2021-09-28

Next Shoe: BTC Bitcoin

Lots of break downs on the charts today. BTC looks ready to follow. I would take a breakdown here as a generally bearish signal for markets tomorrow.

All About Interest Rates

2021-09-27

The Waiting is the Hardest Part

Oops The Fed Did It Again

Energy Getting Hyper

Two weeks ago I posted, Aggressively Shorting Energy. That didn't work out as a trade, but WTI crude oil is still below the fibonacci level as long as it doesn't clear $77.25. XLE clared an old support line today, but there's still a possibility of a symmetrical head and shuodlers top.
Long-terrim readers will know I have been a long-time bull on SWN. The stock climbed 21 percent today and exploded higher along with the rest of the natural gas sector.
One of two things is going to happen. Either energy will correct along with the rest of the stock market, or energy is about to signal inflation is accelerating quickly, in which case the Nasdaq is going to ggo skydiving without a parachute. I still prefer natural gas as an energy play for myself. An alternative, derivative play is fertilizer. I opened a position in this stock today.

China's Energy Mess

China is cutting power to export industries again. Incompetence? Climate change goals? Rising coal and natural gas prices hitting currency reserves?

2021-09-24

Diversity Blows Up

Among unvaccinated black voters, Biden has an abysmal approval rating of 18 percent. In some states, around 60 percent of blacks are still unvaccinated.
BLM may protest vaccine passports in NY. Nicki Minaj fans invite Trump supporters to anti-Fauci, anti-CDC, anti-vaxx protest in Atlanta.

There isn't a new politial alliance brewing so much as diversity is blowing up all the existing political coalitions. At least for the GOP and Democrat parties as they exist today, America is about to become ungovernable.

People Don't Dream of Utopian Cities in the Desert in Bear Markets

MSN: Walmart Billionaire Marc Lore Is Planning a $500 Billion “City of the Future”
While other billionaires are jockeying to get into space, Marc Lore has his eyes on planet Earth: The former Walmart exec has announced plans to create a new utopian city in the American desert, featuring self-driving cars and energy-efficient skyscrapers.

Telosa—named after the Greek word telos, meaning “higher purpose”—comes with a $500 billion price tag but would eventually house some five million people over the next 30 years.

In 20 years, people like Marc Lore will be happy to have survived the Fourth Turning.

Here We Go Again, Again: China's Housing Market Freezes

ZH: “The Housing Market Is Almost Frozen" - An Even Bigger Problem Emerges For China
In a letter to the Shaoxing municipal government in eastern Zhejiang province, the local office of developer Sunac China appealed for “policy assistance” as it was struggling through what it called a "turning point in China’s real estate industry."

"We have never experienced such a radical change in the external environment," Sunac’s Shaoxing office said, pointing to a 60% year-on-year fall in home sales over the summer.

"The market is almost frozen," it added in the letter, which was first reported by the Financial Times. “The radical change in policy and environment has seriously disrupted our business and made it very difficult to maintain normal operations.”

In September 2014 (the Fed's taper ended in October) I posted the following over a period of a few days. In chronological order:

Handan Residents Afraid to Buy Homes; Market Frozen With Developers on the Brink

Credit Bubble Collapses in Handan; Arrests Made; Developers Repaying Suppliers With Property

Handan Credit Bubble Affects Entire City Economy

Handan Developers Try to Repay Debts With Homes

Third Tier Cities Bottoming, Handan Collapse Exaggerated (headline pulled from quoted Chinese article)

A month later, I posted: Liaoning Sounds Warning on Chinese Economy. Handan is not in Liaoning, but Liaoning was an even more industrial province than Handan's Hebei. Liaoning suffered with commodities peaking in 2011. It had turned to real estate to lift economic growth. Much as China has done to the whole nation at various times in the past decade.

The next summer, China stopped defending the yuan and allowed a "shock" depreciation in the currency.

Last time, the Fed was almost finished with its taper when the wheels starting coming off the Chinese economy. This time they haven't even tapered yet. A difference is the U.S. Dollar Index hasn't shot higher yet, but if that is coming...another difference is China's credit bubble is far larger, with less room for support...and U.S. stocks and Chinese homes are at an incredible apex. It sure looks like a major cyclical turn is coming. The only question I have is whether global currency depreciation against commodities (most importantly gold) is in the cards.

Tech Stocks are Doomed

Either way tech stocks will be getting a lot cheaper.

China Prioritizing Homeowners Over Bondholders

Similar to how foreign investors didn't realize China was serious about no major stimulus back around 2014, they do not yet understand that the CCP doesn't care if wealthy and foreign investors go bankrupt.

ZH: China Steps In To Ensure Evergrande Funds Used To Complete Housing Project, Not Pay Creditors

With Evergrande's foreign bondholders saying they have yet to receive a closely watched $83.5 million interest payment that was due at midnight in New York on Thursday, or noon on Friday in Hong Kong, in effect starting a 30 day grace period before a hard default is triggered, Bloomberg reports that China’s housing regulator has "stepped up oversight of China Evergrande Group’s bank accounts to ensure funds are used to complete housing projects and not diverted to pay creditors."

In other words, China is now not only deciding how the insolvent developer distributes its cash flow and, but is also forcing it to prioritize operational outlays over payments to creditors, a step which companies traditionally take after they have filed for bankruptcy. The move is a confirmation that homeowners come first on Beijing’s priority list for managing the Evergrande crisis - in hopes of preventing a major hit to China's property sector - even as bondholders, banks and other creditors seek repayments on more than $300 billion in liabilities from the world’s most indebted developer.

The stock market is not the economy. Highly financialized economies such as the USA are made weaker by their reliance on equity production and trading as an industry. The CCP understands that it doesn't really matter what price stocks trade at as long as the factories are open, people are employed and can afford a rising standard of living. At extremes, stock prices will affect operations. Bond markets are more important, but also expendable. If bond holders are wiped out, the factory is still there. If it can keep operations going, well sucks to be an economically-superfluous bondholder. For the CCP, the threat of instabiliy and loss of economic control is a reason to bring the market to heel rather than to let it take over more of the economy.

It's crystal clear to me who will be taking 100 percent losses should the credit bubble pop. That's not to say China is a unique risk. Many Western investors will probably lose more on their U.S. investments in a global bust. Yet there's still this mystique around the CCP, as if "to get rich is glorious" is still the motto. Anyone who thinks China will control the fallout to the benefit of foreigners, or even its own wealthy citizens, should look again at everything that has happened this past year. My read is that China is preparing for a bust by consolidating political power. Laying waste to an entire class of people who threatened CCP authority, even if indirectly, is one benefit of a major financial crisis.

The difference between China and the USA is that the CCP is very clearly the political authority in China, responsible for whatever happens. It cares for the people because if it does not, the people will come for them. In the USA, democracy has been delegitimized. No one is actually in charge. No one takes responsibility for anything. USG blames the Federal Reserve, the Federal Reserve blames the government or natural forces. No one is fired for any failure because there is no check on authority. Corporations and government run roughshod over the citizens. People are forced to stay at home under pandemic lockdown orders while illegal migrants enter the country and roam free. The unelected New York Governor (she took over after Cuomo resigned) threated to replace New York hospital workers with foreigners if they don't take the mRNA terapy shots. America is a decapitated democracy run by rogue bureaucrats, with Dr. Fauci an example of how quickly a lower level incompetent with tyrannical tendencies can take over the entire U.S.A. by pushing the bureaucracy in his direction. If the American people do not revolt or a strong leader doesn't step up and restore order, investors in the USA will eventually lose far more than investors in China because whereas China will arrest a crisis with bold action, the U.S. could spiral into chaos will basic social order breaking down.

Looking for the New RCAs

I've been going through various charts looking for high-priced stocks that could tumble. Google looks like a blowoff top to me. There are lots more, but I didn't want to make too long of a post. I also looked at the largest stocks in the Russell 2000 and found a few of those with bearish potential. The Russell 2000 being the weakest of the major indexes.

2021-09-23

Where's the Market Going?

The Gold/Copper ratio is still pointing towads deflation. Palladium shows weakness, while BTC Bitcoin recovered. The S$P 500 Index still hasn't filled the gap and trades below the 50-day moving average. The next bullish trigger would be a recovery of the 50-day which would signal this was another fakeout correction, with the caveat that there could be an overthrow to suck in as many bulls as possible before the next flush. Which is why I will be keeping an eye on things like gold/copper. Short-term the bounce can go on, but right now the charts remain close to bearish/deflationary breakouts.

2021-09-22

Hopefully Good News: The Flu is Back

Commentary here: Hopefully Good News: The Flu is Back

Evergrande: Nothing For Foreign Bond Holders So Far

Yesterday, I posted China Will Nuke Foreign Investors From Orbit. I briefly discussed why I believed the CCP would only bailout Evergrande to prevent contagion and not make everyone whole. Although a rescue plan still hasn't been announced, local bond holders will get at least some of their interest payment tomorrow.

ZH: Offshore Creditors Remain In Limbo As Evergrande Agrees To Pay Thursday's Interest On Local Bonds Only

Bloomberg reported that the September 23rd yuan coupon payment on local, yuan-bonds had been negotiated with bondholders (without clarifying the terms of the arrangement) but it was unclear what the fate of the upcoming Offshore bond coupon payment is.

Morgan Stanley had previously suggested this plan of action, forecasting that Beijing may initiate a managed debt restructuring of “a troubled property developer” in the coming week, followed by policy easing in October to contain spillover to the broader economy.

The world’s most indebted developer is supposed to pay bond interest totaling about $119.5 million on Thursday. Interest comes due Thursday on two Evergrande notes, even as it falls behind on payments to banks, suppliers and holders of onshore investment products

I will be mildly surprised if there's nothing for foreign bondholders, if only because China wants to keep the shingle out for business, but I do not expect much because foreign lenderss are not a systemic risk for China. Any rescue in any nation should be focused on keeping a bust from triggering contagion. A bailout of a failed entity should be avoided at all costs and if the entity must be saved, it should come at 100 percent loss for all equity and bondholders. In the United States, bailouts are for the most destructive actors. I expect China will be more just.

2021-09-21

As Close to a Smoking Gun As We'll Ever Get From the Wuhan Lab

Telegraph: Wuhan scientists planned to release coronaviruses into cave bats 18 months before outbreak
New documents show that just 18 months before the first Covid-19 cases appeared, researchers had submitted plans to release skin-penetrating nanoparticles containing “novel chimeric spike proteins” of bat coronaviruses into cave bats in Yunnan, China.

They also planned to create chimeric viruses, genetically enhanced to infect humans more easily, and requested $14million from the Defense Advanced Research Projects Agency (Darpa) to fund the work.

Papers, confirmed as genuine by a former member of the Trump administration, show they were hoping to introduce “human-specific cleavage sites” to bat coronaviruses which would make it easier for the virus to enter human cells.

When Covid-19 was first genetically sequenced, scientists were puzzled about how the virus had evolved such a human-specific adaptation at the cleavage site on the spike protein, which is the reason it is so infectious.

The American government funded Chinese scientists in Wuhan who made SARS2 / Covid-19, and then accidentally released it. The evidence keeps piling up in this direction.

More Bear Signals

I took a flier on a deep OTM Adobe put (ADBE) at the close, a weekly that expires on Friday. Just a general sense of bearishness, along with wanting to take a long-shot in honor of Norm Macdonald. It beat on earnings and revenue after the bell, but the stock sold off. Maybe that will be erased tomorrow, but if not, it is good news for bears. Adobe will be rejected at long-term resistance and despite good news. The only time above was the 1999-2000 blow off top for the dotcom bubble. I take a line as valid if it holds for all but an extreme move, simlar to how I will ignore the March 2020 drop when drawing support lines. It's best not to ignore them, but if a line holds and offers predictive value, then I keep it.
Far worse news came from FedEx (FDX). Inflation is taking the corporate margins down, namely higher labor and energy costs. The stock is already down 25 percent from its 52-week high.

This is the "game over" moment I've been waiting for. Maybe it won't kick off tommorrow, but the end game for the Fed is when their easy money sinks stocks via contracting corporate margins and higher unemployment, aka stagflation. Their two main choices are painful once this point is reached. Nip inflation in the bud, send the stock market down at least 20 percent and risk a recession or let inflation run and risk sinking the stock market more than 70 percent, plus mass unemployment, a bond market crisis and possible currency crisis. I know which door I'd choose, but the Federal Reserve hasn't shown it thinks beyond what the S&P 500 did yesterday. If they decide to save stocks yet again, there could be a rip roaring rally or even another leg up into a blow-off top later this year or into early 2022.