Archive - Mar 21, 2014

First the Fed screws up the "dots" - on one hand telling HFT algos not to worry about rate hikes, on the other saying the FF rate in 2016 will be a scroching 2.25%, then Yellen flubs the "6 month" statement sending stock into a tailspin and Hilsenrath and Liesman explaining in overdrive that she didn't mean what she said, and now, we learn with the traditional Friday afternoon "shove under the carpet" bomb, that the Fed also flubbed its stress test results. Sounds about par for the world's most powerful, and clueless, monetary institution.

At 10:27:21 ET, the Nasdaq 100 e-mini futures contract suddenly dropped on extreme activity as someone decided it was an opportune time to dump 3000 contracts or around $220 million notional. As Nanex notes, the ETF - QQQ - also collapsed (with over 1200 trades in 1 second) as bids and offers were crossed and markets went flash-crashy for a few tenths of a second. The questions is - who was it? Waddell & Reed?

While mainstream media was awash with status quo huggers proclaiming Yellen's "6-month is a considerable period" comment as a slip - and assuming several Fed heads would come to the rescue to focus investors on lower-for-longer - it appears they are wrong:

*BULLARD SAYS YELLEN'S '6-MONTHS' COMMENT IN LINE WITH SURVEYS
*BULLARD SAYS FED WATCHFUL FOR 'ANY KIND OF REPLAY' OF BUBBLES

This came on the heels on Fed Fisher's comments on the end of efficacy of Fed QE and that asset-buying would end in October and short-dated bonds and stocks are fading (as JPY crosses are tumbling).

In the hopes of maintainijng his status quo amidst a plethora of corruption probes and allegations, Turkey's Erdogan has blocked Twitter after pledging to "destroy" the social media platform after troubling leaks occurred appearing to confirm his corruption. As one can imagine, the Turkish people (among others) are not happy...

White House attacks Russian financial markets and oil, Merkel suffers from “moral cowardice,” Russia develops “Putin Doctrine,” in crescendo of sanctions and counter-sanctions

Once European markets closed, US equity markets gave up any correlation with JPY crosses and began to fade. After bouncing off early Nasdaq-Biotech-driven lows, a ramp of AUDJPY saved the European close but that was it. There does not appear to be any news catalyst to drive this dump as Quad-witching pumps are unwound. The S&P 500 and Russell 2000 jooin the Trannies and Nasdaq in the red from the FOMC statement.

Yesterday's news from the NAR that in February all cash transactions accounted for 35% of all existing home purchases, up from 33% in January, not to mention that 73% of speculators paid "all cash", caught some by surprise. But what this data ignores are new home purchases, where while single-family sales have been muted as expected considering the plunge in mortgage applications, multi-family unit growth - where investors hope to play the tail end of the popping rental bubble - has been stunning, and where multi-fam permits have soared to the highest since 2008. So how does the history of "all cash" home purchases in the US look before and after the arrival of the 2008 post-Lehman "New Normal." The answer is shown in the chart below.

For the first time in 13 months, gold's 50-day moving-average is above its 200-day moving-average. This so-called "golden cross" occurred in Feb 09 before gold surged over 100% in the following years (but also occurred 'falsely' in September 2012.

Yesterday we warned that the honeymoon is over as Ukraine expects gas prices to rise 40% as Russian discounts fade. Today it appears the situation is even worse:

• *NAFTOGAZ, GAZPROM TALKS FOR MARCH 20-21 CANCELLED: INTERFAX
  
• *UKRAINE POLICE DETAINS NAFTOGAZ CHAIRMAN BAKULIN: AVAKOV
  
• *UKRAINE NAFTOGAZ RAID PART OF CORRUPTION PROBE, AVAKOV SAYS

The issues up for debate, of course, are supply and pricing of gas from Russia and the payment for over $2bn of existing debt owed. While Interfax reports that this was because the Ukraine gas company executive was unable to leave the country, which now appears due to corruption allegations ("there's corruption going on here?") but merely exacerbates any Russian gas retaliation concerns.

Having noted the ridicule with which the Russians view the sanctions barrage between the EU and US, we thought it worth reflecting, courtesy of Senator Dan Coats, on the absurd political farce that is the entirely useless (and purely public-relations-based) war of words (and not actions) that is under-way as the West realizes the Russian "boomerang" is coming any minute...

Everyone will witness the power of the Turkish Republic.--Erdogan

For the past five years we have been complaining about the two-tiered, and broken, market resulting from the near-ubiquitous presence of HFT trading strategies, where fundamentals have been tossed into the trash, and where quote churning, packet stuffing and not to mention, momentum ignition, put on candid display just before market open today when the Emini was ramped in a vertical line straight up taking the S&P to new all time highs, have become the only trading strategies that matter. Why? Because algos were in a panic buying mode as other algos were in a panic buying mode, and so reflexively on. The SEC long ignored our complaints, even after the HFT-precipitated flash crash, which we had warned apriori would happen, in a market as broken and manipulated as the one the Fed and the algos have unleashed. This changed recently when NY AG Schneiderman finally decided to "look into things" following the release of Virtu's ridiculous prop trading profits when the firm, in its IPO prospectus, announced it had made money on 1327 of 1328 trading days. However, when even Goldman Sachs begins complaining about HFT, it may be time to fire all those 20-some year old math PhDs who devies your trading algorithms.

For a variety of reasons, the Federal Reserve is viewed by many as the financial Master of the Universe. Given how the media hangs on every pronouncement and the visible power of the Fed's policies to move markets, this view is understandable. But suppose rather than being masters of all things financial, the Fed was actually little more than a collection of incompetents trapped in a broken system that is beyond repair. Rather than Masters of the Universe, the Fed's governors are increasingly looking more like deer caught in the headlights of a transformation they cannot understand, much less control.

Having been among the best performing sectors of the stock market for so long (up around 70% alone last year), the moves of the last few days - and especially today - are extremely worrying for the 'trend-is-your-friend' momo-following fickle investing public. The Nasdaq Biotech index is getting monkey-hammered this morning and is now 10% off its late-Feb highs. Crucially, this sector has been a major pillar of strength for the overall Nasdaq and that means the Nasdaq is also getting crushed - now down 0.9% from the FOMC and dramatically underperforming.