Tech is Atlas will Apple Break it Down?

Atlas (Greek: Ατλας, meaning that who suffers, endures, or dares) is the nephew of Cronos and son of Iapetus. He was the strongest Titan of all, and after that loss, he was punished with a special labor - he was to bear the weight of the sky (as a globe) on his shoulders for eternity. He represents the personification of endurance. (mythus.fandum.com)

What has been an obvious theme for a long time, is that equity performance hinders solely on the shoulders of the Tech giants! This is the opposite of diversification and in fact it is this very concentration of wealth, that the global central banks always seem to protect. No anti trust, no real regulatory framework for the addictive social media traits that do not come with any age limit, no restriction or guidance on much of anything, just full unfettered access no matter the costs. With Google and Meta, Nvidia holding things up we saw this chart on Zhedge today outlining the very concentration that we speak of:

We also saw this Bloomberg chart as well and to say Apple’s earnings may just be the straw that finally breaks Atlas’s back is a gigantic understatement:

This is the new safe haven where money is so greatly concentrated that if Apple does disappoint, then we would suspect some major downside flows to ensue. Yes they may not disappoint, but even still the indexes have been treading water for basically a year now and are about to be staring face first into a massive recession. Given the consumers lack of prudence during ZIRP and now forced to constrain themselves due to higher rates, tighter credit conditions and homes no longer eligible for refinance, let’s just say Magnelibra is on the worst case scenario camp and believe nobody is prepared for the kind of downturn that we are expecting.

For a long time we have beaten the drum on QE and ZIRP and the “something for nothing” mirage of wealth and distortion this has on organic economics that we now believe the central banks have lost all control. We believe they are making things up as the go along, we believe alongside the US Treasury seem to be conjuring up new rules and negating everything that Dodd Frank put into place to avoid the very things we are staring at right now.

The crux of the problem has always been the fiat fractional reserve system which post TARP was put into overdrive, negating all natural price discovery and destruction of those that were not viable, replaced with zombie full of debt pseudo corporations. Well now with the Fed Funds at multidecade highs, the monetary policy is systematically, methodically and slowly destroying balance sheets across a whole host of industries. SVB, First Republic, Credit Suisse, these are mere cogs in a very large levered wheel that is getting taken to the woodshed by the actual forces of NEGATIVE CARRY.

Nobody outside interest rate arbs like ourselves understands negative carry and the ramifications, but we can tell you this, given the sheer size of global debt, it will wreak havoc to such proportions that central banks are now impotent, frozen because even they have limits. Limits that functions like INFLATION expose time and time again, yet again, here we are!

When we talk of negative carry you only need to look at this single chart:

Basically what it tells you is the Overnight Interest Rate is -157 basis points to the US Govt 10YR. This is a negative interest rate meaning the rate you are borrowing at is 1.57% higher than your actual return on your longer duration securities. This is a very simple explanation and no we aren’t going to get into duration hedging, yield to maturities, we are just going to keep it very simple.

In a world that functions on short term funding, well when your financing rate is higher than your expected return, this is a very big problem, now if you cannot generate profits, this means, fire sales, layoffs, closures, fat trimming, etc…all across the board, no industry is immune. Please do not give us that cash cushion bs either, that protection gets wiped out quickly at these nominal levels.

We also keep seeing this M2 contraction chart, and no its not a big deal when we contract 4% after jumping 25%, so no its nothing, but give a few years of this, then we will start to put it up there with negative carry, but that is not the case today:

Alright we know pain is ahead, we know the tech stocks have saved 401ks for now, but we do expect max pain over the next 6-9 months as this recession materializes. We know OPEC was fronting this recession with their 2mbpd cuts which offered a short term blip out of the downtrend, but we are firmly back into this downtrend and expect Crude to continue to be very afraid of the coming recession. This leads us into our chart storm, where we look at a couple of the markets that Magnelibra follows:

The Nasdaq was stopped dead in its tracks at the 13353, the 0.786 reversal target area and now is supported by the 12791, the 0.618 fib. A break of this will continue to force CTAs and fast money to reverse their bullish bets over the last quarter.

The SP500 continues in the down trend pattern and basically has been stuck between 4200 and 3840 for the better part of a year. 4036 is our dam level, if that breaks, well look out:

Gold has also put in a short term top but has been sticky holding in as central banks continue to be record buyers and rightfully so, yet a recession would see the metal take a hit, so until 2050 gives way, lower prices should be expected:

Copper is also not buying the China rebound theory that is for sure:

Either is the Aussie Dollar, which seems like its ready to get the smackdown:

Going back to Apple, we feel that this chart just screams complacency and this price action seems curious to us, almost as if the roll over has already begun and that we are just waiting for the catalyst like earnings to drop this thing:

Word on the street is that the Republicans are clearing the way for a debt deal, so we figured we would share this meme we created on the “DEBT LIMIT” using one of our favorite movies of all time:

Ok that is it for now keep May 4th on your calendar, that is Apple earnings day and we suspect the markets direction will become much clearer after this!

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