Just when you think the selloff couldn’t get any scarier, it did. The last hour of trading took over 1% out of the S&P 500 in rapid fashion, reportedly on fears of an Ebola check at a major U.S. airport. Today we offer up a “Top 10” list of specific markets and indicators to watch for signs of a near term market bottom. They include the CBOE VIX Index (key levels at 26 and 32), the action in small cap stocks and crude oil, and the dollar. Less quantifiable issues – but important nonetheless – are headlines related to Ebola (probably getting worse before better), 10-year Treasury bond yields (2.0% and 1.5% possible here), and European policymakers addressing a host of difficult monetary and fiscal policy issues. Bottom line: this is unlikely to be a dramatic “V-bottom” low given the range of issues of concern to investors. Look for the majority of our “Top 10” to stop going down before calling a bottom.
Futures Euphoria Deflated By Latest Batch Of Ugly European News: Germany Can't Exclude "Technical Recession"Submitted by Tyler Durden on 10/14/2014 05:47 -0500
So far the overnight session has been a mirror image of Monday's, when futures languished at the lows only to ramp higher as soon as Europe started BTFD. Today, on the other hand, we had a rather amusing surge in the AUDJPY as several central banks were getting "liquidity rebates" from the CME to push the global carry-fueled risk complex higher, only to see their efforts crash and burn as Europe's key economic events hit. First, it was the Eurozone Industrial Production, which confirmed that the triple dip is well and here, when it printed -1.8%, below the expected -1.6%, and far below last month's 1.0%. This comes in the month when German IP plunged most since 2009, confirming that this time it's different, and it is Germany that is leading Europe's collapse into the Keynesian abyss not the periphery. And speaking of Germany, at the same time Europe's former growth dynamo released an October ZEW survey of -3.6%, the 10th consecutive decline and well below the 0.0% expected: first negative print since late 2012!
What if there was some degrees of freedom in the centrally planned capital markets that rational, non-emotional and non-ideologically-laden thinking could shed light on ? Here is such an attempt
"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.
As American stock markets become CYNK'd with ever shorter horizons and ever greater aspirations of 'getting rich quick', we thought it fascinating that none other than E*Trade - that bastion of once day-trading prowess and now investing-for-retirement Type-E expertise - has been busted by the SEC for failing in their gatekeeper roles and improperly engaged in unregistered sales of microcap stocks on behalf of their customers. Remember, as the baby explains, "making a big investment is as easy as a single-click..." and so it was that E*Trade sold billions of penny stock shares for customers during a four-year period while ignoring red flags.
Regarding the two violent selloffs this week: there is no mystery. Recall that Deutsche Bank warned late in the summer this would happen for one simple reason: there are just three more weeks of POMO left after which the Fed's balance sheet flatlines, and with it, the S&P500. The only question is whether those who "sell ahead of everyone else", manage to take the S&P far below "unchanged", as prior QE ends have done, proving once again that it is all about the flow not the stock, and as a result the Fed will once again have to resort to even more QE.
As The FT's Capital Markets Editor mockingly retorts, the next financial apocalypse is imminent because...
You show me sustainable growth through monetization and I'll take my bat & ball and go home. Until then, you're blowing hot air up my backside.
- How you know it is all a lie: Pelosi Presses Obama to Talk Up Stronger U.S. Economy (BBG)
- Secret Goldman Sachs Tapes Put Pressure on New York Fed (NYT), Uh, no they don't
- Clashes Break Out at Hong Kong Protest Site (WSJ)
- N.Y. Fed Lawyer Says AIG Got Billions Without Paperwork (BBG)
- Ebola’s Disease Detectives Race to Track Others Exposed (BBG)
- UPS, FedEx Want Retailers to Get Real on Holiday Shipping (WSJ)
- No more mailman at the door under U.S. Postal Service plan (Reuters)
On Nov. 15, 2010, a letter signed by academics, economists and money managers warned that the Federal Reserve's strategy of buying bonds and other securities to reduce interest rates risked "currency debasement and inflation" and could "distort financial markets." As Bloomberg reports, they also said it wouldn't achieve the Fed's objective of promoting employment. Four years later, many members of the group, which includes Seth Klarman of Baupost Group LLC and billionaire Paul Singer of Elliott Management Corp., explain why they stand by the letter's content...
A quick anecdote that should quickly confirm just how broken everything is: earlier today MarkIt reported European manufacturing data that was atrocious, with both German and European PMIs tumbling to levels not seen since mid-2013, and with Europe's growth dynamo now in a contraction phase clearly signalling what has been long overdue: a European triple dip recession. So what happens? Moments later Germany sells €4.1 billion in 10 Year paper at a record low yield below 1%.... even as the Bundesbank had to retain a whopping 17.84% of the auction, the highest since June, with only €4.663 Bn in bids for the €5 Bn target, the first miss since May 21. So hurray for the central banks, boo for the economy, and as for that mythical creature, once known as bond vigilantes, our condolences: good luck figuring out what the hell just happened, and good luck recalling what a free market is.
The key question now is “Can the U.S./global economy handle a meaningful downturn in financial asset prices?” The short answer is that it may not have a choice. The Federal Reserve has done what it can to juice the American economy and has the balance sheet to prove it. Central banks, for all their power, do not control long term capital allocation or corporate hiring practices. Fed Funds have been below 2% for six years. If the U.S. economy can’t continue to grow in 2015 as the Federal Reserve inches rates higher, there are clearly larger issues at play. And those private sector problems will need private sector solutions.
Ferguson was for amateurs. For those curious why the Hong Kong protests over the weekend have sent shivers across the world's capital markets, pushed the Hang Seng 2% lower, and impacted both European and US futures, not to mention leading to worries that China may get involved any second and result in another Tiananmen square event, the following clip from HK's Apple Daily, taken by a drone, shows just how massive the demonstrations, which according to some estimates involved just why of 100,000 people, taking place in Hong Kong are.
With the revelations of systemic, widespread corporate criminality of banking institutions in recent years, it is clear that global Bank CEOs are becoming the new Drug Lords.