AI CRASH MODE

In my last blog post I asserted that the pressure is off me now because Andrew Ross Sorkin who was formerly a writer at the WSJ and is now a morning commentator on CNBC, just asserted that this current market is reminiscent of 1929. However, what he didn't predict was when a crash would arrive and how big it would be. Which I thought was lame, and demanded further analysis.

Let's start by saying that the magnitude of any crash whether it's 1929, 1987, March 2020, or even April of THIS year is determined by the positioning going INTO the crash. So it's somewhat specious to argue that exuberance today resembles October 1929 without allowing for the fact that THIS record AI idiocy could be at imminent risk of exploding:

“Retail’s bullish conviction remains extraordinary”

Retail flow skewed 11% better to buy through the firm’s call/put direction ratio, topping the 4% average over the last three months, and marking the largest single-day call buying on the platform. It was the 24th straight week with a “better-to-buy” options skew"

Right. So let's make the case that retail gamblers are amply positioned for an impending crash. Next comes the question as to how large.

This week we learned that last Friday's one day warning crash was exacerbated by the proliferation of 3x leveraged ETFs in the market. As I've shown on Twitter, last Friday had the largest ever Nasdaq down volume. Fast forward and today's (Thursday) selloff saw another large spike in down volume. Which means that near an all time high we are already seeing a level of selling that is on the same scale as April's record volume in a bear market crash. And then there is the fact that we are entering a low liquidity period for the market next week due to earnings blackout and FOMC blackout. Which means that you don't have to be a genius to predict a cataclysmic level of selling and dislocation in markets is imminent:

Every crash needs a "Why" and today we got the why in the form of a renewed banking crisis. Of the same type that I already predicted at the start of 2025. In other words the "why" was there all along, but we have to pretend that it wasn't, otherwise everyone would look foolish.

This is from today:

"Regional banks came under renewed scrutiny Thursday after Zions Bancorp ZION -13.14%decrease; red down pointing triangle said it would take a large loss and revealed accusations of fraud against a set of borrowers who had ties to a number of other lenders in the industry.

The disclosures helped send bank stocks reeling to their worst day since President Trump’s tariffs hammered the market in April, evidence of how on edge Wall Street is after the recent high-profile bankruptcies of auto supplier First Brands and auto lender Tricolor."

As my January blog post pointed out, the issues that caused the 2023 bank run were never resolved in the meantime, they've been ignored. Now we add an additional layer of end-of-cycle credit fraud risk into the whole equation. Which means this time far more banks are at risk of imploding.

Back on the topic of positioning is the fact that precious metals are among the most overbought asset classes in the entire market.

Which means that this is not a safe haven, however it may seem like one:

Therefore there are NO safe havens in risk markets which is why volatility is already extremely bid despite AI momentum stocks are still at all time highs.

We have never seen this level of stupidity before, but I say that every day now.

All of which points to the imminent return of deflation. Which means that the consensus short dollar trade is about to explode and cause global dislocation.

Already we are seeing this in oil which is now at a five year low:

Therefore I predict the Fed will be panic cutting interest rates sooner rather than later. Perhaps as early as next week. And that will be when today's bulls come to realize that rate cuts in a recession are NOT bullish and should not be bought with record call options.

But in the age of Artificial Intelligence who knew?