Archive - Aug 23, 2013 - Story

BREAKING. @CBSNews has learned that the Pentagon is making the initial preparations for a Cruise missile attack on Syrian government forces

— Charlie Kaye (@CharlieKayeCBS) August 23, 2013

Detroit may be on its way to becoming a ghost town, but the disappearance of homo sapiens from the streets just means the largest US bankrupt city is about to have a new master - man's formerly best friend, in the form of tens of thousands of stray dogs most of which happen to be a particularly vicious breed of pit bulls. Step aside Motown, and say hello to Dogtown.

According to the Fed, QE's aim was to drive down interest rates to unattractive levels by purchasing bonds in the market, thus encouraging participants to purchase riskier (and higher-yielding) securities. As Cornerstone's Ronnie Spence notes, this risk-seeking behavior in theory boosts asset prices (and increases the 'wealth effect'). However, when one examines what has actually happened under QE, only stock prices have followed the QE theory. In fact interest rates have only declined in periods when the Fed stopped QE. Spence points out, that the drop in rates in response to QE likely results from the plunge in equity prices that has resulted when the Fed has looked to end their QE programs. Put another way, "Taper" is a false narrative for higher rates when in fact all the 'taper' risk is in stocks (and historically traders haven't priced it in until the money actually stops flowing).

Chinese society is on the verge of a structural transformation even more profound than the long and painful project of economic rebalancing, which the Communist Party is anxiously beginning to undertake. As we recently discussed, Stratfor warns China's population is aging more rapidly than it is getting rich, giving rise to a great demographic imbalance with important implications for the Party's efforts to transform the Chinese economy and preserve its own power in the coming decade. In fact, as BofAML notes, China's working-age population peaked last year (3 years ahead of demographers' schedule) representing a major turning  point for the world's economy.

It happened again.

We recently discussed the possibility that the US is "worse than Japan in the 90s" but, against all consensus, we wonder, will the US soon enter a Recession or is it actually in a Recession? Is there a possibility the US is in a Stealth Depression?

At 15:45:31 on a quiet Friday afternoon in August, someone decided that they needed to buy 7,000 e-mini contracts (or $582 million notional of equity exposure). By the end of that minute, 23,679 contracts had traded as 'someone' needed $2 billion notional expsoure to the S&P 500 as it traded up to its highs of the day (and didn't care about phishing the entire order book). What is perhaps just as intriguing is the patterns seen in the options complex as VIX futures and ETFs were the first to crack as 330RAMPCAPITAL LLC stepped in, and then again as the mystery TWO-BILLION-BUYER came to play at 345ET. All of which makes perfect sense to any rational human asset manager or trader who cares not one bit about best execution, fiduciary duty, or simply whether they win or lose... Here is the very visible hand in all its glory...

Succinctly summarizing the positive and negative news, data, and market events of the week...

Despite the best efforts of the efficient and idiotic things we call the US equity markets - which exhibited the kind of epic VIX smashfest into the close - the Dow was unable to be rescued from its 3rd red week in a row (the first in 9 months). The S&P closed above its 50DMA (at the highs of the week) with a late-day scramble (but Nasdaq ends the week +1.7%). So a very mixed bag for stocks and the USD (thanks to today's post-home-sales dumpfest) ends the week unchanged. The real story of the day (and week) though is precious metals and bonds. The 30Y bond's best week in a month and best day in 5 months wa snotable but perhaps more so, while the entire complex ripped lower in yield as the un-taper un-housing-recovery data hit, the flattening of the 5s30s spread is extreme. Gold and Silver spiked on the home-sales data ending the week up notably. The VIX-compression into the close ended at 14.00% for the biggest 2-day drop in 2 months.

Let’s see. Consumers are carrying more debt than they did in 2007. Corporations are carrying more debt than they did in 2007. The Federal government is carrying 60% more debt than it did in 2007. Cities and States are carrying more debt than they did in 2007. Interest rates have jumped by 80% in the last three months. The economy is clearly in recession, as retailer after retailer reports horrific results. Stocks are as overvalued as they were in 1929, 2000, and 2007. China is experiencing a real estate collapse. Japan is experiencing a cultural/economic/societal collapse. The Middle East is awash in blood. The European Union is held together by lies, delusion and false promises. What could possibly go wrong?

It seems the crossing of the Maginot 100-day moving average combined with Jackson Hole chatter and the dismal new home sales data has set the precious metals ablaze once again. For the first time since early June, gold has crossed the psychological $1,400 level (up 18.5% from its 6/18 lows). We suspect the still-unprecedented short-interest in COMEX gold futures may well be feeling more heat here (having fallen 40% in the last 5 weeks)...

While none other than Meredith Whitney warned this morning (mere weeks after her most-bullish-on-banks-ever call) that big US banks' revenue model is unsustainable, we discover that the NYSE Amex Options exchange has decided to DK all of Goldman's "erroneous" trades from Tuesday morning's debacle. As The WSJ reports, this is quite a boon to the venerable Goldman Sachs who faced hundreds of million in losses had the trades stood. The fact that no one can ever touch the bank-that-shall-not-be-named should come as no surprise (unsustainable business model or not) and as the following 'story' suggests, perhaps they truly are 'untouchable'.

Curious how the US retail investor is reacting to the surprising inability to BTFATH? Bank of America explains how: by yanking the most cash from equity funds since November 2011.

Perhaps the most curious part from the just released and detailed Nasdaq post-mortem is the following, which appears to be an attempt to answer our remaining question from yesterday:  "At approximately 12:03 p.m., Eastern Time (ET), the UTP SIP ceased dissemination via all outbound UTP Quote channels. The UTP Trade feeds were not impacted by this outage and continued to remain operational. The UTP SIP has no evidence of an attempted intrusion into SIP systems or of an unusual burst of quotation or trading messages in connection with yesterday's events." No evidence, except for these (and many more) locked bids and asks and the associated Nasdaq trading radio silence.