Monday, April 30, 2018

Zero Hedge. Indeed.

On a long enough timeline all hairless monkeys drink the Kool-Aid. And otherwise get buried by fake news and a continuous stream of self-serving bullshit...

Remember when the Fed raised interest rates 17 times in a row back in 2005-2007 thus imploding the housing bubble? That's what they're doing right now. The difference is that today the sheeple are in mass denial, so everyone is too busy pretending it's not happening, to object. 

Ah, good times.

Below, this consumer credit delinquency data from the Fed's own website is seven months old. In the meantime, short-term rates have marched relentlessly higher. So borrowing a trick from the EconoDunce profession, I have extrapolated delinquencies into the future, meaning now. What we notice is that even if I don't extrapolate, the absolute value of delinquencies is at mid-2008 levels. Extrapolation gets us to Lehman level delinquency rates. 

Of course linear extrapolation is often a fool's errand, because if we notice, interest rates hit a cycle high of 5% in 2007 whereas at the same level of defaults as 2007 i.e. one year ago, rates were at .66%, indicating a 600% increase in sensitivity to interest rates in this cycle. Compliments of 0% for eight years. 

What we also notice, looking at interest rates above, is that there was a late cycle blip upwards in the short-term market yield. However, due to the various dominoes falling at the time, the Fed never blinked and kept a steady hand on lowering the Fed Rate (not shown). But why then did market rates rise into the "event"?

We know the answer of course:

August 14, 2008:

"The biggest culprit in driving up inflation was the cost of energy, which increased by 4% on a monthly basis and 29.3% annually."

Fast forward to now:

Crude oil versus delinquencies (red):

There is one major difference between now and 2008:

The difference of course is that this time around the Fed is considering increasing their late cycle tightening, not decreasing it.

It's a two pronged attack:

Balance sheet tightening which is on auto-pilot mode of increasing rolloff rate with each passing quarter:

And of course interest rate tightening

Is anybody home?

Sunday, April 29, 2018

The Artificial Intelligence Bubble Is Bursting

I think we all see where I'm going with this. The Idiocracy likes outsourcing so much that they outsourced thinking. Artificial Intelligence is now heading for its biggest system test, as the iPhoney era is now over...

TMX announced its decision to shut down all markets for the remainder of the session with about an hour left of regular trading...TMX Group’s tech problems come just days after The New York Stock Exchange on Wednesday suspended trading in the shares of five Nasdaq-listed companies including Google and Inc. AMZN, due to a what was initially referred to as “a price scale code’ issue"

Any questions?

As I've said many times recently, there is really only one bubble left:

From dumbphones to driverless cars and HFT algos, computers have taken over the thinking from humans. There's only one problem, they don't think. The multitude of casino flash crashes should have been a warning to zombies that momentum-based algorithms are not a replacement for traditional market making. They work the exact opposite. Traditional market making places buyers below the market, and sellers above the market. Whereas momentum algos, force-in buyers above the market, thus leaving only sellers below the market. We've only seen this in several dozen asset classes in the past number of years. 

Now, the dumbphone era is ending. Apple bet that a $1200 phone would be the next big thing, only to find out that no one wants one. Shocking. Suppliers are warning that orders are continuing to slow. 

The fourth quarter is where Apple gets its biggest bang for the buck from a new product launch:

Connecting these various themes - HFT algos imploding markets, driverless cars running people over, 1300+ Crypto-based ponzi schemes, Social Media data used to rig elections, and smartphones making everyone as dumb as a fucking brick, it's not hard to see why semiconductor stocks are starting to implode.

Nvidia, the company that dominates in almost all segments of the semiconductor market, is up 1000% in just two years. It comprises 10% of the A.I. ETF, the largest holding. 

It's at the intersection of all of these bubbles where it gets interesting. Because the momentum algos are about to get stress tested in a way no one had previously envisioned. Ironically due to Tech earnings season.

As fund managers sold down their tech holdings to a five year low recently, the places to hide dwindled to a handful of well-known names.

It was right after the big cap techs reported earnings in January/early February, when the wheels came off the bus.

So far, Netflix, Google, Facebook, Microsoft, and Amazon have reported. Three failed moonshots have left the Nasdaq below where it was when Netflix reported, having already passed through the obligatory 50-dma rinse cycle.

Leaving Apple and Nvidia to report this coming week. 

This should be interesting.

"In the broadening top formation five minor reversals are followed by a substantial decline.

It is a common saying that smart money is out of market in such formation and market is out of control"


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

The irony

Peak Criminality aka. "Corruption As Usual"

Stealing from the future to pay for today, is the order of the day. Until such time as the future is "now". Every gimmick known to man has been used to propagate this charade - and several gimmicks never before tried. For a reason...

It's a sad sign of the times that House Speaker Paul Ryan fired the U.S. House of Representatives chaplain at Easter this year, for saying the following:

"May all members be mindful that the institutions and structures of our great nation guarantee the opportunities that have allowed some to achieve great success, while others continue to struggle, "May their efforts these days guarantee that there are not winners and losers under new tax laws, but benefits balanced and shared by all Americans."

Right after the dirty deed, Paul Ryan announced his own resignation. Damn that's cold even by Republican standards. The alt-Christian base was ecstatic. The United States is a pale fiction of its former self, having abdicated even the pretense of morality.  

A farcical prayer to be sure. You see, in order to continue beyond 2008, it was unfortunately necessary that the fatally gored Globalized economic model morph into a massive zero sum criminal enterprise. Be that via money laundering through global real estate, raiding Social Security and Obamacare to pay for tax cuts, inter-generational fiscal plundering, printing money to inflate risk assets, stock buybacks with borrowed money, negative interest rates - there was no idea too corrupt for this inherently corrupt society to consider. Bernie Madoff was a man before his time. 

Therefore, there are no "facts" we can show that can stun the Idiocracy out of their stupor. Profiting at another person's expense has become the de facto business model.

In other words, we've become Third World. 

And so it is now, that Wall Street lures the sheeple into the casino amid "record earnings". A convenient end-of-cycle excuse to dump supply back onto the usual bagholders.

"Ice cream, chocolate, all free today"

Rewind to December 2017:
Wall Street Just Sold Another Fantasy

"Wall Street analysts are forecasting that cumulative earnings per share for the S&P 500 will jump by 11% in 2018 and another 10% in 2019"

"The S&P 500’s profit margins are now near all-time highs. Even if they remain elevated, a questionable assumption, earnings can grow only as fast as sales...And sales grow along with the economy...Nobody is projecting GDP growth of 11% in 2018"

This is aggregate corporate revenues, found by multiplying the sales per share by the S&P divisor. Corporate revenues were flat for the first eight years of this pseudo-recovery, and now are rising thanks to Ponzi oil reflation:

"It’s highly uncertain, however, that profits can even manage to climb in step with GDP. That’s because they’re already highly elevated thanks to those super-rich margins"

Fast forward to last week:
Fund Managers Cut Stock Allocations To Two Year Low
"(Institutional) Investors see earnings peaking, with just 20 percent expecting profits to improve over the next year, an 18-month low"

Corporate debt % of GDP

April 27th, 2018
Q1 GDP Release:
"Real consumer spending slowed in the first quarter, reflecting a downturn in new motor vehicles. In addition, a downturn in spending on clothing and footwear and a deceleration in spending on food and beverages" 

Wages and salaries in the first quarter were adjusted up by $10.0 billion (annualized rate)...This adjustment reflects one-time bonuses paid by businesses reported publicly in response to the Tax Cut and Jobs Act (TCJA)"

April 24th, 2018

"It is pretty amazing when you look at it, an earnings season that's having an equal and opposite reaction to results"

A surface look at earnings doesn't show much weakness...Net profit margins are tracking at 11.1 percent, which would be the highest level since the third quarter of 2008."

Saturday, April 28, 2018

The Crowded Dumbfuck Bubble

Unfortunately, the Idiocracy doesn't trust anyone who can be trusted. This will be their last lesson...

Last week we learned from eTrade, Interactive Brokers, and Ameritrade, that retail margin balances remain at all time highs. This week we learned that despite the major reversal in yields on Friday, Treasury bond shorts are also all time highCrude speculators backed off a tad, but are still pegged near record net longs. 

All of which is consistent with the biggest reflationary delusion since 2008:

We also just learned that wages rose the fastest since 2008, but the cost of living is rising much faster. 

Therefore deja vu, the Fed has no choice but to implode borrowers. 

Meaning record long big cap tech, and record short Treasuries:

Meanwhile, S&P 500 futures dealers aka. "the smart money" are extreme net short. The shortest they've been since the top in January of this year:

And before that, 2008:

It turns out the smart money doesn't believe in Trump-o-Nomics.

And never has...

Idiocracy Meet The Brick Wall Of Reality

2018 Imagined Realities are ending. At this stage, only the most fantastical delusions need apply. As long as GoDaddy doesn't roll over, this will all be fine...

One thing that has not been learned to date by investors of any caliber, between the rival camps of technicals versus fundamentals, is the role of the speculative "observer effect" in securitized markets. Which is to say that when gamblers are triggered to go all in, they are taking part in truncating the rally. They are contributing to the parabolic blow-off top that takes price vertical, hence extinguishing momentum. And yet gamblers individually and cumulatively believe the exact opposite, that their participation is somehow elongating the party. Hence, the continuous river of bullshit that must accompany said positioning. Now imagine 7.5 billion people simultaneously triggered to engage in Ponzi reflation across all risk asset classes at the same time.

Notice on the Nasdaq that momentum peaked in January prior to the final index peak in March. Also notice that new highs peaked in January as well.

Now, at this late stage of the global rally, ironically only the highest momentum and hence most speculative stocks are now keeping the casino aloft. To be sure, short-covering in retail junk stocks at the end-of-cycle has been another latent source of "momentum". 

However, gamblers chasing the last few mega cap tech stocks still making new highs, has been the primary driver. Call this the "Netflix" global rally - wherein only the most fantastical delusions need apply.

As I showed earlier this week, the mid-cap momentum stocks (IBD 50) have carved out a seven month symmetrical top (black), whereas Netflix made a new high late last week.  

While we're on the topic of FANG stocks, Facebook was moonshot on Thursday, compliments of the Gundlach short.

And then Amazon had a moonshot key reversal of fortune on Friday, identical to the one it had three months ago at the all time high. The Monday after was the biggest volatility spike in two years.

Spot the difference this time (lower pane):

Elsewhere in extreme risk, here we see Semiconductors and Bitcoin. Bitcoin peaked in late December, whereas Semis peaked in mid-March. As we see via Semis, global demand for PCs, iPhones, Bitcoin mining, and video games has peaked.

The largest China Tech stocks, which are cross-listed in the U.S., finished the week at a level first seen last September. 

That's the good news.

For those companies that are correlated to the economy versus speculative excess, this past week was not as rosy.

The S&P 500 Industrials failed their "retest" by imploding back below the 50 day and the 200 day:

Companies such as Deere


And outside of industrials, P&G within Consumer Staples:

Which means that GE wasn't ever "wrong", only the delusionists were ever wrong.

"Friday's GDP report, for one, painted a somewhat positive picture. The 2.3 percent growth rate may not have looked like anything spectacular, but it was the first time the first quarter beat economist expectations since 2008"

A good chunk of the first-quarter GDP gains came from an inventory build"

Q1 2008, was the beginning of the recession.

Holy fuck. We're doomed.

"They let it ride on Go Daddy"

Friday, April 27, 2018

Auto-Pilot Self-Destruct Mode

Only a crash will stop the Fed from raising rates until there's a crash. All of the world's money is now riding on fake reflation...

Unfortunately, this doesn't go in reverse:

This was another week of the rinse cycle seemingly to nowhere. Two Central Bank meetings down (ECB/BOJ), one to go next week. As we see, the set-up is "identical" to March of this year:

Of course it's not really identical, it's only superficially identical. The continual deterioration at the hands of our trusted psychopaths has continued its relentless yet "imperceptible" downward trend.

"It's an old age home, so just keep lowering expectations"

"The U.S. economy slowed in the first quarter as consumer spending grew at its weakest pace in nearly five years, but the setback is likely temporary against the backdrop of a tightening labor market and large fiscal stimulus."

MW: Fastest Wage Growth Since 2008

Let's see, wages rising the fastest since Lehman and consumer spending lowest in five years. Third grade logic is beyond the grasp of today's Idiocracy. 

And, the punchline:
ZH: Rate Hike Odds Just Increased

"While the long-term economic outlook is increasingly murky, today's data which saw a beat in GDP and the highest employment cost index since 2008, has convinced traders of one thing: a June rate hike is coming"

Fake reflation is following the same path as last year, and yet different...

In other words, banks have completed their end-of-cycle retracement, so now they can catch down to recession stocks:

"Where to invest, then? Emerging markets"

This was the week that "good news" meant nothing, as extrapolation to infinity hit the brick wall of end-of-cycle:

"Trump administration’s business-friendly approach, a strong U.S. economy, robust manufacturing activity and improvements in the labor market augur well for the company"

A lot more short-covering this week, compliments of central bank meetings

Having decimated the entire retail sector, Amazon is now raising prices.

What all monopolists do.

A long forgotten Wall Street axiom: "Don't fight the Fed"