Saturday, December 30, 2017

Bubbles As An Asset Class

2017 was the year in which speculative bubbles became an asset class unto themselves, packaged and sold by ubiquitous Madoff-inspired "advisors". The year in which Ponzi schemes became legitimate...

Needless to say, buying assets that have no intrinsic value is a zero sum game. One gambler's gain comes at the expense of the next gambler's loss. Nevertheless, many seemingly intelligent people have embraced this greater fool strategy with extreme gusto:

“'s interesting because I think there are a lot of assets that have values based on just supply and demand. You know, most stocks, they don't have any intrinsic value, no true ownership rights, no voting rights, you just have the ability to buy and sell those stocks. They're like baseball cards and I think Bitcoin is the same thing...”

With that in mind, let's evaluate some of this year's largest bubbles - evidencing abundant supply and demand, and very little intrinsic value...

15x Leveraged Cryptocurrencies

Of course there has been no bigger bubble this year than the crypto-currency mania. In mid-December, at the very top of the Bitcoin bubble we learned that the speculators who "control" Bitcoin are 15x leveraged Japanese men, aged 30-40, who are financially illiterate

That was also when the world's largest futures exchange put leveraged futures on Bitcoin:

Subsequently, Bitcoin tanked -45% and has tested the 50 day twice, the most recent test about three hours prior to this writing:

The most recent crypto bubble is an "alt-coin" called Ripple, which in the past 24 hours surpassed Ethereum as the second largest crypto-currency by market cap. It's up ~1,000% in the past three weeks. Unlike the other cryptos, Ripple has a fixed initial supply and can't be mined. It's also centrally controlled by the startup company by the same name. It should serve as some sort of warning that these crypto bubbles alternate inflating and deflating. They never go up at the same time. Which indicates speculators chasing from one bubble to the next. In a zero sum game. 

Peaked: Late November

Next up, come the "FANG" Tech stocks. Part way through the year, this was expanded to FAAMG - Facebook, Amazon, Apple, Microsoft, Google. These are not just the biggest tech stocks in the world, these are the biggest stocks in the S&P 500 by market cap. Therefore they account for a massively disproportionate share of S&P gains in 2017, having doubled the performance of the index itself.

Nevertheless, as I've written, they have very recently lost their perma-bid. 

Peaked: Late November

Semiconductors are interesting because they are highly correlated with crypto-currency mining. Stories of home gamers cashing in their home equity to buy $100k Bitcoin mining rigs, propelled semis to fifteen year highs. 

Momentum Tech
Peaked: Late November

Momentum tech are all of the various mid cap stocks that appear on the IBD 50 index due to their relative strength. The top companies in this space rotate continuously and overlap with other bubble sectors such as semiconductors and China Tech. 

China Tech
Peaked: Late November

Which gets us to Chinese internet tech stocks. These mega cap stocks are interesting because they are cross-listed on multiple global exchanges. Therefore they play an inordinate role in globe stock performance, and in the Emerging Markets ETF. As I say, these are the gift that keeps on giving, because selloffs originate in one time zone and then accelerate in the next. 24x7:

Pot stocks
Peaked: This week

Pot stocks went vertical around the time of the Presidential election due to the various states which had ballot referdenda on legalization. Once that event passed, they sold off. 

Pot stocks are stoked going into 2018, because in July 2018 all of Canada will be legalized:

20x leveraged Vancouver condos

I don't have any charts to show, however, 2017 was the year that Australia, New Zealand, and to a lesser extent Canada started to get serious about Chinese money laundering via real estate. Basically closing the barn door after the horses are out.

In Vancouver, the high end of the market started to see serious weakness, as the number of buyers able to throw $15 million into a Point Grey McMansion has found its limit. Nevertheless, the condo market which functions more like a futures casino - allowing 5% down payments on yet-to-be-built (and flipped) condos - still exhibits frenzied speculation by those who've been convinced that prices can never come down. Unfortunately, what denialists far and wide will learn at the end of all of this, is that there is no housing shortage, there is a massive housing surplus. They will also learn that prices can go down instantly, while mortgages don't go down nearly as quickly. 

Peaking Now

The top performing commodity this year, was the metal used primarily in automobile catalytic converters.

Of course, we've seen this disconnect before:

Dow Casino

Which leaves the last and largest bubble of them all. 

Or to paraphrase Mark Cuban - sometimes you just buy something assuming there's another fool to follow...

Only to find out that the last fool already has:

Friday, December 29, 2017

The Year of The Clown

2017 tested the outer limits for what a true Idiocracy would believe. In the process, setting dozens of records for extreme duplicity and denial, guided by a sociopathic con man. Going into 2018, here are the highlights from the year of the clown...

U.S. "recovery"

Global "recovery"

Retail "recovery"

"Consumer confidence"

"Financial recovery"

"Oil and gas recovery"

"Low risk"

"Tech leadership"

"Safe haven from fiat"

Thursday, December 28, 2017

Economic Oppression

The Trump tax cut has already monkey hammered the two largest economies in the world...

"For a market dependent on synchronized global growth, investors may be betting too much that China will not rock the boat next year."

"Curiously, the market has been ignoring the string of negative Chinese data surprises in recent weeks"

"We are concerned that China could be vulnerable to US tax reform getting done...a resulting increase in U.S. rates and the U.S. dollar would likely cause capital flight from China to accelerate and weaken the Chinese yuan. If that happens, China's central bank would be likely "to tighten liquidity, which in turn would raise further concerns about the growth outlook"

Too late

Fears of negative spillover from a rapid slowdown in China's economy hit global markets in August 2015 after a surprise yuan devaluation. Further weakness in the currency in the first few weeks of 2016 contributed to the worst start to a year on record for both the Dow and S&P 500.

Since then, Chinese authorities have proven they are still able to control their economy. But stability has come at the cost of ever-increasing debt levels.

[Insert happy ending non sequitur here]

"...shares of Chinese tech giants Alibaba, Tencent and Baidu have soared so much this year they've earned the nickname "BAT."

Record Bullishit

What matters is that Wall Street bonus gets paid in full. What doesn't matter is anything else...

Any questions?

The gap between what Wall Street is saying and what they're doing is 2008 levels:

Way back exactly two years ago, the yield curve was flattening, China was slowing, Tech was rolling over, the Fed was obliviously raising rates. Nevertheless, the casino conveniently held up until the end of the year.

Once January rolled around, global risk exploded. Go figure...

Party Like It's 1929

2017 was the year of record low volatility and record risk-seeking. But Social Mood has now peaked. So 2018 may not turn out the same as 2017. As long as BitCon doesn't continue to crash, this will all be fine...

In a year notable for record low volume and volatility, it should come as no surprise during the last days of the year that Skynet is pinning the casino to all time highs, amid zero volume and volatility. After all, 'tis the season for bonus payout...

"We've reached a permanently record overbought plateau"

ZH: Republicans Are Partying Like It's 1929
"Republican households are particularly optimistic about their financial situation following passage of the tax cut package.

However, there is dramatic polarization. The spread between Democrat confidence (low) and Republican confidence (highest reading since May 2007) is at its most extreme in 10 years)"

As we know the stock market peaked in the second half of 2007. Because unfortunately both sides of a polarized view can't be right amid record speculative positioning.

"In Donny We Trust"

The ratio of small caps to large caps is at extremes associated with end of cycle crash:

Market bears are extinct

Contrary to the assertions of myriad con men, BitCasino is the epic bubble of our time. Its unwinding in broad daylight is ample evidence that social mood went ALL IN. 

Evaporating $500 billion in speculative risk capital could spill over into other markets, don't ask me how...

The very last bubble is the belief that "global stocks" are at record highs, and this is a "global synchronized" recovery...

It's not even a U.S. recovery, much less a global recovery...

ZH: 2017 Was The Smoothest Ride On Record

"As measured by the VIX, stocks have never enjoyed a less volatile year than 2017"

"Eventually, storm clouds will gather and the stock market seas will get choppy again. But for now, it is smooth sailing for investors."

For now, just BTFD:

Wednesday, December 27, 2017

2017:The Year Of Trumptopian Bullshit

This will be known as the year the Idiocracy dialed up to level '11'...

Casino gamblers have taken it as an article of faith for the past two years that markets never go down. This never-failing BTFD mentality has enabled the accumulation of record leverage across every speculative asset class, from Bitcoins to Chinese internet, revenueless Biotech, passive ETFs, Oil futures, and now pot stocks. What else?

Bitcoin tagged .618 fibonacci and is now in wave '3' down. Apparently futures limit down and exchanges going offline due to trading volumes, is uber bullish.

This decline should elicit a tad more "panic" and a bit less "BTFD", as the exchanges go offline for hours, and then longer...

Retail stocks are starting to roll over again. Shocker...

"During 2018, "we're going to see more bankruptcies, more store closures. That's not changing"

But what about the tax cut for Bill Gates?

What happens when Tech and Retail roll over at the same time...

Because there are no more fools to follow...

Muppetized by Central Banks. Yes, again...