Archive - Aug 25, 2015

If the last two weeks have taught us anything at all (other than that a Reg FD violation is called a "scoop" when it involves Jim Cramer and Tim Cook), it’s that China quite clearly matters - and it matters quite a lot.

With EM in turmoil from Brazil to Malaysia, Bloomberg has mapped the carnage, showing just how many EM equity markets are in or closing in on bear market territory.

Last Friday, when we did a cursory check of Treasury repo rates, we noticed something strange on the short end: the 2Y was trading a whopping -2.5% in repo, suggesting a huge build up of short position coming into the auction. And then on Monday, and especially this morning, the repo pressure evaporate almost entirely, sliding to -1.20% and -0.1%, barely special, which was a signal that today's 2Y auction would hardly be the blockbuster issuance some other recent 2Y auctions have been. Sure enough, that's precisely what happened.

China 2015 = U.S. 2008

Not only is the equity market going to crash (after a dead cat bounce) the property market is about to pass out pain like you won't believe.

Global markets are puking at the prospect of higher yields in the U.S. There are many reasons for global markets to melt down, but one that doesn't get enough attention is the strong dollar. In effect, global markets are telling the Federal Reserve: don't raise rates--the strong dollar is killing us.

"Current Surveillance is Far Beyond an Orwellian State"

The missing clue came from a report by SocGen's Wai Yao, who first summarized the total liquidity addition impact from today's rate hike as follows "the total amount of liquidity injected will be close to CNY700bn, or $106bn based on today's onshore exchange rate." And then she explained just why the PBOC was desperate to unlock this amount of liquidity: it had nothing to do with either the stock market, nor the economy, and everything to do with the PBOC's decision from two weeks ago to devalue the Yuan. To wit:" In perspective, the PBoC may have sold more official FX reserves than this amount since the currency regime change on 11 August."

"It's not necessarily out of control yet. But if they do not provide some stability pretty soon it will begin to affect not only the markets over there, but - as we saw today and somewhat last week - it affects markets all around the world. Financial Markets are correlated. We learned that back in 2008 When the fall of Lehman spread all around the globe."

The bubble headed bimbos and brainless stock touting twits will be in ecstasy today as the ever predictable rebound is under way. The market will soar by over 500 points at the opening as the excuse of the day is China’s desperate interest rate cut to try and stem their downward spiraling economy and markets. The Wall Street captured boob tube brigade will tell their almost non-existent viewership that all is well. The terrifying plunge is in the past. The economy is great. Housing is strong. Stocks are now a bargain. It’s the best time to buy. Now here are some facts...

While the western mainstream media meme is that "this is all China's fault" - despite the fact that the real break happened after the FOMC Minutes last week - Xinhua reports that China central bank blames wide-spread expectations of a Fed rate hike in September for the global market rout... demanding The Fed "remain patient."

While the "hedge fund" hotel strategy works on the way up, when everyone makes roughly the same profits, it is on the way down when these hedge fund hotels become "Hotel California" - hedge funds can check out, and sometimes they can even leave... with massive losses. According to a Bloomberg analysis, many of these hedge fund hotel stocks, or companies where hedge funds hold a combined stake of at least 25%, suffered declines of as much as 42 percent in the recent stock market rout.

It doesn’t happen too often, but occasionally we witness a true stock market “washout”. That is, a selloff marked by extremely one-sided (to the downside) trading action. Such days are exhibited by market participants that just want out at any price. The result is a day in which all market statistics are overwhelming skewed negatively. Such was the case yesterday, August 24. However, considering the selloff began with the major averages near their 52-week highs, a resumption in downside pressure would not be a surprise following whatever type of bounce materializes over the next few days or weeks.

Since 'everything is awesome' once again, it appears holding 'pet rocks' is no longer of any use... Gold futures have been hammered below their 50-day moving-average this morning as the USD rises...