Priced For Implosion

"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 - what I want to forget. It makes me miserable and sick, like biting something rotten would do. Temperament, I suppose. Well, I went near enough to it by letting the young fool there believe anything he liked to imagine"

- Joseph Conrad, Heart Of Darkness

Gamblers will now ride the biggest (over) valuation bubble in history, through the worst earnings season in three years, to get to a rate cut the likes of which ended the last two bull markets. They are trapped between the Scylla and Charybdis of their own delusion. 

It's times like now, when we must be reminded that the house ALWAYS wins.


Trump Casino is no different. 

Yesterday's jobs report inconveniently collapsed the odds of a 50 basis point rate cut down to near zero. Which is why gamblers had a conniption, until the casino was rescued by event-driven volatility compression algos. Worse yet, between now and the free money bonanza 25 days hence, the casino must navigate the worst earnings season in three years, amid rampant denial:

"77% of companies issuing pre-announcements say their profit picture will be worse than Wall Street is expecting. That’s the second-worst quarter on record going back to 2006, according to FactSet."

“When stocks are priced for perfection, even little things become insurmountable.”

Analysts and gamblers are praying that the bad news is already priced in. However, with the "Margin-adjusted" P/E ratio higher than both 2000 and 1929, that's a tall order, given that NOTHING is priced in. Hussman also reminds us that the last two bull markets ENDED with Fed rate cuts. 

John Hussman, July 2019: Beware Fed Rate Cuts
"...the Fed initiated rate cuts at the very beginning of the 2000-2002 and 2007-2009 bear markets, and persistent easing did absolutely nothing to stop the collapses"

"It’s understandable why investors would want to rule out the possibility of a market decline on the order of 60-65%, simply to restore pedestrian, run-of-the-mill historical valuations. But history has never been kind to the assumption that hypervaluation will be followed by a “permanently high plateau.”



First some perspective is in order:

The new highs list is roughly always the same small set of names.

At the very top of the list sorted by number of new highs is ironically Booz Allen Hamilton, where I spent the largest part of my IT career. That stock has made more new highs in the past year than any other stock on the planet: 72 as of Friday. I am daily reminded how different my life would have been had I only drank the Kool-Aid and "stayed in the game". 

Focusing on the biggest names gives a sense of what miracle must occur over the next 25 days to keep this algo-driven delusion levitated. I showed Procter & Gamble and Starbucks yesterday, both usually on the list. 

Visa and Mastercard are two more perpetual motion machines. As the entire "Fintech" space is on fire:

McDonald's another top performer

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

The Iraq blunder was hatched during recession. The next blunder will likely be borne of the same "Keynesian" motivation.

At least that's what Lockheed Martin is telling us.

Last retailer standing:

"You never count your money while you're sittin' at the table, there'll be time enough for countin' when the dealing's done"

New all time sugar high

In summary, I cite Neil Young's perspective on life:

"Heart of Gold put me in the middle of the road. Travelling there soon became a bore so I headed for the ditch. A rougher ride, but I saw more interesting people there."
- Neil Young

In the end, the ditch is safer than where a young fool will go, believing anything he liked to imagine.