Monday, March 11, 2019

Ponzi World Is Ending

The third false rally of the third false bubble. Only the most dedicated denialists don't see this coming aka. going. Having learned nothing from their last clown, this one was sent to finish the job...

Now we'll find out if the Fed can bail out gamblers who've been front-running the Fed bailout for five months straight. Unlike the last two cycles when Fed rate cuts preceded -50% declines in stocks.

"It’s no surprise investors are willing to cheer a rate cut...of the past 16 rate cut cycles going back to 1946, the S&P 500 has climbed an average of 10.3% in the six months after the first rate cut and 14.1% in the 12 months after."


"However, cuts didn’t always precede a market boom, with declines coming five times in the six months following a new rate cut cycle, including the most recent ones in 2007 and 2001.

"This is 1946 all over again"
"I know, right?"

Mass shootings, fentanyl suicides, industrial-scale human trafficking, biblical climate change, de facto global slavery. Life in a human toxic waste dump. One clown to rule them all. Looking back at past decades, Disney Trump was a step migration along America's journey from land of opportunity to land of opportunism:

"Opportunism is the conscious policy and practice of taking advantage of circumstances – with little regard for principles or with what the consequences are for others."

Ponzinomics, Entropy, Fraud, Corruption, Denialism, Artificial Intelligence, Fake News, Globalization, Environmental desecration, Corporatism 

In order to keep my most recent posts near the top of the blog, this post will be an open-ended stream of consciousness. The most recent ramblings will be at the top. 

Date: June 15th, 2019
Label: The Road To Perdition

She gave ample warning...

No two countries built up today's Globalized world order more than Britain and the U.S.A. And now, no two countries are doing more to tear it down in short order. Having finally tasted the full destructive extent of their own FrankenMonster. On the third anniversary of Brexit, troubled times have come. We are being led into the abyss by what can only be described as the flotsam and jetsam of the AmeriConned century.

Hard Brexit:

"If some idiot was sailing into a no-deal Brexit I'd decide politics has finally gone mad"

No shit. 

This week I was entreated to the local talk show disinformer,  Chris Plante on D.C. radio. If this guy is the future we're damned no question about it. 

He was talking up the impending war with Iran that has long been the preoccupation of the Military Industrial Complex. He glossed over the Mossadegh affair as if it were nothing. His grasp of history on the scale of a third grade delinquent. The Faux News formula - mention a key fact by way of explaining it away as meaningless.

The coup was Red Dawn Iran circa 1953. A joint British-American affair to strip control of the country from local governance and restore their own puppet government conjoined with the Anglo-Persian conglomerate now known as British Petroleum. 

Which brings us to this week's excitement. The realization that the only way to invigorate this moribund circle jerk is via war.

The Keynesian bombing of foreigners.

America's last "real" industry, beyond burrito assembly lines plug stuffing human elephants. 

Date: June 15th, 2019
Label: The Last Sugar High:

Over the next two weeks, gamblers will buy escalating trade wars, offset by the hint of lower interest rates to cushion global collapse. The equivalent of jumping out an 8th story window and using a pillow to break the fall. 

America's exceptional blind spot is the entire rest of the world. What happens outside the U.S. can't compete with the Kardashians, South Park, and Sean Hannity. For over a year now, the Madman-in-Chief has done everything possible to implode the world's second largest economy, to win the trade war. In the process he has imploded global trade, global consumption, global investment, commodity demand, and corporate profit.

But because U.S. analysts are oblivious to anything happening outside the U.S., they are still WAY too optimistic:

Recall this headline from earlier in the week:

Which was explained away with a massive dose of denialism:

The energy market “has priced in an outcome which is far worse than is actually going on”

It turns out that (oil) markets are not as dumb as the analysts that follow them.

June 12th, 2019:

"Global trade flows are flat or falling in all major regions as the world economy flirts with recession for the first time since 2008/09"

In March, the OECD’s composite leading indicator of economic activity in the advanced economies and major emerging markets fell to its lowest level since the recession of 2008/09...Since 1970, whenever the OECD indicator has fallen this low, the U.S. economy has always entered a recession, and taken the other advanced industrial economies with it."

OECD (2019), Composite leading indicator (CLI) (indicator). doi: 10.1787/4a174487-en (Accessed on 15 June 2019)

Now, gamblers are placing their faith in a Trump-Xi summit at the end of this month at the G20 summit in Osaka Japan. Leading up to the meeting both sides have been escalating the rhetoric. Both backed into a corner and not wanting to lose face, making the odds of a meeting questionable, much less a deal:

“We know that starting from the (June) 18th, President Trump will start the new round of general election campaign...China is in no hurry because time is on our side.”

Here we see the trade war vis-a-vis Emerging Markets:
Since the trade truce at the G20 last November, U.S. stocks and EM stocks have been moving in lockstep. The truce itself led to the selloff from "a" to "b" in a sell the news reaction. We also see that the entire rally since December was a fraud based upon non-stop lying about a trade deal being "imminent". And then it instantaneously turned into a Tech war of undefined dimension, without warning, at point "c":

Date: June 14th, 2019
Label: Trapped By Lies

You know you're an optimist, when:

After two years spent lying about collusion with Russia - aided and abetted by untold useful idiots repeating the same mantra relentlessly - Trump this week said he didn't collude last time, but he will try harder next time:

"No collusion. Yet"

To say that history will not be kind to Bozo the clown and his endgame circus is an asinine understatement.

Trump's lies about the "good and easy to win" never-ending trade war have so-far buried U.S. farmers, U.S. Industrials, S&P 500 earnings, and the largest stock market sector, Tech:


"We currently see a broad-based slowdown in the demand environment, which we believe is driven by continued geopolitical uncertainties, as well as the effects of exports restrictions on one of our largest customers" 

Now, Trump is boxed in by his own lies on the economy. On the one hand he has incessantly bragged about the strength of the economy, and yet now he is clamoring for rate cuts. 

More importantly, he has been saying that the superior strength of the U.S. economy is the greatest weapon against China, and yet he criticizes the Fed for not easing in step with the PBOC. The PBOC is easing precisely due to weakness. Trump understands none of that. He only sees free money. 

Sadly, no one has believed Trump about the economy more than the Fed. Going back to 2016 right before the election, the Fed admitted that monetary policy had run its course.

They advocated for more use of fiscal policy as an exit strategy for excessive monetary expansion:

July, 2016:

"Federal Reserve Bank of Dallas President Robert Kaplan called for “structural reforms and other fiscal policy” to help jump-start the U.S. economy, which he said would give the central bank more “operating room” to raise interest rates"

Then of course Trump got elected and passed the tax cut which gave the Fed "operating room" to raise interest rates - as planned. But not everyone got the memo. 

Picture a bubble bigger than 2016, and even far bigger than the one now, with interest rates still at zero percent and therefore zero operating room to ease:

"We're in a bigger, fatter, uglier bubble. Believe me, I wanted to make it even bigger, but they wouldn't let me"

Date: June 13th, 2019
Label: Countdown To Implosion

Current Fed funds futures predict only a ~25% chance of a rate cut in June, however the casino has been bid for two weeks ahead of next week's meeting.

Why? To paraphrase Hugh Hendry:

"Today there is no half-assed stimulus gimmick that our Disney markets will not consider to be successful"

Any questions?

This is the set-up:
The casino rallied into the May FOMC meeting and then rolled over due to all of the various risk factors - trade wars, global slowdown etc. The casino bottomed two weeks ago when Powell signaled he was open to rate cuts, if warranted.

Gamblers have been further emboldened by the perceived similarities between now and 2016 which featured an identical timeline for Fed rate pause.

So then, the question on the table not being asked right now is, what could go wrong? 

Begin with the fact that rates are higher now than in 2016, the trade war is escalating, and the Fed is STILL tightening their balance sheet.

Meanwhile, the "safe haven" bond proxies are massively overbought. AGAIN:

Piled into the sugar high:

Speaking of which, the cycle is three years older, meaning debt burdens are higher. However, gamblers have fully bought in to the well-cultivated fantasy that cycles NEVER end and of course printing money is the secret to effortless wealth:

"Howard Marks is worried to hear investors say..."

"Continuous quantitative easing can lead to permanent prosperity"

Companies and stocks can thrive even in the absence of profits"

Here we see a view of now versus 2016 vis-a-vis leveraged loans. It's not for lack of trying they've kept this market bid:

But it's the action in the oil market where stock market gamblers are really ignoring global warning:

Note: The circle in 2016, almost exactly three years ago, that was Brexit, and defined the low point for that rally:

Trump's trade war is obscuring the true collapse in the economy. All of today's EconoDunces assume that current economic weakness is "transitory"

"Morgan Stanley Business Conditions Index fell by 32 points in June, to a level of 13 from a level of 45 in May. This drop is the largest one-month decline on record"
This drop is the largest one-month decline on record and the lowest level since December 2008 during the financial crisis"

Compounding risk is the fact that gamblers have been front-running the Fed, into the riskiest profitless stocks in the casino:

Outside of which junk, market breadth is abysmal:

In summary:
"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 Lies Get Larger At The End Of The Cycle

We're at that point in the cycle wherein the salesmen have to try that much harder to con the marginal dunce, to make the quarter. It's Ponzinomics, if you didn't buy your degree from Wharton, you wouldn't understand it. The biggest jobs miss since 2008 is the catalyst for a 50 point S&P short-covering rally, so far...

The casino was reaching prior oversold levels, and bounced at the 200 day. Both open gaps above the market just got closed, leaving multiple open gaps below the market, going back to December.

The Transports were multi-decade oversold at the end of last week:

Some bimbo on CNBC last week, it doesn't matter which one, was advising not to worry about the Transports, because the Railroads just made a new high.

Which is what happened in October 2008:

The long awaited Boeing crash has arrived compliments of 737s falling from the sky. Somehow the news always corresponds with parabolic speculation coming to a screeching halt. 

The largest weight Dow component was down -17% from recent highs at the open. Volume is ~8x average at midday.

Chinese stocks are driving this short-covering rally back into the weekly island:

Oil is back-testing the broken trend-line deja vu of December

Retail sales in January "beat" expectations, but December was revised lower still. The fake wealth effect took a heavy toll. This latest (delayed) data will revise down Q4 GDP and Q1 GDP, as GDPNow just fell back to .2%

Don't worry, it's only retail apocalypse:

"...just two months into 2019, it sure looks like the U.S. retail scene will continued to be plagued by a stunning number of store closures — and perhaps quite a few retailers going out of business for good."

In a single 24-hour period last week, Gap, J.C. Penney, and Victoria’s Secret announced they would be closing more than 300 stores combined"

Retail short-covering another last leg of the stool:

I had an epiphany today that one of the drawbacks with Ponzinomics, among a few others, is that the downside of the Ponzi cycle takes its toll on certain professions - realtors, investment advisors for example that rely upon steady asset price inflation. And when that goes in reverse, it feeds back into 'Conomy in the form of lower commissions.

Of course then the reasons to buy must become more urgent and hence more specious. 

Which is where we are in the "cycle"

I call this the crash ratio because it shows that the casino is held aloft by fewer and fewer very large stocks

This chart shows that last year's 10% and 20% decline have not deterred Skynet from shorting volatility

This should do the trick...