Thursday, September 21, 2017

Fiddling While Rome Burns

I just realized why gamblers are gravitating to the junkiest stocks at the end of the cycle, it's because they are buying companies that are expected to have no revenue and earnings. Whereas companies that ARE expected to have earnings and revenue are imploding left and right. It's an Idiocratic double standard that can only end in extreme implosion. For their part, in their boundless hubris, the Fed is tightening into recession. But don't take my word for it:

Yellen yesterday: "additional rate hikes will be needed to sustain the economic expansion"

Any questions?

Sadly for that asinine hubris, and for bond "guru" Jeff Gundlach's higher yield trade, the exact opposite is happening. Again. And Again. And again. For eight years straight, for the first time in U.S. history, bond yields have trended lower throughout the "recovery". In other words, the $4+ trillion in money printing only drove a chasmic gap between stock market fantasy and economic reality:

So what advice to give Wall Street traders when policy-makers ignore all economic data?

"The relevance of data is declining. Policy-makers around the world have made clear they will ignore any data that does not fit their narrative"

"It's about listening to speeches rather than trading the data prints"

Got that? Policy dunces are ignoring reality, so everyone else should ignore reality too. Because what could go wrong with ignoring collapse in broad daylight?

For one thing, deja vu of 2008, gamblers will cover all shorts into the last fake reflation rally. 


They will assiduously ignore those markets that don't matter to their own bonus-centric imagined reality.





And they will ignore the end-of-cycle stock to bond rotation taking place in broad daylight.



And check.

It all comes down to Chinese tech stocks

Yes, again

Apple (candlesticks) and semiconductors are having a bad go of it...

Apple has breached its 50 day due to unexpectedly low iPhoney 28++ sales...

Wednesday, September 20, 2017

The Ponzi Protection Team. Doesn't Exist.

For the first time in eight years, the Fed is now in full court liquidity reduction mode both reducing its balance sheet and raising interest rates at the same time. Meaning it's a buying opportunity...

I just made the case for why this era looks a lot like a late 2015 analog: yields, banks, dollar, breadth etc. all declining. However, one other all-important aspect of this latent disaster is the level of rampant speculation. The magnitude of bubble - which now persists across global real estate, EM stocks, Crypto-currencies, revenueless Biotech, junk IPOs, Chinese internet companies and whatever else can be bought and sold, is unprecedented. 

The subprime of this era however, is the ubiquitous fantasy that bidding up assets creates a permanently stable price equilibrium, consisting of record low volatility. One could make the serially proven argument that the exact opposite is true, albeit with a built in lag to allow capital to accumulate to the maximum extent possible. The origins of this stable speculative equilibrium fantasy derive from Wall Street of course, however, the Fed itself has succumbed to the same inefficient market hypothesis:

Below we see that the Fed's "financial stress model" merely follows the equity volatility index 1:1. We also see that leveraged volatility index volume is unprecedented. Which is another way of saying that a return to historically normal volatility levels (VIX 20) is a perilous scenario. 

ZH: Leveraged Volatility Exposure All Time High

Also circa the 2014 volatility regime change, market breadth and volume are now declining in like manner:

Here we see that record low volatility makes large % spikes in volatility more likely, simply due to the fact that a 10 point move in the VIX is a larger % at VIX 10 than VIX 20. Which is a problem, because the VIX ETFs are rebalanced daily based upon the one day % move in volatility.

A one day 100% move is not an option for those betting on a permanent low volatility regime. It's annihilation.  

Removal of Fed stimulus and massive bets on continued low volatility. Two things that blow up great together...

Beware The All Knowing Idiocracy

Bailouts, economic deflation, Ponzi borrowing, and printing money are the secrets to effortless wealth. But don't take my word for it. Just ask the prime beneficiaries:

"Step aside, pessimists. The only way is up for U.S. stocks"

It's sadly ironic and yet by no means a coincidence that this year both the stock market and the U.S. Federal debt both reached $20 trillion at the exact same time. Because without ongoing ponzi borrowing this charade would have ended a long time ago. 

U.S. total market index / Federal debt:

"The income inequality in the United States, according to the Gini coefficient (a measure of inequality where 0 is perfectly equal and 1 is perfectly unequal) is about 0.45, which is awful—worse than Iran"

And to think that it only took eight years to raise interest rates to the same level they were at during the worst part of the prior recession:

Which is reason enough for extreme optimism in the face of economic collapse...

This is the root cause of the problem - ubiquitous "well-educated" dullards believe that a sound economy consists of supply and debt versus supply and demand:

"Consumption inequality hasn’t grown as much as income inequality"

In other words, as long as jobless consumers keep borrowing they can pretend that inequality isn't as bad as it really is. 

Until the end of the cycle when they realize all over again that they are indentured servants enslaved to serial psychopaths. The lucky few who went to the top schools not to learn how to be more intelligent in the absolute sense, but how to become a more effective sociopath in the relative sense. Always ensuring that someone else is doing the heavy lifting.

Trump at the U.N.:
"The Iranian government masks a corrupt dictatorship behind the false guise of a democracy. It has turned a wealthy country, with a rich history and culture, into an economically depleted rogue state whose chief exports are violence, bloodshed, and chaos"

And dammit, if it's one thing we hate it's competition

Tuesday, September 19, 2017

Looking Forward To FedPlosion

But don't take my word for it...
"Investors have been buying U.S. assets aggressively ahead of Thursday’s Wednesday's Federal Reserve announcement because they believe that the Fed will reduce its balance sheet and confirm its plans to raise interest rates one more time this year."

Any questions?
Every single Fed tightening action for eight years has imploded bond yields. But THIS time will be different...

Either the Fed tightens (begins balance sheet rolloff) which will increase deflation, or they will admit they've already created enough deflation. Either way, all roads lead to deflation, as they have for the past several decades since the failed Supply-Side Ponzinomic experiment began. There is no means to "reflate" the economy because there are no quality jobs being created. And whenever wages rise any amount the Fed reduces liquidity. Why? Because the printed money is solely for the benefit of casino gamblers. Meaning that it's for mega yachts, McMansions, hookers, and blow. Trickle down Voodoo economics. 

The last RISK OFF period was early 2016 - almost two years ago. Which by sheer coincidence was the last time the Fed stepped on a landmine. So we can use that as a useful baseline:

Currently, the dollar is lower, yields are the same level, banks are higher. Meaning that yields and banks are still chasing imaginary tax cuts:

The casino is overbought, as it was back then:

The market has been getting narrower and narrower. Currently in crash territory:

New lows rose, then fell, then skyrocketed.

So far, so bad

Europe was positioned the same way:

Oil was around the exact same level:

Amazon and big cap tech were rolling over hard...

Internet stocks were rolling over as well:

In other words, it doesn't matter what they do tomorrow. Because the damage was done while zombies were playing with the free casino money they provided. 

This Rally Sponsored By Keynesian Bombing Of Foreigners

Inform United Nations the invasion is coming. Check. This feels a lot like the moment when Colin Powell destroyed his credibility at the U.N. leading up to the Iraq war. Fortunately Trump has no reputation to destroy...

Trump's fire and brimstone speech at the U.N. put a panic bid under defense contractors and otherwise further compressed volatility. Because nothing says "RISK ON" like war:

Every new high in defense stocks has brought a new high to the S&P 500:

Donny at the U.N.:

"In summary, the U.S. needs to disengage from the United Nations and put America First. So this is the list of countries we're going to invade, for the sake of the world and more importantly our economy"

Any questions?

Nation building by Lockheed Martin

Y2K x 2014 x 2015 x 2011 x 2008 Implosion In Progress

Either stocks implode the Fed, or the Fed implodes stocks. Take your pick. Normally, the 24 hours ahead of each Fed meeting account for 80% of "excess" market gains. That might not happen this time. The five largest stocks by market cap have lost their bid...

Ahead of Wednesday's Fed announcement, the Tech-based deflation trade is going bidless in favour of the fake-reflation trade (banks, energy, retail). Without one stock - Nvidia - the Nasdaq would have collapsed yesterday. The five biggest stocks by market cap were all down on the day. Adjusted for market cap, Nvidia traded 14x more dollar volume than Apple. In absolute terms, twice as much as the Nasdaq 100 ETF (QQQ):

Recall, the five largest tech stocks have driven 2017's market gains: Facebook, Amazon, Apple, Microsoft, Google

On the NYSE, only one stock matters:

EM Currencies are signalling that the China Tech rally is also ending:


Perfect timing:

As money finally rotates out of Amazon, leaving the "Amazon is taking over the world" narrative stranded, a new fake narrative has been invented to accompany late-cycle short-covering:

Because any blind man can see that going private has put a solid bid under that stock:

Oil and Gas stocks are in the implosion position:

In summary, the non-stop mixed messaging around reflation/deflation has produced a fatal combination of short-covering and pullback from growth stocks, which is deja vu of the last two RISK OFF episodes:

And which has left only one stock keeping the Nasdaq aloft, trading 2x more volume than the entire Nasdaq 100 ETF:

Prepare for island reversal of fortune that leaves all of the fake narratives stranded...