Archive - Oct 16, 2014

A rising stock market, like a rising tide, can cover a multitude of interesting and/or scary things. If the finance guys who really know what’s going on are buying, then the disturbing stories that lead each evening’s news must be manageable. And we, in general, must be okay. But let the market fall a bit and those headlines suddenly begin to seem both oppressive and really, really numerous. And maybe we’re not okay after all.

So that is where he has been...

Curious why DirectEdge "broke" about an hour ago? Simple: to prevent what's left of retail from dumping into the latest momentum plunge.  Sure enough, it succeeded in locking out the weak hands from further dumping, because while it is still legal to sell, why make it illegal if you can just "break" the market itself. So what happened next? Well, the S&P, after dropping 1.5%, just turned green.  And the punchline:

• EDGX: ALL SYSTEMS NOW OPERATING NORMALLY

The most hilarious, ridiculous, rigged market in the world: priceless. For all other E-mini buying needs, there's PPTcard.

Yesterday afternoon saw the world and his asset-gathering mum surging to business media TV to calm their commission-paying customers that all-is-well, the worst is over, BTFD, and "see, stocks have made a bottom" as equities surged marginal-call-squeeze-driven into the close. However, they forgot that Europe would open again... As Bloomberg's Richard Breslow notes, "not all falling knives are meant to be caught" noting that the drip, drip of troubling news overcame the desire to pick an extreme and wait for verbal intervention. There is lots of commentary about overbought bonds and oversold stocks but with five different Fed speakers set to jawbone today, we suspect confusion will be the order of the day.

"Higher credit aggregates can temporarily plug the monetary gaps, but ultimately this can only mean slower growth, less rapid price rises, ever more illiquid balance sheets (more 'revenues' tied up in receivables and a bigger gap between 'profits' and actual cash), and more recourse to financial trickery to stay afloat. Looks like lots more 'gold' exports to HK will be needed unless today's announcement that SAFE is to conduct an audit of 'trade finance' in Shenzhen manages to bung up that particular loophole!  One other salient feature to note in China: QIII-14 non-household power consumption was only 2.5% ahead of QIII-13, just more than half of  QII's relatively tardy 4.9% YOY rate. Just like the money numbers, not exactly consistent with  7.x% GDP and 8.x% IP Growth, one might think. If markets are awaiting the Cavalry, they won't be coming from the east - whatever the official data release tries to pretend."

As yet another fed speaker takes the jawboning lectern today, it is becomingly increasingly clear that The Fed truly has only one mandate - to keep stocks up. While claiming to be "data-dependent", which judging by the general trend of government-supplied data (and President Obama), things are going great; Jim Bullard joins his intervention-prone colleague Williams: BULLARD SAYS BOND PURCHASES SHOULD BE DATA DEPENDENT and SAYS 'U.S. FUNDAMENTALS REMAIN STRONG' but BULLARD SAYS FED SHOULD CONSIDER DELAY IN ENDING QE. So much for data-dependence...

This is all only the beginning. When the smoke clears, stocks could be 30% lower than where they are now, if not more.

Surprise! Having been fooled twice before in the last housing bubble by the NAHB's persistent optimism in the face of dismal realities, it appears October was the beginning of a breaking point in realtor confidence. The headline sentiment index dropped to 54, missing extrapolated expectations of 59, led by a collapse in prospective buyers traffic (from 47 to 41). The headline 54 level is below the lowest estimate of 56 from 52 economists surveyed. Both present and future sales sub-indices also dropped but have no fear, as the NAHB notes, "while there was a dip this month, builders are still positive about the housing market," as cheaper borrowing costs may help draw more prospectiev buyers into the market (umm yeah that hasn't worked).

Despite a small beat of expectations at 20.7 vs expectation sof 19.8 but down from 22.5 , Philly Fed fell for the 2nd month from 3-year highs to 4-month lows. Under the surface things were even less agreeable with employment and average workweek tumbling notably. As the table below shows, the number of employees was whacked in half to just 12.1, while the employee workweek actually dipped into negative territory at -1.3. Forward-looking expectations dropped driven by a fall in capital spending expectations, which slid as now has become the norm, from 23.7 to 18.9

Global stocks plummeted yesterday and again today, on investor concern that U.S. and Chinese inflation data are signalling a global slowdown in economic activity.  U.S. retail sales fell in September and producer prices declined for the first time in a year.

If trained professionals (in West Africa and the US) are becoming infected by the deadly Ebola virus, what hope is there for fellow passengers in a tightly-packed metal tube? The World Health Organization expects Ebola cases to top 9000 this week and deaths to exceed 4500 as they shockingly note 427 healthcare workers are now infected. The economic impact of Ebola continues to rise as Liberia slashes its GDP estimate and East African nations discuss strategies to stop the spread from the West. In Europe, Germany is sending aid, the Spanish nurse is stable but Madrid airport activated emergency measures due to a suspected Ebola passenger. US screening restrictions increase as Yale New Haven Hospital is dealing with a patient with Ebole-like symptoms. Politicians begin debating travel bans as Dallas is expected to approve a "state of disaster" today. Contained?

The last time Industrial production growth was higher than this was May 2010 as IP rose 1.0% against expectations of a 0.4% rise. Last month's print was revised lower, so we swung from worst in 2014 to best in 4 years. Manufacturing rose at a modest 0.5% but it was Utilities that stole the show, surging 3.9% (due to unseasonably high demand for air conditioning). This is the biggest MoM surge in Utilities for a September in at least 10 years. Not exactly sustainable, unless we once again are at the mercy of the weather for US economic growth.

What's French for 'sacre bleu'? While the fundamental reality of France's record unemployment, plunging industrial production and economic growth, and treaty-busting deficits are all fact, for many months now, the 'market' has been convinced at Draghi's omnipotence and enabled French bonds to trade as if they are 'in the core'. But... on the heels of Sapin's slap in the face of Schaeuble, shunning of Brussels, the market appears to be changing its mind about France's credit worthiness (risk is up over 30% in the last week). Across Europe, we are witnessing a 2012 replay as re-denomination risk rises and risk spreads between the periphery (which means everything but Germany) and Germany surge...

When it comes to levitating the stock market, and allowing America's worthless politicians to keep on doing nothing in hopes the Fed can fix everything by simply printing money, the Fed's Chairmanwoman has no problem with getting to work. However when it comes to the latest deadly Pandemic to cross the Atlantic and hit US shores, the Fed has a dire message: America, you are on your own.

• FED'S PLOSSER: MONETARY POLICY CANNOT DO MUCH ABOUT ECONOMIC THREAT FROM EBOLA

You mean, the Fed can't print antibodies? And why is the Fed expected to do "much" or anything for that matter about the economic threat from Ebola - isn't there a president and a Congress to actually deal with America's problems... instead of just making them worse that is?