Stocks Stacked High in a Shipwrecked Economy

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Traders are pricing stocks to levels that make sense only if sailing an open sea of glassy calm as far as the eye can see. Priced beyond perfection as though we are gliding through the economy of a gilded age, the market’s rosy optimism is causing both Bloomberg and Bill Maher (and others) to ask seriously (and humorously in Maher’s case, in horror in the case of others) this week if we are about to enter another Roaring Twenties.

It easily became the financial headline theme of the week.

Here comes the heavy wave of ecstatic hedonism, as economists and tarot-reading Twitterers predict a second coming of the Roaring ’20s.

Fast Company

Stocks are priced for a golden era as we enter a new set of twenties one century after the period of infamous baronesque profits. Just because the numbers of the decades align and stock traders are delirious enough to bet on their gematric alignment that does not mean there are not better reasons to bet otherwise.

Dead ahead lie shoals of sand with a windstorm blowing us into them, yet it is full steam ahead for stocks.

It’s pandemania everywhere

The wild winds of a COVID pandemic continue to ravage the world and are now breathing down our backs with a global breakout of a new more contagious strain:

Brazil is in the throes of a battle against the new Covid-19 variant from the Amazon that threatens to send shock waves across the globe. Home to less than 3% of the world’s population, Brazil currently accounts for almost a third of the daily global deaths from Covid-19, driven by the new variant.

Wall Street Journal

We are already entering another period of rising case counts in the US where the new strain has appeared even though vaccines abound.

After two months of steady declines, in the last week the national case average has increased by 12.5%, now standing at just over 60,000 cases a day, akin to the case numbers experienced during the summer surge. “We’re seeing rising cases in several locations around the world, including in some U.S. states so a fourth wave seems possible….”

At least 22 states have seen their seven-day case average jump by at least 10% in the last week, according to an ABC analysis data collected by the Department of Health and Human Services, and the number of patients hospitalized appears to have also stopped falling, plateauing around 33,000, after falling by more than 70% since early January.

Yet, states are beginning to reopen again to allow more potential spreading. Every time we’ve done this, the case count has soared until we closed down again. I’m not saying we shouldn’t reopen, but betting the disease is on is way out as we reopen is betting in denial of repeatedly known past facts.

While traders are betting, in spite of precedent, that we are now heading into a “post-pandemic ‘Roaring 2020s,’ with parties and excess,” one social scientist does not agree that the bounce back will be a flood of parties and excess even if the disease does abate:

“Social skills are like a muscle,” says Richard Slatcher, a professor of psychology at the University of Georgia who studies the effects of relationships on health and well-being. “If we are out of practice, it will take a while to get back on the social bike, if you will, and ride it again. It has now become second nature to keep your guard up. We’re habituated to this new normal, so it will take a while to return to the old normal.”


Traders are betting contrary to our year of past experience on a huge spending spree in 2021 as the vaccine kicks in and COVID dies off because they believe people will come out of their closets to spend their stockpile of COVID stimulus money and superlative unemployment benefits without causing a new rise in cases that shuts off the reopening once again.

They’re betting on a perfect recovery situation from the disease this year simply because it is what they and everyone else wants, even though it is contrary to Brazil’s current tempest for the new strain. According to the social scientist above, they are also betting against human nature in how we let go of habituated caution or even fear.

In other words, again, traders are blindly pricing stocks higher than any realistic hope.

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The Ever Given blocks Suez Canal

Ship in a bottleneck

Stocks are choosing this perilous course along a rocky coast in a world where trade winds first became a storm due to the the Trump Trade Wars … which left trade devastated like Fukashima was by an earthquake. Then trade was pounded again by COVID trade restrictions all over the globe … like Fukashima was hit again by the tsunami that came in after the earthquake. And, now, global supply lines that are cracked and fragile everywhere are being hit by a ship stuck in the Suez Canal … like Fukashima’s white-hot reactors were shattered with ice-cold sea water in efforts to cool them down, cracking them further due to the extreme temperature difference.

And the ship that is stopping up about 10% of global shipping trade like a cork in a bottleneck is not apparently coming out anytime soon:

“Hopes Fade for Quickly Freeing Ship From Suez Canal”

Some 320 vessels are waiting to traverse the 120-mile channel….

“We cannot set a determined time to finish.”

Wall Street Journal

It now looks like the salvage operations may have to partially unload the ship where it sits to unstick it — not an easy task with no dockside gantry cranes to hoist the heavy containers.

“The ship, with the weight it now has, can’t really be pulled free. You can forget it.”


In a COVID-cracked world, single incidences can have more-than-merited negative impact. Stocks should be pricing in the fact that we now actually live in a world that is primed for single straws to break the proverbial Suez camel’s back, not in a golden age.

And it’s just a slight lineup waiting to get in:

The crush of ships listing the Suez Canal as their destination shows an even-greater backlog looms for shippers already under pressure amid the coronavirus pandemic.

“Blocking something like the Suez Canal really sets in motion a number of dominos toppling each other over,” said Lars Jensen, chief executive of Denmark-based SeaIntelligence Consulting. “The effect is not only going to be the simple, immediate one with cargo being delayed over the next few weeks, but will actually have repercussions several months down the line for the supply chain.”

What else could go wrong?

“The worst case is that the ship is presently supported over her bow and stern areas, meaning possible sags in the middle.” Those sags could lead to the ship splitting in two, spilling the fuel and cargo … into the canal, making it temporarily impassable. “The risk is that it could also become top heavy and capsize….”

Before anyone can even think of lightening the massive vessel … they need to download the schematics of the ship and run them through a series of computer-generated programs to determine what offloading will do to the balance.


But surely nothing like the would happen in a COVID world, so let’s keep pricing stocks up in the anticipation of an absolutely perfect world for 2021 and 2022 because that obviously is the most reasonable scenario.

Hedgehogs are stuck pigs

It’s hard to feel sorry for hedge funds, given the manner in which many of them have operated. They’re not the adorable little prickly creatures that are hard not to like. They’re just prickly and fat, though not so fat anymore.

Things Just Keep Getting Worse for Hedge Funds as Long Bets Sour

After being burned during January’s retail-driven short squeeze in stocks such as GameStop Corp., now hedge funds are feeling the pain on the long side as well. A basket of the 50 most-popular stocks has fallen this month, while a group of the 50 most-crowded shorts gained, dealing a double blow to performance…. Down almost 11% since the end of December, hedge funds’ alpha is heading for the worst year since at least 2015.


Apparently things can still go wrong in this COVID world for some traders. Doesn’t pay to be a prickly pig right now.

Still, how bad can it be when it is merely the FAANG favorites that are plummeting? Just the longterm market leaders in major decline. Nothing to see here. Just the equivalent of the world’s largest container ship run aground in the Suez Canal.

“In many cases, hedge funds tend to be — not all of them — but they’re often momentum traders,” he added. “As soon as something starts to get momentum, it suddenly reverses and they get caught on the wrong side.”

Apparently, MOMO ain’t what it used to be. There’s not much momentum after you bury the bow of your lead ship in the sand.

How bad could the failure of one or two hedge funds possibly be when all else is going just fine?

The failure of a small hedge fund doesn’t come as a particular surprise to anyone in the financial services industry, but the meltdown of a multi-billion fund certainly attracts most people’s attention. When such a fund loses a staggering amount of money, say 20% or more in a matter of months, and sometimes weeks, the event is viewed as a disaster.


It’s when the flagship funds get buried that the financial word founders. Think Ever Given in size. Stick a hedge fund like that in a tight spot, and 320 other failures back up behind it.

Most hedge funds are designed and sold on the premise that they will make a profit regardless of market conditions. Losses aren’t even a consideration—they are simply not supposed to happen. Losses that are of such magnitude that they trigger a flood of investor redemptions that force the fund to close are truly headline-grabbing anomalies.

But such failures are not likely, right? After all these funds are managed by the best and brightest … just like the ever-lovin’ Ever Given was piloted by specialized Suez Canal pilots.

The most famous hedge fund collapse involved Long-Term Capital Management (LTCM). The fund was founded in 1994 by John Meriwether (of Salomon Brothers fame) and its principal players included two Nobel Memorial Prize-winning economists and a bevy of renowned financial services wizards.

Like a ship in a canal, these professionally piloted global-sized vessels are too big to fail. Thus,

The federal government of the United States feared that the imminent collapse of LTCM would precipitate a larger financial crisis and orchestrated a bailout to calm the markets.

They managed to dig that one out of the sand back in the 90’s without capsizing the entire financial world. Proof, I’m sure that things will always work out that way; so, throw caution to the wind.

But the fund nearly collapsed the global financial system in 1998. This was due to LTCM’s highly leveraged trading strategies that failed to pan out. Ultimately, LTCM had to be bailed out by a consortium of Wall Street banks in order to prevent systemic contagion.


Hedge funds, bear in mind, are supposed to be the lifeboats for investors — the things designed to hedge their extravagant bets in stocks so that they cannot lose too much if the market goes down. But it is the lifeboats that are now sinking.

Yet, again, how bad could trouble for a few hedge funds like this actually be in the present world of massive stock gains?

“I Was So Scared” – Interactive Brokers Boss Warns Markets “Frighteningly Close” To Breaking During Reddit Raid

Confirming Jim Rickards earlier thoughts that the Reddit-Raiders’ “decentralized (but legal) pump-and-dump scheme came dangerously close to destabilizing the U.S. financial system,” Interactive Brokers Chairman Thomas Peterffy admitted during an interview with Bloomberg TV this morning that financial markets came “frighteningly close” to breaking during last month’s Reddit-driven volatility….

Simply put, if hedge funds had failed (several almost did), those losses would have fallen on bank dealers and other hedge funds, which could have triggered a cascade of failing banks and funds worse than what happened in 2008….

This reaffirmed his comments during a CNBC interview yesterday that “we have come dangerously close to the collapse of the entire US financial system and the public seems dangerously unaware of that including congress and the regulators… I was scared of a domino bankruptcy.”


Speaking of fat pigs, the excesses of the twenties are here

The times that merit such excesses are not here, but the excesses are. Back during those infamous excesses of the Roaring Twenties, the economy did merit some excess. The massive Main Street profits of industrial barons fueled rip-roaring parties. This was the age of the Fords and Vanderbelts and Asters and Edisons, the age of railroad barons and timber barons and industrial titans, etc. It was America’s coming-of-age party.

The present period of excesses, on the other hand, is set in a graying era that looks more like the Black Death or sounds like the death rattle of old age; but the moguls of madness have more mammon to spend than they know what to do with, so they are inventing new fantasies to blow it on.

The Tech Moguls and Celebrities Riding the NFT Hype and Cashing In

Non-fungible tokens, or NFTs, have soared in popularity in recent weeks and have already become a game of numbers among newly minted crypto millionaires and tech moguls.

On Monday, Twitter CEO Jack Dorsey sold his first-ever tweet for 1,630.58 ether, worth $2.9 million … as an NFT….

Last week, Tesla and SpaceX CEO Elon Musk posted a short techno music track on Twitter and announced that he’s selling the tweet … as an NFT…. Despite receiving an offer worth $1.12 million … Musk eventually decided not to sell the tweet, saying it “doesn’t feel quite right selling this….”

Their high-profile NFT deals have drawn other billionaires and celebrities into the game…. “Shark Tank” star Mark Cuban earlier this month sold an NFT of a motivational quote … for $1,700 worth of ether…. Actress Lindsay Lohan last month sold an NFT of a digital portrait of herself for $50,000 worth of cryptocurrency…. Last summer, Paris Hilton auctioned off a digital painting of her cat for 40 ether, worth $17,000 at the time….


The excesses are here in full because the moguls are mad with crypto crazy money created by feverish solvers of faked-up numeric problems. It all adds nothing productive to the world while draining it of massive energy resources and adding equivalent amounts of pollution.

This is not happening in a time like the historic Twenties that were filled with promise from an expanding industrial economy. It is, instead, during a time when we have plateaued at record unemployment, due to a record number of permanent business closures due to a record pandemic that is still spreading like a global storm.

Zero Hedge even pointed out that we are at what looks exactly like the start of another Tech Wreck, such as we saw in the early 2000s:

Rabobank’s Michael Every – who evoked Jaws in his daily post … said “do you know what the graph of that particular market segment is starting to look like to me? A shark’s fin: and if that is indeed the case, we would soon see happy young traders suddenly pulled underwater and tossed around like rag dolls.”

Of course, this won’t be the first time “happy young traders are pulled underwater”, nor the first time that unprofitable companies explode higher only to crash immediately after. While many current traders won’t remember, and many may not even have been alive, an almost identical pattern presented itself in the run up to the bursting of the dot com bubble….

As Bloomberg’s Elena Popina writes in the daily Taking Stock colimn, “when the hegemony of the FAANG stocks cracked in September, it was a welcome reprieve for investors who watched a handful of names rule the market all year. Now it’s March, and the streak of under-performance by stocks with megacap bias is becoming historic.

Zero Hedge

You can come up with all the reasons why it’s different this time, but don’t ignore the many ways in which it is different by being worse.

But let’s just keep pricing full steam ahead for a perfect world while surrounded by catastrophes that are spawning other catastrophes, and let’s party like there is no tomorrow … because perhaps there isn’t. Let’s keep pretending that nothing that is actually happening is actually of any consequence and see if we can set up for the greatest stock-market bust in global history.

Ah, the insanity of humanity!

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