Tuesday, May 22, 2018

What The Fool Does At The End

Banks were on fire today. Regionals made new all time highs. No need to wonder why...

"Lawmakers voted 258-to-159 Tuesday to advance a measure that is the product of years of financial-industry lobbying to soften post-crisis rules"

Before we get to banks, I noticed that Transports have carved out a fractal identical to last cycle - one degree larger

"Free money"

ZH: Liquidity Is A Carefully Crafted Delusion

"The long expansion accompanied by relatively low market volatility may have helped disguise an under-appreciated rise in “market fragility.”

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 new and creative ways of bypassing the entire U.S. economy there are bound to be dislocations to workers and investments, but those downsides 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 by 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.

Company founders and venture capital firms are keeping companies private longer so they can reap larger percentage gains when the company goes public. Because most of a new company's growth occurs in the early years. However, this strategy is now backfiring:

"In case you missed it, the peak in the tech unicorn bubble already has been reached. And it's going to be all downhill from here. Massive losses are coming in venture capital-funded start-ups that are, in some cases, as much as 50 percent overvalued."

May 19th, ZH: 80% Of IPOs Unprofitable. Most Since Y2K

"Put a slightly different way, 2017 was the biggest "money for nothing" year since Pets.com...Remember the only reason "the water is warm" is because it has been 'chummed' by the the last greater fool"

Unfortunately, the two most crowded bubbles in this era: Long mega cap Tech, short Treasury, don't solve for a happy ending.

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