2022-08-31

Evergrande Can't Produce Financial Report On Time

Evergrande unit Hengda unable to publish financial results by Aug 31
Property developer China Evergrande Group's 3333.HK main unit said on Wednesday that it was unable to disclose its six-month financial report by Aug. 31 because significant changes in its operation had added extra auditing work.

Hengda Real Estate Group Co, the developer's flagship onshore unit, also promised to publish its 2021 annual report as soon as possible, it said in a filing to the Shenzhen Stock Exchange.

In August Hong Kong's audit regulator initiated an inquiry into the financial statements of China Evergrande's property services unit and its former auditor after questions were raised following an investigation into seized deposits worth $2 billion.

Collapsing Fertility Might Hint at Collapsing Financial Markets

Is fertility crashing because of mRNA shots or because of an unfolding economic depression? I haven't seen clear evidence because I haven't seen economic-adjusted fertility data. If you accept that an economic collapse is possible, then fertility numbers aren't crazy. They seem unexplained because the collapse in the economy and financial markets happens after fertility begins falling. If fertility is tied to the economy and not the mRNA shots, it's forecasting something as bad or worse than the 1930s Great Depression.
If you're familiar with the mRNA skeptics, you have seen the falling fertility data. Alex Berenson will be posting a new article on the topic soon. For myself, I remain skeptical. Not because I have a dog in the fight, but because I'm familiar with the existing explanation for falling fertility rates. 

Socionomics Institute: Stocks & Sex: Revisited

This correlation means that trends in conceptions significantly precede expansions and contractions in the economy, which lag the a-d line, usually by years. Most noticeably, the lows in procreation coincide with stock market lows, not economic lows, which follow shortly thereafter.
Is Fertility a Leading Indicator?
In a new paper at The Economic Journal, Steve Lugauer, along with Kasey Buckles `00 and Daniel Hungerman of the University of Notre Dame, use data on more than 100 million births in the United States to examine whether fertility behavior anticipates economic recessions. They find strong evidence that the growth rate of conceptions declines very rapidly at the beginning of economic downturns and the decline starts several quarters before recessions begin. In other words, fertility is a leading economic indicator.
Socionomic theory posits that financial markets are expressions of social mood. Rising markets reflect optimism or positive mood and declining markets pessimism or negative mood. A key point: mood generates news, not vice versa. Socionomic theory doesn't say falling stocks make people feel negatively, it's that depressed people sell their stocks or don't invest. Similarly, depressed people will not bring children into the world.

The data is very supportive of mood driving society. Fertility doesn't start falling after the economy goes into recession. It starts falling before, sometimes years before. Mood doesn't affect everyone in the same way, but most people are affected by mood.

What's concerning about the current drop is that it is ongoing. It would make sense for a V-shaped drop in fertility that lines up with the pandemic. It doesn't look like that is happening. Fertility is still falling a full year later. The mRNA not-vaxxes are an obvious candidate because fertility falls as they're rolled out, but this raises the question of temporary or lasting impact? Both are possible. The other explanation, social mood followed by visible signs in the stock market and economy, cannot be ruled out.

Consider that national leaders are also driven by mood. What makes a President threaten to use F-15s on citizens? What makes the government and people clamor for potentially nuclear wars with Russia and China? 

I've chronicled why I think the entire stock market boom was Federal Reserve "manipulated." I don't think they intentionally drove it higher, but I saw a very clear gap between social mood indicators and stock prices developing into the mid-2010s. Signs of extreme negative mood include transgenderism and the horror genre. The U.S. is experiencing extremes in transgenderism that might only have a parallel in Weimar Germany. The horror genre in movies has been strong for two decades now and even crossed into pop music:

Socionomics Alert: Terror Pop

Socionomics Alert: Stock Market Peaks Amid Record Horror Haul

Socionomics predicts rising and peak social mood produce heroes and a clear separation between good and evil. Falling and negative mood produce anti-heroes and ambiguity. The 1970s saw heroes such as Dirty Harry and Paul Kersey (from Death Wish, notably being remade with Bruce Willis in 2017). Dirty Harry gunned down criminal to the cheers of audiences and Paul Kersey carried out vigilante killings. Rambo was a hero who ran afoul of the law. In the 1980s, the good-guys are within the law. Rambo works for the government. Many heroes are fighting communists. At the peak of social mood, the superhero was reborn with characters such as Spiderman. This quickly turned dark in the 2000s. Dexter was a serial killer anti-hero. FOX currently has a show called Lucifer with Satan as the main character.

Horror movies also rise and fall with these trends. Freddy and Jason, two of the more famous horror movie characters, were both created in the late 1970s and peaked in the early 1980s. Horror was a less popular genre in the mid-1980s through the peak in social mood at the end of the Millennium. Since then, horror has steadily grown its box office receipts. It also turned gruesome with movies such as Saw and Hostel, what some critics describe as "torture porn."

And now amid a new high in stocks, horror is at a new peak too.

That was written in 2017, the market peaked about three months later and then more QE...and yet more extreme social division, negative mood, still rising trends such as transgenderism. Going solely by mood, the S&P 500 Index should be sub-2000 if not sub-1000. I concluded that post:
Horror movies peaked in the late 1970s and early 1980s amid recession and a low in stocks. It comes back for a one-year blast in 1987, the year global stock markets plunged 20 percent or more in a single day. Horror doesn't return until the late 1990s and hits a short-term peak in the year 2000. After that, it grows into a larger and larger genre with a growing list of subcategories, before hitting a new record in 2017.

The implications for financial markets would be bullish if stocks were making new lows, since it would give a coincident indicator of a bottom in negative mood. Instead, this peak looks like it could be a larger version of the 2000s peak, a burst of horror at a peak as mood turns. If that's that case, the next downturn in mood, the next political shift, is going to a lot more like the 1920s or 1850s than the 1970s.

The existing explanation for plunging fertility is negative mood. Mood leads the markets. If the stock market crashes in the next few months, if the economy sinks into the worst recession in the past 40 years, maybe the past 90 years, then the drop in fertility is not only wholly explained by negative mood, but is actually a flashing neon sign screaming "Sell Now!"

I'm not invested in this explanation. The timing lines up with the mRNA shot rollouts. It being a side-effect would confirm my belief that the shots are worse than covid itself. 

The point I'm trying to get across: let's say the shots harm fertility. It could be temporary, permanent, it could be a major crisis or a minor one. Whatever the data is showing you and making you think about the vaccines, translate that into the economy and the financial markets.  If it's a minor crisis that reverses over time, the markets may dip and then recover over time. If the drop in fertility is off the charts and if the vaxxes aren't the explanation, it's telling me that financial markets might collapse off the charts. If you can't rule out a social mood and by extension economic explanation, then you had better be on high alert in the financial markets.

USDJPY New High

Bonds sinking and USD ripping...

Bonds Getting Ugly Again

Caveat is these are always good reversal spots. I often post incorrectly at turning points because I'm looking at charts and seeing that continuation of a move signals a seismic shift in financial markets.

With the caveat, if bonds continue lower, a breakdown in ZB and breakout in 30-year yield correlates with about 5 percent interest. That isn't a crazy target when considering the Federal Reserve is talking about a 4-percent Fed Funds rate. I do expect deflation and a rally in long bonds, but if I'm wrong, it isn't a wild target. It would take ZB and TLT back to 2007 levels of around 110 and $90 per share. Note that TLT is dividend adjusted, remove that and you will see TLT at $90 when the yield was around 5 percent.

Throwing a wrench into any bond forecast is my bearish outlook for stocks over the next two months. I expect the next move in ZB will either be bad for stocks (down) or will be because stocks are performing so badly (up). Stocks down is my main forecast at the moment.

One way the market could crash is if the 30-year bond sells off another 20 percent from here (which hits the aforementioned targets). I have in the past often discussed a crash scenario where the market is dropping because of inflation and/or a weakening U.S. dollar and the Fed's only solution at the point would be interest rate hikes. While I expect deflation, I could also imagine a mirror of 2020. There was a brief deflation panic that gave way to roaring inflation only months later. Here in 2022, there could be on final plunge in bonds that helps fuel the final selling wave of 2022 and delivers a much stronger tradable low. 

If Powell wants to go Volcker, that's the right move here. Front load all the pain into the next two months and inflation as recorded by the CPI will be negative.

Nailing the Analog: MicroStrategy Sued Again

District of Columbia Suing MicroStrategy Founder Michael Saylor for Tax Fraud
The District of Columbia is suing MicroStrategy (MSTR) founder and executive chairman Michael Saylor for allegedly never paying any income taxes in the district in the more than 10 years he has lived there, Attorney General Karl A. Racine announced in a tweet on Wednesday.

In addition, Racine tweeted that his office is suing MicroStrategy “for conspiring to help him evade taxes he legally owes on hundreds of millions of dollars he’s earned while living” in Washington, D.C.

See this post for my discussion of MicroStrategy as a cyclical signal: Cycles: MicroStrategy Back Again. A stock that was a brief darling of the 1990s dotcom bubble, then crashed amid accounting troubles. It hibernated for 20 years, then returned for a brief run during the cryptocurrency bubble and is in legal trouble again as the bubble bursts. Amazing. Little hints of history rhyming are sometimes far more information laden than they appear at first glance.

Use Your Imagination

Draw your attention to the green line at $3.30 per pound on copper. This isn't a hard line, but notice how trips below this area have been violent.
Going back to 2017, there is heavy volume around the $3.25 area to the $2.50 area. This should be difficult for the market to slice through. Yet if there is a deflationary event, that's exactly what might happen.

My next target for QQQ is $260, that support line is right there in November 2022. A punch through to suck in the bears and trigger a squeeze might conclude the downside activity for 2022. That's only a 15 percent decline from here. I anticipate heavier selling in energy and commodities, for Apple to break down and for stocks such as Meta that are already near 52-week lows to suffer implosions. What I've mainly done is looked at the 52-week lows and then assumed it'll break by October or November, and purchased the most profitable puts for that scenario.


Expect a lot of chop. I will mostly accumulate short positions on rallies and may do limited trading.

The next phase for the bear is a transition from inflation to deflation, from worries about inflation to worries about recession. My sense is the market is being too cute with recession calls. I see investors who think the market won't go straight down. I think that's wrong. Markets front-run recessions.

There is risk of a major crash or prolonged bear market. It could be that everything going on is overblown, but there are indicators showing a recession as bad as 2008 and 2020 and 2000. My read is that the media has mesmerized the public. What is going on in Western societies is full blown insanity. I don't think people are mentally ill, but the crowd is functionally mentally ill. Transgenderism, green energy and war with Russia are all coming from the same mentally-damaged ideologies and narratives. It will eventually translate into financial markets. Like the severed genitals of a eunuch, Western economies have been "permanently" damaged. They are pretending at being wealthy the same way society pretends a eunuch is a woman. Getting Western economies back on track will require extremely high short-term costs in the form of higher wages, inflation, interest rates, welfare cuts and so on. Not getting back on track requires accepting a permanently lower standard of living. Factor in political risk when the public fully realizes the ruling class has purposefully impoverished the West. At some point, the West will realize what it has done and then good luck finding anyone to buy "stocks" at anywhere near current prices.

Many things can happen between now and the "moment of realization," yet the longer these policies are in force, the more likely this outcome will be. The GOPe is also in the process of blowing the midterm elections with a focus on already fading inflation, which will mean no shift in policy until 2025 at the earliest. Even if the GOP pulled off a Congressional sweep, the GOPe-dominated Senate is as insane as the Democrats on issues such as Taiwan and Ukraine. No one will stop the incineration of Western prosperity.

The Crayon Has Limits

I am of two minds here. One, ZB and TLT aren't dusted yet. This is an area from which a rally can begin and that comports with a very bearish outlook for equities and my forecast of deflation hitting.
The second thought is that normalizing monetary policy requires permanently higher interest rates. In one sense, the Federal Reserve's QE policy is life support for the bond bull market over the intermediate-term, arguably long-term if we're talking about financial market cycles. In the immediate present, running QE in reverse (QT) at around 80 percent of peak asset buying should be highly deflationary and push rates lower. Evaporating buying from the Fed will initially be overwhelmed by "safe-haven" buying by traders, seculators and investors.

My Nasdaq WAG is complete. I don't expect a crash lower, but I do think the best time to short was August 15 and 16. My last major trades ahead of vacation were on August 15, adding more AAPL 140 puts and SPY 380 puts for October.

Crude oil has been quite volatile. I still expect there will be a $60 handle sooner rather than later.

2022-08-30

If History Repeats

FCX will be single-digits by the end of the year. Maybe as soon as October or November.

Not Like I Need Another Reason to Short Apple,

but there was a perfect gravestone doji on the weekly chart. A similar weekly candle formed the week prior to the all-time high.

Sometimes Log Scale Doesn't Do a Chart Justice

Wage inflation could make this target a reality. I doubt it goes that low otherwise. That said, a massive H&S will compmlete if DPZ falls below $315 per share. I like the symmetry here as well. The two shoulders have almost the same peak price.

Short Health Insurers

Probably going to say short everything soon, but there are potential double tops in this sector with the sector itself already rolling over in a broadening megaphone pattern. I included stocks with large weights in the sector even if their charts aren't terribly bearish.

Chinese Real Estate is Done

China will have to find a new growth engine. They don't have one lined up.

No More Growth for China’s Real Estate

Charter Boat Sinking

Same pattern as Meta, but closer to a new 52-week low.

Gold Screaming Deflationary Collapse

You can tell me this time is different, but it looks the same to me. If the pattern proceeds as it did in 2011, inflation is going to die so suddenly you'd think it was vaxxed.
Gold miners are retracing the 2020 surge now.
Depending on how long gold bulls have held mining shares, there's either some strong support about 10 percent lower from here, or there arleady is no support if most longs came in after the summer of 2019 when the Fed ignited the gold market with its repo aka stealth QE program.

Meta Doomed or a Great Buy

I saw the twin inverted hammers on Meta yesterday and it gave me pause because that's sometimes a reversal candle, but then I see a similar (though not fully formed) candle on the S&P 500 Index, and if that one is correct, it's also a reversal signal but for the rally. With Meta near 52-week lows (less than a 3 percent drop here on Tuesday morning), I predict a break will be explosive on the downside. I change my mind frequently, but right now I am thinking to play this with weekly puts, every week, until the break occurs. Entries will be timed. My hunch here is big selling across the markets kicks in post-Labor Day.

The Waiting

2022-08-29

Similar Monthly Candles At Bear Rally Ends

The biggest rallies ended in May 2001, May 2000 and August 2022 (month isn't over yet though). All had inverted hammer candles.

Another Sign of a Bear

The long-term stochastic indicator stays elevated throughout bull markets going back to the mid-1990s, when the Federal Reserve began intervening heavily in the stock market. Prior to that, there were trips to "oversold" levels every few years, the last sub-50 non-bear reading was in 1994. Since then, the indicator has only gone below 50 in full blown bear markets. The 200-day moving average did hold in those bull market drops in stochastics. Since the start of the bull market in 1982, the only sustained breaks of the 200-day occured during the 2000 and 2008 bear markets.

Time for Pfizer to Die?

The chart looks like it could priming for a breakdown. A catalyst could be a fraud suit brewing in federal court. It is claimed the Pfizer trials were fraudulent. If this is true, then a private citizen has standing to sue on behalf of the government and collect a portion of damages.
The Comirnaty Ad
A national emergency birthed The False Claims Act, known as the “Lincoln Law,” after contractors used the exigent circumstances of the Civil War to defraud the people, at the expense of the suffering and death of American soldiers because defense contractors sold the Army lame horses and mules, faulty rifles and ammunition, and rancid rations and provisions. Once again, we face a national emergency, where our military entrusted another defense contractor, to the tune of billions of dollars and millions of American lives. The Defense Department incorporated Food and Drug Administration (“FDA”) rules and regulations into its contract by conditioning the contract on FDA compliance and authorization. Respondents ignore this critical fact when trying to claim they contracted away the False Claims Act. Don’t the American people deserve to know if Pfizer lied?

Respondents seek dismissal without discovery, amendment, or trial. Their fundamental premise: even if honestly reported data showed their product caused more illness than it cured, inflicted more injury than it prevented, and took more lives than it saved, America’s military would still have given them billions of dollars and mandated it be injected into America’s military. Respondents claim fraudulent certifications, false statements, doctored data, contaminated clinical trials, and firing of whistleblowers can be ignored based on the theory that they contracted their way around the fraud. This ignores two legal aspects: first, fraud in the inducement is a well-recognized basis for False Claims Act qui tam actions; and second, the military wisely incorporated the FDA regulations into the contract as a precondition of any payment under the contract by conditioning payment upon FDA authorization of the product, an authorization itself dependent upon complete compliance with FDA rules and regulations governing such authorizations and approvals. In the end, the law does not belie common sense: a drug company cannot induce the taxpayers to pay billions of dollars for a product that honest data would show poses more risks than benefits to most Americans and that ignores the actual contract and the law itself. Put differently, the alleged fraud goes “to the very essence of the bargain.” United Health Serv., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2003 n. 5. The law compels denial of Respondents’ motions to dismiss.

I am skeptical of restatements in legal cases. The claimants say Pfizer has admitted to fraud and that Pfizer claims they're not liable because they were partnered with the government. I haven't dug into this yet. Objectively, we know they pushed a medicine that was worse than the disease. Legally, I don't know.

Meta Bear

Meta looks doomed if the broader market sells off. Extremely weak during the rally and next support is around $115 area.

Crude Analog

Crude 2008 vs 2022.

QQQ-SPY

Waiting for the break.

Euro-Yen

This chart might or might not be useful in the big picture. If that's a reversal pattern forming, it speaks to either substantial euro weakness or substantial yen strength. If not and the dollar keeps rising, East Asian currencies are in trouble.

Debt Forgiveness: Inflationary or Deflationary?

For the moment, potentially inflationary. On the whole, deflationary. Just The News: Penn Wharton says Biden student loan plan could exceed $1 trillion
Researchers found that students may be incentivized to borrow more money because the Biden administration is capping loan repayments at 5% of borrowers' income
The largest potential cost-driver Penn Wharton identified is the Biden administration's new income-driven repayment plan, which includes capping monthly student loan payments at 5% of a borrower's discretionary income and reforming the repayment guidelines to guarantee that no borrower who makes "about the annual equivalent of a $15 minimum wage" will have to make monthly loan payments.

Debt cancellation alone will cost the United States up to $519 billion, Wharton found in an analysis published Friday. Loan forbearance, which allows borrowers to temporarily stop paying, will cost an estimated $16 billion. The income-driven repayment plan will initially cost $70 billion, however, specific details have yet to be released and the price may be significantly higher.

The income-based portion of Biden's plan needs further analysis, but it may cost $450 billion or more, bringing the total cost of student loan forgiveness to more than $1 trillion, economist Junlei Chen wrote in the Budget Model.

One possible problem researchers found with the income-driven repayment plan is that students may be incentivized to borrow more money because the Biden administration's plan caps loan repayments at 5% of the borrowers' income.

My hunch is debt levels will not increase because there will be losses borne by lenders. Even if the amount of outstanding debt increases, the value of that debt will decline because repayment is less certain. When a bond goes from AAA to B, it deflates. The money supply declines because lower quality bonds do not function as money. If the Biden admin makes enough rules that favor borrowers, at some point the value of student debt will decline faster than new lending increases.

The Bulls are Hiding in Apple

Keystone
A keystone is the wedge-shaped stone piece at the apex of a masonry arch, the generally round one at the apex of a vault. In both cases it is the final piece placed during construction and locks all the stones into position, allowing the arch or vault to bear weight. In both arches and vaults, keystones are often enlarged beyond the structural requirements, and often decorated in some way. Keystones are often placed in the centre of the flat top of openings such as doors and windows, essentially for decorative effect.
The ratio of Apple to XLK hit a new high. As of Friday, August 25, Apple was 24.79 percent of SPDR Technology (XLK). These are moving targets, but if Apple outperforms XLK by about 1.1 percentage points, it will cross the 25-percent regulatory limit. Since the quarter is half over, the fund can allow Apple to rise and stay compliant until the end of September. However, Apple is effectively at its regulatory limit. If it keeps outperforming, it will be force-sold because it cannot remain above a 25-percent weighting.
It's obvious to me that Apple will underperform other technology stocks going forward. The cultish devotion to Apple products may have no limit, but the devotion to Apple stock does. As I explained 10 days ago, there are scenarios where Apple rises such as a broad bull market, but ones where Apple leads the tech sector are extremely outlier events. Impossible scenarios if you ask me. If this is a bear market, there are only two scenarios for Apple.

Scenario One is Apple holds up all the way until the end. Stocks such as Nvidia, Intel, Mastercard and Visa lose (for purposes of illustration, not forecasts) 30 to 50 percent, while Apple is down maybe 25 percent. Managers and investors keep their Apple while dumping everything else tech related first. Passive indexers become forced sellers as Apple weightings in funds surpass regulatory limits. In the final panic phase into the lows, Apple implodes because sellers have to start selling Apple if they want to raise more cash. There will be many "Apple is relatively overvalued" articles. There will be tech stocks selling at 90-percent or higher discounts and Apple only 30 percent off its high. Value guys will make the case for selling Apple and buying beaten down software, semiconductors and so on.

Scenario Two is Apple helps trigger the next bear wave and leads the sell-off. One out of every four dollars redeemed from tech funds such as XLK will be sales of Apple stock. As soon as redemptions exceed inflows, the plug is pulled on Apple and the stock market.

Sweden Democrats One Step from Forming Own Government

Anti-Immigrant, Eurosceptic Sweden Democrats Set To Become Nation's 2nd Largest Party
The far-right, anti-immigrant Sweden Democrats (SD) party overtook the main right-wing opposition party in the polls on Monday ahead of the parliamentary elections on 11 September, becoming Sweden's second largest party general elections in September, Euroactiv reported.

According to the latest opinion poll from SVT/Novus, the Sweden Democrats are now the main challengers of Prime Minister Magdalena Andersson’s incumbent Social Democrats currently leading a minority government.

Sweden Democrats stood at 21.5%, compared to the Moderate’s 17.4%, pitting the eurosceptic party only behind the ruling Social Democrats, who stood at 27.8%.

Sweden Democrats are below their 2018 numbers when I wrote: Sweden Democrats On Verge of Becoming Largest Party in Sweden.

Back in 2015, I posted This One Chart Explains the Next 10 Years of Political Change. Events have taken longer than I anticipated, but it is happening. Minority parties have monopolies on the most important issues. The ruling class parties have circled the wagons in most nations, including the establishment GOP and Democrats in the USA.

The public either will or will not decide they've had enough of open borders, greens, taxes, warmongers and vaxx terrorists. If they don't, collapse can go on "forever" because there are always more people to tax or kill. It took the Russians 70 years to wake up from full socialism, China after 30 years, while Chile aborted the revolution in the cradle. Socialism is a better sell than the currency policy mix in my opinion, yet much of the Western public seems content with endless disasters judging by poll numbers.

If they decide enough is enough though, what's their choice? In many countries, there are maybe one or two choices. The parties and movements that are opposed to immigration, vaxx terrorism, unfettered free trade, green idiocy, lockdowns and wars are almost all out of power. They are either led by social pariahs like Trump or their leaders co-opt them and sell them out to further their own careers.

Parties such as Sweden Democrats are in what I consider the waiting room for power. Although the next 25 percent appears like a huge number, it won't be. When the public decides to change course, polls will shift massively because there are no alternatives. It is a binary situation, either it happens or it doesn't. Sweden is one of several countries where most parties say they won't allow a "far-right" party into a coalition. It is Sweden Democrats or bust if you are a Swedish voter demanding change. It the U.S. the situation is slightly different because the first-past-post party wins power. If the U.S. splintered into three parties, a populist MAGA party could theoretically win power if it was able to pull in disaffected left-wing voters.

2022-08-28

Friday's Bashed

These are stocks that fell on heavy volume on Friday and have good looking bearish setups. I put Google and Amazon in here and then stopped with BigTech like Adobe, Meta and Nvidia because so many of them showed up in my screen. BigTech is a bears' shooting gallery again if this market is going down. Cloud companies such as Docusign, Salesforce, etc. all look headed for new lows.