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Nothing Is Real: A Visual Journey Through Market Absurdity

Nothing Is Real: A Visual Journey Through Market Absurdity

Authored by Matthew Piepenburg via GoldSwitzerland.com,

When it comes to modern…

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This article was originally published by Zero Hedge
Nothing Is Real: A Visual Journey Through Market Absurdity

Authored by Matthew Piepenburg via GoldSwitzerland.com,

When it comes to modern markets, risk assets and the now normalized yet twisted tango of fiscal and monetary policy gone wild, it’s safe (rather than sensational) to simply confess that nothing is real.

As I recently watched BTC drop by 16% in one hour from $50K to $43K, only to reach back up to $46K in 20 minutes, my 20+ years of Wall Street experience watched with bemused yet experienced awe at what amounted to just another day of leverage, emotion and institutionalized front-running as the big money whales in crypto pulled off yet another media and SEC-ignored pump-dump-and-pump trade. 

In short, the unreal has simply become business as usual.

Real Education vs. Surreal Facts

By 1997, I had graduated from a steady, iconic and expensive list of higher educational institutions which emphasized critical thinking, objective data, historical context and basic math.

But had I told a single professor back then that one day we’d see the simultaneous occurrence of Treasury Yields at 1.35%, and

….an “official” YoY CPI (inflation) growth rate of 5.4%, and

…an S&P reaching all-time highs above 4000,

…despite negative annual GDP rates, and

… consumer sentiment tanking,

… it’s likely they’d ask me to return my diplomas.

Why?

Because everything I (and all the rest of us) had been taught long ago was that rising risk assets reflect healthy economic growth, vigorous natural demand and a robust confidence in continued productivity and hence free-market price discovery.

That, at least, was the “reality” that nine years of secondary (post high-school) education gave me before I began my first toe-dip into the public exchanges (i.e., asset bubbles) of 1999.

Experience vs. Theory  

What did I learn after watching the NASDAQ rise to the moon in 2000 before puking by greater than 80% in 2003, and a sub-prime bubble that had investors giddy in 2006 yet on their knees by the autumn of 2008, or far more recently, a decade+ bull market hitting needle-peak highs on the backs $28T in national debt and a Fed balance sheet that had bloated from $800 billion in 2000 to over $7 trillion by 2020?

The answer is simple: Nothing I learned in school was “real” and nothing about our current moment in time has even the slightest resemblance to anything remotely characterized as natural, free-market or fair-price-driven.

Nothing. Not even close.

Instead, we live in a dystopian world of engineered markets, centralized economies and dis-information in which extreme money creation by 5 central banks have increased their balance sheets by 12X like this

…leading to un-natural (i.e., “accommodated”) credit markets in which sovereign bonds offer negative (and technically defaulting) yields like this

…which makes the cost of debt free for a select minority, allowing corporations and their grossly advantaged and over-paid executives to live (and bloat) off their own stock buy-backs at levels this

…which directly results in central-bank-created risk asset bubbles like this

…in which greater than 86% of that market wealth is enjoyed by just the top 10% of the population, leading to wealth disparity at record levels like this

…while the self-serving central bankers like this...

…who directly caused this historical distortion of capitalism, congratulate themselves on hubris-saturated book tours like this

… or subsequently become the directors of Treasury Departments like this.

Mass Media, Mass (and Deliberate) Hysteria

Meanwhile, a feckless media owned by just a handful of corporate boards with direct ties to governments, tech billionaires, bad Davos skiers and Wall Street, and which more resemble the “nothing is real” propaganda profiles of Joseph Goebbels and Pravda than the “truth to power” stewards of Woodward and Bernstein, continue to headline tweets from crypto front-runners likeMusk or fear-porn mask mandates for children from a locked-down Sydney to a head-down New York.

All this, despite the confirmed science that children present near zero risk of serious illness from a global flu whose case fatality rates are less than ½ of 1 percent.

Crazy.

But as every tyrannical, autocratic and corrupt regime has always perfectly understood, when the truth is a threat, feed the masses fear, anger and lies instead.

This is history 101 for anyone who reads a book rather than tweet.

But rather than rage against the architects of so much distortion of honesty, math, science and social contracts, the media and policy makers distract the masses with bread, circus, fear and anger, stoking the fires of racial division and invisible death from above, pointing their woke and increasingly sanctimonious fingers at everything from a rapidly defunded police force to the “criminally selfish unvaccinated” who apparently live in caves and don’t believe in science or their fellow man.

Meanwhile, that oxymoron otherwise known as “modern culture” (rich in opinions but poor in questioning or earning them) cancels everything from Little House on the Prairie and Dr. Seuss to Robert E. Lee’s statue in Richmond, Virginia.

Sadly, however, if the broke and legitimately angry masses in the new feudalism now somehow passing for capitalism or constitutional democracy (at least the kind I studied in law school) were informed rather than just frustrated and manipulated, then instead of blaming these angry and easy-to-denounce faces

…they could simply blame the smug and harder to justify faces of anti-heroes like this

…or this

…or this:

Returning to the Nonsense

For now, the pablum and doublespeak from these so-called experts continues to float like jetsam from the polluted currents flowing out of an increasingly discredited FOMC as the markets pretend to brace themselves for a potential “tapering” of the otherwise blatant money addiction (and counterfeiting) still masquerading as policy support.

Angry crowds, however, typically have no time for hard policy facts, economic history or founding father ideals; instead, they are educated by 50 word-count tweets and the latest celebrity wisdom or virtue-signaled headline. It is easier to live as though nothing is real

Unknown to many in those angry crowds gathering around Robert E. Lee or Dr Seuss, for example, the Atlanta Fed just cut its q3 GDP forecast by 50% in matter of days.

From where I sit in terms of both history and economics (at least until these subjects are equally “canceled” from the modern curriculum), falling GDP as indicated above effects all our lives far more than falling statues or controversial children’s books.

But as we’ve written so many times, the powers-that-be are clever little foxes, and even crashing GDP and skyrocketing debt, which are objectively time-proven cancers for society, can be a boon for their false narrative of governmental or central bank “guidance,” which is nothing more than increasing social control hiding behind a Covid mask.

Debt to GDP: The New Distortion

After all, one way to address the appalling 135% debt to GDP ratio in the U.S.  is to simply reduce the productivity component rather than debt component of the ratio, akin to telling a man with only one arm that his shirts will fit better if we remove the remaining arm.

A “bad” debt to GDP figure is just veiled anchoring for more QE “stimulus” and more ludicrous fiscal spending of money which governments don’t in fact have but which a mouse-click at the Eccles Building can produce in seconds.

In simple speak, this latest GDP “bad news” looks like an open as well as carefully planned piece of “good news” for a QE-addicted, fully Fed-supported and ultimately rigged to fail stock bubble.

The Pointless Taper Debate

As for Fed tapering, even the hawks at that same Atlanta Fed can’t keep their message or ethics straight for more than a week.

Nothing at all shocking or new there…

Another Fed Two-Step

Back in August (8/27), for example, Atlanta Fed President, Raphael Bostic, bravely declared: “Let’s start the taper and let’s do it quickly.”

But fast forward just a few days to September 2, and that same Fed President, like so many other fork-tongued masters of doublespeak within the FOMC, back peddled with fabulous elan, declaring instead that “we’re going to let the economy continue to run until we see signs of inflation.”

The amount of “duplicitous dumb” within this single sentence defies both belief and this report’s word count, but for simplicity’s sake, and despite “signs of inflation” literally everywhere, Bostic’s latest semantic two-step translates to this: Don’t expect a “taper” of the free money spigot anytime soon.

Besides, and as we wrote last week, even if a “taper” in Fed QE were to occur, such hawkish optics won’t stop the Fed from dumping ever-more dovish liquidity into the system via clever little tricks up the sleeves of its Reverse Repo Program.

In short, the Standing Repo Facility (or SRF) is just QE by another clever acronym, so please: Don’t let the headlines or double-speak from above fool you.

Taper or no taper, the dollar in your wallet is about to drown under even more currency-killing liquidity from on high.

In short, nothing is real.

Tyler Durden Wed, 09/15/2021 - 06:30

Economics

“Well, That Escalated Quickly…”

"Well, That Escalated Quickly…"

Well, that escalated quickly…

US equities suffered their worst day since October (but was saved by…

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"Well, That Escalated Quickly..."

Well, that escalated quickly...

US equities suffered their worst day since October (but was saved by a decent late-day ramp off the S&P 100DMA and Dow support). S&P was the least bad on the day followed by the Dow and the Nasdaq, with Small Caps the biggest loser...

The Dow, S&P, and Small Caps were ramped back to practically unchanged from the US cash open...

After being down almost 1000 points, the Dow bounced hard off the July lows...

As Deutsche's Jim Reid noted:

"To be fair I’ve been worried about the over leveraged Chinese property sector for years without anything much happening so it’s hard to know whether this is finally the big one or not."

With the opening crash driving the second biggest selling wave in history...

Source: Bloomberg

Who coulda seen that coming? Well plenty of things were flashing red...

1) the post options expiration “gamma unclench” and “vol expansion window” allows for movement in US Equities (SPX and QQQ $Gamma were both +90%ile just two weeks back, now Dealer Gamma in negative territory vs spot for both)

Source: SpotGamma

2) a US Equities Vol market which has been pricing outright “crash” metrics for months (SPX Skew, Put Skew, iVol vs rVol, Term Structure all upper 95-99%iles),

Source: Bloomberg

3) significant de-risking flow potential from “negative convexity” vol-sensitives (what was +99%ile SPX- and QQQ- options $Delta just ~two weeks ago, 90%ile historical CTA Trend net exposure in DM Equities and 87%ile Vol Control fund US Equities exposure)

4) this week’s FOMC event-risk (higher Fed dot plot will signal faster tightening trajectory for ’23 & ‘24) and Debt Ceiling fears (the T-Bill curve's kink is becoming increasingly extreme and USA sovereign risk is on the rise)...

Source: Bloomberg

5) a poor weekly seasonal slice for global Equities ahead (Sep17-Sep24 median chg ~-0.4% SPX, -0.9% HSCEI, DAX & Eurostoxx, -1.4% for Russell, with clear “Defensives / Duration over Cyclicals” historical sector performance tilts)…

6) a macro scare catalyst to-boot (China real estate “contagion” off Evergrande - mainland closed for holiday, but HSI Real Estate and Financials smashed overnight, while USDCNH moving towards 6.50 with client “Evergrande default” hedges in topside there)...

Source: Bloomberg

And the ultimate risk for Beijing is blowing out...

Source: Bloomberg

and 7) A drawdown is overdue (S&P was down 5% from the highs today, the first time since October)...

Source: Bloomberg

There were a few other divergences...

HY debt has also not been as exuberant in the last few months as The Fed unwound its corporate bond book...

Source: Bloomberg

Dow Transports divergence from Dow Industrials is triggering 'Dow Theorist' warnings signals...

Source: Bloomberg

And breadth has stunk...

Source: Bloomberg

99% of S&P members were lower today - the worst level since June 2020's collapse...

Source: Bloomberg

The Nasdaq closed back below its 50DMA...

S&P broke below its 100DMA...

...and then late-day buying panic rescued it...

Small Caps crashed back below the 200DMA (and closed below it)...

All US equity sectors were in the red today with Energy the hardest hit along with financials. Utes were the least bad horse in the glue factory...

Source: Bloomberg

VIX spiked up near 28 intraday today...

Cryptos were clubbed like a baby seal...

Source: Bloomberg

Bitcoin puked down to the spike lows from Sept 7th and the El Salvador malarkey...

Source: Bloomberg

Still not everything was dumped today.

Bonds were bid across the curve (Asia was closed), with the long-end of yields down around 6bps...

Source: Bloomberg

On Friday, we pointed out that yields had hit a previous resistance...and sure enough, yields plunged...

Source: Bloomberg

The dollar was also bid, safe-haven/liquidity flows, and held at the pre-Jackson-Hole levels...

Source: Bloomberg

Commodities were mixed today with PMs bid and growth-related assets (copper and crude) dumped...

Source: Bloomberg

Finally, you have nothing to fear but fear itself...

Source: Bloomberg

Tyler Durden Mon, 09/20/2021 - 16:01
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Economics

Commodities and Cryptos: Oil slumps, Gold rebounds, Bitcoin plunges

Oil Crude prices are sharply lower after Evergrande debt default fears triggered a flight-to-safety that sent the dollar higher.  Evergrande’s woes…

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Oil

Crude prices are sharply lower after Evergrande debt default fears triggered a flight-to-safety that sent the dollar higher.  Evergrande’s woes are threatening the outlook for the world’s second largest economy and making some investors question China’s growth outlook and whether it is safe to invest there.  In addition to risk aversion flows pumping up the dollar, some investors are anticipating further hawkish signals that the Fed will set up a formal November taper announcement on Wednesday. 

Complicating the move in crude prices is the surge to record highs for UK gas futures.  Europe does not have enough gas and the energy problem could intensify if the early weeks of winter are cold. 

The US Gulf of Mexico production continues to recover from hurricane season, with now only 18.3% of offshore production being shut-in.  The oil market will still be heavily in deficit early in winter and if more demand comes that way, energy traders will buy any dip they get with crude prices. 

Gold

Gold’s rout is taking a break as investors run to safety over concerns Evergrande’s debt default concerns could spillover.  Gold got a boost as Treasury yields plunged, with the 10-year yield falling 5.4 basis points to 1.307%. 

Gold’s rally could have been much higher if not for the reports that Senator Manchin may be thinking of suggesting Congress take a “strategic pause” until 2022 before voting on the $3.5 trillion social-spending package.  Considering stocks are about to have their worst day since October, it is very disappointing that gold prices are only up around $10.  Gold may continue to stabilize leading up to the FOMC decision, with the next move likely being further downside.  Gold could struggle until the Fed finally starts tapering asset purchase.  It is then that it may start acting more like an inflation hedge.    

Bitcoin

A retest of the September low came far too easily for Bitcoin.  The fallout from the Evergrande is putting a tremendous dent in risk appetite that is sending everything lower. Cryptocurrencies, despite all the volatility, have been the best performing asset of the year, so it should not surprise Wall Street they are the first asset sold in the beginning of China-driven market selloff.    

Retail traders remain bullish, albeit many have capitulated in locking in some profit.  Some traders are anticipating a short pullback, while some lunatics are readying to buy more after tomorrow’s full moon.    

In El Salvador, President Bukele tweeted “We just bought the dip. 150 new coins!”  El Salvador’s total is now 700 coins and that enthusiasm has yet to be matched by other countries.   

If Bitcoin breaks below the $40,000 level, it could see momentum selling have it eventually return to the $30,000 to $40,000 range that it was in earlier this summer.  

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Economics

Asia’s Largest Insurer Hammered As Investors Sell First, Don’t Bother To Ask Questions

Asia’s Largest Insurer Hammered As Investors Sell First, Don’t Bother To Ask Questions

Few were surprised to see that the crash in Evergrande…

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Asia's Largest Insurer Hammered As Investors Sell First, Don't Bother To Ask Questions

Few were surprised to see that the crash in Evergrande dragged down property names (one among then, Sinic Holdings, crashed 87% in minutes and was halted), banks exposed to the property developer (according to report there are over 120), with the contagion spreading to commodities directly linked to China's property sector (such as Iron Ore which plunged 10%), as well as FX of commodity-heavy countries, one ominous decline was that of Asia Pacific's largest insurer, Ping An (whose name literally and unironically means "safe and well"), which dropped 3%, following a 5% drop on Friday, and hitting a four year low on concerns about its property exposure.

The selling took place even though the company issued a statement Friday saying that its insurance funds have “zero exposure” to Evergrande and other real estate companies “that the market has been paying attention to.” Real estate accounts for about 4.9% of Ping An Insurance’s investments, versus an average 3.2% for peers, according to Bloomberg Intelligence.

“For real estate enterprises that the market has been paying attention to, PA insurance funds have zero exposure, neither equity or debt, including China Evergrande,” Ping An said in a statement as it rushed to reassure investors.

While it may have no exposure, Ping An does have RMB63.1bn or $9.8bn in exposure to Chinese real estate stocks across its RMB3.8TN ($590BN) of insurance funds, and took a $3.2BN hit in the first half of the year after the default of another developer, China Fortune Land Development. The insurer is also head of the creditor committee for China Fortune Land, which specialises in industrial parks in Hebei province and suffered from delayed local government payments. One of its restructuring advisers, Admiralty Harbour Capital, was hired by Evergrande this week.

At a time when any Evergrande counterparties or even rumored counterparties are immediately deemed radioactive, Ping An's plight demonstrates how acute and widespread the selloff could become in China if Beijing fails to intervene.

“I expect a lot of financial institutions could be hit by the worries” about Evergrande, said Zhou Chuanyi, a Singapore-based analyst at Lucror Analytics. "As long as a financial institution has exposure to developers, Evergrande should take quite a significant share of that."

Yet as the market waits for some response official response, hopeful that Beijing will step in, we discussed earlier that China's policymakers have instead sought to crack down on excessive leverage across its vast real estate sector over the past years, which makes up more than a quarter of the economy, imposing a firm threshold known as the "3 Red lines" which developers must adhere to, and which has meant most developers are limit to % or 5% debt growth at best. 

For now it remains unclear how far the contagion will spread, although if Beijing stubbornly refuses to intervene, expect much more pain as capital markets seek to force Beijing's hand by make it unpalatable for the CCP to suffer even more selling which could spark social unrest.

“The price action across several asset classes in Asia today is horrendous due to rising fears over Evergrande and a few other issues, but it could be an overreaction due to all of the market closures,” said Brian Quartarolo, portfolio manager at Pilgrim Partners Asia.

As discussed earlier, Xi faces a tricky balancing act as he tries to reduce property-sector leverage and make housing more affordable without doing too much short-term damage to the financial system and economy. Mounting concerns that he’ll miscalculate are spreading ever-further beyond China-focused property developers and their suppliers.

“It’s what the Chinese would describe as trying to get off a tiger,” said United First Partners research Justin Tang, best summarizing Beijing's lose-lose dilemma.

Tyler Durden Mon, 09/20/2021 - 15:28
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