These markets & economy are running on the back of a massive deficit spending “debt”

These markets and economy are running on the back of a massive deficit spending “debt” wave portrayed by the masses and media as necessary and needed stimulus and once consumed then what manipulative game will the FED and government introduce to prop up the economy and markets?

Speculation reigns large: another month has almost finished (will January hold a similar fate), and we see another record in margin debt! As in November & December, combined margin debt has risen 18% to $779 billion; this has happened as the SPX-500 has risen almost 15% in November & December combined. From this past March, margin debt has risen a staggering 63%; signifying a massive rise in bullish sentiment and the willingness to take on debt-leverage, which helps propel equities higher and crushes them on the way down.

Still the indexes remain just shy of their all-time highs despite the mega-warning signals that these levels of euphoria which suggests a potential nasty counter trend correction is imminent. I have been suggesting that markets are headed into a mega bubble of epic size as all of the preconditions for a mega bubble are in place. Artificially depressed financing costs of new-debt that historically has been utilized substantially to buy-back-stock and keep zombie-firms alive are at record historic lows, new participants in this market today are being drawn like moths to a flame into these giddy markets, and the combination of significant accumulated savings (stimulus induced) and low prospective returns on traditional assets have created the desire to engage in massive speculative activity! In the months ahead, investors will need to pay close attention to risks of a monetary policy reversal, massively rising equity valuations, and the rate/trend of the real post-pandemic recovery. These past 8-9 months can best be described as a period of unprecedented market “extreme optimism and pure euphoria” as I pointed out previously in my weekend write ups there was a wave of bullishness due to recent news, with now (3) Covid-19 vaccines showing promise against a backdrop of FED manipulated zero interest rates, a record fiscal deficit (debt) and an ultra-dovish es-FED-chairman Janet Yellen soon to be in charge of it all as she is Biden’s pick to run the treasury.  This likely blow-off phase is extreme euphoria, the likes of which surpasses even the dot.com bubble. As I have discussed before, the November-December rally has been driven by the mostly shorted hard-to-borrow equities, taking the SPX-500 to technical levels not seen in many-many years, similar to like we saw back to 2000. The November-December rally was clearly a massive-short covering rally as well. As the most shorted stocks were up 28.48% in November alone while the SPX-5000 was up about 11.1%.  

Already Goldman Sachs “most shorted” index of stocks is already up 15% in 2021 and more than 200% over the past year.  The Goldman Sachs Most Shorted Index’s RSI reading is now over 85, only eclipsed by June 20, 2018. Short sellers like myself have been put on the endangered species list 😊 (we have enjoyed some really decent shorts of late) and the fuel from squeezing the newbie shorts appears to be running quite low now as looking a short interest is the lowest in over 15 years for the SPX-500.

However, it is not just forced short covering that has been driving the meltup: as massive derivative action activity in the options market is purely “euphoric” a huge source of potential dislocation. As of this past week call volumes were 6x normal, and even more striking: call buying has just gone parabolic and now represents about 47% of NYSE total volume the highest level ever. While at the same time, the put/call ratio is at multi-year lows.

 

The euphoria is not just in calls, it is everywhere with 90.5% of SPX-500 stocks now trading above their 200dsma reaching an overbought level last seen in 2014. This flood into equities has pushed the forward P/E of the SPX-500 back to and above 2000 levels. This is also a function of the surge in money growth. We have seen across a wide variety of indicators this market euphoria is increasingly disconnected from fundamentals and real economic variables. With the massive disconnected between markets and the economy stretched extremely tight like a rubber-band, investors have basically gone all in stocks hoping that the largest and biggest bubble in stock history keeps inflating!

I am significantly SHORT (70%), hence I will only look to add to my existing SHORTS sparingly, I am looking to start to leg into the leveraged 3x bear-funds!  These markets and economy are running on the back of massive deficit spending “debt” portrayed by the masses and media as necessary and needed stimulus and once consumed then what manipulative game will the FED and government introduce to prop up the economy and markets.

In my opinion this extremely long in the tooth, 12+/- year long bull market since 2009 has finally matured into a fully-fledged massive bubble due to massive intervention and manipulation and almost endless liquidity. Featuring extreme overvaluation, explosive price increases (many times in zombie firms) frenzied issuance (especially the issuance / of stock at nose-bleed price levels, and nutty IPO’s) and hysterically speculative investor behavior, I believe this period / cycle will be recorded as one of the great bubbles in financial history, right along with the South Sea bubble, the bubble prior to the Great Depression of 1929, and the Dot-com bubble of 2000. 

Massive Hindenburg type bubbles are when fortunes are made (playing the proverbial “dark-side” sell/short-side) and lost (due to stubbornness of not taking profits) where old savvy investors truly prove their determination, courage, and knowledge [ "buy when you feel like the world is coming to an end...and sell when you believe there is no stopping the bull-train and extreme euphoria has gripped thew markets]! We need to position our positioning a portfolio to avoid the worst of pain that becomes inflicted by a massive bubble bursting is the hard part.

 

I warned in September of 2019 that an economic breakdown was looming, and an economic crisis is exactly what we got [I never foresaw the Covid-19 aspect though); nevertheless 2020 was a “financial disaster” for over 55% of all Americans, this is likely one of the main reasons why so many Americans were/are seriously disappointed about the size of the $600.00 “stimulus payments” in the Covid relief bill that Congress just passed because this year has truly been a “great financial disaster” for millions upon millions of working class and poor Americans.  More Americans than ever before are just barely scraping by from month to month, and $600 is just not going to go very-far at all.  We have seen that small businesses have been getting massacred by the thousands, millions of Americans are in imminent danger of being evicted from their homes [If not for the eviction forbearance Biden Administration Announces Foreclosure Moratorium and Mortgage Forbearance Deadline Extension), interestingly more than 70 million new “initial” claims for unemployment benefits have been filed since the Covid-19 pandemic first started.  The U.S. for all intents and purposes has plunged into a very nasty economic cesspool-recession and most of the country is desperately praying and hoping that the government will do more to bail them out of this contagion.

The truth is that we could not afford another 900 billion dollar “stimulus package” on top of all the other “stimulus packages” that were already passed this past year but that did not stop Congress from their give-away bailout path. We were already $27.5 trillion dollars in debt, and all of this reckless spending is putting us on a likely nasty inflation path (but those in power the elite and wealth could care less) as Biden has just announced another preliminary bailout package valued at $1.9 trillion and he expect to follow that one with another $2.0 to $2.5 trillion) nevertheless most Americans do not really care at all that we are literally destroying our economy and finances. 

Ø  Most people are in desperate need of money, and the vast majority of them want “BIG” checks from the government as soon as possible. A OnePoll survey that was just released asked Americans about the current state of their finances, and that survey discovered that a whopping 55% consider this year to be “a personal financial disaster” ...That is over half the country!

Ø  And for those that are employed, that same survey found that 62% are planning to take on a 2^nd job in 2021 in an attempt to make ends meet...that is if they can find work at all! Among employed respondents 7 in 10 say they need a significant raise at their job in order to make ends meet.

o   That number cannot possibly be correct, as America is the land of plenty for all! If you listen to the financial media cheerleading all is well and all will prosper!

Ø  Of course, there are not that many extra jobs to go around.  Already, there are millions upon millions of Americans that cannot find a “first job”. 

With so many Americans financially hurting, it should not be a surprise that millions of households are getting behind on their rent and mortgage payments! One-in-seven renters with family incomes from $35,000 to $100,000 were not current on their rent in November or December. The overwhelming majority of these renters in this income bracket almost 79% are expected to face eviction within two months. Similarly, 10.9% of U.S. homeowners with a mortgage were not current on their mortgage in November and December; and 56.1% of those homeowners expected they will be foreclosed on in the next several months. Congress of course keeps extending moratoriums on rent and mortgage payments [kicking the can down the road] and that has been financially devastating landlords like myself and mortgage holders like banks [but banks have NOT even come close to recognizing these looming loan-losses on their balance sheets JMHO). At some point the moratoriums will end, and when that happens, we are going to see a huge Tsunami wave of evictions that will be absolutely unprecedented in U.S. history (My opinion). Meanwhile, many Americans are going into the cesspool of massive debt in a desperate attempt to keep themselves afloat and in their standard of living financially! More than one-third of households with incomes between $35,000 and $100,000 have borrowed significantly from credit cards. Many debt payments will come due sooner than later burdening families that still suffer from long-term unemployment and under-employment and added health care costs related to Covid-19. This should mean rising credit default rates looming on the horizon!

Interestingly even at this juncture 2021 small business revenues are down more than 33% nationwide during the month of January; we are seeing that every day, more small businesses are closing their doors permanently.

Millions of Americans hopes, and dreams have been severely crushed, and there is nothing that our politicians can say or do that will bring those businesses back to life (they were unable to become zombies). Unfortunately, if you are one of those Americans that have lost a business or a job this past year, then that would definitely qualify as a “personal financial disaster”. And as you have seen repeatedly in my writings supported with hard data and real surveys most of the nation is deeply hurting, and the road ahead is still littered with bouncing betties (landmines) and it could get become extremely challenging for many-many Americans! In the near-term, government “stimulus bailout payments” will definitely help financially strapped and suffering Americans. A national economic meltdown has begun, and our politicians are clueless how to really attack it; they will try lots of things to mitigate the carnage, but most if not all of their “solutions” will only mitigate the contagions on a short-term temporary basis.

I read an article from the Aspen Institute; stating that approximately 12 million U.S. renters are “at least $5,850 behind in rent and utilities payments”, and the Aspen Institute is projecting that up to 40+ million folks could be facing eviction when the rent and mortgage moratoriums finally ends (and it will end). Unfortunately, there are no indications that this nightmare is going to end.  Last week, another 900,000 Americans filed new claims for unemployment benefits...while an additional 423,000 folks in 47 states filed new claims for what is called Covid-19 Pandemic Unemployment Assistance, the program created to help gig and self-employed workers who have been displaced. Prior to 2020, the all-time record for new unemployment claims in a single week was just 695,000, and that old record was set all the way back in 1982. We shattered that old record in 2020. But the real concern that many economic cheerleaders are ignoring is that at this point, the number of new claims for unemployment benefits have been above 695,000 for 45 weeks in a row (a terrible statistic). This significant unemployment crisis (does not even take into consideration the under-employed) has significantly hit working class and poorer Americans disproportionately hard.  Even FED-heads are being compelled to admit that the unemployment rate for low wage workers “is above 20%”.

CNBC clueless Unemployment cheerleaders are lying again as they know better

 

How is this perceived as bullish (or data to be ignored) at this stage in the Covid-19 process as ~900,000 Americans filed for first-time “initial” unemployment benefits last week...Initial unemployment claims were expected to remain depressingly high last week, after spiking the week before, and they did (though they came in a smidgeon better than expected) as the numbers came in  (less than the 935,000 that the street expected and slightly lower than the 926,000 revised level the week before), but still in  the extreme zone...the good news is that the continuing Covid-19 pandemic claims have fallen notably since the spring However the overall number of Americans on unemployment benefits fell last week (as many were taken off the rolls due to exhausting benefits) but it still remains well above 15 million...This “BS” so-called silver lining should have a huge asterisk against it as it was dominated by a massive drop in California claims which fundamentally makes zero sense as the state's lockdown policies only became more prevalent during this period...

A massive stock market bubble is forming, may have already been completely inflated

 

In my opinion the extremely long in the tooth, 12+/- year long bull market since 2009 has finally matured into a fully-fledged massive bubble due to massive intervention and manipulation and almost endless liquidity. Featuring extreme overvaluation, explosive price increases (many times in zombie firms) frenzied issuance (especially the issuance / of stock at nose-bleed price levels, and nutty IPO’s) and hysterically speculative investor behavior, I believe this period / cycle will be recorded as one of the great bubbles in financial history, right along with the South Sea bubble, the bubble prior to the Great Depression of 1929, and the Dot-com bubble of 2000.  Massive Hindenburg type bubbles are when fortunes are made (playing the proverbial “dark-side” sell/short-side) and lost (due to stubbornness of not taking profits) where old savvy investors truly prove their determination, courage, and knowledge [ "buy when you feel like the world is coming to an end...and sell when you believe there is no stopping the bull-train and extreme euphoria has gripped thew markets]! We need to position our positioning a portfolio to avoid the worst of pain that becomes inflicted by a massive bubble bursting is the hard part.

This massive liquidity fueled speculative bubble (FED and fiscal, and massive debt-laden) will burst in due time, no matter how hard the FED and others try to support it, and it will have significantly damaging effects on the economy and on many-many portfolios. For the majority of the FOMO crowd and the incessant dip-buying Pavlovian response that has been so conditioned these past several years. Speaking from close to 30+ years of experience the one reality that you can never change is that a significantly pumped up higher-priced asset will produce a lower return than a lower-priced asset. Most of the time, major asset classes like stocks, bonds, commodities etc. are reasonably priced relative to one another.

The correct response is to make modest bets on those assets that measure as being cheaper and hope that the measurements are correct. With reasonable skill at evaluating assets the valuation-based allocator can expect to survive these phases intact with some small outperformance. “Small” because the opportunities themselves are small. If you wanted to be unfriendly you could say that asset allocation in this phase is unlikely to be especially important. It would certainly help in these periods if the manager could also add value in the implementation, from the effective selection of countries, sectors, industries, and individual securities as well as major asset classes.

This long, slow-churning (due to massive intervention and manipulation) bull market (12+ years) like other long-term giddy bull markets can spend many & many months years above serious fair value and even 2 sometimes 3-years longer than logic can dictate and rally way above fair valuations into nosebleed valuations. These events have often outlasted the patience of most traders/investors. And when price rises are very rapidly as we have seen this past year which typically happens toward the end of a bull market, impatience is followed by nervousness. As I like to say, there is nothing more irritating than watching dumb-ass folks get rich chasing mostly-crap higher and higher many zombie firms that have exhausted 8 of their 9 lives. As we saw in late 1997, when the SPX-500 surpassed its previous 1929 peak of 21x earnings, I stared to get nervous then into late 1999 I stated shouting loud and clear (SELL-SELL-SELL) and for 4-5 more months I watch the market soared up to 36.75x earnings, after being bloodied several times trying to sell/short the giddy market.

During the fall of 2019 (prior to the onset of my massive wave of health issues) I said it was likely that we were in the last innings of this 12+ year long bull-market and the subsequent bubble could implode in December into January, then came the drop into March but it was due to the Covid-19 pandemic and then we saw wave after wave of massive liquidity from the government and FED; and away we went as the dips were bought on a ballistic parabolic ride. One of the most dependable elements of the late stages of the massive mega bubbles created in history has been really crazy investor behavior, especially on the part of individuals. For the first decade of this bull market, which is the longest in history, we had seen for the most part structured buying and the rally lacked waves of wild speculation in 2019 to now we have it in record amounts.

Ø  The infamous Buffett indicator, total stock market capitalization to GDP, broke through its all-time-high 2000 record high a measure of the total value of all publicly-traded stocks in a country, divided by that country's Gross Domestic Product (we are also extremely over-extended significantly of debt).

Ø  Amazingly we saw this past Covid-19 year that there were 480 IPOs (including an incredible 248 SPACs) more new listings than the 406 IPOs we saw come to market in 2000 into the dot.com bubble.

Ø  There are about 175 firms (with market capitalization of over $250 million) that have more than tripled this past year, which is over 3 times as many in any year in the previous 11 to 12 years.

Ø  The volume of small retail purchases, of less than 10 contracts, in call options on U.S. equities has increased 9-fold compared to 2019, and 2019 was already approaching 30% above the long-run average.

I am not at all surprised with close to $5.75 trillion in liquidity (FED and Government) that the market has advanced at a parabolic fast rate and with increasing speculative massive excesses. It is precisely what I have come to expect from a late-stage bubble: an accelerating, nearly vertical stage of unknowable size but these bursts of euphoric buying are typically short lived. I have “the hard way” found that cycle at the top of a bubble is shockingly painful and full of risks for newbie / reckless grizzly bears (who should not short due to inexperience and lack of discipline).

v  Currently, I am short 65% of my portfolio and now I am doubling down, because as prices move further away from their standard deviations and real trends, at accelerating speed and with growing speculative fervor.

The strangest feature of this bull market is how unlike every previous mega bubble is that past bubbles have combined accommodative monetary conditions with decent economic conditions. Today’s extremely wounded economy is totally different: as we have only seen a small-partly recovery so far and in my opinion, we are likely facing a double-dip, the numbers are already foretelling of a slowdown, and if nothing else we are facing an exceedingly high degree of uncertainty (should be very unsettling for the markets). Yet the market has continued to crawl higher than it was last fall when the economy looked to be doing OK and unemployment was at a historic low. Today the P/E ratio of the market is extremely high and within a few percent of the historic top while the economy is in the cesspool. This is completely without precedent and may even be a better measure of speculative intensity than the massive rise of SPACs.

This time, more than in any previous mega FED intervened bubble, investors are relying on massive and I mean massive accommodative monetary conditions and zero real rates extrapolated indefinitely. This is a kin to assuming great/peak economic performance forever: these conditions are being utilized to justify much lower yields on all assets and therefore correspondingly higher equity prices. But neither perfect economic conditions nor perfect financial conditions can last forever, despite the CNBC hype.

From my research, (I have read over 500-articles, books and expert opinions) all mega bubbles end with the near-universal recognition that the current one will not end yet; and the omnipotent FED has their back; because Y-2-K Greenspam’s FED in 2000 was predicting a lasting improvement in productivity and was pledging their unwavering loyalty (what I saw as massive “moral hazard”) to the stock market; Then Bernanke believed unwaveringly that in 2006 that “U.S. house prices merely reflect a strong U.S. economy” as he perpetuated the FE’s wave of moral hazard: Yellen, and now Powell, maintained this Ponzi-scheme premise; as we have seen that all three of Powell’s predecessors claimed that the equity asset prices they helped inflate into Hindenburg proportions aided the economy through the wealth effect (I almost puke when I reflect on this “BS”). But all three of these charlatans have avoided claiming credit for the ensuing market implosions that I repeatedly wrote about would inevitably develop...the dot-com bubble bursting of 2000 and the housing implosion of 2008, each complete with the accompanying anti-wealth effect that came when the economy least needed it, exaggerating the real weakness in the economy.

Now once again the massively over-inflated equity prices this time will hold and gains will continue as CNBC and other so-called gurus want us to believe without question that the FED (due to their symbiotic relationship with the TBTF-bankers, and corporations, and especially the government “as they are far from independent”) keep interest rates near “0%” forever, an ultimate statement of “moral hazard” the asymmetrical market risk we have come to know and depend on. The mantra of recent has been that the FED can engineer low rates with out any ramifications for ever to prevent a decline in equity asset prices. But of course, this FED is your ultimate savior was a fallacy in 1999-2000 and in 2007-2008 as it is a fallacy now. In the end, moral hazard did not stop the technology bubble implosion, with the Nasdog imploding over 80%...nor did in 2008, did it stop U.S. housing market to melt-down a shocking loss of over $8.4 trillion dollars of value in then over-valued homes; and an ensuing cycle of mega weakness in the economy; and a broad decline in global asset prices. All the promises that the masses believed in were in the end worth nothing, except for one; the FED did what it could to pick up the pieces and help the markets get into stride for the next trend into another massive- wave of over-inflated asset prices and then a subsequent ensuing decline. And here we are again, waiting for the music to stop and to see how many chairs have been removed from this game of musical chairs.

I have acknowledged that this giddy market can rise further for a few more weeks or even months like it did on me in 11/1999 into 3/2000 and 9/2007 into 2008. My best guess as to the top of this bubble is the nest 50-100 days coinciding with the Biden Administration broad rollout of the Covid-19 vaccines. At that moment, the most urgent issue facing the global economics could be abated or significantly mitigated. Market participants will likely breathe a sigh of relief, look around, and immediately realize that the real economy is still in the proverbial cesspool just as the FED and fiscal stimulus will be significantly reduced or eliminated with the end of the Cocid-19 crisis in sight, while acknowledging that market valuations are absurd a classic set up of “Buy the rumor, sell the news.”

This market is now displaying all characteristics of a mega bubble. The most impressive features right now are the intensity and enthusiasm of the giddy bulls that have been feasting on mega doses of locoweed! Another feature of a late stage long in the tooth bull markets has been a parabolic rise of the final leg, which in recent cases has been over 60% in the past 18 months a rate well over 2x the normal rate of assent within a bull market. Currently the U.S. indices have risen over 70% for the SPX-500, over 100% for the Russell 2000 in just 9 months.

So, please my friends (and yet to be friends) do not wait for the so-called market gurus (GS, JPM, BAC, MS and Black Rock) to become openly bearish: it never really happens. Their “BS” market premise is simple: always be extremely bullish as it is good for business one main reason why they have always had massive bullish advice especially in mega bubbles.

The New-American Dream, one of bailouts and handouts

 

I believe that we as a society and a once-great nation wherein people worked hard and with honor and integrity reached out to capture the American-Dream crossed an extremely dangerous line that should have never been crossed when as a nation sent out so-called “stimulus payments” directly to most Americans during the incredibly early stages of the Covid-19 pandemic (a huge swath of Americans that were not even negatively impacted).  I have been a staunch democrat all my life but even I could not even come close to rationalizing such a development as what was happening was pure “unneeded” socialism, but the politicians defended the “unneeded” inflated payments by insisting that we were in the middle of a major national emergency (then why did so many folks who did not need assistance get a windfall?).  I warned then that once the government started issuing ass-kissing checks, the American people would always keep demanding more and more hand-outs especially from the new generations that are allergic to hard work!  When it was announced that the latest round of “stimulus payments” would only be $600 per person, some Americans seems angry it was not $2,000 or even $3,000 angry...I on the other hand was astonished at how many Americans would be receiving said handouts who did not in my opinion need or deserve one (I am not usually a tight-fisted scrooge when it comes to the working class. In just days Democrats will shortly have control of the White House, the Senate, and the House of Representatives, and one of the first things they plan to do is to deliver more ass-kissing bailout money (another $1,400) on top of the already approved $600.00) to the American people (again to many who have jobs, never lost any income etc. and to many folks who are gaming the system “not even looking for work”). Unfortunately, Americans have tasted free ad easy taxpayer money and they want more and more!

Ø  Remember the chief ass-kissers one being the incoming Vice-President, Harris, previously proposed giving out monthly $2,000 checks for the duration of this pandemic; astounding stupidity nevertheless it was close to passage and it would be a recurring monthly $2,000 check mirroring the payments proposed in the “Monthly Economic Crisis Support Act” that she introduced in the Senate in May 2020. So, if you are married with two kids, you would have gotten $8,000 every month under the plan. Most Americans would have been very eager to sign up for would they not! Sure, beats working right. Where would the money come to pay for the approximately $600 billion every month, hell no one would care as it would mean that it would add more than $7 trillion dollars to our national debt over the course of an entire year...very doable right ☹.

The great thinker (and a fellow Brother Mason) Benjamin Franklin once made the following statement. “When the people find that they can vote themselves money that will herald the end of the republic.” Sadly, I believe we have now reached such a massive life altering republic altering tipping point. And this comes at a time when millions of Americans are in desperate need because the real economy continues to implode all around us due to failed economic policies. As the U.S. economy continues to come apart at the seams, finding sources of tax revenue will become almost impossible. Perhaps corporations who have not paid any taxes in many years will step up and offer to pay their fair share, and maybe the elite and most wealthy will follow suit.

Will the dollar base here of plunge into the cesspool?

 The Uncle Joe Biden administration has yet to take office, but it already has a significant major crisis on its hands; that of a deteriorating U.S. dollar due mostly to massive cyber-FED-money printing and massive new fiscal deficit debt! The greenback has declined over 13% since March 2020. That is a significant decline on its own, and it has provided some great profit tailwinds for multi-national firms (most Dow components and SPX-100 firms). However, what is particularly concerning is the fact that the U.S. dollar continues to without to date staging a short-covering reversal rally.  Put another way, this decline is occurring with little if any short-term trend-breaks.

We are currently seeing a potential dead cat bounce off of near-term critical support however, once we take out the old lows of 88.25 the dollar has no real support until 83.10 thereafter 79.00 that would be serious trouble.

Ø  The ONLY time in history that the U.S. dollar plunged to such levels was when a major Black Swan event was taking place or about to take place in the global financial system. Bear in mind, this is a major contagion before Uncle Biden administration implements their 1^st round of “bailouts” approximately cost $1.9 trillion a so-called stimulus program along with another $2 trillion infrastructure program and this is the makings of an inflationary shit-storm.

NFLX sure knows how to spark a short squeeze with well crafted "BS" !

 CRAZY-SHIT valuations and fuzzy math crap! 

After hours on 01-19-2021; we saw an earnings report from Netflix was a mixed bag: despite mediocre and lackluster earnings and revenues at best, the firm has been riding a wave of extreme optimism, its stock soaring in early 2020, putting it in the top 20 for SPX-500 firms, similar to the gains seen by other shutdown beneficiaries. Still, after surging to a record high in early July, the stock has traded in a waffling range-bound pattern (from $460 to $545), unable to break out to a new high. And while there is no doubt that viewership has surged during the nasty Covid-19 lockdowns in the U.S. and much of the world, there are serious complications that the cheerleaders on CNBC have ignored almost completely as the Covid-19 virus brought TV and film production to a halt, a situation that may only get worse for Netflix as the months wear on. But the biggest $64,000 question remains how many future subs has Covid-19 sucked into the present day with significant enticements?

So, was 2020/Q4 the quarter that would finally unleash another nosebleed repricing higher for Netflix stock, or has the triple top telegraphed some serious pain?  Well, the bulls may have finally lucked out, despite a bit of a heart attack initially, because after Bloomberg first reported a miss in EPS sending the stock sharply lower first, it then reported a huge beat in 2020/Q4 subs (many on a free trial) here are the details:

Ø  Netflix 2020/Q4 pro forma EPS $1.19 “missed big” vs. estimates of $1.38!

Ø  Netflix 2020/Q4 Revenue. $6.64 billion, vs. estimates of $6.63 billion a tiny beat!

This was the data that hit first and sent the stock lower (as I went SHORT...then I became trapped in a SHORT losing $4.75 in a blink of an eye) as the headlines were quickly followed by what I saw as a very stupid catalyst behind the sharp reversal higher, namely a 2.5 million beat in 2020Q4 paying subs; how could this be; likely due to the Covid-19 home-bound...Netflix 2020/Q4 streaming paid net change 8.51 million vs. estimates for 6.06 million...but these numbers were still weak when compared to 219/Q4, 2020/Q1, 2020Q2

They stated, “We’re becoming an increasingly global service” with 83% of paid net subscriber additions in 2020 coming from outside the U.S. and Canada". The number of new subs was enough to allow lame investors to quickly ignore the disappointing 2021/Q1 outlook of just 6.0 million subs (again significantly below the just-released 8.51 million sub number) and worse yet well below the expected 7.45-million **another WTF are the chasers of price thinking**  Interestingly Netflix Sees fiscal year 2021operating margin of 20%...they now see operating margin at a mere 14.4% vs. 20.4% quarter/quarter! Operating income is expected to come in at $954.2 million, a drop of 27% quarter/quarter...and negative free cash flow $284 million vs. positive $1.15 billion quarter / quarter...By adding 8.5 million subs, Netflix has crossed the 200 million paid memberships mark (or have they). But while the Firms subscriber outlook was disappointing it was more than offset by a surprising addition to their the released statement “combined with our $8.2 billion cash balance and our $750m undrawn credit facility, we believe we no longer have a need to raise external financing for our day-to-day operations.” This was seen as a huge milestone for a firm which until a year ago had not had a cash flow positive quarter since 2014 (although it once again begs the question how much of this is based on optimistic assumptions about continued growth). The cash flow positive “BS” forecast came at a good time: just as the firm announced that net cash generated by operating activities in 2020/Q4 was -$138 million vs. -$1.5 billion in the prior-year period, while free cash flow (FCF) for the quarter dropped to -$284 million vs. -$1.7 billion.

 This made me choke and I wanted to puke: Netflix stated that as it generates excess cash (a joke), it intends to maintain $10 billion to 15 billion in gross debt and will explore returning cash to shareholders through ongoing stock buybacks, as they did in (2007-2011).  Netflix also tried to appease investor concerns that the pandemic will slow their productions. From the investor letter: “Our productions are back up and running in most regions - we have learned that flexibility and adaptability are paramount in this fast-changing environment. With over 500 titles currently in post-production or preparing to launch on our service and plans to release at least one new original film every week in 2021 with extraordinary talent, we’re confident we’ll continue to have a great content offering for our members.” 

Between the subscriber beat and the firm's forecast that it will soon be cash flow positive going forward, NFLX stock has exploded higher (and I got trapped for a tad) and at last check was about 10% higher trading just above $565.00 to $570.00.

The Great Ponzi Scheme inflicted on Americans

Telling Americans that there is NO inflation (or just contained/constrained inflation) is a great Ponzi scheme used to screw the masses (working-class and poor).

If you really look at stuff and other of life’s tangible products, and you like me feel that they are far more expensive than they were 11+/- years ago, “they are” as it is likely because everything in reality is more expensive than it was then (called inflation, but do not tell the masses who have been like Pavlov’s conditioned to believe that inflation does not exist). Let us take a look at real estate, it costs more than ever to buy a home than ever before despite historic low interest rates. In 1940, the median home value in the U.S. was $2,938, 40-years later in 1980, it had risen to $47,200, and in just another 20-years later in 2000, it had risen to $119,600; when we do the math and adjust for the government’s “BS” bogus inflation numbers, the median home price in 1940 would have increased to $30,600 in 2000 dollars, not $89,000 higher!

Ø  One reason why the typical homebuyer is now running into the age range of 44+/- years old (many are still living with mom & dad) whereas in 1981, the typical homebuyer fell into the age range of 25-34.  Ans it is also significant harder to rent; in the past 5-years alone, the annual rise in rental prices was nearly 4x the overall inflation rate.

During the past 20-years....NO housing inflation right 😊

• Median Home Price (NSA) in 12/01/2000 = $139,815
• Median Home Price (NSA) in 12/01/2005 = $210.371
• Median Home Price (NSA) in 12/01/2010 = $175,569 (a drop after the great housing bubble burst)
• Median Home Price (NSA) in 12/01/2015 = $215,206
• Median Home Price (NSA) in 06/01/2020 = $278,621
• And the most recent FED data for 2020/Q3 the price for median home sales came in at $324,900  

Now let us look at another over-looked segment called education is also is significantly more expensive for average Americans than ever before. The total 2020-2021 cost of attending Harvard was $49,653 for tuition and $72,391 for tuition, room, board, and fees combined...Before 1960, it cost less than $1,000 to attend the university. Since 1980, the cost of tuition has steadily been on the rise, costing $13,085 in 1990, $22,054 in 2000, and $33,696 in 2010. That makes the cost today almost 18x as much as in did in 197 a markup of more than 1,590%. The rising cost of higher education has led many Americans to owe a collective $1.4 trillion in student loan debt.

Back just 8+ years ago in 2012, 71% of graduates from four-year colleges carried debt, with students at public schools owing an average of $25,550 and those with degrees from private colleges owing an average of $32,300 according to the research done at Student Loan Hero reports.

And as the U.S. supposedly recovered from the stupid-ass TBTF-Banker-led Great Recession, the cost of consumer life sustaining and needed goods has steadily risen as depicted by significant price jumps in items like apparel, shoes, food, education, property taxes, healthcare and health/dental insurance and gasoline for starters. While some prices have risen more drastically than others (and some have even decreased those associated with some electronics etc.) one thing is clear: The cost of everyday life in 2020 is drastically higher than it was in the 1970s or 1980s and 1990s despite the rhetoric and hype on the financial networks and from the FED stating that inflation is significantly contained and constrained!

As Helaine Olen wrote in her book “Pound Foolish,” families in the 2000s put 79% of their discretionary income toward their housing, health care and education, as compared to 50% families used to put toward those same big-ticket items in the 1970s.  Now of course even I can see that wages have risen as well: For example, the Federal minimum wage in 1945 was a paltry $0.40 per hour. (when I stated working it has risen to $1.75...we saw that in 1980, it had risen to $3.10. And in 2009, it rose to a staggering $7.25 (grin), though several states have since mandated higher minimums. But these increases have not been even come close to offsetting the cost of living / real life inflation. These days, a family  can NOT live within any state working 40 hours a week for minimum wage as still it does not enable a person to rent a low cost two-bedroom apartment, let alone begin building any real wealth for the future; this is a crying shame as from my extensive research over the years we have seen a one-wage income earner household become extinct and replaced by a two- wage earner household, and far too often to make ends meet we see the family unit needing 2½ jobs to make ends meet!

The 40-hour work week is now merely an illusion, a myth for far too many Americans (like the American dream has become) a legend from years past. In many modern workplaces, you are more likely to see a Leprechaun at work than an employee who punches in at 9:00am and out at 5:00pm. This does not mean that today’s workers work less than 40 hours, and in many cases the opposite is true. Many knowledge workers start working the minute they roll out of bed. They check emails at their breakfast table or hop on early conference calls with dispersed team-members and overseas customers.  By the time they roll into the office, many have already worked 2 or 4 hours. This so-called  “BS” hyped work freedom is not always a good thing. As the absence of boundaries between work and life can have long-term detrimental negative effects on actual employee productivity and overall performance.

Over 80+/- years ago, it was normal for people to work an average of 70+ hours each week; at one-point a few generations ago employees (including children, yes children as my grandmother were forced to work in a textile mill at age 12) were required to work 14-hour days. All of that changed in 1926 when Henry Ford standardized the 40 hour work week. [The Ford Motor Company then advanced the premise in 1914, when it scaled back from a 48-hour to a 40-hour workweek after Henry Ford believed that too many hours were bad for worker’s productivity. The formation of trade unions also helped to strengthen the idea of working five days a week as was healthier than 6-7] His classic independent research showed that folks working more yielded only a small fractional increase in productivity, and before long productivity actual declined. Finally, in 1938, the 40-hour work week became law via the Fair Labor Standards Act. But do not get your hopes up for a reduced workweek just yet, this law only applies to hourly employees and it referenced getting paid for over time!

The story of run-away inflation in the US this New-Year “2021” could very well amount to the need for a renewed hyped rhetoric calling it a complete mirage and a figment of our imagination! Most Americans are likely to see significant prices jump across a wide variety of sectors this year, thanks in part to massive and I mean massive Fed and governmental stimulus (close to $5 trillion and counting and Covid-19 vaccines that will potentially turbocharge, overall new demand for such post pandemic victims of shut-downs etc. like travel, entertainment, bars, sporting events and other social gatherings. Now due to the weak dollar we have seen prices also rising for many (housing and construction) inputs such as copper, cement and lumber, inflation could very well surpass the FEDs bogus 2.0% target in a mere 2-3 months. Currently through bond activity financial markets are increasingly pricing in higher inflation and debates over whether the central bankers should start easing back on their record monetary stimulus may step up and intensify.

But one critical ingredient will likely be missing according to the inflation hypsters to sustain higher inflation: a tight labor market is needed; unemployment is expected to remain significantly elevated throughout the year, and a resurgence in demand for services could be offset by some goods. Far too many so-called economists think inflation is going to be quite muted likely because unemployment will still be high, and there will still be significant slack in the labor market, which could keep some pressure on wages (nevertheless if prices rise and wages do not this is a terrible economic mix). This year will be a year plagued by numerous inflation-worries. I am betting more and more, that inflation will not stay so stealthy muted. Services make up about 60% of the overall consumer price index and 75% of the core measure, which excludes food and energy.

In a Bloomberg Opinion piece, former New York Fed President Bill Dudley wrote that a rebound in spending on services suggests “sharp price increases might even be needed to balance demand with the available supply, which the pandemic has undoubtedly diminished.” Read the article: Five Reasons to Worry About Faster U.S. Inflation. Those who see few signs of excess inflation “could be setting themselves up for an unpleasant surprise,” Dudley said. One issue in the pipeline: so-called base effects will lead to higher inflation. Price indexes early this year will be compared with the sharp retreats experienced in March and April, which may push inflation above, the FED’s 2.0% bogus premise/goal. Many gauges of input prices and costs paid by firms has also been rising as of late, though factories still have plenty of slack in capacity.

Lame-central bankers adopted a new policy framework in August and signaled a significant willingness to allow PCE inflation to exceed their target for quite some time. In 2019 we had a really perfect storm for higher inflation, with low unemployment, goods tariffs, and a weaker dollar from prior years. And that really only got us not even back to the FED’s core inflation objective, so achieving above-target inflation is a really difficult thing for the FED as they make up the data to suit their needs. This past December at 6.7% in November, the jobless rate is almost twice as high as it was in the closing months of 2019, when it stood at a five-decade low of 3.5%...yest the SOB corporations have significantly depressed worker compensation costs as they were again decelerating.

I am betting that another sector that may experience higher inflation is medical care, as providers and beaten-up hospitals try to recoup some of the massive revenue lost during the pandemic. Another factor is that inflation expectations remain well within their historic range due to suppressed data.

An often-overlooked area of massive inflation: This chart blow explores recently released National Health Expenditure (NHE) data from the Centers for Medicare and Medicaid Services. These data offer insight into changes in health spending over time as well as the driving forces behind spending growth. Health services spending growth fell in early 2020 due to the Covid-19 pandemic and (costs that were frozen in place)! 

The Quarterly Services Survey (QSS) is one way to look at national health spending, though it does not include data on prescription drugs, medical equipment, and other health-related spending categories that are not considered services. The pandemic led to a historic decrease in health services spending due to social incessant social distancing and the delay or cancellation of other medical procedures. In the 2^nd quarter of 2020, health services spending fell by -8.6% over the 2^nd quarter of 2019. While health services spending increased in the third quarter of 2020 (1.3%) over the same time in 2019, year-to-date health services spending through the third quarter of 2020 was down by -2.4% (relative to the first three quarters of 2019). Before the pandemic, total health expenditures increased substantially over the past several decades....and this is a huge economic weight for the poor, working class and vanishing middle-class!

Health care spending totaled what we thought was a significant high number of $74.1 billion in 1970. By 2000, health expenditures reached over $1.44 trillion, and in 2019 the amount spent on health more than doubled that to over $3.8 trillion. Total health expenditures represent the amount spent on health care and related activities (such as administration of insurance, health research, and public health), including expenditures from both public and private funds. On a per capita basis, health spending has grown substantially above the rate of pro forma inflation!

On a per capita basis, health care spending has increased over 31x in the past four decades, from $353 per person in 1970 to $11,582 per person in 2019. In constant 2019 dollars, the increase was about 6x, from $1,848 in 1970 to $11,582 in 2019 but the figures do not lie as health care spending growth has far and I mean far outpaced growth of the U.S. economy.

 

Another way to look at the spending trends is to look at what share of the economy is devoted to health. In 1970, 6.9% of the gross domestic product (GDP) in the U.S. was spent toward total health care spending (both through public and private funds). By 2019, the amount spent on healthcare has increased to a whopping 17.87% of GDP. From 2016 through 2019, the share of GDP attributable to health spending decreased slightly from 17.97% to 17.87%. Although health services spending has decreased in the first three quarters of 2020 relative to the same period in 2019, GDP has decreased significantly more in 2020 over 2019, and therefore health care spending likely represents a larger portion of the economy in 2020 than in prior years. 

Per capita out-of-pocket expenditures have grown since 1970 as well as in dollar terms, overall health care spending out-of-pocket expenditures have grown steadily since 1970, averaging $1,240 per capita in 2019, up from $115 per capita in 1970 (that would be ~$603 in 2019 dollars). Out-of-pocket medical costs do not include the amount individuals contribute toward health insurance premiums a massive economic anchor IMHO.

Ø  Most of the recent health care spending growth is in insurance programs, both private and public. Private insurance expenditures now represent 31.5% of total health care spending (up from 20.4% in 1970), and public insurance (which includes Medicare, Medicaid), it represented 41% of overall health spending in 2019 (up from 22% in 1970).

Ø  Per enrollee spending by private insurance grew by 51.3% from 2008 to 2019 significantly faster than both Medicare and Medicaid spending growth per enrollee (26.2% and 16.4%, respectively). Private insurance pays higher prices for healthcare than Medicare and Medicaid.

Ø  Interestingly In 2018, U.S. health care costs were $3.69 trillion. That makes health care one of the country's largest industries. It equals 17.87% of gross domestic product. In comparison, health care cost $27.2 billion in 1960, just 5% of GDP.  That translates to an annual health care cost of- $11,172 per person in 2018 versus just $147 per person in 1960. Health care costs have risen far-far faster than the median annual income.