Late Cycle Margin Call

Chaos reigns. Full stop.

Never before in our lifetimes have we been confronted with so much mass media confusion coming at us from every direction. Granted, you could have said the same thing for the past 20 years because the problem has only grown far more acute over time, now further weaponized by existential AI over-investment. Into this maelstrom of confusion add the Joker Trump who is master of the ludicrous over-statement and self-congratulatory hyperbole which has created the perfect storm of confusion at the end of the cycle. Only he could encourage this level of risk taking amid this level of risk. To be sure, this level of confusion is taking a HUGE mental health toll on society, and the impending economic crash will put this entire society into a mental breakdown. The risks for random violence and crime are now very high. The other day I watched a guy walk out of the grocery store with an arm full of groceries with the manager and security guard in tow warning they would call the police. The man kept on walking. He didn't care. It was steal or starve.

The "good news" is that I believe that the systemic meltdown that is now in train will "clarify" many of the competing claims being made on both sides of the wholly incompetent political spectrum. I think we will soon finally get everyone on the same page as to what can no longer be ignored - That what has been conflated as economic "exceptionalism" is merely continual economic degradation to the benefit of ever fewer Tech oligarchs now in existential AI over-drive. The cyclical inflation that is weighing on the middle class is REAL. The secular wage and jobs deflation that is accelerating under AI is also real. If we compare the last Tech bubble to this one - both of which were end of cycle events - then what we realize is that consumer sentiment THEN was at a 30 year high, whereas now it's at a 50 year low. Are we to believe that a bursting of the AI bubble will cause sentiment to increase? Of course not. It will plumb new formerly unimaginable lows.

In the year 1999 when consumer sentiment peaked above, Democrat Bill Clinton was in office, so many of today's partisan pundits would claim that the above long term view is not an apples to apples comparison from a policy standpoint.

However, if we zoom in on the past decade we see that Trump's first year of his first term was the highest consumer sentiment since Clinton. Whereas this first year of his second term is tied with 2022 for the lowest in 50 years. Why is that important? Because 2022 was a bear market. Which means that consumer sentiment is now inversely correlated with the stock market for the first time in history. And allocation to stocks (bottom pane) is in the danger zone circa 2018 and 2021.

What these fools all have to learn is that politics don't matter, only policies make a difference to people's livelihoods.

What it all comes down to is economic smoke and mirrors.

In an economy with a 6% of GDP deficit, it's very easy to claim the economy is "doing fine", because if the deficit had been this large every year since WWII, there would have been no recessions i.e. there were no full year recessions with a GDP decline larger than 6%. Which means that any growth rate below 6% is a de facto consumer recession.

Below we see a comparison of GDP growth and the deficit from Y2K to now. Back in Y2K there was no budget deficit, there was in fact a surplus:

People are clearly not impressed by Trump's smoke and mirrors:

(NOTE: 2% GDP and 6% deficit for full year 2025 is the current estimate as of late December)

So let's talk about asset markets and the impending global margin call.

This past week, silver went parabolic on the highest call option volume since February 2021 which was the Gamestop melt-up:

"Trading volume in options contracts tied to iShares Silver Trust, a popular silver ETF, have surged to the highest level since a Reddit-fueled frenzy in 2021."

In this chart below I confirmed that Friday had the highest dollar volume (price x volume) in SLV ETF history. And the second highest was February 2021. What we notice however is that this price rise has been far larger than the one day pop back in 2021 which arrived at the END of the Gametop global melt-up. And when the Gamestop speculative frenzy ended, there was a big crash that imploded IPOs/SPACs, Cryptos and Emerging Markets and Ark ETFs.

Silver was the LAST market to rally prior to the crash.

The divergence between the S&P 500 which has benefited from the out-of-Tech rotation and large cap momentum stocks is deja vu of Q1 of this year:

Crypto confirms the collapse in social mood and consumer sentiment.

Cryptos are on the verge of breaking down through their 2021 high would would make this entire 2025 Crypto Golden Age a bull trap:

The longer-term pattern for momentum stocks remains deja vu of 2022 and in lockstep with Crypto with a few weeks lagged delay then as now:

The cozy Wall Street consensus of further Ponzi gains in 2026 is the height of mass buffoonery:

In summary, we have reached MAX BULL SHIT and PEAK buffoonery, it's time for a long overdue reality check.

That will focus minds on policies instead of politics. No one is "winning". The podium is empty.

There is just one more lesson before the margin call:

Printed money is NOT the secret to effortless wealth.