Bill Blain: "Take The Red Pill, And Let’s See How Deep This Rabbit Hole Takes Us"

Tyler Durden's picture

From "Blain’s Morning Porridge - May 19" by Bill Blain of Mint Partners

““I’m shocked - shocked - to find that gambling is going on in here..”
“Your winnings sir.””

Wow. My current bearishness got me well and truly Bull-Pimp Slapped yesterday!

Couple of clients actually called me – rather than just emailing – to tell me how absolutely wrong I was about Global Markets being on the verge of something quite horrid. I was told the global economy and outlook remains in positive shape: stock markets are not overvalued, stocks have fully discounted Trump, fundamentals remain resolutely bullish, earnings are strong and rising, and broadly that I should shut-the-***k up and stop upsetting the readership.

“For God’s sake Blain.. you are scaring the horses..” said one.

Fair enough… if you wish to believe whatever you wish to believe. Take the Blue Pill.

But, but and but again… the bottom line is yesterday’s slight bounce back in what remain Risk-Off markets feel about as solidly supported as an alligator in the Washington Mirror Pond..

If there is a theme to what’s really going on, its “tedious inevitability”. So, with due respect, “bear” with me (geddit? see what I did there?). Take the Red Pill, and let’s see how deep this Rabbit Hole takes us.

Before turning our focus towards the veritable cataclysm of tweets out the White House as The Donald petulantly wonders why we all dislike him so, (and we ponder just who is advising him!), perhaps a quick word on Brazil and Europe, and a conspiracy theory around them.

Oh dear.

Should we be surprised Brazil has spiralled into yet another FUBAR on allegations the government has approved pay-offs? The government may fall, stocks are down 10% and bonds got creamed. It’s a wake up and smell the coffee moment. Nothing is ever as good as you think – mean reversion is the rule. Without naming any countries by name, but reform and genuine behavioural change is very difficult. If a nation has a history of gross income inequality and gold medal standard of political corruption, should anyone be particularly surprised when it’s all gone turtle again?

And then there is Europe – this morning we’re relieved to discover the ECB minutes reveal no doubts at its last meeting about sustaining its buy programmes, even though “the economic risks are moving to a more balanced position.” Oh well, if the ECB says the Economic risks in Europe are decreasing, then the big trade everyone is propping – buy Europe because it looks cheap - seems to make sense.

Is Europe fixed? I don’t think so. Political risk has diminished, but the hard stuff of actually making disparate and unconnected economies work together under common rules and Germany’s currency is still very much work in difficult process.

My colleague Steve Previs made an interesting observation this morning: in his nearly 2 millennia working in markets, he’s never ever heard Wall Street's smartest analysts ever share a really good trade idea. More often they will prop the other side of their trade – so telling folk what wonderful opportunities there are in Emerging Markets or Europe plays right into their hands, allowing them to buy dollar assets on the cheap while the rest of think we’re making smart plays in places we either don’t understand or are essentially unfixable. (You can work out for yourself which is EM and which is Europe. Clue: it really doesn’t matter..)

As for Trump? It’s highly unlikely he will impeached. However many Capitol Watchers say it’s going to happen, it’s not going to happen. Is it? Definitely Not. Never? Never ever. But, I idly wonder what the odds of a Trump Out/Corbyn In “double” might be = 5000/1 sounds about right?

And if Donald is wondering why we’re having a witch hunt, it’s not just because we want to roast some marshmallows.

Although markets look to be somewhat risk on again this morning, (although credit liquidity is very thin), there is plenty of evidence of further pain to come. One article the corporate team forwarded to me this morning is from Zerohedge, which is yet another take on when does the China bubble burst.

Meanwhile, one of the big US investment banks has noticed a disturbing trend in CLOs. There are more and more companies whose debt is going straight into CLOs – which means greater diversity and differentiation of risk, which should therefore be good for the overall credit strength of the portfolio. However, much of the new issuance is senior only – there is little underlying equity or subordinated debt to absorb losses ahead of the senior debt holders in default.

Banks are lending direct to smaller and risker borrowers. JP Morgan data shows a 89% increase in senior only borrowers this year. That’s $441 bln of borrowing that’s unsupported by loss absorbing subordinated debt. Banks lend to them because they pay more interest. Doh! Most of that debt is ultimately absorbed by the CLO sausage factories. While I love sausages as much as any hedge fund manager loves the yieldy taste of CLOS.. its always a smart idea to understand exactly what is going into them...

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Max Damage's picture

Europe political risk hasn't even started yet!!! Brexit and the loss of money from the UK is gonna kill them

And with mad hatter Merkel demanding everyone take in their share of terrorists and rapists!!!!

USisCorrupt's picture

Max.

Everything is all BS anyway.

Memedada's picture

Well, since WWII Germany have been ”in the coalition of the willing” (i.e. part of the fascist world order leaded by US Inc.). They facilitated terrorism, torture, rapes and assassinations ever since – just look at the many permanent terrorist/US-bases in the country.  

The current “Muslim”-scare (replacing the “Jew scare” and “the red scare” as the new “distraction strategy”) is one of the better litmus test on who is “controlled/manipulated” (=who is dependent on MSM-sources and or otherwise corporate controlled sources for the “information”). Another is a lack of basic insights into political ideologies. Both litmus tests shows a predominant populations of corporate pawns on this site.

+ and I know this is semantics, but in some cases semantic is important: UK has no money. UK is – like US – de facto a giant Ponzi scheme based on (privately controlled monopoly of) unlimited fiat. Fiat represents nothing but misplaced trust in the capitalist class (the FIRE-sector that privately owns everything = the capital owners = the capitalists = the 0,01 %).

meta-trader's picture

you can add an extra 1500/USD week after week in your income just working on the internet for a couple of hours each day... check this link... http://bit.ly/2jdTzrM

NidStyles's picture

You mean Communists. The Fascists lost WWII. Perhaps you're an example of Baltimore educating....

thedespised's picture

Sigh, they are the literal same people.

Unknown User's picture

Fiat created out of nothing by the banksters represents counterfeit money.  Fiat created by a government to expend economy represents shares in the economy just like stocks of a company.

 

ebworthen's picture

The U.K. has a wealth of:  pensioners, tourist attractions, and coastline.

Don't forget the Queen and Prince Charles.

And Fish & Chips.

Johnny Walker.

Guinness.

JerseyJoe's picture

What could go wrong? said the man on blues. 

The Matrix is a debt matrix that clouds the thinking of everyone in it.    When cheap money ends, are we in Zion wearing rags with a board of governors who get the good duds?

IridiumRebel's picture

Way ahead of you, Mr Blain.

DaddyO's picture

Careful, the rabbit hole gets mighty dark the deeper you go.

Many of the sheeple are too afraid to go very deep due to the scary monsters who live there.

The time for venturing as deep as you dare go is upon us.

Better put on the full armor of the warrior, the battlelines have never been clearer.

DaddyO

fleur de lis's picture

After a certain depth it's not a rabbit hole anymore but a nest of rats, termites, parasites, and other destructive vermin that need to exterminated.

A. Boaty's picture

[I]t's always a smart idea to understand exactly what is going into [CLOs]..." That means evaluating all the underlying loans. Does anyone actually do that?

Dilluminati's picture

No and the absence of ALE in respect to computer loss is missing as well.

NDXTrader's picture

As someone who worked in the legal side of things in a past life, I can tell you definitively that no one looks at the loans once they come out of the originator. The originator makes representations and warranties about the loans, but no one else digs down into them and all have an excuse to look the other way.

NDXTrader's picture

"the bottom line is yesterday’s slight bounce back in what remain Risk-Off markets"

I'm as bearish as anyone long-term, but how can you take anyone seriously who says this? We had one down day due to the President of the US being all but accused of obstruction of justice...after 20 of 22 up days on the Nasdaq. As long as there as any hope of tax cuts, and the cost off green paper is less than the dividend yield of quality stocks, this is not a risk-off market. It will all blow up when either of those two things change, but it's not right now

Dilluminati's picture

I don't short the CBOE since a mid-meeting cut back in the 90's.  You want to fight the fed go at it.  However I watched the 10 year fixed CD go fro 3.00 to 2.75 and I locked in at 2.83.  My point being you don't have to look around you and not believe the narative and oppose it, it is wiser in fact to simply disagree and act.  My convictions won't leave me with a loss.  I would have done better but had money held in rollover.

Between bank solvency in Canada and China, Venezuela and Brazil in tatters, and the real economy not reflecting what I'm seeing in the economic numbers on wall street, I remain fixed.  I'm seeing the 15 year mortgage at 3.05 down .20 since last week.  So lending money to Discover for 10 years at non-callble FDIC insured is good for consumer investors.

The item that caught my attention is the announcement yet again of the shadow brokers to release more exploits.  So far anything they have claimed has been true.  And so far the exploits have been targeted at commercial exploitation.  But what happens when this goes plain ass destructive?  If it is the assumption that we haven't entered a new period of instability by the markets then their ALE (annual loss assesment) is off.  Possibly financial markets don't even understand how those calculations are performed or that data is considered?  What is certain is that my position can be cleanly calculated, what is not is a stopped market and then the results of halted trade.  Getting closed out of a futures market or a halted trade being leveraged large isn't good unless you are cleanly on the right side of the trade and way out and reaching.  

Again not hearing about how BRICS is gonna save things.  I believe that the markets are intoxicated from the recent victory in France and think hmmmm cronyism as usual and central banking rules.  I believe they have the risk calculations wrong.  PIGSS still be PIGSS and Britian has a destiny with discord.

The auto market is a sham along with all insurance, we went from catastrophic coverage of my youth to insurance now that is almost governance of greed. As an example we got 15/day rental coverage recently from a stolen car, that was it, two days into the event, and we of course located our own car (found it) and had it towed, repaired, inspected.. they did nothing!  But the KBB was easily 6 to 8k less than the Carmax value.  As an example take a 2008 honda with 175K miles and KBB, then go to Carmax same zipcode and see the delta.  The defaults are now being factored into the payments and cars that age at Carmax not worth that money, bad credit? No credit? No problem..amd the insurance companies rob people twice, at the loss and then the settlement.  On the flip side?  The consumer cannot get in the age of amazon an on the road on the loan cost for a car.  Now wonder car sales are down.   If you haven't shopped lately you are in for a surprise how bad it has become.  In America you cannot get the cost of a car priced becuase the consumer is so damn poor that they are instead just getting out of one loan, consolidating that loan, and then into another payment irrespective of the value.  Again take an analysis of 2008 Honda Accord KBB by ZIP and then goto Carmax.

If you want to short this market fine, complain about the ViX is a waste of time, but what is for certain is that you don't want to waste time preparing for the eventual imposition of truth.  Get your stuff in order and no... not buying a new car.

best of luck..  you should look at the 10 year CD protected FDIC as the 15 year mortgage is telling you that that is a value.

Where this unravels is the autos, KBB a 2013 Impreza 75K and then same zip Carmax where no haggle rules, 2008 Honda 175K KBB and then Carmax.  No haggles, Enterprise off lease, Carmax etc.. then goto Kia, Honda, or Subaru this weekend for the mother of all sales, memorial day and try and get a simple damn on the loan price, on the road price, and you cannot!  What is for certain is that these car manufacturers websites advertise one cost which the analyst of wall street must pretend to believe, and the insurance companies believe KBB, and the loan people choose Carmax.  And then finally two accidents, add two delta's into a payment, and some slob is a debt slave to a depreciating asset.  yeah we're fucked as an economy and trying to short the VIX or CBOE is dumb.

NYSE: KMX

spanish inquisition's picture

Saw the Pompeii exhibit a while ago, everyone was going about their business right until the end.

Seasmoke's picture

I ordered the steak. Good Luck to the rest of you.

Dilluminati's picture

LOL

I'm watching the from the stands 200 seats... ordered nachos and hot dog.  I'm on the sideline not booking that cruise.

What I'll sure as fuck not do is short the market.  I have clear gambling odds at Vegas.

Miss Informed's picture

I hope you ordered it "to go" and you get it before the restaurant blows up.

DuneCreature's picture

The market is rigged.

Buy, buy, buy!... Buy the dip............shit's line of con.

https://www.youtube.com/watch?v=2pCSu9ZdkoM

Live Hard, There Is No Consequence In Committing Massive Fraud And Theft Anymore, ........ Not For BANKSTERS!, Die Free

~ DC v5.0

nevertheless's picture

the more Trump does exactly what he said he would not during the election, and do Isreal's bidding, watch this distraction narratives continue...

 

Deep state, Russia, Obama, Clinton...all fake news, to distract from what is really important. 

 

 

PitBullsRule's picture

Buy buy buy!  Once you guys get that wall up, we're all going to be rich!  Everybody knows that walls are wealth generators!  I have complete confidence in Trump, just look at his history!  Everything the man touches turns to gold.  The US is going to turn out just like Trump University, just like the Taj Mahal Casino, just like Punta Bandera ocean front condos.  All we have to do is follow our leader, the man is a genius and its already showing in the dignity and unity he's brought to the White House!  We're Making America Great Again!  Yahoo!

GooseShtepping Moron's picture

Maybe Bill Blain should lay off the Ketamine before putting pen to paper. This article is almost unreadable.

mkhs's picture

Pen.  What is that?  Paper?  Like you use in the toilet?

mkhs's picture

Pen.  What is that?  Paper?  Like you use in the toilet?

 

It was Putin's fault.  I swear.  I wasn't even using a computer.

mkhs's picture

Pen.  What is that?  Paper?  Like you use in the toilet?

 

Edit:  Now ZH is just playing with me.  Sad.

decentralisedscrutinizer's picture

 

It’s becoming obvious that our worst economic and political problems revolve around the global hegemony of corporate cartels headquartered in the US, where their military force resides. The only effective way, now, to regain our sovereignty as citizens of a constitutional republic is to severely curtail the activities of such corporations. To remain a free nation, we have to stop granting corporate charters to every con artist that comes along and start demanding a well-defined social value in return. The "Divine Right Of Kings” should not apply to fictitious entities just because they are “Too Big To Fail”. We can't take the incorporation of private transnational banks for granted anymore. The government must be held responsible to human voters, not fictitious entities.

 

 

 

An omission in the US Constitution created the swamp of corporate corruption we now see surrounding our capital. It is a swamp that can't be drained at this point because the Constitution doesn’t provide a legal drain. This 28th amendment is intended to provide that drain so Congress can legally pull its plug. As a matter of political practicality we must rely on the Article 5 Constitutional Convention for which the electorate will need prior consensus to avoid preemptive state or corporate interference. This is what it will take, in plain language, to save the world; and nobody gets hurt:

 

 

 

28th Amendment

 

Corporations are not persons in any sense of the word and shall be granted only those rights and privileges that Congress deems necessary for the well-being of the People. Congress shall provide legislation defining the terms and conditions of corporate charters according to their purpose; which shall include, but are not limited to:

 

1, prohibitions against any corporation;

 

a, owning another corporation,

 

b, becoming economically indispensable or monopolistic, or

 

c, otherwise distorting the general economy;

 

2, prohibitions against any form of interference in the affairs of;

 

a, government,

 

b, education, or

 

c, news media, and

 

3, provisions for;

 

a, the auditing of standardized, current, and transparent account books, and

 

b, the establishment of a state and municipal-owned banking system

 

c, civil and criminal penalties to be suffered by corporate executives for violation of the terms of a corporate charter.

 

 

 

The Founders had to fight a bloody Revolutionary War to win our right to incorporate as a nation – the USA. But then, for whatever reason, our Founders granted the greediest businessmen among them unrestricted corporate charters with enough potential capital & power to compete with the individual States, smaller sovereign nations, and eventually to buy out the Federal government itself. Now that these fictitious entities own the USA and command its military infrastructure by virtue of the Federal Reserve Corporation and run it by virtue of regulatory capture, MSM propaganda, and Congressional lobbying, they’ve set their sights on the creation of an all-inclusive global financial empire. The US Constitution is the de facto “Charter” of that Empire. Only we, the people, can amend it, and in doing so, restore the Republic.

    

Slowdrip's picture

Wild 'End of the World' party, Sept 23t/Oct 5, going to be a blast! Brought to you live by Planet X Solar Systems, LLC.....y

We Are The Priests's picture

“tedious inevitability”

Nailed it.

novictim's picture

>" so telling folk what wonderful opportunities there are in Emerging Markets or Europe plays right into their hands"

The author thinks he is going deep but is just noting the dirt that is kicked out on the top surface.

And Rabbit hole? We are not talking about a "rabbit hole".  We are talking about a trench so deep that you can fry hotdogs on your way down.  One has to be a true believer, cool aid guzzling cuck to not see the catastrophic over-leveraging present in the current financial order.  So many horses have gone over the edge that they all think they are part of a herd galloping toward "riches beyond their wildest dreams".  When any few of them turn to gallop back out, then reality will strike.  They have assets on paper that are impossible to realize.

And as always, you have to go to the ZH comment section to get any actual insights.

We all hate Trump?  What an idiot.  Does this writer still think the MSM is reflecting the national mood?  Well, that has been wrong for some time now and only a real "bone-efide" cuck could miss this truth.  The author is not providing even a glimmer of the reality and he is proving he is just as confused and blind as a Money Watch reporter.

When one realistically discusses the massive-sink-hole-covered-by-a-large-TARP only then are we discussing the Global Economy. We are talking about endless wheel barrels of foreign investment funds/retirement accounts continuing to dump actual worth into China's nearly worthless economy.  That is how one should approach what we are seeing in the Global Investment picture.  And if you grasp this then you are at least looking at the edge of this abyss and seeing that it is growing wider, not shrinking.  A little further into the pit one can talk about all the "protected investment classes" like gold and real estate which, actually, will plunge in value in response to a significant need for real funds. Their value is dependent on the Market and when the peeps all see the need for liquid assets, hahahaha.  There will be no turf to kick off from.

(Oops!  That is not what you wanted to hear?  But that is the truth.  When the TARP is finally blown back by the winds and the Ponzi pit revealed and when the horses realize that they are running on thin air, it really will be impossible to be protected by anything other than the most practical of value:  MREs, Water, Guns, etc.. 

An ounce of real gold might buy you a candy-bar but a gold certificate might as well be toilette paper.)

Can it ever really get that bad?  What makes you think it cannot?

Herdee's picture

Banks receive higher interest at the Fed meaning they can print more liquidity.

FlKeysFisherman's picture

Be careful how far down the rabbit hole you go, it can be difficult to get back out.