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Market Spike Explained By Second Stimulus Rumor, And Other Observations
Well, I have been spending way too much time trying to understand what China is doing with its economy, how they measure GDP, the way they control their money supply, and the direct impact the goverment actions' there has on asset prices. When we broke last night, I was a little surprised that officials were letting that happen passively it seems. Copper gapped down this morning through 270, confirming huge downside potential. After all maybe talks of concerns in China about inflating a new bubble were in fact very serious, and maybe their government is actually wise enough to let the market correct where it should to build a bright future on a sane base.
What I completely missed in the meantime, is that the US government is not even close to be that smart. That's the problem of a democracy I guess, our elected officials' agenda is, right or left no distinction, to get elected and re-elected, even if that implies to sacrifice the next generation. What has our response been to the crisis... Mmmmm let me see: borrow 13% of GDP so we can keep it flat, change accounting for banks so we don't have to acknowledge losses (while criticizing Japan for allowing zombie banks to continue to operate in unspoken bankruptcy for years), put moratoriums on foreclosures in the most desperate states so the numbers appear to be improving, provide a second bailout to carmakers (but label it an effort for a greener planet, because everyone knows we really care) thereby propping up industrial production and sales (we'll worry about consequences of a drop once the stimulus disappears later).
With all that bullish makeup markets were looking to break lower this morning, and the insolent US dollar seemed like it had made a turn and was about to gain some serious strength. That's when the markets got hit with a rumor of a second stimulus package, stopping the sell-off right in its tracks. On the original bounce to 888, the bredth on the NYSE was 0.7 to 1... that means there was no participation and it was a weak corrective rally as part of a downtrend. All indicators point that way. That's why we really needed a good old fashion rumor.
I am not bearish because I had an unhappy childhood, it's just that the numbers don't add up. Debt to equity ratios are way too high and demand is down 20% and cannot come back because of the consumer debt, so equity markets have very little value. It's a necessary correction, also coincidental with the baby-boomers retiring as they hold pretty much all risky assets and the next generation is not wealthy enough to take it over for them. A long term chart shows that when the 50 to 60 year-old populace decreases in size it's bearish for equity markets (it's good common sense if you think about it). Well, that age tranche is getting thinner in number right now. I could also mention unfunded future pension and healthcare liabilities.
China is nowhere close to be able to be a motor for global growth. How could they, they don't have a middle class, which is the basic condition to have a prosperous economy! Sarcastic observers will say that we are doing a very good job destroying out middle class but I will leave it alone here.
A sober economy where we have a contracting GDP and we pay off our debt while addressing the challenges ignored for too long is what we need to pave the way for the next 50-year bull market. If we decide to bankrupt our government instead we only increase chances of civil unrest, political instability and eventually war. It's simply ridiculous to think we can spend our way out of this to re-use a popular image...
If I am wrong I will make a much better living, so I'll take these odds. In the meantime, while I hate conspiracy theories (too frequently used as an excuse for failure), I will remain very cautious assessing the reports on the V recovery and will keep an eye on the few remaining POMO days when the Fed buys back treasuries. The market performance between 2PM and 4PM on those days is equivalent to the entire rally since the lows in March... It's hard for me to think it' a coincidence.
Talk to your congressman before you consider an investment,
Nic
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Nice. Does anyone have a reliable URL for OMO auction times & dates for the next few months? It does appear to be a strategy that can be traded, but I am having a hard time finding a good web site with dates.
http://www.newyorkfed.org/markets/operation_schedule.html
Very clever Col. Kurtz....
and thanks for the link mattco....
The Horror.....the Horror....
As the result, it will be one vicious whoever panic first survives deflationary cycle.
this bidu stock is way overvalued
good articles; my newest bookmarked finance site ..http://www..
hat tip: finance news & finance opinions
I dont remember a POMO day that traded like today. Very strange. Market was rallying even while risk currencies, credit spreads were weak and treasuries were bid heavily. I knew the shorts rushed in on the break last week and expected a move higher (I thought that was tuesdays move). But todays action leaves me wanting to walk away. Nastiest head-fake guaranteed just not sure if it was the move down or todays move up.
DO know what days are POMO days coming up??
I love how we climbed perfectly enough to close the gap on the weekly charts yesterday and then dropped this morning only to have the SPY gunners out again. I'm wondering if we're attempting to stay stable for options expiration. Should be an interesting count to the end of the week, I rolled forward a lot of contracts just in case.
I love how I'm dumb enough to manage to get something posted twice.
Mole has been publishing the dates on evilspeculator - not sure where he gets them, but can probably find that info there
Come on Tyler, this is just commodities and the
loose trading range in the XLF (13.10/14.70), where
we are far from support and resistance. So the
market bounces.
If we get another spike in the S&P above 1020, it
will be short lived and a great shorting opportunity.
Even if this is only a minor top before running up to even
more ridiculous levels in 2010, the path to Nirvana is difficult.
Today, we just closed a lot of trading gaps
i would actually agree that today was largely about closing gaps between sectors (energy, materials -- as we all saw) but that does not explain the spike mid-day!!!! :-)
That may be but there is a long line of gaps-yet-to-be-filled-on-the-downside awaiting a LOOONNNNNNGGGGG overdue correction.
Anti-conspiracy theorists will gain a lot more credibility if and when the gaps to the downside get filled in a normal and timely manner. When there is precious little upside volume with drastic market turns on little or no news that also happen to coincide with Tim & Benny finding some more cash in their trousers, it makes it hard not to drift a bit to the cynical persuasion.
If you know what I mean.
I find it funny that overnight all the talk was about how "China might tighten lending and cool the speculation" and this was "helping cause the continued Shanghai selloff." When, in fact, this story was leaked 3 weeks ago (before it made a new yearly high).
China banks to slow lending with low targetshttp://www.forbes.com/feeds/afx/2009/07/28/afx6712186.html
This was even emailed to ZH, and Shanghai was down 5% that day. But I never saw the story repeated anywhere in the US media, and the Chinese growth and IPO talk continued while the Shanghai quickly bounced back to new highs. I imagine all the talking heads will be given their orders to go out this week and pound the table on the emerging markets and their supporting worldwide equity growth.
Is this a guest post, or have you accidentally exposed a bit of your identity?
It can't be TD because I actually understood the whole post, and yes in Fight Club terminology, I am a tourist.
I'm no Fields Medal receipient, but 500-76=a lot more failures to come. But hell, they mess with all the econ numbers anyway, whats the harm in messing with a few more.
this bidu stock is way overvalued
good articles; my newest bookmarked finance site ..http://www..
hat tip: finance news & finance opinions
I dunno about exsposed, but it reads like TD is drinking more than before, or he's got a designated driver.
Christ, how do you spell "exsposed" after 8 good beers and a few sips...?
Maybe it was the "chicken"?
And what's wrong with being bearish cuz you had an unhappy childhood? Tyler, I don't like the inference here, keep posting this kind of non-sense and you are going to lose readers.
=]
“There may come a time in the career of every sociologist when it is his solemn duty to raise hell.” –Edward Alsworth Ross
Not sure who is bidding up for the potential 10 year GDP growth of less than 3% - good article on the potential for future economic GDP growth:
http://www.marketoracle.co.uk/Article12822.html
Growth can come from capital spending or consumer spending, but this article outlines that structurally GDP has a limited potential of less than 3% growth on a 10 year horizon. Unless you pick specific companies that gain market share from competitors or they are new technologies that change the game, this would suggest that the overall market has very little room to grow. Remember, no business should factor in long term growth above GDP% growth - because that would translate into being larger than the overall economy in the long run. What price do we get when we factor in growth rates below 3%? Answer, we may need to decrease the P/E ratios just a tad.
Remember, no business should factor in long term growth above GDP% growth - because that would translate into being larger than the overall economy in the long run. What price do we get when we factor in growth rates below 3%?
nonsense . businesses are dying , others replace them. in order to do that...they need to grow faster than the economy in the long run. of course, those businesses might die one day to. but to say that microsoft or google shouldn't have a higher growth rate...what long run are you talking about??? 100 years?
Have you ever heard the phrase a tree can only grow so tall?
Sense. You have to understand life cycles, mature industries, and mature economies. I would propose that if a company does expect more than 3% growth that they outline which competitor they plan to take it off of and how.
Do an exercise for me, take a grain of rice and put it on the first square of a chess board. Then double it for each square on the chess board. What's the answer? Now you should understand my point.
Anyone else find it sad that the hottest chick on CNBC is the smartest one? And that's the one they use for the asian and australian CNBC commentary. Sad.
No offence, but it might show what corporate HQ thinks about the US audience.
No offence, but it might show what corporate HQ thinks about the US audience.
Well it seems that at least there is one journalist who tries to learn about things before writing about them. Unlike the anchor on a famous financial news outlet who was trying to use a fancy word except for a catch, instead of writing "wherewithal",he put "where within"(the only possible word to be used in that space was wherewithal). I mean the guy dosn't even care to use his spellchecker. But why should he?isn't with those kind of people on the top of big corporation that their companies lost more than half their values in a mtter of weeks?And even now none of them is saying we committed the sins,we should suffer the consequences. In fact they are happy to issue more papers in return for money................
Somebody still watches CNBC. I had no idea.
Succinct post. Appreciated. Keeping up over here and remaining able to do my job have become fascinatingly at odds.
But more importantly, this was very well put. Excellent stuff.
Who's Nic?
Nic?
In fact, China is the biggest threat to the US.
The imbalances
built up by Ali G. reenspan and now Berny B. are soaked
up by a blindfolded totalitary Regime in China. The
currency surplus of this country is so huge, that it
can only cause long term problems to the global
economy. China vs. USD is a disaster waiting to happen.
Asia will be pleased to see the Dow up and the USD down.
But only if the USD starts to make new lows, the
red planet will start to scratch it's head.
Bullshit, Nic.
"Economic considerations are merely those by which we reconcile and adjust our different purposes, none of which, in the last resort, are economic." – Friedrich Hayek; The Constitution of Liberty; 1960
“Being a macroeconomist means never having to say you're sorry.” – Steve Chapman; Reason
If anyone benefits from this crisis, monetary gain is the last on the list of the type of benefits they would seek to acquire.
In the greater scheme of things, this whole crisis has been one fantastic opportunity to grab power after another.
Bureaucrats and bankers are basically solidifying their power base, instead of being held responsible for their roles in creating these crises.
It is all about power and control. Concentration of power, the name of the game. Money is just a way of keeping score and staying interested, it is not the desired end result for these power-hungry psychopaths.
They can do this FOREVER...there won't BE any problems finding endless financing for more and more public debt. On the market down/risk avoidance/add leverage days, Treasuries sell well (enough). Even on market up/lala-land/happy-days-are-here-yet-again days, T-bond yields remain near historic lows. Now we're hearing rumours that China wants to buy longer-dated bonds...this is an internationally-coordinated central bank mutual pump'n'prop operation writ large...
While it may seem that everything is going the Feds way at the moment "mutual pump'n'prop operation" it will NOT go on forever. Someone somewhere will come to their senses and when that day comes - na na na na hey hey hey good bye...
NO THEY CAN'T. They can't keep it up for 6 more months much less forever.
http://ispeakofpeak.blogspot.com/2009/08/abby-joseph-cohen-sees-s-and-p-...
Abby JOSEPH Cohen sees S and P at 1100 by year end, in time to celebrate the second coming of ChristWe know it had nothing todo with her looks! She was an olympic chinese wall leaper!!! lol
Mike Milken used to keep her in the leather outfit later used by the gimp in the basement in "Pulp Fiction"
Hoi Polloi sez:
The second coming already happened.....last November. The One lives in the White House and performs miracles like giving everyone EVERYTHING they ever wanted, and it doesn't cost a thing....
First off, is this by Tyler or "Nic"?
Second - "China is nowhere close to be able to be a motor for global growth. How could they, they don't have a middle class..." - that's pretty arrogant. Is the United States in it's present form a "motor for global growth"? How? By consuming everything and producing nothing? Do you really mean to say that making stuff that all the world needs/uses isn't as important as sitting on your a-- and just consuming it all (like the US)? Also, if you really think China doesn't have a middle class, you seriously need to get out/read more. BTW, Asian middle class is at least way the f--k more productive than bloated-on-debt-fat-and-lazy-incapable-of-thinking-or-standing-up-for-themselves American middle class. Harsh words, I know but no wonder they are getting exterminated.
"All you need to know about how the markets operate these days, courtesy of Nic, an analyst at ICAP."
Thought so. Didn't sound like it was you.
Why was that not made clear at the begining of the post?
analyst or proctologist?
Tyler, was this article written by you or Nic @ ICAP? If the latter, what is this analyst's name?
China has no where near the middle class that the USA has.
It take $5000 (usd) or more in per capita income to have meaningful discretionary spending in China. About 8% or 110 million Chinesefit that category. In India that number is about 5% or 60 million. Contrast that to the U.S where about 260 million Americans or 80% fit into the category of having meaningful discretionary spending capability.
China does not have sufficient middle class to power global growth. The majority of Chinese live in shacks in rural China. Think about all the crap China makes to export to the U.S. Do you really think they have a huge need/want for "salad spinners" or a "snuggle"? I would argue the crap destined for the USA does not translate very well for the vast majority of Chinese consumers.
Perhaps in the next 15-20 years perhaps will be capable of powering the world economy but not now.
Not at all trying to be a d!ck, lizzy...think you mean "snuggie"
I mean, we ALL have a need/want for a snuggle, my ideal would be with Olivia Wilde! :-)
We have a pretty large manufacturing element in the U.S. The service sector grew faster over the last few decades but manufacturing is still very large. "We make nothing" is a myth.
A lot of what we make is done with much lower employment. At capacity we can make more steel than in the 70's but we do it with a third of the workers.
Go to any supermarket. How many items are labeled "Made in USA"?
agreed... i would also note: catherine zeta jones' boobs were made in the usa...you should know that gekko!
that's a plus-size that nobody should complain about. nobody. complaints will be directed automatically to /dev/null ("Deleted Items," Outlook fans).
Not if California is sold to China, as a majority of posters here would like to see.
I think I share a dissenting opinion with others that participate on this board who I believe really think about the ramifications of such twaddle. Selling anything to China is not good, unless you want your progeny to speak Chinese under a communist regime. Also, I don't think our founding fathers would condone such poppycock.
Agreed, with both of you.
I, for one, welcome our new hyper-capitalist communist overlords.
the point is accurate that china does not have a middle, consumer-based class. there is not necessarily an assertion that the US will fill the gap that is needed now. in fact, based on the presented information, we're in the worst of positions to do so (consumer-debt-related comment)!
i think that what nic gets at is that a lot of people put their 'hopes and dreams' into the chinese ability to revitalize the global economy by stepping in. when it comes down to it, they consume commodities... but not goods and not services. those, they produce.
hope this makes sense. correct me if i'm way off base, though!
They are cooking these numbers for the healthcare debate after the recess so they can claim Obama is doing a much better job on the deficit than previously thought.
this bidu stock is way overvalued
good articles; my newest bookmarked finance site ..http://www..
hat tip: finance news & finance opinions
and here I thought the 2nd stimulus rumor was just cover for the feds selling into the bond rally, raising some fresh QE cash and buying spooz
Uncle Sam always brings the lulz. The main ingredient missing from this crap cocktail is the foreign speculative attack against the currency. BRIC and Japan, where u at
Government spending is now stimulus for the market to rally. There will be books written about this bubble insanity after it finally bursts. Only government welfare recipients like GS and JPM must think that is good news.
Want an explanation to the market spike? Someone got an early look at the claims number due out tomorrow morning and its going to be much better than expected.
Isn't that obvious? Economic numbers get leaked now like there is no tomorrow....
The fix is in....
It is August 19th. Everyone is gone. The tape does not matter now. No one cares.
Be patient for six weeks Mr. Durden. These things you speak of will be shaping markets then.
McGhee, I mean Tyler Durden, are you hiring?
Didn't China pass the U.S. in the number of automobiles purchased for the past 3 or 4 months. China's auto purchasing has increasead by 50% from last year.
I am not sure what to think of this but that has to correspond to some type of growth.
Yes, it does. Growth in the rate of planetary oil depletion and a faster trip to starvation for 30-40% of the plante's population.
Remember, you can't get food from Iowa to Savannah on a Prius. It takes and 18 wheeler. And always will.
350,000,000 Chinese have drivers licenses. from the doc A Crude Awakening
Re "Nic". I said it once a few months ago. You need to make authors and attributions clearer. It's "submitted by Tyler", with your picture beside it, and only when we get to the end of the article is the sense of a different writing style confirmed with "Nic".
Meanwhile the top of the blog currently has a blurb for this post (http://www.zerohedge.com/article/chinas-bogus-boom), which is _entirely_ a quote with no attribution.
I know, personalities don't matter here, only ideas, but let us know in an obvious way when the "owner(s)" of the site aren't speaking.
+1
seconded
>>
A sober economy where we have a contracting GDP and we pay off our debt while addressing the challenges ignored for too long is what we need to pave the way for the next 50-year bull market.
>>
Perpetually. Without ever even giving it a microsecond of doubt. This attitude persists.
We simply have got to stop thinking about multiple decades as a default. If there is no heavy transportation replacement for oil, there isn't going to be multiple decades for 10's of percent of the global population. As of now, and the forseeable future of physics, there is no heavy transportation replacement for oil. A lot of people are going to starve and that's just the way it is.
I've one name for you, Lurgi. Besides, the insanity of using oil to justify war is that there are, with respect to remaining reserves of conventional fossil fuels; 18.4 zeta joules (ZJ) of Oil, 15.7 ZJ of NG, and 290 ZJ of Coal. I'm not even going into the global warming debate, but I have worked on clean coal projects. Nuclear is another option, not on transportation, but energy conversion / augmation potential that eclipses coal. Again, not going into the anti-nuclear argument but I also have worked in the Nuclear industry. Lack of energy won't be the end of carbon-man, just easy energy.
It amazes me how many people yell "It's physics!" yet probably don't know any physics. I do, and I agree with you Marley. We are nowhere near carbon-based energy depletion. NG alone will last a long time. Will crude depletion be a problem? Yes. But it is very unlikely that anyone in the US will starve because of it.
Tyler, do you have contacts in the MSM that you can spoonfeed this stuff to? Have you tried and found certain outlets not interested. It would be nice to know if mainstream media outlets are finally starting to pay attention.
The blog needs to attract a wider audience or be in touch more actively with people in positions of power that are not corrupt, if it is going to be a wider force for change. I understand CNBC may be hopeless, but what about cultivating the FOX business channel (not sure if anyone actually watches it)? I am sure that the regular FOX network would love to be spoon fed this stuff on a daily basis. I am sure that Tyler has a plan, although I have no idea what it is. Like most regular readers, I feel very angry about what is going on, and while posting is somewhat cathartic, I have no illusions that my posts are adding much to the conversation. I would feel a lot better if Tyler would clue us in a little more about his plans (hopefully it would add some optimism that things will change).
The first rule of project Mayhem is you do not talk about project Mayhem
The pissant in me wants to scream "people in positions of power that are not corrupt" is an oxymoron? Besides, look where talking to people in power that are not corrupt has gotten Sibel Edmonds.
Tyler, if you don't wish to give some hints as to your master plan, could you post more about what we can do to provoke change? I appreciate linking to petitions like the audit the fed act, but surely their is more we can do.
Market Spike Explained By Second Stimulus Rumor, And Other Observations
TD, i blame you and this article for the massive gang-rape my shorts are currently having in Asia. Stop telling the truth goddammit. Goddamn Chinese cant keep their dick in their pants. Looks like Bird Flu is not the only potential epidemic looming the globe; the second one is market insanity.
good morning Andy. im not obsessing, ok maybe little, im just pissed when it comes to all the insanity. oil goes up; HSI and SSE soar based on absolutely nothing, and thats after they plummeted every single time in this retracement after oil went up: the only thing that makes sense to me is another stimulus in the US; now that could justify market behaviour and sudden shift.
Seconded. Got jimmied like that a few times. GBP shorts doing well since shorting at the resistance points. Both Cable and Sterling-Yen were stagnant for most of the Asian session but now steam is picking up.
However the Unemployment Claims number could be the wildcard here, but the prospects look good (watching out for worse than expected print).
Done. :)
However hard I agree with all the agruments, the spinning and the market-has-got-ahead-of-itself idea, still it looks set up to go higher again.
Short term averages are broken to the upside and most other
TA gismo's, whistles and bells have had time to correct. So let's spin the wheel again and go for the year highs. After all we need everyone IN the market before we finally do correct.
Aug. 20 (Bloomberg) -- The index of U.S. leading economic indicators probably climbed in July for a fourth consecutive month, another sign the worst recession in seven decades is almost over, economists said before a report today.
"Stimulus 2: The Search for More Money"
Coming to a movie theater near you.
(Actually that should read coming to select cities)
Unlike Weimar Germany we live in an open economic system. Hyper-inflation cannot happen here since we pay our debts off in our own currency. That is a huge difference from Weimar Germany. We are not going to follow Japan's lost decade since:
a) Japan had a healthy export market during the 90's to help them to balance off declines in the domestic economy.
b) Japan had a high savings rate. We have not.
Japanese style lost decade is, IMHO, the best case scenario.
c) Second recovery package will be used up Prk and extending U3 and U6.
also..imho..
1) The rule of law is once again respected in this country.
2) The excessive amounts of debts are paid down or defaulted.
3) Structural changes are made in the economy. We need to reduce or eliminate the deficits and get back to actual production, since you can only create real wealth through mining, manufacturing or growing something. Financial engineering and printing cannot create wealth. Nor will financial chicanery create national wealth.
A typo in the post. 'On the original bounce to 888'.
Is it 888 or 988?