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: