tightening is now leading to lower bond yields and lower risk asset prices. Because it's deflationary.

"U.S. dollar liquidity is deteriorating and “is reaching a point where it may require drastic action if measures aren’t taken to address it soon,” warned Gaurav Saroliya, director of macro strategy at Oxford Economics, in a note on Wednesday."

Until policy-makers decide to bail-out the middle class, I suggest that margin calls will be the order of the day for gamblers front-running central banks, on the assumption that they are still in control of deflation:

Thursday, August 15, 2019

Faith In Central Banks Is About To Get System Tested

The biggest risk the casino faces is that gamblers no longer fear risk. They've been systematically conditioned by free money bailouts to front-run central banks straight into risk. Which places the Global Financial System in the hands of a mad man managing global affairs on Twitter. Yet "no one" sees it coming because today's "safe havens" are now the riskiest assets...

mor·al haz·ard
"lack of incentive to guard against risk where one is protected from its consequences"

We are watching a 1987-style waterfall crash in real-time

This week saw the heaviest selling pressure in several years. The Dow is testing the 200 day from the underside:

Comparisons to May and October need not apply, as gamblers have been seeking shelter in the junkiest stocks:

Crash risk reached a new extreme this week:

Nomura is out warning that risks have increased since last week's Lehman-meltdown warning:

ZH: Odds Of September Lehman Shock Have Increased

Why September? The argument is around seasonality, which I find unconvincing at a time when idiosyncratic risk is exploding in broad daylight.  

They note that algo positioning is still bullish across the board. Because apparently Skynet doesn't have social mood.

Where it gets interesting is that despite the risks, Nomura still recommends overweight in the "defensive/low vol" bond proxy trade - the most crowded trade this side of Momentum Tech. Both being "long duration" deflation trades. As in, extrapolate the recent past into the indefinite future and pretend recessions no longer exist. 

Which is Wall Street's massively crowded consensus trade now:

"Buy low-beta & defensive stocks, sell high-beta & cyclical stocks"

Sell Banks, Transports, Retail, Autos, Industrials, Energy aka. "Economy"


"Low-volatility funds are proving popular as many cautious investors keep preparing for a still-unseen, but long-anticipated, market downturn"

“Trying to call the market is generally a bad idea.”

I would point out that these are not really safe havens since they were down -45% peak to trough in the last bear market. I would also point out that they are also not really low volatility:

Why hedge when central banks can fix everything after-the-fact? An imagined reality that didn't pan out so well in 2008:

Gamble at your own risk

And remember, the dumb money should never try to time the market, because then the smart money would have no one to sell to:

ZH: Mass Confusion Reigns Supreme

"Markets are super noisy and jerky right now. Yield panic, recession concerns, headlines and tweets bringing about massive price swings in any direction. It can spin anyone’s head."

"He rocks in the tree-top all the day long
Hoppin' and a-boppin' and a-singin' his song
All the little birds on Jay Bird Street
Love to hear the robin go tweet tweet tweet"

Worshipping At The Altar Of Self-Interest

"We are all born originals - why is it so many of us die copies?"
- Edward Young

We've learned a lot in the past decade. Mostly we've learned that there is literally nothing this species won't believe - beyond the truth - in order to achieve competitive conformity. The basis of the consumption-oriented perpetual high school popularity contest. The Creator blessed-be-she has a great sense of humour when it comes to the hairless monkey. As the sheeple now double down on their Casino-bankrupter-in-chief.  

The headlines at this juncture oscillate between the asinine and the ludicrous. Trump has now made the China trade deal contingent on the peaceful resolution of the Hong Kong protests. All but assuring a deal will never take place. What would be analogous to China making a trade deal contingent on the U.S. halting mass shootings by implementing gun control. It's executive buffoonery via semi-literate Twitter gibberish. 

Meanwhile, the Madoff whistleblower now asserts that General Electric - one of America's most venerable blue chips - is a bigger fraud than Enron. I suggest he broaden his gaze to the epic stock buyback con job taking place across the entire S&P 500 funded by this era's corporate equivalent of subprime CDOs. The largest leveraged buyout in human history. 

On the race to the bottom, a new all time low in the thirty year Treasury yield as bond shorts get annihilated by imagined reality aka. "Greatest 'Conomy ever":

"Specs have consistently been bearish on the 10-year note this year and have been consistently on the wrong side of this market as the 10-year note has surged due to safe haven demand and concerns over the economy."

From a casino perspective, the S&P is uneasily camped at the 200 day as of Thursday mid-day. The 200 day was rinsed twice last week, followed by a double rinse back to the 50 day. Now back at final support:

The rest of the world is not waiting to see how this movie ends

Nasdaq breadth is looking more and more like December:

December 2008:

A new low in the crash ratio as Skynet gives it all she's got Captain

It turns out that the secret to defeating deflation is not handing out more money to rich people.

But who knew?

This final lesson will require some "shared sacrifice"

In summary:

"What the wise man does at the beginning, the fool does at the end"
- Warren Buffett

Wednesday, August 14, 2019

Make Denial Great Again

The problem with denial as a "strategy" is that problems only get worse in the meantime. Headlines are just now blaring recession risk, but the systemic risk that has built up under the surface will make recession look like a good time. Ten years of artificial levitation has led to record leverage and record complacency. The populace at large is in no way prepared for what comes next...

Another 90% down day on Wednesday aka. buying opportunity. 

The "R" word is now getting thrown around very loosely. It appears that Go Daddy is not a reliable recession indicator. Who knew?

"The spread between the U.S. 2-year and 10-year yields on Wednesday turned negative for the first time since 2007. Such a development has occurred ahead of each and every U.S. recession of the last 50 years"

“If you depended on equities to tell you whether you are entering into a recession you did not do well...Equities did well in the first half of 2008 when we were in a recession"

"I bought for the trade war, but I stayed for the low interest rates"

Forrest Trump has been adamant that consumers are not affected by his tariffs and yet yesterday he delayed implementation of the new tariffs for certain goods as a Christmas gift to shoppers. He is an inveterate liar:

Retail stocks of course were ramped yesterday on the news stoking a 400 point Dow rally.

One day later they got monkey hammered:

This is the largest shopping mall operator in the U.S.

Financials are getting monkey hammered by the inverted yield curve. 

But, don't worry, be fat, dumb, and happy. Two dunces for the price of everything:

“I look at the S&P top 50 companies, and it’s very hard to find ones that are really hurt by this”

"Buy, buy, buy"

"The term Nifty Fifty was an informal designation for fifty popular large-cap stocks on the New York Stock Exchange in the 1960s and 1970s that were widely regarded as solid buy and hold growth stocks, or "Blue-chip" stocks. These fifty stocks are credited by historians with propelling the bull market of the early 1970s, while their subsequent crash and underperformance through the early 1980s are an example of what may occur following a period during which many investors, influenced by a positive market sentiment, ignore fundamental stock valuation metrics"

Tuesday, August 13, 2019

The Lehman Moment aka. "No One Saw It Coming"

Contrary to popular belief, daily alternating 400 point rallies and crashes are not "normal". They are a sign of a market that is out of control...

"In the broadening top, five reversals are followed by 'sumamabitch!'"

Apple leading a rally is the kiss of death for the casino. Apple's most recent earnings report was the end of the July rally:

First off, record debt-fueled stock buybacks and a record non wartime Federal deficit have done a fantastic job of hiding the end of the longest expansion and longest bull market in U.S. history.

Nevertheless, contrary to ubiquitous belief, record valuations can't be "priced in" at the end of the cycle when borrowed "earnings" turn back into a pumpkin, amid credit market collapse. 

I just read David Rosenberg's "Ten Reasons To Reduce Risk" and I have to say that he has a talent for understatement. Somehow, even at this latent juncture, the burden of proof is still on skeptics of money printing to enumerate the 5,000 ways the world is falling apart, while bulls skate by on their "all bad news is good news" efficient money printing hypothesis.

Everything one needs to know about Disney Markets can be summarized by this one chart below: Momentum Tech versus German Bund yields. This is the crowning achievement of a decade of Ponzinomics - gamblers front-running central banks into the junkiest stocks while telling themselves that these are now "safe havens" from trade wars. ALL WHILE using recessionary interest rates as the rationale for ignoring valuation via the discounted cash flow model.

The last time these stocks peaked last October, they fell -30%:

As it was in 2007, yield hungry pension managers are chasing recession off a cliff:


"The Citigroup chief executive told the Financial Times that the party would end at some point but there was so much liquidity it would not be disrupted by the turmoil in the US subprime mortgage market."

As I've said many times before, the problem with ever-fewer stocks holding up the casino, is that when those massively overbought stocks roll over, the entire market explodes.

The crash ratio is now back at Lehman levels:

The reason there is concentration in so few stocks is because unlike the Shanghai Accord (2016), the Shanghai Discord aka. trade war, is generating deflation. The entire reflation trade is bidless (Banks, Transports, Energy, Retail, Industrials):

Unlike 2008 - compliments of central bank dopium and well-known bullshit artists, this time there has been no de-risking to date. David Rosenberg has been ignored due to his talent for understatement. 

I have been ignored because I didn't properly time implosion. The timeframe of "inevitable" leaving too much room for imagination. 

Although I still expect to retire on time aka. any day now.

As long as Roku doesn't roll over this will all be fine...

No, I am not your financial advisor. I leave that to the pros...

The same ones that imploded everyone in 2008: