Bear Market

The US-Saudi "secret" plan that was supposed to crush Putin quickly turned sour when as we reported several days ago, one after another America's own shale plays, which recently entered a very sharp bear market, started appearing on various death watches (case in point today's MHR Second Lien refi which repriced from L+500 to L+750 in minutes). As a result, one wonders: did Obama realize that Russian "costs" which as everyone knows by now include a Eurpoean triple-dip recession, could also very soon include an insolvent US shale industry, and thus may be just a little too much, and, one further wonders, if he is the one who just tapped Saudi Arabia on the shoulder?

For the fourth consecutive night, futures attempted to storm higher, and were halted in their tracks when the USDJPY failed to rebound from the recalibrated 107 tractor beam, following a statement by the BOJ's former chief economist and executive director (until March 2013) who said that now is the time for the Bank of Japan to begin tapering. Needless to say, there could be no worse news to bailout and liquidity-addicted equities as the last thing a global rigged market can sustain now that QE is about to end in two weeks, is the BOJ also reducing its liquidity injections in the fungible world. This promptly took away spring in the ES' overnight bounce. Not helping matters is the continuing selloff in oil, which as we reported first yesterday, has hit the most oversold levels ever, is not helping and we can only imagine the margin calls the likes of Andy Hall and other commodity funds (ahem Bridgewater -3% in September due to "commodities") are suffering. But the nail in the coffin of the latest attempt by algos to bounce back was the news which hit two hours ago that a second Ebola case has been confirmed in Texas, and just as fears that the worst is over, had started to dissipate.

It would truly be the crowning achievement of Obama's career if, amazingly, he manages to bankrupt the US shale "miracle" next.

In a secular rally, pullbacks will inevitably arise. Market participants, though, should not view all drops in the same light. In addition to the differences in the depth of the collapse, the magnitude of the changes of critical investor sentiment statistics may differ greatly. Assessing the current retracement is a difficult prospect as we may have yet to reach its terminus.  Based on the initial sentiment statistics, the current decline has more similarity to the most significant historic collapses.

We’ve landed in the next phase of what arguably started in 2007, but what you could place back many years before that, an economic system based on the fantasy that is debt driven growth, inflated by a factor of a trillion, give or take a few zeros.  That system is in the process of dying. And the people who have tried to make you believe, and succeeded, that it would all be fine in the end, are now jockeying for position in the aftermath of the demise of a world built on debt.  And they are the same people who built that world, profited from it to an insane degree, and want to use those profits to hang on to power in a world that will be dramatically different from the one they called the shots in. And that doesn’t bode well; it tells us violent clashes will be on the horizon.

“Hyperinflation and hyper-deflation are just two different forms of the same phenomenon: credit collapse. Arguing which of the two forms will dominate is futile: it blurs the focus of inquiry and frustrates efforts to avoid disaster.”

"So bye bye to my piece of the pie... I poured my paycheck into the Russell, Now my cash account's dry...  It's just one month from a new all-time high, And now we're right back where we were in July..."

But, but, but... it's a social media platform... but maybe this is why camera-on-a-stick is getting hit hard...

One would think that after last week's market rout, the worst in years, that Goldman clients would have just one question: why just a month after you, chief Goldman strategist David Kostin said to "Buy Stocks Because Hedge Funds Suck; Also Chase Momentum And Beta", are stocks crashing? No really: this is literally what Kostin said in the first days of September: "investors should buy stocks which should benefit from a combination of beta, momentum, and popularity as funds attempt to remedy their weak YTD performance heading into late 2014." Turns out frontrunning the world's most overpaid money losers wasn't such a great strategy after all. In any event, that is not what Goldman's clients are asking. Instead as David Kostin informs us in his weekly letter to Jim Hanson's beloved creations, "every client inquiry focused on the same four topics: global growth, FX, oil, and small-caps."

Physical gold is being accumulated and used in exchanges but very discretely as of now. The geopolitical and economic environment in the last few months was in my view the calm before the storm. Both the economic and political environments are uncertain and will surprise the complacent markets.

Financial markets are artificially priced....  We have had our Biblical seven years of fat. We must look forward, almost by mathematical necessity, to seven figurative years of leaner: Bonds – 3% to 4% at best, stocks – 5% to 6% on the outside. That may not be enough for your retirement or your kid’s college education. It certainly isn’t for many private and public pension funds that still have a fairy tale belief in an average 7% to 8% return for the next 10 to 20 years! What do you do?

"The audience in the ballroom of the Hotel Derek included engineers for shale drillers such as Marathon, Continental and Rice. Pamela Allen, a senior reserves coordinator for Marathon, raised her hand and told Lee that she was worried that using outsized forecasts in public presentations would run afoul of the SEC and “come back to haunt us.” Singhania, the Marathon spokeswoman, said she was unable to comment on Allen’s remarks without seeing a transcript. “If a lot of people get burned -- and I think a lot of people can and will be burned -- by these numbers in the investor presentations, there may be a push by investors to get the SEC to do something about it,” Lee said during the workshop."

And just like that. everything is crashing. Whether it is Asia, Europe, or even US futures, an entire generation of traders are waking up to something few have seen in the past 6 years: a very rare sea of red only this time with the main difference that the perpetual backstop of all risk, the Fed and/or "Edward Quince", may not be there to halt the collapse.

WTI Crude oil has now entered a bear market, down over 20% from its June highs (and energy stocks are not off the lows) edging closer and closer to 28 month lows. Meanwhile, gold prices have risen for 4 days in a row - the longest winning streak in 7 months...

Because humor like this obviously costs money. As always, from the one and only Dennis Gartman: "Down 35 points one day; up 35 points the next! The Bulls were taken out and shot Tuesday; the Bears were shot yesterday and all we know for certain is that the upward sloping trend still holds and that weakness is to be bought with the Fed still behind the market."