The U.S. remains hopeful that QE3 is coming. The tone of messages I get seems to be of people caught long (possibly recently) trying to show that market isn't really that weak. We tried the "Europe has gone home rally" and it pushed SPX cash all the way up to 1229, but since then we have faded. I think people will get more and more nervous about NFP as we head into the close. It is not just the number tomorrow that people are worrying about, but possibly massive downward revisions. Is it possible we get a 10% unemployment rate print tomorrow? Probably not, but given the price action, the fact that too many people still seem to be hoping for QE3 (I was one of those overnight and early today), and the NFP revisions fear, I think we will see a new low today before we close.
As readers may have noticed Zero Hedge has been down for about an hour. We apologize for the downtime which was due to a surge in traffic unseen since the May 6 flash crash, resulting in one of our servers (located naturally offshore) to literally explode. We hope to have remedied the situation, at least for the time being. Readers may experience intermittent access but we hope to have everything running back up and normal shortly. And now we return you to your regularly scheduled melt down, which can be followed tick for tick with every single spike in HFT quite stuffing as seen on the below proprietary indicator from our friends at Nanex. Indeed, as we suspected yesterday, packet stuffing is just the weapon someone would use if they wanted to bring down the market enough to where QE3 was not only palatable but required.
For months we have been warning that the only thing that can allow QE3 to proceed is a 25% drop in the S&P. Of course, algos and their idiot Ph.D. creators would force the robots to gobble up every drop due to beyond inane mean reversion and BTFD triggers. Well, today that realization is finally dawning (as hundreds of 19 year old quants suddenly find themselves out of a job). As the chart below shows, however, the market still has a long way to go to the downside, so for all those buying here and the market will promptly soar on hopes QE3, disappointment seems guaranteed. In the meantime technicals still rule, with the ES now at November 2010 swing highs, which will likely be taken out soon, and will tumble to the December swing lows, just above 1150, after which it is rough sailing down to the 1000 level of Jackson Hole at which point the market will be begging for QE3. Of course, all this assumes that Bank of America does not blow up in the meantime, as everyone has been warning. With its CDS 18 bps wide to just under 200 bps today, unlike Ben Bernanke, we certainly can not promise that.
As expected, the massive global rout is shifting to the best performing asset: gold, which courtesy of pervasive repo desk margin calls (which are merely trying to preserve capital for their TBTF holding companies) is seeing liquidations to satisfy collateral margin requirements. It will be interesting if the only real dip worth buying will see buyers come out of the woodwork or if gold will proceed to plunge alongside everything else.
News Just Keeps Getting Worse: Spain To Cancel August 18 Auction As Bundesbank President Says Opposes ECB Bond BuyingSubmitted by Tyler Durden on 08/04/2011 - 10:45
The newsflow just keeps getting worse. Via Dow Jones we have learned that Spain, not Italy, has decided to pull its August 18 auction and will instead launch its 5 year auction on September 1. Once again, Zero Hedge being just a little prescient with our 7 am commentary that we "look for Spain to follow Italy in a self-imposed bond market exile." And in far worse news, we now get a schism within the European banking authority itself after Bloomberg reported that the Bundesbank's Weidmann is said to be opposed the resumption of ECB bond buying, at least two bouts of which already took place earlier, most likely in Italian and Portuguese bonds. "Weidmann was not the only Governing Council member against the move, according to an official speaking on condition of anonymity because the ECB policy meeting is not public. Bundesbank spokeswoman declined to comment." The last thing that that the market needs to see now is uncertainty. That the market will see idiocy is a given, but at least keep the idiocy constant. That someone may be a voice of reason only sends shudders of terror through the spine of billions of vacuum tubes around the world which have no idea how to predict the future at this point.
The stunner in this morning's newsflow (the long, long overdue market collapse which is a much needed catalyst for QE3 should not surprise anyone), comes out of the WSJ which has just reported that the Bank of New York has informed institutional clients it will begin charging a fee of 13 bps on deposits in excess of 110% of the client's monthly average. This is nothing short of outright terrorism to get everyone out of cash and into fiat-based ponzi products. Such as Short Term Bills. Indeed, as was reported earlier the 3 Month bill just hit zero. But you ain't seen nothing yet. As Credit Suisse strategist Ira Jersey reports, courtesy of Bloomberg, "If this is true then we’re likely to see short-end interest rates actually go negative. By what degree depends on who else follows and how much money is involved." Cue unpredictable consequences of a totally broken bond market. What happens next will likely make the market dislocations following Lehman like a breezy walk in the park.
The collapse in the global Ponzi scheme is intensifying. Liffe down next, even as the FTSE MIB has reopened, only to plummet to 5% down for the day with Unicredit and Intesa halted yet again. We expect Italy may not reopen tomorrow.
While the central planning cartel is slowly losing all control, there is a very disturbing development at the Virginia Tech campus, site of another previous tragic development, where another gunman has been spotted. The situation is developing rapidly and here is the latest update from WSLS.com
Complete capitulation in the market, accentuated by feedback from one of our Italian PM sources, whose comment on the Italian market says enough: "UTTER PANIC - DEGROSSING ACROSS THE BOARD. DELEVERAGING. RISK MANAGERS IN CONTROL." Which is why bouncing cat dip buying may commence shortly. In the meantime, the Swiss Stock market just entered bear market territory after dropping 20% from the February high.
And so the war against the rating agencies is now official as a floundering Europe does anything in its power to scapegoat anyone and everyone, starting with its natural sworn enemy of course, the rating agencies. According to Reuters, "Italian prosecutors have seized documents at the offices of credit rating agencies Moody's and Standard & Poor's in a probe over Suspected "anomalous" Fluctuations in Italian share prices, a prosecutor said on Thursday." Ah yes, it is Moody's fault that Unicredit, Intesa, Fiat and pretty much all other Italian companies now close limit down at least once a day. Either way, this is sure to end well. We will bring you more as we see it.
Italian Treasury "Discovered" Larger Cash Pile Than Expected; Likely To Withdraw From More If Not All 2011 Bond AuctionsSubmitted by Tyler Durden on 08/04/2011 - 08:51
And the news just gets uber-surreal. According to a Reuters report, the Italian Treasury has a "larger cash pile than generally perceived according to sources." As a reminder this is precisely the excuse that Italy used when it scrambled to cancel medium and long-term auctions for late August as was previously noted. Which can only mean one thing: in order to prevent more ongoing routs, Italy will likely now withdraw from all bond auctions for the "foreseeable future" in order to not give the market a chance to do some real price discovery. Sure enough, the subsequent Reuters headline says that the "Italian Treasury's cash pile is enough to last most of 2011." Odd that we predicted this, and the next steps, just this morning, when we said: "look for Spain to follow Italy in a self-imposed bond market exile." Translation: while Greece, Portugal and Ireland are unable to access capital markets, Italy, as we predicted, has just self-imposed a capital markets exile likely until the end of the year.
And now... the sell off. Total market insanity as the latest intervention halflife is under an hour.
ECB Buys Italian Bonds, Third Major Central Bank Intervention In Past 24 Hours As Status Quo Panic ExplodesSubmitted by Tyler Durden on 08/04/2011 - 08:13
At exactly 9 am, half an hour into Trichet's press conference, the world's most undercapitalized hedge fund: the European Central Bank, demonstratively came in and started buying Italian bonds in hopes the market will forget just how broke the European continent truly is. This is the third major intervention by a central bank in capital markets in the past 24 hours following the SNB and the BOJ. Next up the Fed, and everything going to hell. Because even as Italian bond yields drop below 6%, the selloff in Portugal bonds is accelerating and the 10 Year yield is now 15 bps wider at 11.34%. We have a question: at what point does the ECB have to officially start printing Euros before its capitalization goes negative?