"The strong stock market rally during the last few days has pushed the S&P 500 near its highest closing level since the correction began in late August. This has boosted optimism that the recent selloff may be ending. While this could certainly prove to be the case, we remain less sanguine that the vulnerabilities, which initially produced this correction, have yet to be resolved. Ultimately, we expect a more fearful investment culture suggesting a final capitulation and more importantly, a lower stock market valuation level able to withstand a less hospitable recovery as the economy nears full employment."
Today's most popular hedge fund strategy among institutional investors globally is "Alternative Global Macro Funds". Also known as a “go anywhere” investment style, active managers employ opportunistic trading tactics across asset classes, financial instruments, and geographic regions. Like many liquid alts, global macro funds grew rapidly following the financial crisis as investors looked for strategies that could diversify their portfolios in the midst of volatility in the global marketplace and historically high sector correlations against the S&P 500, thereby improving their risk-return profiles. Ultimately, success in this classification resides in selecting the right active manager given the strategy’s wide dispersion of returns.
The market has delivered a warning shot in August, but it seems investors aren’t taking it seriously yet. This could turn out to be a costly mistake. If (or rather when) faith in the omnipotence of central banks crumbles, we could see an unusually severe market dislocation.
Last week’s volatility to the downside was entirely predictable, as the first leg down during this ongoing market crash reached the correction stage of 11%. The technical bounce was a given, as the 30 year old HFT MBAs on Wall Street have been trained like rats to BTFD. In their lemming like minds, it has worked for the last six years of this Federal Reserve created “bull market”, so why wouldn’t it work now. Last week was their first lesson in why it doesn’t work during bear markets, and we’ve entered a bear market. John Hussman seems amused at the shallowness of the arguments by Wall Street shills and CNBC cheerleaders about the future of the stock market in his weekly letter. After this modest pullback from all-time highs, the S&P 500 is still overvalued by 92%...
Rickards said that gold is like “fire insurance on your house” ... “Nobody wants their house to burn down but if it does you are glad you have some insurance”.
Given Monday's flash-crashing mayhem, and given how predisposed household investors are to mistrust Wall Street in the post-crisis, post-Flash Boys world, retail outflows during uncertain times shouldn’t come as a surprise, but as Credit Suisse notes, something happened in July and August that hasn’t happened since Q4 of 2008...
The PBOC cut itself was not surprising, considering the PBOC now has to juggle and micromanage every aspect of the economy, from its sliding currency, to the bursting stock bubble, to record capital outflow, to soaring real interest rates, to the slowing economy. In fact, bulls around the globe will welcome the latest central bank bailout. Which also happens to be the worst aspect of today's intervention, because one can once again toss all the talk that China would finally stop intervening in asset pricing, with today's decision merely perpetuating the market's reliance on central banks. As a reference, this was the second time China cut both RRR and interest rates in 2 months: the last time it did so was during the depths of the financial crisis.
Dazed And Confused: Futures Tumble Below 200 DMA, Oil Near $40, Soaring Treasurys Signal Deflationary DelugeSubmitted by Tyler Durden on 08/20/2015 07:00 -0400
It is unclear what precipitated it (some blamed China concerns, fears of rate hikes, commodity weakness, technical picture deterioration although it's all just goalseeking guesswork) but overnight S&P futures followed yesterday's unexpected slide following what were explicitly dovish Fed minutes, and took another sharp leg lower down by almost 20 points, set to open below the 200 DMA again, as the dazed and confused investing world reacts to what both the Treasury and Oil market signal is a deflationary deluge. Indeed, oil is about to trade under $40 while the 10Y Treasury was last seen trading at 2.07%. Incidentally, the last time oil was here in March of 2009, the Fed was about to unleash QE 1. This time, so called experts are debating if the Fed will hike rates in one month or three.
Take a step back from the media, and Wall Street commentary, for a moment and make an honest assessment of the financial markets today. If our job is to "bet" when the "odds" of winning are in our favor, then exactly how "strong" is the fundamental hand you are currently betting on? This "time IS different" only from the standpoint that the variables are not exactly the same as they have been previously. Of course, they never are, and the result will be "...the same as it ever was."
If yesterday it was the turn of the upside stop hunting algos to crush anyone who was even modestly bearishly positioned in what ended up being the biggest short squeeze of 2015, then today it is the downside trailing stops that are about to be taken out in what remains the most vicious rangebound market in years, in the aftermath of the Chinese currency devaluation which weakened the CNY reference rate against the USD by the most on record, in what some have said was an attempt by China to spark its flailing SDR inclusion chances, but what was really a long overdue reaction by an exporter country having pegged to the strongest currency in the world in the past year.
The US bull market is the most ‘neutral’ bull market on record. Past examples say this could be bullish, but the absence of bearishness is a complicating factor.
What if the assumptions about a U.S. economic recovery and Fed rate hikes were wrong? Could observers be mistaken now about the trajectory of the Dollar vs. the Euro as they were back in 2000? Confidence is the only thing that really undergirds modern fiat currencies. But confidence can be very ephemeral...disappearing as quickly as it arrives. The U.S. Dollar benefits from confidence that the Euro currency may just be unworkable, that the U.S. economy will continue to improve, and that the Fed will raise rates throughout the remainder of 2015 and into 2016. If these expectations are unfulfilled, there could be a Euro reversal.
For the first half an hour after China opened, things looked bleak: after opening down 5%, the Shanghai Composite staged a quick relief rally, then tumbled again. And then, just around 10pm Eastern, we saw a coordinated central bank intervention stepping in to give the flailing PBOC a helping hand, driven by the BOJ but also involving NY Fed members, that sent the USDJPY soaring which in turn dragged ES and most risk assets up with it. And while Shanghai did end up closing down -1.7%, with Shenzhen 2.2% lower at the close, the final outcome was far better than what could have been, with the result being that S&P futures have gone back to doing their thing, and have wiped out all of yesterday's losses in the levitating, zero volume, overnight session which has long become a favorite setting for central banks buying E-Minis.
“China’s market is so distorted, you can’t sell short very confidently and you can’t buy up very confidently either," warns one Hong Kong-based asset manager as despite massive "measures" and manipulation, Chinese stocks extend yesterday's stunning losses (CSI-300 -5% at the open, Shanghai -4.1%). As Bloomberg reports, investors “are concerned and lost," although government officials tried to claim the situation by explaining they will "continue efforts to stabilize market and investor sentiment, and prevent systemic risk." As stocks continued to fall, the market is summed up by the opposing views of one broker noting "China won't tolerate a worsening stock market, so those state-backed financial institutions may start buying," and another who warned "it's hard to start a new up move after a bubble bursts... I don't think they are able to prevent it falling."