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Memo from Insiders: Dear Bagholders, Thanks for Buying Our Shares at the Top

Memo from Insiders: Dear Bagholders, Thanks for Buying Our Shares at the Top

The self-sustaining recovery is a fantasy that’s evaporated.

What looks like a powerful, can’t-lose rally to newbies is recognized as distribution by old hands. In low-volume markets (as in the past few months), insiders holding large positions can’t dump all their shares at once or the price of the stock would plummet due to the thinness of the bid.

The only way to get top-dollar for one’s overvalued shares is to play distribution games: sell a little each day on the upticks, and buy back shares when they threaten to drop below the key support levels followed by trading algos.

When insiders have finished distributing their shares to naive and trusting bagholders at the top, then the price can flush lower with a velocity that shocks the complacent bagholders who saw only the inevitability of an endless rally rather than the inevitability of a collapse of bubble valuations.

Stocks are priced for a V-shaped recovery and/or $1 trillion in federal giveaways per month. Neither is possible. The V-shaped recovery hopes were based on $6 trillion in federal/Federal Reserve stimulus washing over the nation, boosting household incomes and opening spigots of cash for enterprises and local governments.

The basic idea was to give the economy a needed shot of adrenaline to get to to the point where a recovery would be self-sustaining: companies would hire back laid-off workers, people would start borrowing and over-consuming again, sales and income tax revenues would return to pre-pandemic levels, etc.

The self-sustaining recovery is a fantasy that’s evaporated. The spike in activity was all the giveaways being spent. Now that most of the free-money programs are expiring, there’s no more stimulus to spend.

…click on the above link to read the rest of the article…

If Stocks Don’t Hold Here We Could See Another Crash of Sorts

If Stocks Don’t Hold Here We Could See Another Crash of Sorts


Stocks have fallen hard over the weekend again. The media is pinning this drop on the potential for another COVID-19 pandemic, but the facts don’t support that theory.

At times like these, it’s essential to ignore narratives, and focus on price. With that in mind, the S&P 500 remains in an uptrend, barely (blue lines in the chart below). Stocks need to hold here for the bull market case to remain intact. 

If stocks break down from here, there are two items in play. One is support at 2,940 (lower green line in the chart below). The other is the gap established by the open on May 18th (blue rectangle in the chart below).

When we plot the S&P 500 against the VIX (inverted), it looks like there’s more downside to go here.

However, both breadth and credit suggest the downside is limited here.

My point with all of this is that today the market is literally a crap shoot. The easy money from the rally has been made, and the next trend is not clear yet. So now is NOT the time to be putting a load of capital to work.

However, if stocks don’t hold here, we could potentially see a crash down to 2,700.

That is a high reward type move. And one we need to consider.

Crash #2?

Crash #2?

President Trump is mocking Warren Buffett for having sold his airline stocks, Druckenmiller crying on TV about having been humbled by the market while every Robinhood retail trader piling into ever more into calls is laughing all the way to the bank. The professionals gobsmacked at the complete upside down events in markets compared to any other time in recorded history given the economic backdrop while retail is giddy jumping into any ticker symbol that’s moving valuations be damned, hey let’s even chase bankrupt companies, why not?


Sven Henrich✔@NorthmanTrader

This market is so bullish even bankrupt companies are rallying.

$HTZ

View image on Twitter

Anything goes in the market.

I myself, have been surprised by the recent vertical strength that keeps running from gap to gap to gap.

Sometimes you just have to laugh:


Sven Henrich✔@NorthmanTrader

$NYSE chart art.

View image on Twitter

On the day of the lows I talked about an awe-inspiring rally coming. Consider me sufficiently awe inspired.

And now the same folks that told people to buy stocks in January and February right before the crash are back out and telling people to buy stocks again except this time at much higher multiples and valuations.

My variant take here which may well turn out to be very wrong: The Fed is setting markets up for another crash. Why? Because they’ve set in motion a stock market mania we have not seen since the 2000 tech bubble. But this time while we’re still in a recession.

And it is a mania and it’s important to recognize this. And like all manias it’ll end badly. The amount of “ever’s” keep building up.

We have the highest market valuations ever (market cap to GDP) 151% on Friday’s close with old GDP data hence the real figure is higher. This chart from the beginning of June:

…click on the above link to read the rest of the article…

This Isn’t Just Another Crash

This Isn’t Just Another Crash

This Isn’t Just Another Crash

Like addicts who cannot control their cravings, financial analysts cannot stop themselves from seeking some analog situation in the past which will clarify the swirling chaos in their crystal balls.

So we’ve been swamped with charts overlaying recent stock market action over 1929, 1987,2000 and 2008 — though the closest analogy is actually the Oil Shock of 1973, an exogenous shock to a weakening, fragile economy.

But the reality is there is no analogous situation in the past to the present, and so all the predictions based on past performance will be misleading. The chartists and analysts claim that all markets act on the same patterns, which are reflections of human nature, and so seeking correlations of volatility and valuation that “worked” in the past will work in 2020.

Does anyone really believe the correlations of the past decade or two are high-probability predictors of the future as the entire brittle construct of fictional capital and extremes of globalization and financialization all unravel at once?

Here are a few of the many consequential differences between all previous recessions and the current situation:

1. Households have never been so dependent on debt as a substitute for stagnating wages.

2. Real earnings (adjusted for inflation) have never been so stagnant for the bottom 90% for so long.

3. Corporations have never been so dependent on debt (selling bonds or taking on loans) to fund money-losing operations (see Netflix) or stock buybacks designed to saddle the company with debt service expenses to enrich insiders.

4. The stock market has never been so dependent on what amounts to fraud — stock buybacks — to push valuations higher.

…click on the above link to read the rest of the article…

Energy Collapse, Earnings Ennui, & Consumer Credit Cracks

Energy Collapse, Earnings Ennui, & Consumer Credit Cracks

Summary:

The energy sector has lost extraordinarily $1.15trn in market value this year as oil prices have plunged to almost unimaginable levels. 

In this equity update we provide investors with different ways to play the havoc in the energy sector. We also take a look at earnings this week with especially Carnival earnings being the most interesting to watch as the cruise industry is in a severe crisis due to COVID-19.

Lastly, we focus on consumer credit and the apparent weakness observed in China and how that could be a forewarning of what to come in the US and Europe. As a result we recommend investors to add Mastercard and American Express to their watchlists.

The global energy sector has been punched in the gut by first a slowing economy last year and then this year by an oil price war between Russia and Saudi Arabia. Making things worst the sector is now experiencing an abrupt 20% oil demand reduction equivalent to 20mn barrels a day or the entire consumption of the US. The oil futures curve is in steep contango as the active contract in Brent today went below $23/brl and stories have recently surfaced that physical oil is being transacted at $8/brl and oil storage is running out of capacity. As we talked about on our Market Call this morning the constraint on physical storage and ongoing demand destruction could push the front-end of oil futures down even further.

The current oil price creates extreme shareholder destruction with the MSCI World Energy Index losing $1.15trn in market value this year.

…click on the above link to read the rest of the article…

Damage Done To Market Signals End Of Buy The Dip Era

Damage Done To Market Signals End Of Buy The Dip Era

The damage done to markets will act as a barrier to higher stock prices in the future. This should force investors to return to reality. We have crossed the tipping point with the destruction of small businesses by the government in the name of the “greater good.” The heavy lifter, the great job creator, and the most productive part of society has been thrown under the bus. Most of the support being provided by the government is set to flow towards the most vulnerable parts of society, big business, and Wall Street banks. if anything small businesses are being asked to pay a great deal of the cost.

A few years back someone pointed out that a corporate chart indicating how a company works often ignores the truth of who is really making decisions and getting things done. For example, Fred may be the director of maintenance, and also the brother of the company’s owner, this puts him in charge of deciding when to replace machinery, however, Todd the maintenance foreman actually make the decision based on how often units require repair. In this case, if you want to sell equipment Todd is the man you want to talk to. My point is that things are not always as they appear.

This is a very complex market and it is important to sort out who is selling, who is buying, and why. The motivation behind investors’ actions speaks volumes as to where this market is going. It is difficult to argue there is a lack of visibility as to what lies ahead.  We often forget the important distinction that the financial system is different from the economy. 

…click on the above link to read the rest of the article…

The Crash Of 2020 Is Now Worse Than The Great Depression

The Crash Of 2020 Is Now Worse Than The Great Depression

Back in December, someone in China made bat soup (at least according to the officially accepted narrative that doesn’t get you banned on Facebook, Twitter, etc), and the rest is history: in the next three months, the global equity market has lost $24 trillion in value, more than the $22 trillion in US GDP. And here is a staggering chart from BofA putting the crash of 2020 in its historic context: in the past month, the US stock market has crashed faster than both the Great Depression and Black Monday, and in terms of the total drawdown, the crash of 2020 is now worse than 1929 and is fast approaching 1987.

Below, courtesy of BofA CIO Michael Hartnett, are several other stunning observations on the Crash of 2020:

  • Calls for Fed corporate bond buying, New Deal fiscal policies, new Plaza Accord to stabilize US$, closure of stock exchange coincide with week of Wall St devastation.
  • Peak-to-trough crash in global equity market cap = $24tn (c/o US GDP = $22tn).
  • Monday’s 12.0% drop Dow Jones = 3rd largest crash all-time (c/o -20.5% Oct 19th 1987, -12.9% Oct 28th 1929 – Chart 2).
  • Liquidation of “safe havens” e.g. gold & US Treasuries (TLT ETF sank 20% after oil shock); epic US$ surge reflects funding pressure of excess US$-denominated debt & zero liquidity.
  • Leverage in bond & stocks savaged (see REM, PFF, EMB, homebuilders like TOL – Chart 3); bond yields rise + bank stocks fall = classic sign of deflationary bear market.
  • Feral Wall St means vicious bear market rallies…WTI oil surged 24% today.
  • Stock exchange has closed just 4 occasions: 1914 & WW1, 1933 bank holiday, 1963 Kennedy assassination, 2001 9/11.
  • Global “lockdown” on movement people, goods, services unprecedented but note June 1930 passage of protectionist Smoot-Hawley bill saw US stocks -16.5% in one month.

And some additional views:

…click on the above link to read the rest of the article…

Stocks Suffer Worst Week Since Lehman Despite Biggest Fed Bailout Ever

Stocks Suffer Worst Week Since Lehman Despite Biggest Fed Bailout Ever

This has been the sharpest market selloff in history…

This was the worst week since Lehman (and worst 4 weeks since Nov 1929) for The Dow Jones Industrial Average…(Dow was down 18% during the Lehman week and 17.35% this week)

Source: Bloomberg

Despite The Fed gushing a stunning $307 billion into the markets – almost double its previous biggest liquidity injection (in March 2009)…

Maybe it was the ‘stock’ and not the ‘flow’ after all…

Source: Bloomberg

Stocks still have a long way to go to erase all the delusion (compared to actual profits)…

Source: Bloomberg

And if you think stocks already fell too much, think again… Total market cap to GDP is just now retesting the peak of the housing bubble levels!

Source: Bloomberg

As @TaviCosta notes, “This puts into perspective… We truly were at absurd valuations.”

Never Forget!!

Chinese markets are mixed since the Wuhan flu began with tech-heavy super-leveraged ChiNext still green as the the megacaps get pummeled…

Source: Bloomberg

In Europe, “Whatever it takes” wasn’t enough…

Source: Bloomberg

Nasdaq remains notably higher since President Trump’s inauguration, S&P is barely higher but The Dow, Transports, and Small Caps are all underwater now (the latter two crushed)…

Source: Bloomberg

And US stocks are testing a serious trendline…

Source: Bloomberg

S&P 500 broke the post-crisis uptrend dramatically…

Source: Bloomberg

With the Median US Stock down over 50% from its highs…

…click on the above link to read the rest of the article…

Ciruit-Breaker Halts US Stock Markets At Open 15 Mins

Ciruit-Breaker Halts US Stock Markets At Open 15 Mins

US equity markets are opening down extremely hard this morning after futures traded limit-down from shortly after last night’s open.

The 10% surge in stocks to end Friday and provide hope into the weekend has been decimated…

And with the S&P 500 opening worse than 7% lower, (below 2521), the first circuit-breaker has been hit and trading will pause for 15 min.

As a reminder:

    If declines 13%, (to 2358) trading will again pause for 15 mins

    If falls 20%, (to 2168) the markets would close for the day.

Oh and then there’s this…

We Are Heading for a Depression – Charles Nenner

We Are Heading for a Depression – Charles Nenner

Renowned geopolitical and financial cycle expert Charles Nenner told his clients back in January 2020, “It was time to sell . . . . I am afraid they can lose 40% to the downside.” Well, we are more than halfway there, and Nenner warns it’s going to go lower—much lower. Nenner says, “You know it was all over the media, and they were always laughing at me that my long term target is 5,000 for the DOW Jones. They ask me how are we going to get there, and I say I don’t know. Now, this thing with the virus, there is no business anymore because the United States has stopped flights with Europe. So, maybe we can see how we get there.”

I think people have finally stopped laughing about Nenner’s  5,000 DOW call.

Another way the markets can crash is a full blown banking crisis that is brewing in Europe. At the center is Deutsche Bank (DB), which the IMF called the “most systemically dangerous bank” in the world back in 2016. Nenner predicted on USAWatchdog.com that if DB stock crashed through a $6.44 price target, it could go to $0. DB closed Thursday at $5.53, down 15% in one day. Nenner says, “I have real estate I want to sell because in Amsterdam, it’s going through the roof. I decided not to do it because I don’t trust the banking system. For years, we have talked about Deutsche Bank, and I said if it goes below $6.50, it could go into bankruptcy. Now it’s $5.50. They are interconnected to most European banks. So, something is really cooking over there, and I don’t really trust the banks. That’s why I am not selling my real estate. . . . I don’t trust the banks anymore.”

…click on the above link to read the rest of the article…

S&P Opens Down 7%, Triggers Circuit-Breaker – Halted For 15 Mins

S&P Opens Down 7%, Triggers Circuit-Breaker – Halted For 15 Mins

It’s a Monday morning replay. S&P cash markets have opened down 6.7%, bounced a little, before tumbling back down to a 7% loss, triggering the first system-wide circuit-breaker, causing markets to halt trading for 15 minutes.

During US trading hours (Cash)

  • Level 1: 7% fall to 2549.48 before 15:25EDT/19:25GMT will prompt a 15-minute pause.
  • Level 2: 13% drop to 2385.00 before said time will introduce another 15-minute pause.
  • Level 3: 20% decline to 2193.10 within the time will shut the markets

NOTE: Only the 20% rule applies to the final 35 minutes of trading.

During US trading hours (Futures)

  • Level 1: 7% fall to 2546.50
  • Level 2: 13% drop to 2382.00
  • Level 3: 20% decline to 2190.00

Where are the circuit-breakers:

$2.5 Trillion Wiped Out As World Stocks Crash Most Since 2008

$2.5 Trillion Wiped Out As World Stocks Crash Most Since 2008

As we previously noted, S&P futures triggered a “level one circuit breaker” after falling 7%, which means trading will be halted for 15 mins. The movement of US equity futures today is likely crash, then halt, crash then halt.

It’s only a matter of time before more intervention is seen…


Remember when the Fed did an emergency rate cut last Tuesday? Good times.


As for global stocks, it’s much of the same. MSCI All-Country World Stocks Index is down 5.3%, on the worst day since December 2008. The move has wiped out roughly $2.5 trillion in value of global stocks, noted Reuters.

Here’s iShares MSCI World ETF down -8%, back to August 2017 levels.

As a reminder:

· If the S&P 500 declines 7%, (208 points), trading will pause for 15 min

· If declines 13%, (386 pts) trading will again pause for 15 mins

· If falls 20%, (594 pts) the markets would close for the day.

Trading halts are currently sweeping across the world, one of the first times since the 2008 financial crisis.

The Last Time Markets Were This Over-Valued, DotComs Crashed & The VIX Complex Collapsed

The Last Time Markets Were This Over-Valued, DotComs Crashed & The VIX Complex Collapsed

If you’re buying stocks here with both hands and feet, these are the ‘facts’ you’re accepting…

The market has never, ever been more complacent…

Source: CNN

At least 12 people dead in Kazakhstan plane crash

The market has never, ever been more highly priced. The last time that the S&P 500’s price-to-sales (far harder to manipulate that P/E) was March 2000 (right before the dotcom collapse) and late Jan 2018 (right before VIXmageddon)…

Source: Bloomberg

Additionally, Enterprise Value-to-EBITDA is near its record highs…

Source: Bloomberg

Additionally, the yield curve trading flatter/below the credit spread of US senior bank debt has not ended well for markets…

…click on the above link to read the rest of the article…

Brace Yourself: The Next Epic Collapse Could Be Weeks Away

Brace Yourself: The Next Epic Collapse Could Be Weeks Away

There wasn’t a group of people more wrong about the 2008 financial crisis than those at the Federal Reserve.

Mere months before the disaster hit in earnest, the nation’s highest economic and financial officials were vocal that there was nothing to worry about.

Most memorable of these are perhaps two comments from former Fed Chairman Ben Bernanke…

In January 2008, he said, “The Federal Reserve is not currently forecasting a recession.”

And later that year, in July, he said Fannie Mae and Freddie Mac – the two government-sponsored enterprises that kicked off the credit crisis a few months later – were “in no danger of failing.”

And it wasn’t just Bernanke. The same delusional sentiment was echoed by almost all the top Fed and Treasury officials… as well as those in the mainstream financial media and academia.

Of course, we all know how things played out…

When the housing bubble burst in 2008, the effects rippled throughout the economy, kicking off the largest financial and economic crisis since the Great Depression.

And the S&P 500 – a good proxy for the U.S. stock market – went on to fall by over 56%.

The reason I’m telling you this today is to remind you that people exhibit laughable sentiments near the peak of bull markets.

And today, we’re hearing much of the same sentiment that was displayed before the 2008 crisis.

But as you’ll see below, it’s not the only sign I’m seeing of a coming crisis…

A Contrarian Indicator

I’ve written before about why I believe we’re near the peak of the largest bubble in human history.

And as I’m about to show you, there are clear indicators of a coming crisis… in the auto sector… the housing sector… and in the economy as a whole.

 …click on the above link to read the rest of the article…

Plunge Protection Myths = Keynesian Economic Myths

QUESTION: What about what China did by buying stocks a few years ago to stop the hang sang from dropping

LW

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ANSWER: Do not confuse attempts to support a market from actually being able to do so. This is the same as Keynesian economics that government could prevent recessions. Larry Summers admitted the government cannot even forecast such events. Not only during the Great Depression did companies jump in to buy their shares during the crash to try to prevent the decline. Most of the companies that took that action actually failed for they bought the stock back trying to hold the price and lost needed cash reserves. They could not sell stock again nor could the borrow.

During the collapse of the Nikkei after 1989, companies held believing that the government would support the market. When they realized the government could not then the government encouraged us to bail out the Japanese corporations. We helped well over 300 public companies issuing a note to buy their portfolios at their cost with 10-year payouts and each note had to be approved by the Japanese government individually. If the governments were able to actually prevent declines, then they would. But nobody can do that for the size of the public at large far outweighs any institution, group of institutions, or banks.

People would rather believe in conspiracy theories than simply look at the reality. Attempts to manipulate markets ALWAYS fail because the majority is far greater than any minority. The trend is made by the MAJORITY. A panic sell-off like the Crash of 1987 took place BECAUSE there was not bid – not that there was a massive short position. Scare the MAJORITY and they then try to sell, you find no bid and that is how a flash crash unfolds. This is why outlawing short positions is destructive for the only person with the courage to try to catch a falling knife is the one who is taking profit – not initiating a long position.

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
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