Salient to Investors: 

David Stockman writes:

  • Emerge Energy Services’s parabolic rise from its IPO and absurd valuation demonstrates the momo play by robots, day traders and flavor-of-the-month hedge funds in a stock market that has been destroyed by the Fed. Emerge is a poster boy for the irrational exuberance that has become institutionalized throughout the Wall Street casino, and a template for the deluge to come.
  • Fed policy has massively subsidized momo speculators firstly because they mostly operate either through the options markets or use heavy, short-term position leverage, and secondly because day traders need to take out downside insurance against their momo bets by buying puts on the S&P 500 – at dirt cheap premiums thanks to the Fed’s drastic financial repression and market manipulation.
  • The absurd doctrine of “wealth effects” and the implicit Greenspan/Bernanke/Yellen “put” has generated a toxic deformation in the risk asset markets – buying-the-dips has purged volatility from the broad market index almost entirely. Nearly 6 straight years of continuous vertical rise would never ordinarily happen in an environment of virtually no GDP growth in the US and Europe since 2007 pre-crisis levels, and earnings that face massive headwinds from global cooling, deflation and the heavy anchor of “peak debt”.
  • No financial market can be healthy and balanced without an abundance of well-capitalized short-sellers, now destroyed by financial repression and conversion to longs.
  • Credit bubble oil prices attracted enormous supplies of cheap debt and capital into high cost energy production, especially the US shale patch where sand dunes became the equivalent of gold mines.
  • At $50 per barrel, the 1600 rigs in the petroleum patch will drop to under 1,000 as contracts run off, and then fall further. Fracking demand is driven by new drilling and not current production so its fall-off in demand will be as severe.

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