Stockman: Orange Is The New Black (Swan)

Tyler Durden's picture

Authored by David Stockman via The Daily Reckoning,

Black swans are supposedly unexpected, stealthy and come of a sudden. But not this one — it is bright orange, and in your face day and night.

I refer to the Donald, of course, and the fact that he is truly the Great Disrupter.

He is not only impetuous, mercurial, undisciplined and unpredictable. But for reasons I will elaborate below, totally clueless about how to manage his presidency or cope with the circling long knives of the Deep State which are hell bent on removing him from office.

Accordingly, the single most important thing to know about the present risk environment is that it is extreme and unprecedented. In essence, the ruling elites and their mainstream media megaphones have arrogantly decided that the 2016 election was a correctable error.

And that makes the Donald the ultimate bull in an exceedingly fragile China shop — and an already badly wounded one at that.

So it is no understatement to suggest that the S&P 500 at 2440 is about as fragile as the “market” has ever been. Any pinprick could send it to a bubbly grave. It’s the mighty Orange Swan that will break the casino like never before.

The utter fragility of the latest and greatest Fed bubble could not be better represented than by this astounding fact:

During the last 5,000 trading days (20 years) Wall Street’s “fear gauge,” the VIX, has closed below 10 on just 11 occasions. And 7 of those have been during the last month!

Stated differently, in just the last 0.6% of the trading days since 1997, 65% of the ultra-low VIX readings have occurred. That’s complacency begging to be monkey-hammered.

The always astute Doug Kass said it best in his recent commentary:

Over history, as we have learned, a Minksy Moment develops when investor sentiment becomes complacent after long periods of prosperity and the data is ignored and doesn’t seem to matter anymore, as I wrote in “It’s a ‘Bohemian Rhapsody’ Market: Nothing Really Matters … to Investors.”


To this observer, the summer of 2017 feels similar to the important market highs of the first half of 2000 and the last half of 2007.

At the kind of bubble inflection points of which Kass speaks, the punters become not only stupidly complacent, but thoroughly delirious. Hockey sticks laid on the rising trajectory of stock prices go parabolic.

That was surely true in late 1999 and early 2000 when the NASDAQ 100 rose 30% in three months — just as has been recently when the FAAAM Five (Facebook, Apple, Amazon, Alphabet and Microsoft) gained 33% or $600 billion since the turn of the year.

But this time is actually different in a special sense.

We are now at the inflection points not just of the post-crisis bubble engineered by the Bernanke-Yellen Fed and their fellow central bankers around the world. But the inflection point for the whole multi-decade enterprise of monetary central planning.

In that sense, it is a generational high. The casino is infested not only with new-age snowflakes who have never seen a dip of more than 7%. But also complacent veterans of the entire era of bubble finance who have generated untold financial wealth by riding the bull from one bubble to the next, and now remain fearless with a vengeance.

Tuesday, MarketWatch featured one of these operators — the legendary money manager, Ron Baron.  He’s been at the game since the 1970s and has $23 billion of assets under management (AUM).

Baron said on CNBC that the bull is just getting started:

Bubble? What bubble?


To say billionaire investor Ron Baron, who oversees some $23 billion in assets, waxed bullish on CNBC Tuesday morning would be an understatement, particularly with all the jitters and negativity swirling around the stock market lately.


The 74-year-old founder of Baron Capital said that interest rates and oil prices will stay low for “a very long time,” and that the economy will grow “much faster” than it would have otherwise, bringing the market along for the ride. Hence, he sees the Dow potentially taking out the 40,000 level by 2030.

So as Doug Kass observed, this really is a ‘Bohemian Rhapsody’ market where “nothing really matters” to the bullish punters who have spent a lifetime riding the Fed’s serial bubbles.

And that gets me to the Orange Swan…

There is no point in saying any longer that the giant Trump tax cut and pro-growth Stimulus is a pure pipe dream. That’s evident from the fact that the so-called GOP congressional majorities are so tied up in their own underwear that they can’t even pass Obamacare repeal and replace.

Moreover, the “help” they are getting from the White House needs no further explanation, either. That is to say, the  Donald just stepped all over his own parade by telling the Senate GOP that the House bill, which passed by a hair and is his only symbolic legislative achievement, is actually “mean” and needs a lot more money to remedy its defects.

You can’t make this up. You also don’t need any vote counting expertise in the House to know that if it comes back un-mean and pumped-up with more tax credits and Medicaid expansion money it will be shouted down by the Freedom Caucus. After all, they did say to the Senate, change one comma and the bill is dead in the water.

So much for handing off the Stimulus baton to fiscal policy.

Nor is there any chance that the desperate Keynesians running the Fed will turn their back any time soon on their current campaign to raise interest rates and shrink the Fed’s mountainous balance sheet.

And that’s not because they have suddenly grasped that free money for 100 months running is an exceedingly dangerous, combustible thing. It’s because they need to get interest rates back high enough so that they have ammo to combat the next recession!

In that context, here is what will take the Donald down, and it’s not some new smoking gun about RussiaGate. Instead, it’s actually the growing possibility that he will do the right thing when the Treasury runs out of cash around Labor Day, and there is no capacity to assemble a majority in both houses to raise the debt ceiling by trillions.

I’m referring to the dreaded “A” word. That is, use of the President’s constitutional authority to “allocate” the incoming revenue flows — which are running about $700 billion per year lower than outlays — to what he determines are the government’s highest priority purposes.

Undoubtedly, among these would be paying interest on the debt, sending-out the Social Security and veterans checks, paying military contractors and payrolls and the like.

Needless to say, resort to “allocation” would be the ultimate sin in the eyes of the bipartisan establishment. They would instantly start bellowing from every corner of the Swamp about an unconstitutional power grab by the White House.

And the mainstream media would go to DEFCON 1 about the alleged unlawful and dictatorial actions of a President who should never have been in the Oval Office in the first place.

So why do I think the Orange Swan might arrive in this fashion?

Here is what Trump’s completely inexperienced and unschooled Treasury Secretary said Tuesday. What he means by “super powers” is that he’s contemplating use of the allocation authorities.

This is not an issue, but I don’t want to leave any doubt that we have plans and backup plans,” said the former Goldman Sachs banker following a one-day bilateral meeting between the U.S. and Canada.


When asked what those backup plans would be, Mnuchin referred to them as “Treasury secretary’s “super powers.”

I say more power to him — even if it is the 50,000 pound pin that punctures the Great Bubble now at hand.

On the other hand, I’m quite confident there is only one other alternative — a prolonged government shutdown and a thundering breakdown of governance and all government function.

Either way, the bubble’s days are numbered. Dow 40,000 will soon join the ranks of the Tulip Bulb Mania and all the others which followed.

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ParkAveFlasher's picture

Love the "clueless" meme. 

$1B net worth plus an oval office atop the world's #1 economy worth of "clueless".

Envy is greener than the dollar.

For those who are too young to remember, Donald was buying up swaths of Manhattan when everyone else was literally running for the hills. 

You can call the man many things, and be correct, but "clueless" isn't one of them.

Four chan's picture

when the jew in charge of our financial system wants to crash the market they will.

trump has zero to do with it. this runup is just(((them))) positioning to release the trap door. trade accordingly.

Endgame Napoleon's picture

Did you not read the article? The economy has been rigged for some and is opportunistically played by others, but is not sound and has not been for decades. One man is NOT in control. An interesting part was the allusion to Twenties flappers, the naive group investing in the stock market before the 1929 crash. Stockman analogized them to the few, young snowflakes who are paid an absolute ton compared to their massively underemployed peers, likely married to people in the same economic category and helping to widen the wealth gap. They are investing their excess pay in the low-cost global labor scheme to destroy the American middle class, and it is helping to inflate the stock market.

CNONC's picture

But "clueless" refers to Trump's political knowledge, and is, regrettably, perfectly correct.  Politics is a blood sport played with long knives.  Trump is wearing boxing gloves and looking for a referee to call low blow.

ParkAveFlasher's picture

Correct me if I'm wrong, but he just beat Hillary Clinton, badly.

CNONC's picture

Point taken.  Perhaps I should have used the term "governance."  He understood electoral politics, but I don't think he understood the power of the permanent bureaucracy.

HockeyFool's picture

Stockman has been repeating the same old doom and gloom for as long as I can remember.

Zero_Ledge's picture

Stockman now sounds increasingly desperate, which tells me there is more short squeezing ahead. He is delusional if he thinks former Goldman treasury secretary will pop the bubble with allocation.

CC Lemon's picture

Stockman writes for The Daily Reckoning (as does Rickards and Smith).  They heavily sell investing newsletters, and their angle is "shit's about to explode, better position yourself correctly, buy our newsletter to find out how."


Stockman's books are genuine, and insightful. But his columns to ultimately sell newsletters tend to sound alot like chicken little.

Offthebeach's picture

And the GOP, Inc.

And the MSM.


lil dirtball's picture

> Politics is a blood sport played with long knives.

Lol. Maybe - maybe - local politics, but on the national/global level? These people are just well-paid, well-managed actors and this is one big Kabuki shitshow; this article is 100% pure propaganda.

Full Court Lugenpresse's picture

Right, so "clueless" at politics that he won the biggest Presidential upset in decades despite brutal wholesale opposition from the Democrats, the ENTIRE MSM, and easily half of his own party. Clearly the man knows nothing about politics, unlike seasoned verterans like Yeb! or Lil Marco Rubio.

As for the bubble, daily reminder that the real bite of a market bubble is this: you only win by selling at or near the top, and by definition only a small fraction of speculators can do that. Everyone else loses. It's only after the music stops that you see who was actually left with a chair.

Caleb Abell's picture

Please leave Miss Rubio alone.  She's had enough disappointment.

Koba the Dread's picture

Francis, the talking mule, should have been able to win against Hilary Clinton.

Endgame Napoleon's picture

Politics is really cutthroat, ugh. To that extent, I feel
sorry for The Swamp. But it does not serve the people at all; it is just a bunch of jousting with "long knives" to gain careerist advantages.

Sparkey's picture

Posters go on and on about 'The Donald' does anyone really imagine things would be different with some one else in the Chair?

Of course not, events are showing everyday the irrevelency of the actor who plays the 'President' role, The Donald is a more than competent actor but he doesn't write the script and the script doesn't even pretend that he does, the script weiters have ego.s too and they want to be recognized for their cleverness and power.

Silver Bug's picture

Donald Trump is truly the great chaos candidate. To the globalist, he is their worst nightmare, a rogue billionaire that is stepping out of line. It truly is a joy to watch them squirm, as they don't know how to handle him. The one thing they can do at this point, is crash the markets in an attempt to smear him. This, I believe they will do.



Joe Cool's picture

Silver Bug...Kennedy was the last POTUS to make decisions themself or without consent...You get the picture...

new game's picture

trump walked right in a swamp, by choice. that makes him a fool.

only fools head to the swamp imo. and to think he was going to make an impact.

and i'll add a bonus foolish thought- and many to many wishers think he will change DC.


Joe Cool's picture

Trump was POTUS on a Simpson's Episode years back...Nothing happens by chance when it comes to these things...Nothing!  Trump was baked into the cake for POTUS long ago...

Sparkey's picture

I agree with you Joe, It'a all A great show to confuse and capture the public's attention while those folks the script writers work for can do just what they want unseen and there is no one to question anything. Things are obviously unfolding according ti plan!

Endgame Napoleon's picture

It will likely just be what you guys call a market correction. Don't you think?

Albertarocks's picture

Would Stockman have preferred Hillary?  Sure sounds like it.  If that's the case he's brain dead.

business as stusual's picture

So, you ask a question, answer your own question, and then based on you answering your own question, conclude that Stockman is brain dead. Have you ever heard of deductive reasoning?

Albertarocks's picture

Of course.  And I'm quite familiar with inductive reasoning and abductive reasoning.  But for deductive reasoning to be sound, the hypothesis must be correct. And I'm not certain my hypothesis is correct although it sounds like it, which is why I said "If that's the case..."

So WTF is your point?

Give Me Some Truth's picture

I'm a great fan of Stockman, but I will bet him a six-pack he's wrong that the coming debt ceiling debate will be a game-changer. Alas, it will be anti-climatic. Congress will raise the debt ceiling by a couple trillion without a blink of an eye. If there ever was a constituency that genuinely cared about run-away debt, they are long gone by now. To use a theme from this article "nothing really matters" to any of them any more, debt ceiling expansions included. That is, the cons of not raising the debt ceiling far outweigh the pros of fighting a debt ceiling increase.

Congress - Republicans and Democrats - will raise the debt ceiling and the "story" (which really hasn't been a story) will disappear in about eight hours.

... And Trump and his inexperienced treasury secretary will be quite happy the status-quo (DEBT DOESN'T MATTER) will prevail for X more months or years. The name of the game is (still) Kick the Can. It's a very easy game to play. No reason to call the game off now.

Endgame Napoleon's picture

That is not how I read it. To me, it sounds like he regards Trump as an antidote, although he did analogize him to a "Black Swan," which is, ummm, a destructive thing, but a beautiful thing at the same time, in that swans, in general, are beautiful. He said Trump was an "Orange Swan," referring to his flesh tone, of course. But, an "Orange Swan" does not necessarily signify the dire foreshadowing of the end, like the "Black Swan."

gm_general's picture

Preferred Hillary?? NO. But Stockman is a stickler, who other than himself would he consider proper to be president? Why is it so many think it follows "if choice A is considered not great, that MUST mean choice B is considered great"?

Bryan's picture

Stockman doesn't like Trump.  Check.

Stud Duck's picture

Actually, Stockton went Trump early last summer with a list of what he thought(wished) he could do, as most of the ZH crowd did. He is like most Trumpanzies, a little disappointed. Ann Coulter is leading the charge from the right now. Poor ole Donnie though it was gonna be one of his reality shows and now has woke up in a nightmare and no one with an IQ over 100 he can trust!


ShrNfr's picture

Remind me about when Stockman has been correct about anything. I must have missed it.

DrData02's picture

Well the fact that he is a mega-multi-millionaire might mean he was correct every now and then.

Dumpster Elite's picture

ZH should just change their name to "The Stockman Show". Their avatar can be a frowny face :(

williambanzai7's picture

I think Stockman is the angry old white male we keep hearing about.

Give Me Some Truth's picture

More Stockman please. I think we have enough pro-statist, pro-status quo, pro fake news pundits and media organizations. 

BTW, Stockman will be proven to have been right. Like Ron Paul and a few others. It's impossible to call the timing of any implosion and this date has no doubt been pushed back because of the brazen level of market manipulation and economic lies/propaganda. 

the6thBook's picture

Oh yes Trump so inexperienced and incompetent... that is why he is STILL president, against your all powerful deep states wishes.

aloha_snakbar's picture

Uh oh... breaking news on the "Investing Channel"... I have to go find out about the Alaskan volcano that erupted... a month ago...surely that is more important that crepey skin...

Thom Paine's picture

Stockamn buys into RussiaGate - which shows what a fucking tool he is. How can you take any analysis from him when he is totally suckered by clear bullshit fed to him in the MSM.

The Clintons are thick with the Russians making 10s of millions out of their dealings with them, Trump $0 out of the Russians.


Endgame Napoleon's picture

But he did not say that the FAKE RussiaGate would bring Trump down. He said that austerity measures, "the big A," would bring him down, meaning it would bring his popularity down, not his presidency. He is not saying that due to cheerleading for it, but he believes that it is "the right thing to do" for the economy and suggested that Trump might do it, mentioning a statement by his treasury secretary.

Endgame Napoleon's picture

But he did not say that the FAKE RussiaGate would bring Trump down. He said austerity measures, "the big A," would bring him down, meaning it would bring his popularity down, not his presidency. He is not saying that due to cheerleading for it, but he believes that it is "the right thing to do" for the economy and suggested that Trump might do it, mentioning a statement by his treasury secretary.

Endgame Napoleon's picture

But he did not say the FAKE RussiaGate would bring Trump down. He said that austerity measures, "the big A," would bring him down, meaning it would bring his popularity down, not his presidency. He is not saying that due to cheerleading for it, but he seems to believe it is "the right thing to do" for the economy and suggested that Trump might do it, mentioning a statement by his treasury secretary.

Thom Paine's picture

Stockman is pissed the the Money Printer in Chief female assistant didn't get elected.

How can America succeed if doesn't print increasing levels of debt each year.

The image he posted shows that he is just another liberal self-sucker and no analyst


Squid Viscous's picture

is that the same Ron Baron who has been long UA from 52, to 20?

what an overhyped kike.

Joe Cool's picture

I've said it before...Trump is just a lightning rod...Something to attract attention (Good and Bad)  He's a polarizing figure...Controversy and opinion are automatic with Trump...The perfect fall-guy when things go "Kaput"...

az_patriot's picture

Yet another almost childish liberal rant -- full of suppositions and innuendo.  Trump is president.  Get the hell over it and move on with life.  OH -- and the accompanying photo is absurd, and looks like something more likely to be found on a campus propaganda piece or a middle-school newspaper.

williambanzai7's picture

I think he used an early Nokia App to make that picture, Angry Swede.

mily's picture

"That’s complacency begging to be monkey-hammered"

an instant classic

Mzhen's picture

Stockman's economic theories made life difficult in the `80s, and set up decades of dysfunction to follow.  After years in the wilderness, he now thinks people need to hang on his every word like his earlier life has been forgotten.

NickPeeMe's picture

Trump is a moron get over it.

rejected's picture

"I’m referring to the dreaded “A” word. That is, use of the President’s constitutional authority to “allocate” the incoming revenue flows —"

Never have been able to locate this 'constitutional authority'   Would someone here point it out. I've read the appropriations clause but couldn't find this authority. 

Please, no federal laws, and no twisting and torturing of some phrase. I am looking for something in the constitution that EXPLICITLY gives the president this 'power'.

Otherwise it's horse hockey.