Archive - Aug 29, 2013

Another very volatile day across asset-classes with no-one having a clue what is going on. Good-news (GDP) was instantly interpreted as bad-news (moar Taper) and bonds and stocks sold off notably but as the US equity market opened, JPY was sold and carry took over lifting stocks back to pre-FOMC-minutes levels once again... but bonds also rallied significantly with it (in a non-Taper-ing manner) as the USD rallied. But once that run-stop was covered on low volume levitation, stocks limped lower from the European (and POMO) close onwards, ending towards the lower-end of the day's cash range. Treasury yields dropped 7bps from their post-GDP highs leaving the 30Y -3bps on the day (and 7Y and less unch). VIX rose (turning higher before stocks topped), almost tagging 17% as it closed. But burying the lead, commodities were slammed with WTI slammed back under $108; gold, silver, and copper all hit with the latter -3.5% on the week. 'Average' volume day in futures.

A month ago we reported that US fast food workers in several US cities, namely New York City, Chicago, St. Louis, Detroit, Milwaukee, Kansas City, Mo., and Flint, Mich., walked out Monday in a one-day strike demanding a doubling of their pay. Not unexpectedly, even though the president himself has been a strong proponent of rising the minimum wage, the corporations balked and the strikers achieved nothing and just in case there is some confusion, there is a lot of minimum skills, minimum wage applicants (not to mention robots) out there which translates into two words for the strikers: no leverage. However, these concepts may be foreign to a fast-food labor force that probably just wants a day out in the nice weather and to take a break from hard work for a change.

Update: it appears the photos posted on twitter are fake. Hopefully that means there are no B-2 in the vicinity of Syria.

With the traditional liberal war dove brigade paradoxically and firmly in Obama's pocket on the issue of the Syrian attack/invasion/false flag/war, it was only a matter of time before Boehner made it clear that if Obama wanted an internal Congressional consensus it won't come easy if at all. And just like Russia and China are making an external united front for public consumption impossible, so the Republican just threw the first theatrical roadblock. Sure enough:

• BOEHNER SEEKS MORE DETAILS ON SYRIA WITH OBAMA AFTER PHONE CALL

To help the speaker in his theatrical quest for "more details", we have taken the first theatrical step in providing them, after this hyperlink.

The rise of Tomahawk force began in 1983 during the Reagan buildup, but the demise of the Evil Empire did not slow down its development one bit. By the end of the century the United States had about 150 surface ships and attack submarines that could launch these deadly cruise missiles and an inventory of nearly 5,000 missiles. Tomahawks have a range of seven hundred miles. This means that from their offshore platforms they can reach three-fourths of the world’s population. And during the last two decades they have been used in just this “stand-off” manner against targets in Iraq, Bosnia, Afghanistan, Sudan, Libya, and others—teaching presidents that they could meddle freely without getting bloodied.

No news; no update; nothing from the White House or State Department... but WTI Crude futures collapsed over $1.50 into the close in minutes on very heavy volume. We are sure someone somewhere knows why... though the Press Briefing may just have started the world's fears over the credibility of the US case...

Unsurprisingly NASDARK, while admitting to "latent software flaws" in the SIP,, choose to place the blame for causing the 'glitch' at the foot of the NYSE Arca...

• *NASDAQ HALT REPORT SAYS DATA FLOOD EXPOSED SOFTWARE FLAW
• *NASDAQ SAYS CONFLUENCE OF EVENTS 'VASTLY EXCEEDED' SIP CAPACITY
• *NASDAQ SAYS SOME ISSUES 'CLEARLY WITHIN' COMPANY'S CONTROL
• *NASDAQ:'UNPRECEDENTED VOLUME' OF MSG TRAFFIC TO SIP CAUSED HALT
• *NASDAQ: SIP RECEIVED OVER 20 SEQUENCES FROM NYSE ARCA
• *NASDAQ: SIP GOT INACCURATE SYMBOL QUOTE STREAM FROM NYSE ARCA

"Other issues contributing to the halt are more endemic to technology issues across today’s complex markets and will require a broader industry-wide effort to resolve... and will present our initial recommendations related to these changes to the SIP governing committee within 30 days." And here is Nanex's perspective.

History is very clear: societies that organize themselves around a tiny elite who thinks they should control the entire system suffer a 100% failure rate, without exception. Today’s system shares similar fundamentals to nearly every other case of failed empire. And it’s foolish to think that this time will be any different.

And no matter what happens...

It would appear that the new normal's Bond gurus are struggling with the weight of the 'Taper'-ing, deleveraging, 'special-repo'-ing, government-repress-ing, EM-crisis-ing world of extreme fast money flows that the Fed has thrust upon us. Just 3 short months ago, Jeff Gundlach said that he "expects the absolute highest for the 10-year yield this year is 2.4%, but he expects it to stay closer to 2%." However, as the 10Y yield presses up towards 3.0%, he told CNBC (in this brief but insightful clip on world flows and how he sees markets playing out) that "the 10Y Yield may go up to as highs as 3.1% by year-end," because "investors have switched from "I don't care about volatility, I want income" to "I don't care about income, I dont want volatility." He sees no sign of that changing...

If yesterday's auction started off as a 5 Year and ended up as a 7 Year reopening, today's 7 Year was just a 7 Year. That said, it was not pretty. Pricing at 2.221%, it was right on top of the When Issued, and yet it was another 18 bps higher than the 2.03% in July, and the widest since July 2011 or right before the first debt ceiling crisis. As the chart below shows, the black line is steepening quite a bit over the past 5 months as expected thanks to the Taper talk. But it was the Bid To Cover that was the real story, having rolled over a long time ago, peaking in mid-2011, and dropping moments ago to just 2.43. This was below the 2.54 from last month., well below the 2.66 TTM average, and the lowest Bid To Cover since the 2.26 in May of 2009.

“It could create a domino effect of uncertainty”

The AP reports that US intelligence officials are admitting that linking Syrian President Bashar Assad or his inner circle to an alleged chemical weapons attack is no "slam dunk," as opposed to Obama (and Kerry) who are 'unequivocal' of the fact. This would appear to confirm Ron Paul's comments this morning on Fox News that "We're not positive who set off the gas," and indeed - who is set to benefit most from any Assad-regime-smackdown? Al-Qaeda. "Assad is not an idiot," Paul adds, "it's unlikely he would do this on purpose... look how many lies were told to us about Saddam Hussein prior to that build-up." A lot of uncomrtable truths in this brief clip for an administration that has crossed its own red line (as we noted here) on actions against Syria now... "I think it's a false flag..." Paul adds, there is a big risk that "we are getting sucked in" and the American people are against this war.

Somehow we doubt that Putin just folded...

Sky Sources: Russia to call for urgent meeting of five permanent members of UN Security Council

— Sky News Newsdesk (@SkyNewsBreak) August 29, 2013

Hopefully Putin doesn't whip out incontrovertible proof the chemical gas attack wasn't linked to Al Qaeda... and the US of course.

Back in May, with the release of the quarterly TBAC presentation, we penned "Desperately Seeking $11.2 Trillion In Collateral, Or How "Modern Money" Really Works" in which we described in detail Wall Street's lament that as a result of upcoming changes and regulations of the shadow market, that there may be a dramatic shortage in collateral over the next several years, which in addition to other factors, may hit over $10 trillion. Well, we can scratch the collateral concerns off.

• G20 TASK FORCE SAYS NEW SHADOW BANKING RULES EXPECTED TO BE IN PLACE BY 2015
• WON'T IMPLEMENT GLOBAL MINIMUM 'HAIRCUT' ON REPOS, SECURITIES LENDING UNTIL MARKET CONDITIONS RIGHT

Said otherwise, Wall Street looked at the shadow banking abyss, and promptly ran away when the abyss looked back.