Archive - Sep 11, 2015 - Story

This past week has seen a continuation of market volatility unlike anything witnessed over the last several years. Of course, this volatility all coincides at a time where market participants are struggling with a global economic slowdown, pressures from China, collapsing oil prices, a lack of liquidity from the Federal Reserve and the threat of rising interest rates.  It is a brew of ingredients that would have already likely toppled previous bull markets, and it is only by a hairsbreadth the current one continues to breathe.

We have been anxiously reminding investors of the drip-drip-drip increases in market-perceived credit risk for US financials for much of 2015. Having risen to almost 90bps amid the chaos of 2 weeks ago (almost double the lowest levels post-Lehman hit in June of last year), it appears systemic counterparty risk is very much on the rise. What is more concerning however, as Alhambra's Jeffrey Snider notes, the TED spread has exploded higher (since China's devaluation) indicating, as convention has it, a marked increase in perceptions of interbank credit risk.

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Australian Prime Minister Tony Abbott on Wednesday became the latest elected leader to use the plight of refugees in building a rhetorical case for military escalation towards Syria, despite numerous calls for wealthy nations to extend refuge - not bombs - as the humanitarian crisis worsens.

At least 87 people were killed after a crane crashed earlier today in Mecca's Grand Mosque with Saudi Arabia's Civil defense adding another 184 people were injured in the fatal accident which takes place just weeks before Islam's annual Hajj pilgrimage which takes place between September 21-26. Some point out pictures circulating on social networks of what may have been a lightning strike hitting the crane just moments before the fatal crash. Others point out the macabre coincidence that this tragedy takes place on the 14th anniversary of September 11.

Remember June - when everything was (apparently) awesome in BRIC-land and somehow a large group of duration-seeking greater-fools used Other-People's-Money to buy Petrobras bonds that mature in 100 years! Well those bonds are now trading less than 70c on the dollar (with yields pushing 10%) as Brazil's state-run oil company Petrobras, which slashed its five-year spending plan by 40% in June, admits that plan is already obsolete (two company sources told Reuters on Thursday). Petrobras will likely cut back further as growing debt costs, falling oil prices and a weak currency are the perfect storm for the company.

The last seven years of American history will be remembered for the unprecedented oligarch crime scene that it is. Branding what has occurred during the Obama administration an “economic recovery,” represents little more than a vicious assault on human intelligence.

The market has delivered a warning shot in August, but it seems investors aren’t taking it seriously yet. This could turn out to be a costly mistake. If (or rather when) faith in the omnipotence of central banks crumbles, we could see an unusually severe market dislocation.

Washington's Union Station is now on lockdown after shots were fired early Friday afternoon.

With Saudis blowing off an OPEC leaders meeting, Iran slashing prices to 3 year lows inventories rising rapidly but US production dropping quickly, and Goldman calling for $20 oil possible, it has been a busy (and mixed) week for oil news. Add to that the seasonal lull amid refinery slowdown/repairs and Today's 10 rig drop in US oil rig count to 652 (following last week's 12 rig drop) is the biggest 2-week drop in 4 months just adds to the noise with Texas rig count dropping most (-9 to 366). Crude prices are rising modestly as US rig count drops back to 2-months lows.

The 2008 global financial crisis was centered on mortgage debt. There was too much of it that couldn’t be repaid. When the value of the collateral – homes – headed down, the bubble popped. Today, consumers have about the same amount of debt. But now the excesses are in auto loans and student debt... and again, the collateral is falling in value.

"The weakness in the August BAC data suggests a high risk for softness in the Census Bureau advance retail sales report given that the two measures trend closely. While we know that the retail sales figures are volatile and subject to revisions, it is hard to ignore a weak report." Why is all of the above particularly important? Because with the August Retail Spending report due on September 15, it will be the last report on the economy the Fed will read ahead of its "most important if not ever then surely in the past decade" FOMC meeting starting on September 16, and concluding with the 2pm announcement on September 17.

EURUSD has been rising for the last week adding over 230 pips of the September 3rd Draghi lows. The last few minutes has seen that EUR strength extend 40-50 pips which must be disheartening for Goldman Sachs who just released a note explaining why EURUSD's bounce is over...