Bear Market

“Fed Chair Janet Yellen will be forced to either acknowledge labor market tightening as reason to continue with the four-hike schedule for 2016 or risk her credibility, belittle job market stability and sound a warning about the risks of lower oil prices and cheap gasoline (sacrilege to regular Americans) by slowing the hiking pace after a single 0.25 percent increase last month. If she gets it wrong, things could get ugly fast."

When "whatever it takes" meets "get me out now!"...

BofAML says that clients are no longer in "denial" about recession/bear market risks; but clients not yet willing to "accept" we are already well into a normal, cyclical recession/bear market.

How about now?

UBS has warned that the seven-year cycle in equities is rolling over, we could see a sharp 30% correction in stocks and that as per the headline of their ‘Technical Outlook 2016?, it is time to “buy gold” ... "So if gold moves into a bubble, we would need to see a gold price of minimum $3,300 ..." 

In the latest Chinese domestic financing report released by the PBOC last night, there were two divergent themes: on one hand bank loans grew far less than the expected 700Bn yuan; on the other hand total social financing soared to 1.82 trillion yuan, smashing forecasts of a 1.15 trillion increase, and the highest since June. As noted last night, this may have been the catalyst that spooked the markets, because as Bloomberg confirms, "the data shows companies are turning to alternative sources for credit given banks’ reluctance to lend."

• Crude sinks 4 percent as market braces for more Iranian oil (Reuters)
• Plunge in crude oil prices send stock futures sliding (Reuters)
• Oil Slides, Deepening Gloom in Stocks as Bond Buyers Celebrate (BBG)
• China Stocks Enter Bear Market, Erasing Gains From State Rescue (BBG)
• Friendly no more: Trump, Cruz erupt in bitter fight at Republican debate (Reuters)
• Dollar in Best Run Since July on Haven Bid Even as Fed Odds Fall (BBG)

Yesterday, when looking at the market's "Bullard 2.0" moment, which in many ways was a carbon copy of the market's response to Bullard's "QE4" comments from October 17, 2014 until just a few minutes before the market close when suddenly selling pressure appeared, we said that either the S&P would soar - as it did in 2014 - hitting all time highs just a few months later, or the "Fed is now shooting VWAP blanks." Judging by what has happened since, in what may come as a very unpleasant surprise to the "the market is very oversold" bulls, it appears to have been the latter.

When markets begin a "bear" cycle, they can remain in an oversold condition for extended periods. There is an important 'truism' to remember - "Markets crash when they’re oversold."

JPMorgan's 2016 Outlook for the S&P 500 Index favored a continuation of a broad and volatile range into the first half of the year, below 2,100 and above 1,820-1,870 longer-term range support. While the unexpected early-January weakness has not violated the Oct 2014 and Aug 2015 lows and other support parameters near that area, the nature of the current decline raises some concern for what has been a constructive longer-term view.

There is a game that goes on in the market with IPOs, and I will lay it out here.

• Islamic State launches militant assault on Indonesia's capital (Reuters)
• Three winners emerge in $1.6 billion Powerball jackpot (Reuters)
• European Stocks Tumble, Credit Markets Weaken on Growth Concern (BBG)
• Stocks and commodity currencies floored by new oil plunge (Reuters)
• China Bear Market Looms as PBOC Fails to Stop Flight to Safety (BBG)
• Anxious phone calls, tense moments before Iran's Supreme Leader okayed U.S. sailors' release (Reuters)

European shares tumbled, wiping out gains from a two-day rally, Asian stocks slid and the cost of insuring corporate debt rose as investor concern over global growth prospects resurfaced. U.S. equity-index futures pared gains of as much as 0.9 percent. Government bonds rose, with yields falling to records in Japan and China amid anxiety over the world economy. U.S. crude prices stabilized after dropping below $30 a barrel on Tuesday to touch the lowest since 2003 as Iran moved closer to boosting exports.