Archive - Aug 2014

For mega caps (The Dow) and small caps (The Russell 2000), the old adage "Sell in May" is now working... both are in the red since the end of April (and the S&P is catching down)...

A set of studies based on three years of research concludes that by 2040, the need for drinking water and water for use in energy production will create dire shortages...“If we keep doing business as usual, we are facing an insurmountable water shortage – even if water was free, because it’s not a matter of the price,” he says. “There will be no water by 2040 if we keep doing what we’re doing today. There’s no time to waste. We need to act now.”

The market has been so overbought for so long, that most investors were ignoring the clear warning signs that we were in trouble.

What will it be? A gloat about 6 months of 200k-plus jobs growth (but ignoring rise in unemployment and drop in wage growth)? Republican-bashing over the Border Bill? Putin-panning after their phone call this morning (better not discuss costs)? Israel-condemnation (and funding)? Why you should buy the dip because it's patriotic? Stay hopey... (not cyniccy)

Waiting to sell is akin to ignoring the smoke and flames in the crowded theater and hesitating until somebody yells "fire!" to rush for the now-jammed exit.

During the last 64 months “buying the dips” has been a fabulously successful proposition. So yesterday’s 2% dip will undoubtedly be construed as still another buying opportunity by the well-trained seals and computerized algos which populate the Wall Street casino. But that could be a fatal mistake for one overpowering reason: The radical monetary policy experiment behind this parabolic graph is in the final stages of its appointed path toward self-destruction.

A funny thing happened since The US unleashed Russian-economy-crushing sanctions... the "costs" appear to have weighed down US and European stocks as Russian stocks gained?

Although the NYSE was closed between July 30 and December 12 of 1914, stocks were quoted by brokers and traded off the exchange.  Global Financial Data has gone back and collected stock prices during the closure of the NYSE to recreate the Dow Jones Industrial Average while the NYSE was closed.  We collected the data for the 20 stocks in the new DJIA 20 Industrials and calculated the average of the bid and ask prices from August 24, 1914 to December 12, 1914.  This enabled us to discover that the 1914 bottom for stocks actually occurred on November 2, 1914 when the DJIA hit 49.07, over a month before the NYSE reopened.  Few people realize that stocks in the US had already bottomed out and were heading into a new bull market when the NYSE reopened on December 12, 1914. The DJIA did not revisit this level until the Great Depression in 1932. 

They blindly bought into the lie...

We have been warning for a while that not only is the high-yield credit market sending a warning but that it is critical for equity investors to comprehend why this is such bad news. This week has seen exuberant equity markets start to catch down to high-yield's warning but today's surge in HY credit spreads to six month wides is a rude awakening. Between outflows, a huge wall of maturities (and no Fed liquidity), and corporate leverage, the reach-for-yield just became an up-in-quality scramble. HY spreads are over 70bps wider than cycle tights implying the S&P 500 should be around 1775. When the easy-money-funded buyback party ends, will you still be dancing?

As the slide starts and the stock markets open in the red on the 1st August , it’s now time to take into consideration what it is that will save you on the floor from losing the house, the wife and the kids because you didn’t know how to deal with the stock crash that’s on its way.

Moments ago ISDA, which yesterday was queried whether a CDS-triggering credit event had taken place in Argentina, made a ruling. Here it is:

• The Americas [Determinations Commitee] met on August 1, 2014 and resolved that a Failure to Pay Credit Event in relation to the Argentine Republic occurred on July 30, 2014.

And now, we find out who is the biggest seller of the CDS. Up next: the CDS auction.

But but but... the crisis is over and Europe is recovering? European stocks dropped 3.2% in the last 2 days - the most in 7 months - taking the broad index into the red for 2014. Portugal (remember how BES was contained) collapsed 10.3% this week (down 26% from its highs in April) to one-year lows. Europe's VIX spiked over 20 today - its highest in over 4 months.

Having been abused by almost every member of Argentina's political body, Judge Griesa (presiding over the holdouts vs Argentina case) has come out swinging this morning. "What occurred this week did not extinguish or reuce the obligations of Argentina," he began, exclaiming that "public statements [from Argentina] have been highly misleading - and has to be stopped."