Tuesday, May 22, 2018

Creative Self-Destruction

Disintegration is masquerading as progress...

What passes for innovation and "change" today is really just cannabilization of the future. Fifty years ago, rocket scientists were figuring out how to slingshot a six million pound rocket 200,000 miles to the Moon and back at the speed of a bullet. Today, Silicon Valley gurus are perfecting ride-sharing apps for dumbphones. Lowering costs by obsoleting existing jobs and industries has been conflated as "innovation", whereas on today's accelerated timescale it's known as "insolvency"...

After 2008, the left and the right veered off into their separate ad-spend galaxies, licensed to fabricate their own specious narratives. The left subsequently schismed into Bernie Sanders socialists versus limousine liberals. The right splintered into Bannon/Trump nationalists versus traditional Republicans. All sides believe they are right and everyone else is wrong. So everyone gets to pick their own version of what won't happen.  

The inconvenient truth was wholesale abandoned down the Grand Canyon middle, having no paid audience and therefore no media coverage. What the entire political spectrum shares in common is an assiduous blind spot for reality - all sides assuming that the indefinite future can be endlessly re-hypothecated into profit, debt, and mass consumption. Collapse being the second derivative, has been re-packaged as "disruption".

So it's a sign of the times that the number one company on the "disruptor" list is a private company barely picking up where NASA left-off forty years ago. The next several "disruptors" are cannibalizing the taxi industry and the hotel industries. Featuring four ride-sharing companies among the top six:

 For the record, we had ride-sharing too, before the advent of the ubiquitous homicidal maniac:

It's an article of EconoDunce faith that disruption is always good in aggregate. Sure, when companies find ways of bypassing the U.S. economy there are bound to be dislocations to workers and investments in one industry, but those are more than offset by the benefits to "consumers". Rinse and repeat for forty years straight and act surprised when everyone ends up a Starbucks barista.

So too it is in markets where the foundations of a rally can slowly disintegrate in broad daylight, all while bukkake whores on Wall Street contradict one another constantly. 

Yesterday we saw that short-covering in junk Energy stocks is the leading trade since the beginning of April. These same stocks were leading after the election as well. Subsequently, they are making a lower high, while Consumer Staples are making a lower low, and the over-owned Internet stocks are at all time highs. 

Over the course of this rally, the market now embeds disintegration - leadership from the junkiest stocks, record crowding into the largest cap stocks, and implosion of the safe haven stocks:

China Tech is three cents away from a death cross. De minimis.

Monday, May 21, 2018

A One Way Trip To The Sun

What Trumptopia represents more than anything is abdication of responsibility - towards the economy, the environment, the future. They may not care at this particular instant in time, but they surely will...

"Corker estimated that, if polled, only 6% of the people in this country would say they care about such fiscal issues."

The fact that so few people care about fiscal responsibility is a testament to the power of tax cuts and self-interest. The epitaph for the U.S. empire will read that it was a failed experiment in self-interest taken to its logical dead-end. And then on to level '11' under Forrest Trump. 

Of course, outside of Fantasyland, there is no such thing as free money. So whereas most financial bloggers seem to always think that the day of reckoning is at some indeterminate point in the distance - the days of reckoning are already at hand. It's just that the pain so far has only been felt at the low end of the income scale and in Emerging Markets.  

Here we see that speculators are bidding up reflationary assets which is feeding back through CPI into interest rates. Those who get paid the least are getting double monkey hammered by higher fuel costs, and higher debt costs. 

This type of Idiocratic "trade" works, until it self-destructs; therefore those who don't get out ahead of time, don't get out. 

The Fed updated their consumer delinquency data through the first quarter. Here we see that delinquencies for the year historically reach their low point in the first quarter and then peak in the fourth. Which implies that we've already seen the low point for delinquencies in 2018. 

Delinquencies on all loans and leases to consumers (red)
Short-term rates (blue):

100% Pure Ponzi. Accept No Substitutes.

This final melt-up boom phase has forced Wall Street back in to the casino, due to a massive short squeeze attended by rampant lying. With consumption, investment, casino margin, and fiscal stimulus all ginned up simultaneously, Wall Street's forward profit estimates exhibit the odds of a Powerball ticket...

There have been three speculative phases in this post-2008 era, this has been the longest and strongest:

Overnight futures are bid on news that the China trade war is "on hold" for now...

"Our economy is starting to run too fast, and it's getting hot out there...If it keeps going like this, someone's going to get hurt. That's because a fast-growing economy breeds inflation, which in turn forces the Federal Reserve to aggressively raise interest rates to slow it."

"A big increase in American exports to China — even one less than half the size of the supposed $200 billion deal — would be like yet-another injection of stimulus into an economy that's already at risk of overheating. A Trump-China trade deal would put more upward pressure on the dollar, on interest rates, on wages and on inflation...To dramatically cut its U.S. trade surplus, China would have to shift purchases from other foreign countries"

EM Credit ended last week "on hold" just above the election Maginot Line, we'll see how it likes this latest strong-dollar announcement:

Beyond Go Daddy and speculative internets, looking at sectors, "leadership" has been all short covering, as Zerohedge confirms. 

ZH: The Second Quarter Was One Giant Short Squeeze
"And the punchline: since the start of 2Q, large-cap Energy stocks have returned 15%, small-cap Energy stocks have returned 24%, and the most heavily shorted Energy stocks have returned 30%. In short: the biggest outperformers this quarter were those "most hated" names that saw the biggest short squeeze"

"The coast is clear"

Unfortunately, gamblers are too busy speculating in junk stocks to see the credit freight train coming from the other direction:


In summary, gamblers are high on their own supply, but the buzz is wearing off...

Of course, the short squeeze that will end this circus for good, is this one below, as record Treasury shorts all hit the exits at the same time. Thus ending the reflationary pair trade: long stocks, short bonds, while removing ALL liquidity from the casino.

Hard to believe, I know

Saturday, May 19, 2018

Freedom Of Bullshit aka. Alt-Reality

It's abundantly clear that the Founding Fathers never contemplated as the outcome of the First Amendment, a society wherein everyone smokes their own brand of bullshit, while everything implodes around them in real time...

For the denialists, this week we got this dose of inconvenient reality from one of Trump's own cabinet secretaries, who was fired for having called Trump a fucking moron:

“If our leaders seek to conceal the truth or we as people become accepting of alternative realities that are no longer grounded in facts, then we as American citizens are on a pathway to relinquishing our freedom” 

Truth, he said, is the “central tenet of a free society.”

Speaking of getting fired, remember back in early April the week he joined the Trump White House, Kudlow was already out of the loop on the newly announced China tariffs?

Well, this week was deja vu:

BBG: Kudlow Says China Offered More Than $200 Billion In Trade Concessions

CNN: China Says Didn't Offer Anything

"China and the United States are offering different accounts of what has been discussed in high-stakes talks this week to avoid a trade war."

Not impressed by bullshit brinkmanship, China Tech was down 1.5% today, half a percent away from a death cross:

U.S. lies:

Global Macro lies:

"Dumb money"

Active Managers

Smart money

The waves are clearest on the Nasdaq

Friday, May 18, 2018

Corporate Slavery Is Ending. Badly.

...and yet sadly, the aspirational corporate zombies will be none too happy about it. A lifetime of indentured servitude has conditioned them to want only one thing out of life: "more". The alternative is unthinkable...

Those who believe that slavery was long since abolished, are sadly mistaken. The definition of slavery is working for years and having nothing to show for it - whether in terms of pay raises, advancement, benefits, job security, or retirement. It's in terms of retirement where today's worker really gets shafted. In days gone by, companies offered "defined benefit" plans - meaning the worker knew exactly how much payout to expect in retirement. The current casino model is based upon "defined contribution" - the worker knows how much is going in but has no clue how much will be coming out many years hence. This transformed all of society into nervous casino gamblers. 2008 of course made matters far worse, featuring 0% interest rates for the better part of a decade. That should have been a warning to one and all that the casino model was no longer working. However, the Baby Boomers were between a rock and a hard place, so the only option was the one chosen - FULL CASINO.  

I started to question all of this madness back in the early days of the post 9/11 Housing Bubble when Greenspan lowered rates to 1% to encourage leveraged consumption. Because it was abundantly clear that the *new* economy consisted of cannibalizing the future economy. However, despite having run head first into a brick wall once already, the zombies at large still have yet to question any part of their consumption-oriented slave life. They had ten years to figure things out and get their affairs in order, so they doubled down on indentured servitude. As usual, they trusted their corporate overlords, constantly reminding them how white their shirts could be. Sadly, nothing is being consumed more rapidly than the consumers themselves, aging as they are like Krispy Kreme doughnuts. They've been shrink-wrapped and commodified like everything else around here. 

No surprise, ConnedFidence remains stubbornly high, in no way reflective of the carnage in retail

In many ways this past ten years since, has been far more pernicious than the good old days of the housing bubble era. This will be known as the era of serial asset bubbles. One after another asset class has been inflated, and then burst. The predominant side effect of an economy that provides zero aggregate career upside, is rampant speculation. Central Banks stood by like crack dealers, monetizing poverty into cheap debt for anyone wanting to rent their lifestyle until the next brick wall of reality monkey hammered them into oblivion. 

Which gets us to today. The music is playing which means the hairless monkeys are dancing. The casino is now full Ponzi - meaning that it's a zero sum game with everyone assuming some bigger dunce is coming after them.

Sadly, in aggregate that fantasy is impossible to fulfill.

Yet another idiot on Zerohedge claiming that "inflation" is getting out of control. Record Treasury short sellers conned by record oil market speculation. What else?

"Hey look, oil is breaking out to half of what it was ten years ago, and it only took a 20x increase in speculation"

"I know, inflation bro"

This old age home is a farce

Thursday, May 17, 2018

There's No Such Thing As Free Trade Or Free Money

For the record, Trump is right - free-traders are proven idiots. There are no other countries in the world that practice free trade. Many claim that the U.S. should have stayed on the gold standard which would have made colossal (trade/fiscal) deficits impossible. Perhaps so, ~50 years late. More importantly, what allowed the U.S. to adopt a gold-backed currency in the first place was its massive hoard of gold. Acquired how? Trade surpluses...

Nevertheless, attempting to pick the raisins out of the Globalized oatmeal is not going to work:

Emerging Markets are getting annihilated by strong dollar, higher rates, and the imploder-in-chief

A death cross in China Tech attended the August 2015 Smash Crash, and death cross is once again imminent:

Fracking stocks are "leading". We haven't seen that since the top in late January

Wednesday, May 16, 2018

Exceptional Hubris. All That's Left...

In Greek tragedy, hubris means one who defies the Gods. I think we all see where I'm going with this...

The big news yesterday was the long-awaited close above 3% for the U.S. ten year, amid record bets on higher bond yields. In other words yet another massively crowded momentum trade. 

Aided and abetted by monumental hubris. Because what else is there?

"The gap between the yields on 10-year U.S. Treasury notes and German government bonds reached its widest in almost three decades, a sign of investor confidence that growth remains steadier in the U.S. than Europe."

This signal contrasts with others in the bond market, such as the narrowing gap between short- and long-term Treasury yields, known as a flattening yield curve, which investors often see as a warning of economic slowdown."

Europe and the U.S. yield curve are warning of slowdown, whereas record-leveraged bond gamblers believe otherwise. 

All while, Emerging Markets get pole axed by higher U.S. rates. Gamblers are essentially making record bets that Emerging Markets implode. At which point bond gamblers will get wiped out on their bets for higher U.S. bond yields. 

Have I mentioned lately, these are not bright people. 

Meanwhile, in the casino, the only major index near its all time highs - in the entire world - is the small cap Russell 2000:

It's all short-covering mind you. As Wall Street gets forced in to to the fake reflation trade

Housing permits are falling sharply, but don't worry, it's not due to higher interest rates. We've run out of land:

"WASHINGTON (Reuters) - U.S. homebuilding tumbled in April and permits fell, suggesting the housing market continued to tread water amid shortages of land and skilled labor."

This is not 2015 deja vu

And it certainly can't be this again

Nice headfake

Consumer Staples:

Without even reading the article, we know with absolute certainty, it can't mean that it's 2008.

Some people are trying to get it, kind of. Note, I crossed out the obligatory denialistic takeaway:

"investors may not only need to find a new place to ride out market storms, but also a new weather vane to predict when they are coming"

In summary, exceptional hubris is exceptionally painful

Two bubbles will implode at the same time - Tech overweight, and Treasury bond short.

Prepare for the third and last island reversal of fortune

There's no easy way out for those who defy the Gods