It seems time to call Liesman and Cramer for their advice... US equities are in freefall, down 2-3% from yesterday's highs (with high-flying NASDARK and Trannies underperforming) and breaking below the lows printed following the less-than-dovish FOMC minutes of last Wednesday. Gold ($1420), Silver ($24.60), and WTI ($108.75) are at the day's highs (and multi-month highs) and US Treasury yields are fading rapidly - with the long-end notably lower in yield from the FOMC minutes. The USD remains under pressure as JPY carry-unwinds dominate flows. It seems the great unrotation is at hand... as the S&P tests down to its 100DMA.
Remember all of the propaganda ahead of the USA’s “democracy unleashing” invasion of Iraq in 2003. It went something like this: “We have evidence that Saddam Hussein has stockpiles of weapons of mass destruction, and even worse he has a histroy of using them, even against his own people!” Well unsurprisingly, Mr. Hussein had a little help from his friends. The United States of America. Let’s bear this in mind as our Noble Peace Prize winning President attempts to involve us in another unconstitutional war based on the fact that chemical weapons have been used. The message is clear: one man's propaganda bogeyman is another (CIA supported) man's mustard gas.
There was some anticipation heading into today's 2 Year auction, which as disclosed previously, represented the first drop in nominal issuance by $1 billion from the prevailing 2 Year size over the past several years, when as a result of reduce budget funding needs "only" $34 billion was auctioned off instead of the $35 billion recent average. Yet despite the tiny reduction in nominal, the auction was hardly a blockbuster, and if anything it was rather lackluster, with the high yield pricing at 0.386%, better than the 0.389% When Issued but certainly above July's 0.336%. The Bid to Cover also posted a modest improvement, from 3.08x last to 3.21x, however this was well below the TTM average of 3.53x. As can be seen on the chart below, auction BTC levels have been declining consistently since peaking in late 2012. Finally, the internal breakdown was generally as expected, with Directs taking down 26.1%, higher than post last month's 16.37% and the TTM average of 21.2%, Dealers holding on to 54.6% of the auction and Indirects ending up with just 19.30%, the lowest such allocation since January of this year.
Noting that "everything suggests the Syrian regime used chemical weapons," France's President Hollande this morning stated
*HOLLANDE SAYS SYRIAN CHEMICAL ATTACK REQUIRES RESPONSE and FRANCE IS READY TO PUNISH USE OF CHEMICAL WEAPONS
Perhaps this is subtle way to solve his nation's economic problems (just ask Krugman). French jobseekers just hit another all-time high; and following the utter failure of the Mali incursion to raise Hollande's popularity, perhaps he will reinstate the draft (for the millions of unemployed), invade, and then promptly surrender (leaving oil-rich Syria with the problem?)
Right now, ship traffic around Syria, and especially around the port city of Latakia and Tartus (where the Russian naval base is located), is normal as can be seen on the real-time map of naval traffic in the Mediterranean courtesy of Marine Traffic. If and when (supposedly Thursday if NBC is to be believed) the US finally launches the Tomahawks, expect a prompt evacuation of the triangle between Lebanon, Turkey and Cyprus. Or maybe in advance, especially if some of the more "strategic" tankers get advance notice things are going down. Keep an eye on real-time Mediterranean traffic courtesy of the map below.
Between a renewed demand for the relative geopolitical 'safety' of US Treasuries and the dismal US macro data starting to renew 'hopes' that the Taper will be delayed, the scarcity of high-quality collateral and plunging liquidity (thanks to the Fed's ongoing envelopment of the US bond market) has once again driven the 'belly' of the US Treasury market to trade 'special'. As Stone & McCarthy notes, repo has been tightening up overall, and the 2-year, 5-Year, 7-year, and 10-year are all also trading with negative handles this morning, with the 7-year getting more special ahead of this week's auction. This 'specialness' will once again raise concerns about the Fed having 'broken' the market (and as we noted here) may be further ammo to scare Bernanke straight (encouraging some degree of Taper in the Treasury buying even if the consensus believes economically we can't withstand it).
The global economy could be in the early stages of another crisis. Once again, the US Federal Reserve is in the eye of the storm. As the Fed attempts to exit from so-called quantitative easing (QE) – its unprecedented policy of massive purchases of long-term assets – many high-flying emerging economies suddenly find themselves in a vise. The Fed insists that it is blameless – the same absurd position that it took in the aftermath of the Great Crisis of 2008-2009. As in the mid-2000’s, there is plenty of blame to go around this time as well. The Fed is hardly alone in embracing unconventional monetary easing. Moreover, the collapsing 'developing economies' all have one thing in common: large current-account deficits. A large current-account deficit is a classic symptom of a pre-crisis economy living beyond its means – in effect, investing more than it is saving. The only way to sustain economic growth in the face of such an imbalance is to borrow surplus savings from abroad. That is where QE came into play...
With a US attack on Syria now seemingly inevitable, it is useful to get familiar (and in some cases follow in real time using their "social networking" sites) the US Naval forces amassing around Syria, ready to deliver either a lethal payload of Tomahawk cruise missiles (carried by the four destroyers listed below), a deployment of marines (located in the USS Kearsarge big-deck amphibious warfare ship), or one or more squadrons of airplanes sitting on the deck of the Truman and Nimitz aircraft carriers.
It seems not everyone is so confident that this market drop is dip to be bought. With most of the Treasury complex trading 'special' and the S&P 500 back below its 50DMA, investors are grabbing protection where they can. Credit indices are notably wider but it is VIX at 16.56% that is in great demand as it hits nine-week highs.
With the Case-Shiller 20-City index up double-digits for the 4th straight month, Bob Shiller has some choice words for the CNBC interviewers about the 'housing recovery'. "Housing is a market with momentum," he notes, "and right now, the momentum is up;" but he adds that while house prices are 'recovering', he remains much less sanguine about this recent move. But it is once he has explained the potential concerns that may weigh on the housing market that Shiller comes into his own as he explains "none of this is real, the housing market has gotten very speculative."
Must see clip as Shiller scoffs at the current sentiment, the resurgence of 'flipping', and that the housing market is "driven by irrational exuberance."
The Richmond Fed survey surged to 14, its biggest beat since April 2010 and its highest level since January 2011. All makes perfect sense right? Just a 3.5 sigma beat of analyst expectations at 0. All sub-indices improved to multi-month highs and expectations for six months ahead also surged (even as prices paid and received collapsed). Consumer Confidence, amid surging interest rates and near-record gas prices for this time of year (and a pending war), rose (beating expectations) after falling last month. All of the gains in confidence came from 'hope' as the expectations sub-index rose from 86.0 to 88.7 as the present situation fell from 73.7 to 70.7 - the biggest drop since January. Remember, beware of the big 'con'.
President Bashar al-Assad stressed that "Syria is a sovereign country that will fight terrorism and will freely build relationships with countries in a way that best serves the interests of the Syrian people." As Syrian TV reports, in an interview with the Russian newspaper of Izvestia, President al-Assad stressed that "the majority of those we are fighting are Takfiris, who adopt the al-Qaeda doctrine, in addition to a small number of outlaws." On the alleged use of chemical weapons, President al-Assad said that the statements by the US administration, the West and other countries were made with disdain and blatant disrespect of their own public opinion, adding that "there isn’t a body in the world, let alone a superpower, that makes an accusation and then goes about collecting evidence to prove its point." Al-Assad stressed that these accusations are completely politicised and come on the back of the advances made by the Syrian Army against the terrorists.
While Case Shiller is about as backward looking an indicator as they come (June housing data when it is almost September is pretty much completely useless), today's release showed yet another miss relative to expectations, with the 20 City Composite posting a monthly increase of 0.89%, missing expectations of 1% (for the second month in a row), was the third consecutive month of a slowing growth, and the lowest sequential growth since November 2012.
With AAPL plunging below the critical $500 level and equity markets slumping this morning, it seems appropriate to reflect once again on the cause of last week's NASDARK debacle. As Nanex so obviously points out in these charts, digging into market data before the Nasdaq blackout at 12:20 EDT on August 22, 2013, we came across several significant periods of extremely high quote volumes. By plotting the number of messages for each of the 6 multicast lines used by the Tape C SIP (Securities Information Processor), we discovered the quote blasts map directly to individual multicast lines. The 'line' carrying AAPL's ticker saw the largest and most egregious quote volumes (spamming perhaps) that eventualy ovehwlemed NASDARK's creeking infrastructure.