Archive - Oct 20, 2014

Confused why one second the market is down 1%, and then moments later, upon returning from the bathroom, one finds it up by the same amount on negligible volume? Simple: there continues to be zero liquidity. Although, not just in equities, but in bonds as well, something this website - and the TBAC and Citi's Matt King - has warned for over year. It is the lack of bond liquidity that led to last week's dramatic surge in bond prices as Bloomberg noticed overnight. So for those curious just how bad bond liquidity is now, here is JPM's Nikolaos Panigirtzoglou with the explanation:

The WHO is coming under increasing scrutiny over its response to the the deadly epidemic. As The BBC reports, after stating that the death toll has hit 4,555 worldwide, a leaked internal document shows "nearly everyone involved in the outbreak response failed to see some fairly plain writing on the wall." There are a few tidbits of good news this weekend: the Spanish patient's test returned negative, 48 "at-risk" people in Dallas have been cleared, and Nigeria has been declared "ebola-free". Sadly, the bad news keeps coming: the virus has spread to new regions of Guinea (affecting mining operations), Moodys warns the economic legacy will linger, IMF slashes growth forecasts for Africa, and most critically, MSF doctors are at their breaking point: "The epidemic is still getting worse... I don't see a light at the end of the tunnel." Lastly, Harvard has imposed a travel ban from Ebola-affected nations.

Yabba Dabba Douche!

After America's commercial/investment banks crushed all momentum chasers hedge funds in 2014, with one after another after a third recommendation to go long stocks and short bonds starting in late of 2013 and repeating the broken record every single month because, you know, "the recovery", ignoring the massive outperformance of bonds over stocks in 2014 as Treasury shorts have been forced to cover at ever higher prices now that the global economic emperor was finally was revealed to be completely and utterly naked (thanks Goldman) one would think that banks would have eaten at least a little of their own cooking, and partaken in what has become a ridiculously crowded 10 Year TSY short. Well, one would be wrong. As in very wrong.

As futures opened last night, it was all looking so bright as the 'rebound' extended and every knife-catching "in it for the long-run" manager was proved 'right'. Then Eric Rosengren pissed in the punchbowl - explaining QE will end in October "unless somethinh dramatic happens" - somewhat taunting the market to crash to ensure the Fed keeps the party going. Markets leaked lower and then came Big Blue which slammed futures lower. Oil prices are falling once again this morning, ECB's bond-buying was a disappointment, and USDJPY's fundamentals hit an air-pocket. Having retraced perfectly 50% of last week's losses, the S&P 500 is fading at the open...

First, the bad news: Last week was the worst week for hedge funds since 2011.... Then the good: hedge funds dropped by less than half what the decline in the broader market was, largely because many hedge funds still haven't been fully shaken out of their shorts, despite 6 years of relentless central planning seeking to crush all bears.

Here is a summary of the best and worst performing hedge funds in October and 2014.

The Bank of England's "Real Time Gross Settlement Payment System" (RTGS) - the UK's equivalent of the US FedWire - has gone offline this morning due to a technical glitch, according to The Telegraph. RTGS, which processes large payments in real-time (including home purchases) between British banks - and processed GBP70 trillion in payments across 5000 entities last year - has been down since 6am London time (the fault was disclosed over 5 hours later at 1130 London Time). For now the largest payments are being processed manually and smaller payments are on hold.

Draghi, we have a problem. Just as Coeure 'promised' the ECB, according to The FT, began its bond-buying program this morning. However, peripheral sovereign bond-buying front-runners banking on the ECB greater fool to offload to are disappointed as they are go no easy money love. The initial program is covered-bond-buying (similar to US MBS, but a considerably smaller market) and the ECB will reveal how much it has bought each Monday afternoon (starting next week). Greek bonds are suffering the most with 5Y yields at cycle highs once again and prices at lows (vanquishing all of Friday's gains).

In the past few years the stock market has always recovered from corrections to make new highs, and we cannot be sure if the party is indeed over. However, both from a fundamental and technical perspective, the probability that it is over seems quite high. Should market internals and trend uniformity to the upside improve again, this assessment would obviously have to be revised. However, there are surely more than enough warning signs extant now and every financial asset bubble must end at some point.

The European status quo and EU elites are becoming increasingly concerned by popular calls in Italy for Italy to leave the European Monetary Union and the euro "as soon as possible" and return to the lira. 

• Stick to tapering and rates pledge, says Boston Fed chief (FT)
• Turkey to let Iraqi Kurds reinforce Kobani as U.S. drops arms to defenders (Reuters)
• Obama makes rare campaign trail appearance, some leave early (Reuters)
• Japan GPIF to Boost Share Allocation to About 25%, Nikkei Says (BBG)... or three months of POMO
• Japan Stocks Surge on Report GPIF to Boost Local Shares (BBG)
• China Growth Seen Slowing Sharply Over Decade (WSJ)
• Russia, Ukraine Edge Closer to Natural-Gas Deal (WSJ)
• Leveraged Money Spurs Selloff as Record Treasuries Trade (BBG)
• After clashes, Hong Kong students, government stand their ground before talks (Reuters)

Remember when three short months ago we revealed what was "the scariest chart in IBM's history", namely the one showing IBM's total debt to equity ratio? With this chart, incidentally, we also explained why IBM's ridiculous stock repurchasing strategy, which had seen $37.7 billion in stock buybacks since 2012, or more than the total debt issuance of $33.6 billion during the same period could not continue and why, inevitably, IBM would have a massively disappointing quarter? Well, that quarter just hit, when moments ago in an early press release, IBM reported abysmal adjusted EPS of only $3.68, a huge miss to the $4.32 Wall Street expected, mostly a function of one simple thing: the buyback "strategy" finally hit a brick wall.

And the overnight futures ramp started off so promising.

Happy Talk Does NOT Reassure the Public … It Only Makes Things WORSE