Remember never forget...the power of massive greed and fear of missing out, and the propensity for investors wanting to own stocks at any price (taking the long-side, especially when cheerleaders are touting expanding multiples) if they think the bull-train is pulling away from them they will want to hop on board at all costs praying for a greater fool to come along so that they can get out if things get dicey or head south...retail chases highs, smart money distributes their holdings at the end of cycles!   Chasing tops without stops almost always ends with retail fools crying

There is currently a massive divide happening between the near “depressionary” economy versus a surging bull market in equities. Given the relationship between the two, they both cannot be right or can they, we saw the same back in 2009-2015 when the FED was back-stopping almost all market players with cheap/ near-free liquidity!

We have learned that focusing solely on Economic Data or  “BS” manufactured earnings is a mega mistake and likely a waste of time as only the actions of the lecherous FED whose primary job is to protect and enrich their SOB-Banking sons, to enrich the elite/most wealthy while enslaving the masses in DEBT and excessive credit!

More than 11½ -years after I first said that in the “New World Financial Paranormal World” nothing matters for the markets anymore besides the FED and their jaw-boning,  basic money for nothing and massive cyber money-printing....so the markets have inferred that since there is a solid FED liquidity backstop, and I have conjecture but I do not know the depth or duration of the current economic the downturn, spending any time reflecting upon economic data releases or focusing on “BS” corporate earnings is a mega waste of time. The CRAP to focus on is the FED and its direct support for the financial and non-financial IG corporate sectors.

This week I believe we could be officially entering the blow-off top phase of the current FED orchestrated rally; as we have seen a record surge in Nasdog volume...with a massive spike in equity call volumes to a new decade high...while the put-to-call ratio has plunged just shy of its all-time lows...sending a clear message the time of increased trader euphoria and buying from retail investors (who as we noted in my real-time trading room were drunk-on-locoweed\) so many locoweed infested bullish fund managers have been saying “retail” investors are lacking is not missing from this market any longer as “small traders are now full-bore bullish, on steroids” (thanks to their belief that the FED has their backs).

Something unusual is happening in our financial markets right now. Both sentiment and breadth figures are at multi-year highs (if not multi-decade highs). When this happens, investors and traders are often split into 2 distinct camps: those who think that stocks will crash (sentiment camp), and those who think that this is another start of a great bull market (breadth & breakout camp)...despite having experiences 11+ years of a historic bull market...While unimaginably high sentiment can and usually does lead to some newbie investor short term losses and market volatility, incredibly strong breadth is more of a long term bullish sign for stocks. Remember my friends that bull markets do not grow to the sun non-stop.

Will the U.S. stock market use months of volatility or a major pullback to wash out current extreme sentiment? Only time will tell. Recency bias encourages our minds to extrapolate the recent past into the future. After a fantastic year in 2020 (especially for everyone who started trading after the Covid-19 March lows), many traders are expecting similar gains in the months and year ahead. Please remember that the near future is rarely just like the recent past, especially at extremes. We can see that the percent of SPX-500 stocks above their 200dsma is at its highest level in over 5 years (91%). 

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 As the market continues to rally on the back of promising vaccine results from Pfizer and Moderna, the U.S. stock market is becoming more and more overvalued! The stock market's performance has been a wild assent compared to that of its international counterparts: Despite the massive stock market growth, the U.S. has been underperforming its peers with respect to GDP growth, and that trend is expected to continue: The U.S. is projected to see real GDP growth of 3.7% in 2021, while the world economy is expected to grow 5.2% more then a slight disconnect.

Meanwhile, SPX-500 firms are trading at a nosebleed sky-high average multiple of more than 31 times earnings the highest level since the Great Recession, and even higher than levels in 1929 immediately before the Great Depression.

Without Microsoft and the six TFAANG stocks (TSLA, FB, AAPL, AMZN, NFLX, & GOOG), the SPX-500 would be roughly flat over the past several years, making the broader-market indexes highly susceptible to shifts in any of these names.

There has also been sort of a retail trading frenzy that occurred in the aftermath of the $2.2 trillion CARES Act as we have seen through increased retail platform trading volumes, and records being shattered in the number of speculative trades in the options market (especially in call-volume) all of which are a terrible sign for stock-market real fundamentals. The super seven is carrying the whole market on their back, and narrow markets are not sustainable especially in the outsized valuations of Microsoft and the six TFAANG stocks. Measured against earnings, current S&P valuations are above those around the time of the dot-com technology bubble in 2000. The SPX-500 Ex-Technology ETF, which as the name suggests comprises only the 433 non-tech stocks on the SPX-500, is down 3.3% this year, while the SPX-500 is up 11.5% (terrible divergence)...25% is nearly how much of the SPX-500 weight is represented by Microsoft and the six TFAANG firms.

Before Moderna and Pfizer's so-called phase-three vaccine announcements, Microsoft and the TFAANG stocks rallied and posted blowout earnings during the pandemic while many non-technology firms saw their earnings tank. The reinvigorated prospects of a return to pre-pandemic normalcy (like flipping a light-switch as touted on CNBC), this news prompted investors to rotate away from big-technology and into cheaper beaten down stocks, particularly those in industries that have been hardest hit by Covid-19 (such as energy, financials. Travel and entertainment all of which have seen double-digit percentage gains this past month.

 

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 Is this repeatable?    US corporate profits rebounded in the 3^rd quarter as businesses reopened more broadly and overall demand accelerated from a pandemic-induced cesspool in the first half of the year. This is of course the government’s first estimate of earnings for the period showed a record $495.3 billion annualized increase (due to massive 2.2-trillion stimulus through the Cares act) or at a 27.1% annual rate. Remember this improvement followed a 10.3% decrease in the April-June period and a 12% decline in the first quarter that was the largest since the end of 2008. The figures show both the magnitude and speed of the Covid-19 pandemic’s hit to the bottom lines of American businesses, and how firms reversed due to a surge in 3^rd quarter demand. The improvement in profits helps explain a stock market rally that saw the Dow close above 30,000 this past week as the shattered economy expanded at an unrevised 33.1% annual rate from July through September.

The report also showed for the first time that gross domestic income, which measures all income earned in the production of goods and services, increased an annualized 25.5% in the 3^rd quarter after a record 32.6% plunge in the prior three months.

 Some thoughts  12/24/2020

If 2020 was dominated by the huge human costs of Covid-19, the years ahead will be all about the nasty and dismal economic aftermath, including the massive Tsunami wave of US debt and corporate debt.

During 2019, the assclowns spending fools in Congress suspended the debt ceiling until after the 2020 presidential election (bless them). While they sought to avoid a repeat of the 2011 and 2013 debt crises during an election year, new spending contributed to King Trump’s new military rearmament push. Now the new

Congress must decide the future of the debt ceiling by the summer 2021.

By the end of this year Covid 19 cases worldwide could be heading into the 80-100 million. As a result of utter mismanagement, and we could easily exceed 20 million. While this nasty pandemic continues to spread and the health system becomes more overwhelmed, the King-Trump White House has taken upon themselves record amounts of debt at a record pace.

 Remember that during his campaign, King Trump pledged to eliminate our national debt completely in 8 years. At the time, total public debt was closing in on $19.7 trillion. In the past 4 years, it has rocketed to more than $27.7 trillion, a staggering $8 trillion.

 Of course, all major economies have taken record amounts of debt during this nasty global pandemic. But the United States is not like other economies. First, it has more Covid-19 cases relative to all other major economies. The US remains the world anchor economy. The, US dollar dominates international transactions. As a result, massive excessive US debt will have a disproportionate nasty economic global spillover.

Due to the lecherous enabling manipulative FED, depressing interest to near “0” screwing over savers and others as a share of GDP, the cost of servicing US debt has deteriorated since 2000, even as federal the amount of debt has ballooned. The incessant manipulative environment of low interest rates has made it far easier that it should be to service and pay down the massive debt loads. Nevertheless, the likely policy stance of the Biden administration whether implicit or explicit, will likely be predicated on unsustainable debt-taking in the future.

According to the recent projections by the nonpartisan Congressional Budget Office, federal debt held by the public will surpass its historical high of 106% of GDP in 2023 and will continue to climb thereafter. By 2050, debt as a percentage of GDP (a vastly undervalues matrix) will amount to close to 200% of the GDP. Despite peaceful conditions, it is already at the level seen during World War II; by 2050, it could be twice as high

 

Worse yet, our debt is likely to increase far faster than most so-called gurus anticipated (JMHO). Current projections do not include the actual costs of the pandemic stimulus packages, for one. 

Deficits will more than double from an average of 4.8% of GDP from 2010-19 to excess of 10.9% through 2041-50 adding to more debt. As a result, net spending for interest will account for much of the massive increase in total deficits in the past two decades. In the CBO’s projections, growth in outlays will continue and accelerate to outpace growth in revenues, resulting in larger and larger unsustainable budget deficits over the long run...measured as a share of GDP, net spending for interest could increase 4x to 5x over the last 2-decades of the projection period.

The New Biden administration has promised to be tough on China, Russia, and several other countries, which could translate to rising defense and security costs which, in turn, would further amplify our ballooning massive wave of debt, twin deficits and real interest rates. Remember what history has taught us repeatedly that when great powers fail to balance their wealth and their economic base with their military power and strategic commitments, they risk vast overextension. In the coming decades, that will likely become a US risk.

 

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WISE OWL TRading ideas and executions on 12-23-2020

WE ARE closing in on the potential BUY-ZONE  Reviewed  12-23-2020   looking for a retracement to re-enter   I will be LONG  “NKLA” 2000/700-for portfolio  @ $10.25 and or < than > 13.05  looking for a retracement play, target $23.00 thereafter $28.75   its optionable 

 

Developed     12-23-2020      “BABA”   (looking for a retracement to buy)   I will be  LONG 800 (300 for the portfolio)  at  $174.75  Looking for a drop into old support at $172.95 and or > than <   $192.00   target $239.00 then $255.75     its optional    I like also using CALLS out 5-6 months 

WISE OWL Trading ideas  12-22-2020

TRIGGERED  out ½ at $149.00    Order at $149.00  to book out ½   12-22-2020   I am SHORT  400/200-shares at  $179.00 WE ARE IN the potential SELL-ZONE   Reviewed      12-19-2020    I will be  SHORT (400/200 for portfolio) of  “RARE” at  $187.50 or > than <  $179.00      I like using PUTS out 6-9 weeks

I was triggered in for a SHORT at $107.90   12-22-2020    (forming a potential H&S pattern)   Developed   12-18-2020   I will be  SHORT(800/400 for portfolio) of  “CHWY” at  $113.85 or > than <  $107.75     I like using PUTS out 6-9weeks

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Reviewed      12-22-2020          RE-Developed      12-12-2020    6.6% dividend yield   looking for a retracement to re-enter  (we took 4.5 points last trade)   I will be LONG  “CHL” again 800/400-for portfolio  @ $20.70 and or < than > $25.02  looking for a retracement play, target $38.00 thereafter $45.75    Forward P/E 7.25 

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Developed 12-22-2020 ranks a “B+” trade “PTON” I will be SHORT at $177.50 Looking for a push into a linear regression model of OHR to $179.95 and or > than < $168.75 my short side target comes in at $140.00 then $126.75 I will also look to utilize options out 7-12 weeks or more....as an add on we can also trade the PTON weekly options by selling calls

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Reviewed      12-22-2020        NEW Idea....11-28-2020    “GILD”  **Limit order at $45.50  for 1000-shares, I will take 400 for the portfolio**  and/or less than $50.75 than a rebound back above this level target $69.95 then $78.75    SHORT interest = 1.95%   Float = 1.25-billion         Its optionable, great long term CALL play and covered call play    forward P/E = 9.20  P/S = 3.63  

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Order at $114.25 to book out ½ 12-09-2020   I am SHORT  200-shares at  $169.25    NEW Idea....12-05-2020   “MRNA” Looking to SELL-SHORT  (limit order @  $174.99    (600/200-for the portfolio ) and or > than <169.75  target $111.95 then $97.85 

• Reviewed      12-22-2020     Developed      12-12-2020     looking for a retracement to re-enter  (we took 17.00 points last LONG trade)   I will be LONG  “MRNA” again 500/200-for portfolio  @ $88.55 and or < than > $104.50  looking for a retracement play, target $128.00 thereafter $139.25  

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Looking to SHORT CVNA      WE ARE close to the potential SELL-ZONE Reviewed 12-22-2020 “CVNA” I will be SHORT 400 at $309.90 and or > than < $295.75 target $237.00 then 205.00 We could sell some weekly calls that expire on Friday or utilize a PUT spread or PUTS out-right going out 3-5-months

Is there another shoe to fall....

Do you feel like I do that another major crisis (financial, covid-19 etc.) could erupt at any moment?  In 2020, it has just been one thing after another, and we have been conditioned to expect the unexpected (but the markets have been on an energizer bunny romp all year!  I am now anticipating that big trouble is just around the corner, but as we wait for “the other shoe to drop”, economic conditions all over the US continue to rapidly deteriorate. 

 On Thursday we learned that the number of initial claims for unemployment benefits last week was the highest in “4” months…The job market continues to suffer. Another 885,000 people filed for first-time unemployment benefits last week an increase from the week prior and higher than the 800,000 claims that economists were expecting. The latest figures, which are adjusted for seasonal factors and reported by the Labor Department, are particularly grim since last week’s numbers were revised up to 862,000 the highest level since mid-September.

In a so-called recovery this is not how the numbers are supposed to be trending now are they. For four of the past 5-weeks we have seen the number of new unemployment claims rise, and I have been warning that we should expect things to get even worse as we head into the New-Year as US weekly jobless claims continue to head in the wrong direction. The labor market outlook is bleak as the Covid-19 next nasty wave of the virus is going to likely lead to more shutdowns. Could we soon see more than a million Americans filing new claims for unemployment each week like we did earlier in the pandemic 1^st wave! Remember that the previous all-time record prior to 2020 was just 695,000, and that old record was set all the way back in 1982. We are seeing numbers that we have never seen before in all of U.S. history every single week, and now they are starting to rise once again thanks to new lockdowns in various states.

The number of jobless folks who are collecting aid from one of the two federal extended-benefit programs the Pandemic Unemployment Assistance program, which offers coverage to gig workers and others who don´t qualify for traditional benefits surged to 9.2 million from 8.6 million for the week that ended 11/28/2020.

 The number of folks receiving aid under the second program “the Pandemic Emergency Unemployment Compensation program” which provides 13 weeks of federal benefits to people who have exhausted their state aid also rose from 4.5 million to 4.8 million.

By now, the KING-Trump “recovery” was supposed to be in a raging surge, but instead major firms keep laying off more workers at an astounding pace (cutting costs and establishing new demand levels) on Thursday we saw that Coca-Cola will be eliminating 12 percent of their entire U.S. workforce...I serious doubt that Coca-Cola wouldn’t be doing this if the U.S. economy was about “to turn an hard corner”. All of these large corporations that are letting workers go can see what is about to happen, and they are reducing their payrolls in an attempt to make it through the next economic storm.

 Meanwhile, the lamebrains in Congress is supposedly getting close to approving yet another massive “bailout” “stimulus package”, and the FED is promising to do whatever it takes to support the financial markets (code for propping up the stock markets). Trillions upon trillions of dollars are being blasted into the financial system, and as a result M-2 money supply is up more than 60% so far this year increasing at an almost parabolic vertical rate in 2020.

 Food inflation is rising quite fast...as when the cost of “real” living continues to soar into cloud-9 many American families are going to discover that they are no longer able to afford enough food for the week. And once millions of Americans become hungry, that is when we will see absolutely insane economic riots in this country. All of these things are coming, and we definitely will not have to wait very-long at all for “the other shoe to drop”.

 

How is this an economic positive or market-friendly development?

America's Zombie firms have racked up over $2.2 trillion of new debt and their numbers are swelling.

From Boeing., Carnival. and Delta. to Exxon, and Macy's to name a few., many of the nation’s most iconic firms are NO longer earning enough to cover their interest expenses (a key criterion, for zombie status). More than 217 other corporations have joined the ranks of so-called zombie firms since the onset of the Covid-19 pandemic, according to a recent Bloomberg article on financial data that I read over 3,000 of the country’s largest publicly traded firms. In fact, zombies now account for nearly a 26% of those firms. Even starker, they have added more than $1 trillion of debt to their balance sheets in the span, bringing total obligations to a tad over 2.2 trillion which is more than the roughly $1.58 trillion zombie firms owed at the peak of the TBTF-banker led great financial crisis.

Maybe just maybe the Federal Reserve’s effort to stave off a rash of bankruptcies by purchasing corporate bonds might very well have prevented another depression. But in providing such air to many hundreds of ailing firms gain virtually unfettered access to credit markets, policy makers may inadvertently be directing the flow of capital to a vast number of then and now unproductive firms, depressing real employment and growth for many years to come (likely unintended consequences of FED actions) The FED, for “BS” so called stability reasons, decided to step in and resurrect and save these zombies and they knew full well (despite their words to the contrary) that they were going to create zombies. Now the question becomes, what about the firms that have been kept alive that otherwise would have gone out of business...do we provide more bailout monies to them via loans etc. as their numbers in the U.S. have been increasing distinctly for over 13 years (since the housing market implosion), fueled mostly by many years of ultra-loose monetary policy.

Zombie firms get their so-called name because of their inherent tendencies to crawl along, unable to earn enough real revenue to dig out from under their massive debt obligations, but with access to credit to roll over their debts. They are a drag on the economy because they keep valuable real assets tied up in firms that can’t afford to invest and build their businesses.

 Of course, not every company that becomes a zombie is destined to stay one forever. BUT the vast amount of borrowing undertaken by struggling firms in recent months will almost certainly limit the capacity of many to make capital expenditures and adapt to shifting consumer habits.

 Bloomberg’s analysis looked at the trailing 12-month operating income of firms in the Russell 3000 index relative to their interest expenses over the same period. The results paint a grim picture. Almost a 25% of the index, or 739 firms, have not earned enough to meet their interest payments.

Boeing has seen its total obligations balloon by more than $32 billion this year, while Carnival’s debt burden has increased $14.8 billion, Delta has added $24.2 billion, Exxon $16.2 billion, and Macy’s $1.2 billion, according to data collected by Bloomberg.

 I have warned that zombies are less productive, spend less on physical and intangible capital and grow less in terms of employment and assets than their competitive peers. But new research from the Bank for International Settlements shows that zombies may be even more damaging to an economy than previously thought. Not only are firms staying in a zombie state for longer than in years past, but of the roughly 60% of firms that do manage to ultimately exit zombie status, experience prolonged weakness in productivity, profitability, and growth,

 Zombie firms have been building due to lax markets that provided staying power for insolvent firms. The pandemic exacerbated this disease. From an economic theory standpoint, zombies lower long-term growth as you have misallocation of capital and firms commanding market share but without the ability to invest in growth. Nearer term, because zombie firms exhaust value, credit-recovery assumptions should go lower, which arguably should send spreads higher to compensate.