Archive - Aug 2013

It happened again.

We recently discussed the possibility that the US is "worse than Japan in the 90s" but, against all consensus, we wonder, will the US soon enter a Recession or is it actually in a Recession? Is there a possibility the US is in a Stealth Depression?

And Keynesian Evolution...

At 15:45:31 on a quiet Friday afternoon in August, someone decided that they needed to buy 7,000 e-mini contracts (or $582 million notional of equity exposure). By the end of that minute, 23,679 contracts had traded as 'someone' needed $2 billion notional expsoure to the S&P 500 as it traded up to its highs of the day (and didn't care about phishing the entire order book). What is perhaps just as intriguing is the patterns seen in the options complex as VIX futures and ETFs were the first to crack as 330RAMPCAPITAL LLC stepped in, and then again as the mystery TWO-BILLION-BUYER came to play at 345ET. All of which makes perfect sense to any rational human asset manager or trader who cares not one bit about best execution, fiduciary duty, or simply whether they win or lose... Here is the very visible hand in all its glory...

Succinctly summarizing the positive and negative news, data, and market events of the week...

Despite the best efforts of the efficient and idiotic things we call the US equity markets - which exhibited the kind of epic VIX smashfest into the close - the Dow was unable to be rescued from its 3rd red week in a row (the first in 9 months). The S&P closed above its 50DMA (at the highs of the week) with a late-day scramble (but Nasdaq ends the week +1.7%). So a very mixed bag for stocks and the USD (thanks to today's post-home-sales dumpfest) ends the week unchanged. The real story of the day (and week) though is precious metals and bonds. The 30Y bond's best week in a month and best day in 5 months wa snotable but perhaps more so, while the entire complex ripped lower in yield as the un-taper un-housing-recovery data hit, the flattening of the 5s30s spread is extreme. Gold and Silver spiked on the home-sales data ending the week up notably. The VIX-compression into the close ended at 14.00% for the biggest 2-day drop in 2 months.

Let’s see. Consumers are carrying more debt than they did in 2007. Corporations are carrying more debt than they did in 2007. The Federal government is carrying 60% more debt than it did in 2007. Cities and States are carrying more debt than they did in 2007. Interest rates have jumped by 80% in the last three months. The economy is clearly in recession, as retailer after retailer reports horrific results. Stocks are as overvalued as they were in 1929, 2000, and 2007. China is experiencing a real estate collapse. Japan is experiencing a cultural/economic/societal collapse. The Middle East is awash in blood. The European Union is held together by lies, delusion and false promises. What could possibly go wrong?

It seems the crossing of the Maginot 100-day moving average combined with Jackson Hole chatter and the dismal new home sales data has set the precious metals ablaze once again. For the first time since early June, gold has crossed the psychological $1,400 level (up 18.5% from its 6/18 lows). We suspect the still-unprecedented short-interest in COMEX gold futures may well be feeling more heat here (having fallen 40% in the last 5 weeks)...

This unauthorized and unlawful "spying" on everyone is going to end very badly, especially for people that don't educate themselves and are proactive in their defense.

While none other than Meredith Whitney warned this morning (mere weeks after her most-bullish-on-banks-ever call) that big US banks' revenue model is unsustainable, we discover that the NYSE Amex Options exchange has decided to DK all of Goldman's "erroneous" trades from Tuesday morning's debacle. As The WSJ reports, this is quite a boon to the venerable Goldman Sachs who faced hundreds of million in losses had the trades stood. The fact that no one can ever touch the bank-that-shall-not-be-named should come as no surprise (unsustainable business model or not) and as the following 'story' suggests, perhaps they truly are 'untouchable'.

Curious how the US retail investor is reacting to the surprising inability to BTFATH? Bank of America explains how: by yanking the most cash from equity funds since November 2011.

Perhaps the most curious part from the just released and detailed Nasdaq post-mortem is the following, which appears to be an attempt to answer our remaining question from yesterday:  "At approximately 12:03 p.m., Eastern Time (ET), the UTP SIP ceased dissemination via all outbound UTP Quote channels. The UTP Trade feeds were not impacted by this outage and continued to remain operational. The UTP SIP has no evidence of an attempted intrusion into SIP systems or of an unusual burst of quotation or trading messages in connection with yesterday's events." No evidence, except for these (and many more) locked bids and asks and the associated Nasdaq trading radio silence.

In spite of the prime-dealers seeming agreement that SepTaper is most likely; judging by the plethora of talking-heads and research pieces hitting in the last few days, the idea that a Taper was a good thing (Tepper) and in fact indicates 'health' appears to be on the back-burner as almost every sell-side shop is out with a discussion of just how potentially bad things are macro-economically and that a taper should be off the table. Below is BofAML's Ethan Harris' seven reasons to delay the taper following today's "punch in the stomach for the economic recovery story" (and our 4 reasons why they can't or won't).

While many begrudge the rise in interest rates and their concomittant tightening of financial conditions, Nomura's George Concalves notes that the move has been a "blessing in disguise" for most long-only bond investors. Insurance companies and pension-funds, who need 'yield' to cover long-term liabilities, have been underweight since the Fed began Operation Twist (on the basis of the yield became too compressed) but the recent sell-off in Treasuries (which does not reflect any asset-allocation or great rotation since stocks have been just as weak) enabled these funds to put money to work. This helps to explain the very notable flattening in the yield curve (5s30s -17bps in the last week) as duration extension is more economically attractive. Concalves suggests Taper fears are overdone and that should rates back up another 25bps, there is more dry-powder to put to work in bonds.