Archive - Sep 24, 2014

"Russia is already more isolated than at any time since the Cold War" - President Obama, August 2014

"China will never support or join recently imposed sanctions against Russia" - China President Xi Jinping, September 2014

The last couple of hours of today's US session were quite surreal for many cross-asset-class traders. As the following chart shows, the "need" for the S&P 500 to achieve 2,000 (and green post-FOMC) was evident in a 3-step process of manipulating VIX, USDJPY, and Gold. All they could achieve was 1,999.79 highs but not without an epic last minute VIXtermination effort...

Do you believe in miracles? With death-crosses crossing, Hindenburgs Omening, bonds and credit diverging, breadth deteriorating, stocks on the verge of the worst run of thge year, and the S&P 500 testing the crucial 50-day moving average... it should be no surprise that a combination of VIX-slamming, USDJPY-ramping, PBOC-firing, Fed-speaking sent stocks to their biggest gains in 7-weeks after the worst selling in 5 weeks (and people think the BoJ is the only one buying stocks). Treasury yields rose but nothing like the exuberance in stocks. HY credit markets deteriorated notably (bounced with stocks but notably less so). The USD surged (apparently on PBOC rumors) early (+0.3% on the week). Gold & Silver dropped, copper rose modestly but WTI oil prices exploded higher with stocks' exuberance (and Benghazi headlines). VIX was banged from over 15 to under 13.5. S&P 500 2,000 (1,999.79 achieved) and getting back to green post-FOMC was all that mattered today - and Mission Accomplished... before a slightly weak close.

Death and taxes... but mostly taxes...

"At the moment then, we are reticent about owning equities..."

President Obama is explaining to The UN Security Council why actions are needed... not words...

• *OBAMA SPEAKS AT UN SECURITY COUNCIL SUMMIT ON FOREIGN FIGHTERS
• *ABOUT 15K FOREIGN FIGHTERS FROM 40 NATIONS IN SYRIA: OBAMA
• *OBAMA SAYS POLITICAL SOLUTION IN SYRIA MUST BE SOUGHT
• *OBAMA SAYS `RESOLUTIONS ALONE' WILL NOT BE ENOUGH ON TERROR

If tapering isn't tightening.. and it's about the stock not the flow... then equity bulls have nothing to worry about. However, this chart suggests both of those flawed assumptions are entirely incorrect...

When the blood is flowing in the streets...

If the US economy had boosted everyone's income by $1.4 trillion in the past quarter, USD GDP would now be growing at a double digit pace. It did not. So to get a sense of just whose net worth rose by the noted amount, we go to Stone McCarthy which answers the question who benefited from holding stocks directly. Bottom line: the gains in net worth associated with holding stocks directly have been concentrated among a relatively small number of households.

Having totally killed the Japanese government bond market, Shinzo Abe has - unlike the much less transparent Federal Reserve, who allegedly use their proxy Citadel - gone full tilt into buying Japanese stocks (via ETFs). In May, we noted the BoJ's aggressive buying as the Nikkei dropped, and in June we pointed out the BoJ's plan tobuy Nikkei-400 ETFs and so, as Nikkei news reports, it is hardly surprising that the Bank of Japan bought a record JPY 123.6 billion worth of ETFs in August. The market 'knows' that the BoJ tends to buy JPY10-20 billion ETFs when stock prices fall in the morning. The BoJ now holds 1.5% of the entire Japanese equity market cap (or roughly JPY 480 trillion worth) and is set to surpass Nippon Life as the largest individual holder of Japanese stocks. And, since even record BoJ buying was not enough to do the job, Abe has now placed GPIF reform (i.e. legislating that Japan's pension fund buys stocks in much greater size) as a primary goal for his administration. The farce is almost complete as the Japanese ponzi teeters on the brink.

In the current GDP-based way we measure "prosperity" (i.e. "growth"), healthy living, low-cost lifestyles and capital accumulation are catastrophes for the economy rather than tremendous benefits. Clearly, we need an entirely new set of metrics and ways of measuring them. This will instantly create an entirely new set of agendas, priorities and incentives that change day-to-day choices without any central-state coercion, bureaucracies or top-down Central Planning.

If yesterday's 2 Year auction was surprising strong, then the week's second, today 5 Year auction which conluded moments ago, was the very opposite, and can only be described as weak.

Never one to miss out on some heavy "shock and awe", Bloomberg reports that the U.S. dropped almost as many bombs and missiles on Islamic State positions in Syria in its first night of airstrikes there as it did in the first month of attacks on the extremist group in Iraq. It appears American foreign policy comes down to this, "it's better to ask for forgiveness than permission," as the offensive unleashed 200 precision-guided munitions including 47 Tomahawk cruise missiles, and also got to play with its new F-22 toy in its first combat mission. The first night of airstrikes was “only the beginning,” Rear Admiral John Kirby, the Pentagon’s spokesman, told reporters.

When last did your government deliver to you something that amazed you?