Wednesday, February 10, 2016

All Ponzi Schemes Collapse Suddenly And Violently

This one will be no exception.

Ponzi schemes collapse when investors demand return of capital over return on capital, kind of like support is 10% lower:

Imagine if they let Bernie Madoff out of jail, he started a new fund, and all of his old investors gave him what was left of their money to invest.

That's what happened after 2008. The Idiocracy gave their money back to Wall Street.

A Ponzi scheme is a liability without an asset. Insolvency is papered over with inbound liquidity compliments of the marginal fool. When the last fool is found, the scheme collapses.

Generation Madoff doesn't know a Ponzi Scheme when they see one..the last fool has been found...
Price / volume:

In 1929, stocks fell 90% over three years, because profits collapsed along with the economy. This time, stocks will fall far faster. Since 2008 (long before, really), Wall Street and corporate liquidators have been selling the economy for special dividends, all obscured with stock buybacks to maintain the notional value of the indices . In other words today's multinational corporations are hollow marketing shells that buy product in one locale and sell it in another locale, marked up 10x. They don't "make" anything, they're middlemen with no tangible assets other than an overvalued "brand".  

Stock buybacks prop up stock prices while market capitalizations are going DOWN. At its peak in 1999, Microsoft was worth over $600 billion. Today's it's worth $400 billion. Why? Because share count has been reduced for 15 years straight. 

Looking at this chart, 99 out of 100 people would say that the company was worth more today than in 1999... 

The people who invested with Bernie Madoff never asked how he made 12% per year every single year for over two decades straight.

Why? Because they didn't want to know. Ponzi schemes are predicated upon willful ignorance...

"I'm sure it will be different this time"
S&P with GAAP profits:

"Buy The Fucking Collapse": The Pain Hasn't Even Started

ZH: Feb. 10, 2016
Bonus Chart: No Bulls Left

Unfortunately, bear markets don't end when someone fills out a survey...there needs to be extreme panic selling, and so far there has been NONE:

One of these is not like the others...
Options implied volatility with Wilshire total market index

Hedging? That's what Central Banks are for...

This is how Wall Street used to hedge:
Index put/call ratio:

TRIN: (Lack of) Selling pressure

Got volume?
Average S&P stock with volume:

Deathstar 2.0 Implosion Sequence

Global Financial risks have never been anywhere near as high as they are now...

Let's see, we have the Deutsche Lehman meltdown in broad daylight, featuring $60 trillion in derivative exposure

The daily Chinese currency devaluation combined with liquidating $4.5 billion of FX reserves per day

The ongoing Sovereign wealth fund liquidation to pay the bills

The Dollar/Yen carry trade unwinding in broad daylight

The daily oil implosion, now featuring a supply / demand imbalance growing wider with every passing day

The daily Skynet gap and crap with liquidity at all time lows

Stock market technicals the weakest since 2008
Global meltdown: "Strong Buy"

Implied volatility at the highest closing levels since the day before the August Flash Crash

Sector rotation into the most defensive stocks in the market

GDP "Growth" highest in 10 years, all funded by borrowing - meaning de facto recession attended with Ponzi borrowing

Central Banks paying people to borrow money, while obliterating global banks

Junk bonds and leveraged loans at lowest level since 2008

"Someone" just made a colossal bet that *some* Energy company would shit on the High Yield market within a month, most likely Chesapeake, the $2 stock that "Controls this entire market". At the money, those options control $308 million of underlying and are betting that High Yield is 7% lower in the next few weeks...

The Average American $1,000 away from financial crisis

Generation Madoff leaning ALL IN on stocks

Team Groupthink aka. Wall Street/CNBS, blowing smoke up everyone's asses non-stop

A Federal Reserve "pausing" rate hikes at .25% until the economy floats back from China

Stoned zombies preoccupied with which game show host will be the next captain of the Titanic

Stock buybacks propping up a worthless stock market, while insiders cash out to the Cayman Islands, just like they did in 2007:

Pouring Gasoline On A Dying Fire

Rallies are getting steeper and shorter, locking the bulls in for the ride lower...

"Then they threw all their money away on worthless stocks. Yes, again."

Price / volume

Kiss goodbye
Skynet tagged the all important 1880 Maginot Line, compliments of Yellen's bullshit and then gave it ALL back. For the second day in a row a 20-30 point rally ends flat...

Nasdaq count:

Oil (ETF): At the precipice
WTI is ready to make a new low, it settled at $27.30 (not shown)

JPY (red) 
"Have your fun, then we're going lower"

"Can't we throw more money away first?"

Priced For Implosion

High yield bonds with oil:

As mentioned yesterday, *someone* is betting in size that the Junk Bond market blows up within the next month. By sheer "coincidence", the second largest Natural Gas producer in the U.S., Chesapeake Energy, has a bond issuance maturing on March 15th for $500 million. Also by coincidence, they just hired bankruptcy attorneys AND the company was downgraded by S&P this week. 

This is the stock. 

As ZH reports, their bonds are already priced for bankruptcy:
Chesapeake bonds are yielding 300% annualized

The point I would make is that someone close to this company is making a massive bet that they default between now and March 18th, and in doing so blow up the entire Junk bond market. This bet is not merely a hedge of an existing position, because it's deep out of the money, and it's not against a specific company, it's against the entire High Yield market. An investor hedging would not be making a systemic bet. 

This company has $16 billion in debt that would need to be restructured in the event of a default, which would qualify as a systemic "event", and only the first of many "restructurings".

The dashed horizontal line is the break-even point. The line extends to a 500% gain on the options position:

High Yield market:

Generation Madoff Wants A Lesson In Humility

This morning, Fed Chairwoman Yellen said that "market conditions are less supportive of growth", which of course vaulted stocks, because there's nothing quite as bullish as a dissolving economy. But then, as expected the Dollar/Yen rolled over and stocks dutifully followed...Sooner rather than later the idiots at the top will be forced to admit, "Ok, we're idiots, we're just making this shit up". And then the underwear will be mighty stained for the generation that can't stop lying...

"My base assumption is that you are all corrupt morons who won't question anything I say. It's a tradition."

"It's ok for the children to think they have no future, but not us, we've always taken the easy way out. Why change now?"

CNBC Breaking News: "25 year-olds have to stop aging if they want to get a job"
Employment rate (25-54) red line with Fed Funds Rate:

U.S. forward deflation is now beyond Lehman
TIP:USB ratio:

High Yield credit spreads: Beyond Lehman

Investment grade credit: At Lehman lows...

Nothing Was Learned In 2008. Absolutely Nothing.

The definition of an Idiocracy is a society that never learns. This will be a lesson they never forget...

The market for the illiquid derivatives Deutsche Bank owns, no longer exists, it was predicated upon $100 oil and a growing global economy. Selling those "assets" would make the bank instantly insolvent. So now we're back to that deja vu stage when desperate gamblers lie constantly to buy time. It's their job to tell the lies, it's our job to believe them. 

"A production cut deal between OPEC and non-OPEC members is expected any day now. I mean now. Or now. Maybe tomorrow."

"The ECB may monetize bank stocks" (whatever that means)

"Our bank is rock solid. It's only down 88% from the highs in 2007"

Deutsche Bank's "Dick Fuld" (Ex-Lehman CEO) moment came yesterday:
"Deutsche CEO Says Bank is Rock Solid"

Now today, the CEO is saying the company *may* buy back some of its outstanding bonds which are trading at a massive discount to face value. Really? If they were going to buy back the bonds, they would have already, they wouldn't announce it ahead of time and pay a much higher price. Those bonds were issued to raise cash, that has already been deployed and is not sitting in an account waiting to buy back bonds. The whole thing is Lehman 2008 all over again. They have a $60 trillion derivatives "book" and no one knows how much of that is solvent versus how much needs to be written down.  

The fundamental issue is that the derivatives market is illiquid and consists of investments that don't trade on a day to day basis marked to market. Hence their notional value as stated on the balance sheet is now a pure fantasy. Without a ready buyer for those illiquid bad investments, prospective stock buyers have no idea whether or not the company is technically bankrupt, which in this uncertain market, very likely is. Nothing was learned in 2008 - today's banks carry miniscule capital (equity) coverage against their colossal illiquid liabilities. Capital ratios that meet the stooge requirements of stooge governments, but which don't work when credit markets slam shut overnight. If DB needs a bailout from the German government, then rest assured that stock investors will lose everything and the German public will get stuck with a $60 trillion bag of shit massively leveraged to commodities and Emerging Markets. 

Today's banks are call options masquerading as businesses. After the free bailout in 2008 it was only a matter of time before we were seeing this movie all over again. 

If someone uses the term "book value" when it pertains to banks, you can safely assume they're an idiot. There's no collateral behind these "assets"...

"Are you people blind? This bank is rock solid"

"Who wants to monetize some more stock?"

Tuesday, February 9, 2016

Ponzi Unwind Out of Control

Central Banks have lost control over the global Ponzi Scheme. For seven years they used momentum to tempt gamblers to seek higher return on capital. Now it's all going in reverse and investors only care about return of capital...

The pair trade of this era is Long Japanese Yen, short Yuan, basically betting that hot money flows out of China back to Japan. Both trades are at multi-year highs with speculators...

Meanwhile, Fed chair Yellen, in her testimony to Congress tomorrow can't win. If she's too hawkish, the dollar rises, hammering commodities and exporters. If she's too dovish, she hammers banks and further weakens dollar/Yen.

For its part, the ECB's negative interest rate policy is doing its best to demolish European banks, now at multi-decade lows. And the next ECB meeting isn't until March 10th. 

All four Central Banks are totally out of ammo and the markets are totally ignoring them now.

Yen bulls are at a five year high:

Here's why...
Japan's current account (trade) surplus of 3% of GDP overrides BOJ easing.

"Their latest easing to -.1% is insignificant"
"The trend in the balance of payments will remain the primary driver"
"We are looking for Fed Chair Yellen to indicate recovery is on track, if she notes economic weakness, that will further pressure Dollar/Yen and Dollar/Euro"

DHL Risk. Overnight Delivery Guaranteed

Skynet is losing control of this increasingly illiquid and unstable market

These are the DOWNSIDE opening gaps in the S&P > 10 points:

Another movie we've seen before

Some people like to learn the hard way. And they will...
The two biggest Flash Crashes. So far...

Deutsche Lehman Too Big To Bail

"I'll take a globally coordinated Central Bank policy reversal, with a side of fries"

One bank is demanding a globally coordinated Central Bank intervention that is diametrically opposed to everything they are doing right now. Forty global stock markets are already in bear territory with losses over $8 trillion, but Deutsche Bank wants all existing economic policies reversed on THEIR behalf...

ZH: Feb. 9, 2016
We've seen this movie before...
"don't do these things, and if Deutsche Bank and its $60 trillion in derivatives blow up, it will be on you."

The ensuing Central Bank scheduling clusterfuck:
"I can't make March, how's your April?"

Lehman's stock was at $15 just days before it collapsed...

The primary policy "recommendation" is reversal of strong dollar policy. The strong dollar unwind is already well underway in broad daylight and hammering risk assets every single day

I mean every single night

The Point of No Return

We live in a profoundly stoned Idiocracy that only trusts serial psychopaths, and only watches infotainment. Reality can't compete with the circus, for the Idiocracy's attention...

MW: Feb. 9, 2016
"Charting the S&P 500's Precarious Posture"
" sentiment, as measured by the Volatility Index VIX, remains stubbornly complacent, also supporting a bearish view. The VIX closed Monday under the December and January peaks, even with the S&P 500 threatening a major technical breakdown."

S&P Weekly with Inverse Volatility

Wilshire Total Market Index

Russell 2000 Small Cap

NYSE Composite


New highs-lows

Kimberly Clark/S&P Ratio

Throwing money away visualized:
Price / Volume: 

All World Index