Bursting The Big Fat Ugly Bubble

Any questions?

As Trump predicted exactly two years ago today, we saw some bad things happen when they raised interest rates today:

"When they raise interest rates, you're going to see some bad things happen"

The hawkish Fed hammered growth stocks, yield sectors, and reflation stocks, across the board. Bonds rallied, yields fell.

Overall market assessment: "Policy error deja vu":

Heading into the meeting this week all things interest rate sensitive were getting shellacked:

Utilities:

Consumer Staples

Homebuilders

Now that the meeting is over and the rate hike is fait accompli, banks have lost their bid...

Large cap growth stocks rolling over into crash mode:

Semiconductors done

Mission Accomplished 2.0

Dumbfuck #2 will finish what dumbfuck #1 started. In the Faux News lexicon, losing is the new "winning"...

"Bin Laden wanted to lure the United States into Afghanistan, which was already being called the graveyard of empires. The usual object of terror is to draw one’s opponent into repressive blunders"
Wright, Lawrence. The Looming Tower (p. 272)


Trump's delusion of "winning" a global trade war is pathetically reminiscent of George W. Bush's delusion of "winning" the war on "terra" - "terror" for the literate-set. It's what anyone who has an uninformed, facile and infantile view of the world would choose to believe.  

Trump's speech at the U.N. yesterday was a wholesale repudiation of the post-WWII American-defined world order. Call it the "Sorry folks, change of plans" speech:

“We reject the ideology of globalism and accept the doctrine of patriotism.”

It was a wholesale abdication of hegemonic responsibility while maintaining the actual hegemony intact of course. Trump will retreat to command post Twitter to direct the empire via grammatically-challenged fiat command. The other part he left out of course was that he wants the U.S. to continue to be the net beneficiary of global capital flows. "Want" being an inappropriate term, "need" being the operative word. We need to be able to continue to exploit the "global savings glut" thrown off by the Third World sweatshop. We just don't want to pay into the system via Industrial arbitrage - The Faustian Bargain first enjoined by Reagan thirty-eight years ago. Bush Senior called it "Voodoo Economics" and vowed that it "wouldn't work". Before he pretended to have said no such thing. Trump made sure to boast during yesterday's speech that military spending will be $700 billion this year. He forgot to mention that it's all borrowed money. The U.S. Federal deficit this year is projected to be $800 billion this fiscal year (ending this week), and a trillion dollars in FY19. Which would mean that next year, the deficit will be 140% of the U.S. defense budget.

This insatiable demand for capital driven by insatiable greed and asinine hubris is why the dollar is rallying, and why the trade deficit is widening. It's Trump's patented strategy of "winning" by losing. The year-to-date trade deficit in manufactured goods is the widest it's been since September 2008:

When Cramer says the "stock market", he means Netflix and Go Daddy. Real businesses that have skin in the global economic game and are not binary call options on Ponzi capital infusion, are rolling over hard:

If we didn't realize that we are now captured in an old age home run by entitled geezers who've been fucking everything up for decades, none of this circus would make any "sense". It's abundantly clear that the Alzheimer's-set will not be going gently into that good night, instead preferring to fuck things up as long as possible. They will be escorted from the highest office(s) in the land straight to the terminal care facility for the mentally infirm. 

When I said that we are now wandering in the desert of failed ideas, I meant Death Valley. 

"Good News, Trump Imploded Globalization"

No question, had Hillary gotten elected, this would have all gone on much longer...

Trump was the laughingstock of the U.N. today, but he will get the last laugh when he collapses the global PonziConomy. Speaking of which, Wall Street is just now figuring out that blowing up Globalization may have led to a "miscalculation" in forward S&P earnings. In the context of Republican economic confidence at all time high, I'm highly confident that someone is about to shit a brick...

But first, the Third-World-Despot-in-Chief forgot that he wasn't at a rally of loyal dumbfucks today when he bragged at the U.N. about his efforts to implode Globalization, and almost got laughed off stage. Some people just don't know how to show appreciation.  

To paraphrase:
"My administration has done more to deconstruct Pax Americana than any other administration in the history of Pax Americana"

[Pause for standing ovation]

No question, the true hardcore Trump supporters such as Steve Bannon, got what they wanted: The tearing down of the Globalist world order. Which will be replaced post haste by a non-stop stream of semi-literate Twitter gibberish. Meaning that Trump's white knuckled mainstream quasi-believers, who were merely along for the tax cuts, can't afford their Faustian Bargain. 

Trump's U.N. speech today was the usual mix of hyperbolic bullshit, well-cultivated lies, self-aggrandizement, and a dollop of truth for the cherry on top. 

It starts with the b.s. and self-aggrandizement:

"In less than two years, my administration has accomplished more than almost any administration in the history of our country."

(Audience laughter.)

"Didn’t expect that reaction, but that’s okay."

Once the uncontrolled laughter subsided, he eventually got to the truth:

"The United States lost over 3 million manufacturing jobs, nearly a quarter of all steel jobs, and 60,000 factories after China joined the WTO. And we have racked up $13 trillion in trade deficits over the last two decades.

But those days are over."

Indeed:

ZH: September 24th, 2018:

In other words, to his full credit, Trump just put a stop to Shock Doctrine 2.0. Post-Lehman plundering. Not to be confused with Shock Doctrine 1.0, post-9/11 plundering:

All of which confirms what I've been saying - that this has all been a "miscalculation":

The stock market has been mostly enjoying a uptrend, shaking off elevated tariff tensions between the U.S. and its global counterparts.

"investors should brace for the possibility of a “major miscalculation” by President Donald Trump’s administration, as it relates to the U.S.-China conflict"

Fortunately, the miscalculation magically takes effect after bonus is paid out December 31st, despite the most negative earnings announcements in over two years. 

"Trade fears have been widely viewed by market participants as the most significant threat to the health of the global economy"

"the Trump administration, emboldened by a healthy economy and stock market, (will) ratchet trade tensions ever higher, entering what the bank describes as “Phase III” of trade disputes in 2019, which would result in weaker China growth, and directly impact an “incipient recovery” for the commodity complex."

This could weaken:

Cue Trump today, on OPEC and oil prices:

"OPEC and OPEC nations, are, as usual, ripping off the rest of the world, and I don’t like it...We want them to stop raising prices, we want them to start lowering prices...We are not going to put up with it — these horrible prices — much longer."

Cue Ponzi deflation

"We have become the largest energy producer anywhere on the face of the Earth"

Cue miscalculation 

An Inconvenient ClownPlosion: The Full Cost Of Mass Denial

As reported by Zerohedge, Banana Republican economic confidence is at the highest level since 1929, if not forever. Compliments of their own bullshit-artist-in-chief. And really, who could warn them, they don't trust anyone who can be trusted. Needless to say this will be spectacular to say the least. The casino won't so much decline, as implode spontaneously due to non-stop mega lies and debt conflated as "GDP":

Despite the fact that all of the global risks coalesce this week - from trade war escalation (Monday) to Fed rate hikes on Wednesday - compliments of mass complacency, we are now very likely to see the highest volatility in U.S. market history. None of the risks are priced in, meaning that gamblers are still chasing the riskiest momentum sectors - small cap growth, pot stocks, and internet junk stocks at the end of the cycle. It's clear that some people like to learn the hard way - not at all.   

RISK OFF has not yet reached the U.S.

The consequence of not hedging is that volatility is now hyper-sensitive to moves in the underlying market. As we see via the middle pane (S&P 10 day % change), small downside moves in the S&P translate into massive moves in volatility. February saw the biggest one day percent increase in the VIX since 1987, on a relatively minor decline in the S&P. Compliments of "dynamic hedging", which is what caused the 1987 crash. Option pricing is non-linear ("convex") and impossible to predict ahead of time, other than to know that it will be wholly unaffordable. 

Various prognosticators warned over a year ago what would happen if volatility shorts were forced to unwind. But those warnings were ignored, leading to February VolPlosion. 

Subsequently, the February event itself had to be ignored, as the volatility short trade is still on in near-record size. What they apparently learned from February is that it's important to double down on a bad idea. 


The defensive sectors (Utilities, Staples) are already rolling over. Which means there is no place to hide. 

Gamblers are still massively overweight mega cap Tech. Last week's "reshuffling" of the S&P sector indices has led to even larger overweights in Apple and Microsoft. 

The other thing the reshuffling did is that it took Google and Facebook out of the Tech sector and put them into a newly created sector called "Communications" that no one owns.

Which is why the Social Media stocks have lost their bid:

The other problem is that "someone" has been buying out-of-the-money put protection ahead of time. Which means that put protection costs are already elevated. 

"Dynamic hedging" will now become "dynamic selling". 

China Tech is re-imploding compliments of tariffs and rate hikes:

India is joining the downside party:

The fantasy du jour is that banks are a safe haven from rate hikes. Which is of course the exact opposite of the inconvenient truth. 

The June rate hike saw the S&P banks take out the 200 day. And the March rate hike was a straight line test.

"Rising rates lift bank stocks, straight down"

As we can see from the lower pane, this has been a three wave correction of the first wave down in February:

In Trump We Trust

What happens when it turns out your saviour is the exact opposite of what you expected? We're about to find out...

GE marked the top in 2007 and it would have marked the top in this cycle, except the big, fat, ugly bubble had to get much bigger first. Therefore the oldest stock in the Dow was removed, so everyone agrees that the real economy has now been replaced by mass delusion...

What history will say about the Banana Republican party:

Two years ago this week Trump warned what would happen to the stock market bubble if the Yellen Fed raised rates "even a little bit".

It would come crashing down.

Now, two years later, the Trump-appointed Fed is deflating that same bubble by tightening both the long end and the short end at the same time, while Trump cheers from the sidelines. Because not only are men capable of inflating far larger bubbles than women, but they're also capable of making them indefinitely sustainable. 

How? By filling them with an incessant flow of hot air. How else?

New all time casino highs while the net number of (NYSE) stocks making new highs is negative. Can't say I've seen that before. I only looked back 20 years though...

The problem of large numbers of simultaneous highs and lows is much bigger on the Nasdaq:

And to replace GE, they they put a fucking drug store in the Dow. What else? 

"We were reconfiguring the Dow to include more drugs after that I don't remember what happened"

"Who wants more Kool-Aid?"

This will be the greatest loss of capital in human history, without any relevant comparison