Archive - Sep 11, 2015

If anyone has not noticed, the market has changed from rewarding buying the dips to rewarding selling the blips. Selling the blips is how smart money leaves markets. Smart money is also big money. There is too much of it to fit through the exit door at the same time. That is why market crashes rarely occur in a day (August of 1987 was an exception) or even short periods like a month. Even the Great Depression took multiple years for the stock market to reach its ultimate bottom.

The day was September 11, 2001. Our New York office was on the 92nd floor of the World Trade Center Tower 1. None of the employees who had arrived to work that day survived. It is a moment that elicits strong emotions within me to this day and I know I’m not alone. In the days and weeks that followed, while the world came together to mourn those lost and to condemn those responsible, our policymakers in Washington were working feverishly to find opportunity in this tragedy. Forty-five days after 9/11, President Bush signed into law the U.S. Patriot Act.

"NEW RECOMMENDATION: we wish to sell the S&P futures short this morning, fearing that a major top hss developed and that the recent consolidation in the stock market is precisely that: a consolidation before the next leg downward... If the consolidation is indeed reconciled to the downside, the target becomes 1725-1750, or just a bit more than 200 S&P points to the downside."

While Fisher, among others, believes that the recent fall in inflation is solely due to collapsing energy and crop prices, the issue of weakening economic data on a global scale, particularly that of China, may suggest much less transient nature. As we stated previously, we think the Fed realizes that we are likely closer to the next recession than not. While raising interest rates may accelerate the pace to the next recession, it is better than being caught with rates at zero when it does occur.

Having fallen and missed the last two months, UMich Consumer Sentiment plunged in September's preliminary data from 91.9 to 85.7 (dramatically missing the 91.1 expectations) crashing to its lowest in a year. This is the biggest miss on record. Crucially, this is the all-important factor that The Fed's Dudley said he would be monitoring ahead of his decision on rate hikes... Hope collapsed as "expectations" tumbled from 83.4 to 76.4 - the lowest in  a year as 73% of respondents cited negative economic developments seeing a weaker econmomy due to a global growth slowdown.

Some have started to ask: what happens if Glencore were to fail? Well, since Glencore is not just a miner, but probably the world's largest commodity trading desk, and is a key commodity counterparty for everyone, the answer is simple: Lehman... only this time in the commodity space.

On heavy volume, it appears someone once again decided that 9amET was the perfect time to dump paper gold and silver on the futures market...

"Monetary policy can’t solve the problems we face," warns German finance minister Wolfgang Schaeuble, daring to admit that monetary policy-makers "are moving in a direction which is very dangerous" with regard to excess global liquidity. Amid fears of fed tightening and demands for BoJ and PBOC easing, it appears Europe's leadership fears the consequences of a "market bubble" as the global economy is awash in more public and private debt relative to GDP than at any time post-WWII.

While still well below Fed mandated levels, the 0.9% year-over-year rise in PPI Final Demand ex Food & Energy is the hottest since March and notably above expectations. While the headline PPI Final Demand YoY has not risen for 8 months, surging prices for chicken eggs (+23%) and apparel (+7%) in August made up a considerable part of the inflation index move and bond yields and stocks are leaking lower on the news ahead of next week's FOMC meeting.

Fostering dependence on irresponsible banks and a still very vulnerable banking sector will make the entire western financial and economic system even more vulnerable.

While the massive, $19.2 billion outflow in the week of the August 24 flash crash was understandable, as the market's record complacency was shaken by days of violent selling, as was the snap rebound inflow of $5.8 billion the following week resulting from oversold conditions, the fact that EPFR reported that in the week ended September 9 equity outflows once again surged, rising to a total of $19.4 billion - greater than two weeks prior, and the largest of 2015 - will cast doubt that the recent market correction is a one and done event, especially if the selling becomes a self-fulfilling prophecy.

• One Volatile Week Could Seal Fed Stance After Years of Low Rates (BBG)
• Fed to dominate week of central bank meetings (Reuters)
• 30 years on, parallels with Plaza but currency universe very different (Reuters)
• Wal-Mart's Suppliers Are Finally Fighting Back (BBG)
• China's Rising CPI, Deepening PPI Deflation Challenges PBOC (BBG)
• Petrobras spending plan already obsolete, new cuts likely (Reuters)
• Bank of Montreal to Buy GE Capital’s Transportation-Finance Unit (WSJ)

Perhaps after intervening every single day in the past week (remember that FT piece saying the PBOC would no longer directly buy stocks... good times) in either the stock or the FX (both on and offshore) market, China needed a day off; perhaps even the algos got tired of constantly spoofing the E-mini and inciting momentum ignition, but for whatever reason the overnight session has been oddly uneventful, with no ES halts so far, few USDJPY surges (then again those come just before the US open), and even less violent CNY or CNH moves, leading to virtually unchanged markets in Japan (small red) and China (small green). And while the initial tone in Europe has been modestly "risk off", it is nothing in comparison to the massive gyrations that have become a stape in the past few weeks.