WHAT A LOAD

Almost 6 months ago, because of what we saw emanating from central banks, we thought there was a chance of a market melt-up regardless of the pandemic, regardless of the upcoming election, regardless of anything. We just thought that 0% rates, negative rates and the massive printing of money would lead to our exact quote that we wrote to you and uttered several thousand times on our radio show:

“In the late innings, the froth and speculation will make 1999 look like a piker as trillions of conjured up money gets into the system and into the greed and leverage that builds up because of it. We just don’t know yet in what form!”

Of course, as explained, the problem with manias that form in the late innings, is that they end in disaster for markets. Extreme greed goes coast to coast to extreme fear as the recognition that the tide has really turned takes over. The leverage that exploded during the bull phase has to come off first before real dollars get sold off. This turns normal bearish phases into something much worse.

We do not think we are there yet but at the very least, we have hit a good short-term momentum high in the average stock. We started talking about it this past Tuesday when a bunch of names started breaking down while the indices did not budge. The subsequent days saw more and more names and more and more sectors top for now, leading to the indices finally buckling. We are also less than thrilled that some great earnings noise still resulted in sell-offs in important names like APPLE, FACEBOOK, MICROSOFT and a bunch of FINANCIALS. Remember, it’s not the news, it’s how things react to the news. Again, we are not sure yet if this is major or just the start of a darn good correction that was way overdue.  We will know as more cards come out of the deck but for now, a little defense is not a bad thing.

And the froth and speculation…SOME OF THE FROTH AND SPECULATION WE ARE SEEING IS NOW INDEED MAKING 1999 INTO A PIKER. We thought it was bad when Wall Street foisted upon an unwary public a bunch of ridiculously over-priced IPOs. Many have NO SALES. We thought it was bad when SPAC after SPAC was coming out merging with companies that were just started up in the previous months with most all selling the same products. We thought it was bad when leverage (margin) had skyrocketed in unprecedented fashion over the past few months.  But what we have seen in this recent short squeeze is indeed unprecedented. We have never seen moves like this before. We have never seen moves like this before in such a short period of time. But the reactions? The commentary? The politicians? WHAT A LOAD! WHAT A BIG GIGANTIC LOAD!

THE usual suspects have come out calling markets rigged and that we must tax the hell out of the markets, investors and traders. Warren, Sanders, AOC and the rest of these jokes have never seen a tax cut they did like and have never seen a tax hike they didn’t like. Self-proclaimed capitalist Warren is especially precious as she sounds like every Marxist that has destroyed wealth by trying to crush wealth by trying to convince the masses all wealth is crooked. They got it all wrong. It is not Wall Street that has rigged markets. Who got it right? My good buddy Charles Gasparino from Fox Business who was not afraid to come out and rip the central banks for enabling all this. Yes…this has all been enabled by Powell, Yellen and the original Mr. Bubble himself, Mr. Bernanke. But Powell has made his two predecessors look like Paul Volcker. We cannot fathom what he has been doing, how much has has been doing and what he will continue to do…and that is enable massive debt, massive deficits and for the markets, massive leverage. We watched his presser this past week with mouth agape as he shrugged off any responsibility for his 0% rates, the $7 trillion+ of printed money ($20 trillion+ around the globe) and the $125 billion/month of printing continuing matched by the lemming at the ECB. This leverage feeds on itself creating greed, more greed and even more greed until the leverage finally bites. Price discovery has been destroyed. Junk bond yields are at their lowest ever even though their debt is at their highest ever.  Savers are getting the big middle finger. Every asset price, every data point, every statistic is based off of this monumental, gargantuan easy money. Why do you think it keeps going and keeps increasing? He and they have no choice.

Put them all in jail! Yup…heard that quite a few times. With no facts, no evidence, no nothing…a bunch of people with a political agenda, bias and ulterior motive couldn’t shut their mouths. Just throw them in jail. Who gives a crap about whether someone or some entity did nothing wrong? Just throw them in jail.

The short sellers! No one has any sympathy for them. They are portrayed as criminals, crooks, cheaters, liars and every under name in the book. We will just state our 5 rules of shorting again! 1) Never short a stock that already has a massive short in it.  2) Never short a stock that already has a massive short in it. 3) Never short a stock that already has a massive short in it. 4) Never short a stock that already has a massive short in it. 5) Never short a stock that already has a massive short in it. But we have to add something else! Normally, we would ask “where was the risk management?” There couldn’t have been risk management because of how much and how levered the shorts were. You saw the outcome of just a bit of covering.

Robin Hood! A big fat duh! We may find out chicanery was going on but we have news for you. The past 6 days of volume on just Gamestop…197 million, 177, 178, 93, 58, 50. The past 3 days volume lighter because prices were much higher. The swings were all over the map. The risk to capital is enormous. People that went 100% margin long near highs lost all and more intraday. Again, we will find out if there was chicanery but the company had to perform some risk management.Volume on many other names were also gargantuan.

They now think they can’t lose.  Yup…didn’t you know? “We are not selling!” We read that one!  “Gamestop is going to $10,000…maybe $50,000.” We heard that one. There is actually a move afoot to get all these “up and comers” to just not sell their Gamestop stock that was $20 two weeks ago. Articles are now being written with the title “A Mother’s lesson, a 10-Year-Olds Windfall!” Does anyone even remember “Real Estate Riches” front cover in 2007? We have news for all these people that believe this is going to last for a good long time. IF THEY HOLD TOO LONG, THEY ARE GOING TO LOSE THEIR —. WHEN THE MUSIC STOPS, MOST ALL IF NOT ALL THESE NAMES ARE GOING BACK WHERE THEY CAME FROM! Eventually, valuation will matter. Eventually, this latest bubble, this latest mania will wear off. We do not know when eventually is. We do not know what target they have in their sights next. We do not know how high things go. We just know DO NOT BE THE LAST ONE IN AND IF YOU ARE, YOU HAD BETTER BE A TRADER!

THE AIRPORT! Coming back from the northeast before the storm hits, we had quite a few come up to us at the airport. All wanted to talk about one thing. All had the same thought process. Nothing could go wrong. On the airplane, one man could not shut up as he held court with a few people explaining “the new paradigm” and a whole new world where the people run the markets, not the hedge funds, not the mutual funds but the 100 share buyer! Yeah! Sure!

WE END WITH OUR BIGGEST WORRY AND QUITE A LOGICAL WORRY…

IF  LEVERAGED, ONE-SIDED SHORT TRADES CREATED SUCH A MONSTROUS SHORT SQUEEZE TO THE UPSIDE, WHAT HAPPENS IF THE ONE-SIDED TRADE ON THE LONG SIDE, CREATED AND ENABLED BY CENTRAL BANKS THAT HAS BEEN BUILDING UP OVER MANY YEARS AND IS A MILLION TIMES LARGER THAN THE SHORT SIDE GETS IN TROUBLE?

 

AKIN TO 1999- READ EVERY WORD

BY GARY KALTBAUM- JANUARY 27, 2021

None of this happens without him. None of this happens without her. None of this happens without their predecessor, the original Mr. Bubble. None of this happens without all the lemmings around the globe following in their footsteps. We have been telling you for months that we thought there was a chance of a melt-up in certain parts of the markets. But we have also been telling you for months that it would be the late innings. We have been telling you for months that those late innings come with massive froth and speculation and actually used the words “akin to 1999!” 1999 now looks like a piker.

Today, he speaks. Will he be asked about the bubbles he and his counterparts have created? Will he be asked about:

The massive insider selling via sales and secondary offerings that now number 400-500 in just the past few months.

A crap load of IPOs with no sales. That’s NO SALES. A crap load of IPOs with valuations of 100x sales, 200x sales and higher. THAT’S SALES, NOT EARNINGS.

Margin debt (leverage) exploding to the upside at a record pace. You all remember leverage. The leverage that almost destroyed the financial system when a bunch of crooks leveraged mortgage backed securities 10x, 20x, even 30x, which guaranteed what we saw in 08. You remember that leverage where so many committed fraud but not one indicted. You remember that leverage where rating’s services rated crap AAA when it shouldn’t have rated ZZZ. You remember the emails by some at the rating’s services calling the products “shit!” (Just quoting them!) You remember those leveraged products created by a certain gargantuan investment bank that created these products, sold these products to others and then immediately shorted them for their own account. (We would be in jail for a long time if we did that)

Junk bond yields at their lowest ever and by far. This begs the question how it helps the poor and the downtrodden to print money and buy up the bonds of Apple?

Global debt heading for $300 trillion. That’s $300 trillion. But don’t worry! Debt is fine when rates are low. Of course, rates are low because they keep printing money (debt) to keep rates down. Such logic!

Screwing Aunt Mary and Uncle Bob out of their risk-less income investments by keeping rates at 0% while bubbling up everything else around them. Or maybe we can just quote Mr. Bubble who once said something to the effect that Aunt Mary and Uncle Bob should just make it in the market. Of course, in some areas around the globe, when you deposit money at the bank, you have to give the bank a toaster.

The SPACs…yes, those lovely SPACs. You remember in 99 when mutual fund companies changed their name from “technology” fund to “internet” fund just to raise more assets. Or how about companies adding “.com” to their name just because they knew their stock price would go higher.  Welcome to the SPACs. Wall Street being wall street again foisting a bunch of #%@%@ onto an unwary but now very greedy public. By our rusty abacus, we think there is now about 150-200 trading with another 200 expected real soon. But don’t worry. there are no bubbles. Just because many are being merged with companies that have been invented out of thin air in the recent past just to merge, just because most all are doing the same thing…electric vehicles, batteries and solar cells, just because they are doubling, tripling and even more out of the box even though some have not even merged with any companies…don’t worry…there are no bubbles. There’s no bubbles when 200, 300, 400 companies say they are all going to produce the same products. Just give us a $5-10 billion valuation even though we have no sales and no hope for sales until 2025. Don’t worry, there are no bubbles. And just in case you don’t think these people raising money for these SPACs do not know what they are doing, one of them came out with the symbol “LMAO and LMFAO.” You think we are making that up?

https://www.forbes.com/sites/elizahaverstock/2021/01/08/a-sign-the-spac-bubble-is-no-laughing-matter-a-new-spac-called-lmfao/?sh=4ac8e77515b1

He doesn’t see any bubbles. She doesn’t see any bubbles. Hear no evil. See no evil. Speak no evil. These people are actually called economists while not only have they no problem with massive debt and deficits but are calling for “going big” even from here. They think everything is fine as long as they can just go deeper into debt and print unimaginable amounts of money. They think they are omnipotent because while not in office, one of them takes $250,000 for speeches from the same Wall Street  they were supposed to oversee and now oversee again. Yeah…that’s the ticket.

Gamestop…Yes, it is being caused by massive short squeeze but it is also being caused by people actually buying. We are receiving calls from people we do not know asking if they should buy a stock at $150 that was $20 recently. But this doesn’t happen without the gargantuan, massive, unimaginable, over-the-top, never can be believed amount of conjured up out of thin air easy money creating what we have been worried about…one of the most if not the most massive asset bubbles in history… and the people that created all this are still running the joint. But it is not just going to be Gamestop…AMC theaters closed at less than $5 last night…currently trading this morning over $16. Yes…that AMC where sales were down 90% last quarter. This is just part of the outcome we outlined for you in past months, just a lot crazier than even we thought.

When we look back on these SPACs down the road, many will have dropped not 50% but 90-100% as we will find a lot of chicanery. When we look back, we will find out many had absolutely no chance and that it was just money people again taking advantage of an unwary public that are starting to believe 50% gains in a week is the norm. When we look back on these massive short squeezes, eventually, their valuation will matter. Most all will go back to where they came from. When we look back on this massive leverage, we will have added another piece of evidence on how market cycles work. Remember, leverage is your greatest of friends in a bull market but your worst of enemies when things turn because leverage has to come off or even worse, is forced to come off first before the real money is even sold. You are seeing some hedge funds implode on these short squeezes because of the leverage.

Will anyone ask him or now her about all this? If someone does ask and he gives his usual flippant answer, will the question just get discarded but will some other hero press him?

We have been calling for a potential melt-up for months. But the biggest of melt-ups have been saved for mostly a load of crap. We cannot believe how many “no sales” or close to “no sales” stocks have skyrocketed on just a mention by a faceless someone on a website…but that is an outcome. There is going to be a lot of money lost when this music stops…and it will eventually will.

THE OVERALL MARKET

The good news so far is that major indices remain above important moving averages. A break and then and only then would we start getting real worried about the market but for the first time in a while, over the past few days, we have seen deterioration in quite a few names and sectors. If it worsens, we will let you know. Many are saying the weakness is because of forced selling by hedge funds who have lost big in these short squeezes. They could be right. We’ll just watch the price action. A break of moving averages will lead to a correction of some import but not sure the end is here just yet. We are not sure just yet that there are not a lot more fireworks to come as he will continue to print $125 billion/ month along with the lemming at the ECB that is doing the same. That’s $250 billion/month of printed money. That’s 0% rates. That’s negative rates. We are talking crap loads. Recall that the original Mr. Bubble only printed $85 billion/month and saw stocks soar on just that amount. These numbers do not include Japan and everyone else in the same bowl of soup.

We will need to see more cards come out of the deck. As always and as he has done since Christmas of 2018, if markets head lower, he will just go easier which means announcing more money printing. We will know the music has stopped and there are no chairs left when the markets stop listening to those moves from a man that refuses to let markets be free, let price discovery be real  and get away from markets being addicted from debt, deficits and easy money. Just remember that every economic statistic, every data point and every asset price is now fully addicted to these massive debts, deficits and money printing. There is no way he and they can ever roll it back. It is now unfortunate the two most important money people in the world who have created and enabled all of this with the original Mr. Bubble are now running the joint. We shake and shudder about what the culprits may do if markets do indeed one day swoon in a meaningful fashion.

A lot more to come on this. This was actually our very short version.