Friday, December 9, 2016

Hot Money And Crashes. 100% Success Rate

Divergent Monetary policy is the primary driver behind market crashes...




"We're decoupled from Globalization"


Dow versus Rest of the World:




Global Financials are massively leveraged to U.S. interest rates via the dollar-based carry trades. Which is why every time U.S. rates roll over, the market crashes shortly thereafter...

Global Financials (black) with 1 Year Treasury (red):



Also confirmed by this chart:

Regional banks





The last Fed meeting drove this entire rally in anticipation of this Wednesday's rate hike, albeit with some help from Forrest Trump handing the U.S. government over to the Koch Brothers and Goldman Sachs to run...

Rates with financials:



Hot money flowed into the U.S from across the world:

USDJPY with U.S. banks:




The USDJPY carry trade and short-term rates rolled over on December 9th last year, the week prior to the Fed meeting, coincidentally of course:





Which means that rates are due to roll over any minute now...

Along with Financials, carry trades, and...

The average U.S. stock:




















Reserve-Currency-O-Nomics

Emerging Markets are cashing out of the Ponzi scheme...

An outsider's guide for how to live large under a reserve currency:

Assume it will last forever

Assume trade deficits don't matter

Assume Ponzi borrowing doesn't matter

Assume that college is where you go to meet like-minded sociopaths

Assume that everyone else can lose their decent paying job, but not you

Assume that the jobless consumer benefits when prices are lowered at Walmart

Know that carbon from Exxon is solely dependent upon carbon from exceptional bullshit 

Assume coffee shops and fast food outlets are as good as factories

Assume the rest of the world doesn't exist, other than to fund deficits

Ok, now trade stocks...


Emerging Markets are pulling their money out of this scheme:






A lot of it has already come out...




U.S. liquidity (red) with Rest of World stocks:
Liquidity = Price / Volume (20 dma)




Chart of the week:

Another 8 years of exceptional bullshit. Ending badly...





"Thank You End Of Cycle Ponzi Melt-Up"

In summary, the end of the year and end of the cycle are converging into one mega clusterfuck that is one overnight crash away from obliteration...

It was that kind of week:




In summary:

A late cycle spurt in wage inflation caused reflationary expectations to skyrocket

Three of the largest Central Banks are now tapering/tightening for the first time in 8 years

Yields have spiked across the entire world, tightening monetary policy everywhere

Emerging Markets saw the largest outflows in five years

Global bonds had the worst rout in 25 years

The Anti-Globalization vote (Brexit, Trump, Italian referendum) got bought with both hands

Small caps had their biggest rally since October 2008

Financials priced in about 15 rate hikes. Deutsche Lehman led the rally

Trump started a trade war with America's largest creditor, China, on Twitter

China's capital and reserves outflow hit the highest level since last January's market meltdown

Trump handed the U.S. government over to corporate Special Interest Groups

The 1950s trade went parabolic, amid unprecedented overcapacity 

The probability of a Fed hike like the one that hammered global markets last year, hit 100%


And to sum it all up, it looks like the Santa rally already took place...

Breadth rolled over today


Equal cap / market cap ratio:


Nasdaq 100



T-bonds and yield:


The big spike in futures volume mid-week was caused by Dow theory confirmation, as the Transports finally caught up with the Industrials. We see how well that worked out in 2008:


Oil (red) was all over the place this week:
with oil stocks...


The "January Effect" was just moved forward by a month...
i.e. the propensity for small caps to outperform once tax loss selling abates for the prior tax year...


Small growth / value ratio:


The fourth overnight selloff got bought with both hands after the Italian referendum last Sunday...

USDJPY



Much ado about nothing...








Emperor Circus Clownius Just Lit The Roman Candle

Promises to every RepubliCon special interest group in Washington, has markets going manic vertical...

"Rome seeks its own glory, wars against other peoples to subjugate them, revels in material existence, lives off the work of slave labor, allows many to die of poverty and starvation, and promotes entertaining circuses and gladiator spectacle. "




The U.S. economy has devolved into a zero sum gambling parlour...




Chicago Mercantile Exchange




New York Stock Exchange 




Ameritrade




Schwab




The Emperor Has No 'Conomy





Another Eight Years Of Faux News

This will be the hardest landing...

The Idiocracy has its ass in a knot about "fake news". Unfortunately, fake news has been going on for several decades now. It's what makes the entire status quo possible...

"Fake news"




Eight years of lying, followed by "Aw fuck, not this again!!!"



Good news, jobless consumers are connedfident they can bankrupt their grandchildren...




Consumption confidence with 'Conomy:

Hardest landing visualized...




"Index of current financial conditions at highest since 2005"

Median household income:





Blow-Off Top In The False Profit Rally

"The incoming administration is also expected to roll back some of the regulations imposed on banks after the financial crisis."




This is the perfect way to end an eight year vacation from responsibility - with a degenerate Idiocracy betting it all on the people who bankrupted them...



You see, people think that there's money in the stock market. So whenever they sell, money is coming out of an account "somewhere". However, there is NO money in the stock market. All there is (or not) is someone else on the other side of the trade who may or may not be willing to pay the last price that was quoted for "stocks". Hence there is no guarantee that the prices which obtain in a manic melt-up blow-off top, will obtain in the other direction...

Furthermore, the trend for two months now has been towards strong opens and weak closes, indicating money outflow:

Which means that daily money flow is lagging this rally:




The last momentum trade:
Again we are reminded that Financials now comprise almost the entire bulk of market cap gains from this Trump corruption rally...




Here we see the Financial sector versus the average S&P stock (which includes Financials so it's even weaker than this)



Last year, Financials peaked this exact week along with interest rates, ahead of the Fed rate hike, next week:



All very exciting...




As indicated below stock market valuations are near record highs, but that's not the real problem. The real problem is that Fiscal and Monetary policy are still at historical extremes. Interest rates are at .25%. Capacity utilization and employment participation is at recession levels. And profits as a % of GDP are at 1929 levels. 

In other words, asinine valuations are just the last straw on top of the Potemkin status quo...



"Good news, Trump is taking us back to the 1950s"

"It is a common saying that smart money is out of market in such formation and market is out of control"




Weekly money flow