NASDAQ

The following story of corporate greed, corruption, and fraud is surely one of the best in recent years.

In our Chinese stock market wrap following Friday's unexpected rate cut, which saw the Shanghai Composite storm out of the gate, we said that "we would not be surprised to see China's stocks sliding back into the red very shortly as "sell the news" concerns return, and as the increasingly more addicted "markets" demand even more liquidity from central banks just to stay unchanged, let alone rise to new all time highs." Sure enough, with just minutes to go before the close, the SHCOMP wiped out all its daily gains and was set for a red close had it not been for the "national team" miraculous last minute intervention which was inevitable after Friday's PBOC rate cut, and which lifted the composite 0.5% into the green as the euphoria was rapidly evaporating.

"It could simply be 1998/99 all over again. After all, a “speculative blow-off” in asset prices is one logical conclusion to a world dominated by central bank liquidity, technological disruption & wealth inequality. What worked back then? What rose from the rubble of 1998? How would one position for one final melt-up on Wall Street..."

The previous Bubble was of the Fed’s making, and our central bank lost control. It became a Hobson’s Choice issue in the eyes of the Fed, and they fully accommodated the Bubble. These days, the Fed and global central bankers face a similar but much more precarious Bubble Dynamic: The Fed specifically targeted higher securities market prices as its prevailing post-mortgage finance Bubble (“helicopter money”) reflationary mechanism. This ensured that the Fed would again be unwilling to impose any monetary restraint before it would then become too risky to remove accommodation (Einstein’s definition of insanity?). In concert, global central bankers now aggressively accommodate financial Bubbles.

"Three topics dominated our client discussions this week: (1) Hedge fund performance in the wake of the collapse in Valeant Pharmaceuticals (VRX) during the past five days; (2) cash return to shareholders, especially buyback activity; and (3) 3Q results."

Yesterday morning, when previewing the day's tumultuous events, we said that "Futures Are Firm On Hope Draghi Will Give Green Light To BTFD." And boy did Draghi give a green light, that and then some, when his press conference unleashed one of the biggest one-day US equity rallies in 2015. This morning it has been more of the same, with global market momentum on the heels of Draghi's confirmation that Europe's economy is again backsliding (it's a good thing, if only for stocks), leading to momentum for US equity futures, which together with soaring tech/cloud, earnings if no other, are on their way to take out recent all time highs.

After yesterday's dramatic late day market rout catalyzed by the tumble in the biotech sector in general, and Valeant in particular, and foreseen in its entirety by Gartman who went bullish just hours before, this morning US equity futures and European stocks have recouped some losses on the recursive, and traditional, hope that Mario Draghi will say something to push risk higher when he speaks in 2 hours at the ECB's press conference in Malta. And yet, just like Yellen a month ago, Draghi faces the paradox of reflexivity that after years of being ignored, is the "new thing" in town: how does he intervene and demonstrate he is readier than ever to set up stimulus, without panicking investors over euro area’s health.

With default risk soaring, and Ackman's dreams dissolving, Valeant Pharma is crashing again today (halted three times and down over 28%) following a report by Citron Research that claims to have a "smoking gun" on the company's activities, claiming Valeant is using pharmacies related to Philidor to store inventory and record the transactions as sales.

26 years ago, today was envisioned as day when cars flew, holographic movies were box office hits, hoverboards roamed, and people were fired by fax. None of the happened. Instead the only "back to the future" moment this morning is a deja vu one we have seen every day for the past 7 years: bad economic news leading to surging stocks.

Stocks of “vice” industries like alcohol and tobacco are showing leadership – that hasn’t always been good news for the market.