One of the greatest con jobs in history was convincing ordinary people that Central Bankers care about the “economy” or Main Street.
After forensically analyzing Morgan Stanley's balance sheet (which is very much like the rest of Wall Street's balance sheet) I can draw direct parallels to that of Lehman and Bear Stearns in 2007. It's a party!
Yuan Strengthens Most Since March, China Unveils New Bailout Source After Rescue Fund Runs Out Of Fire-PowerSubmitted by Tyler Durden on 08/27/2015 21:20 -0400
Update: China readies new bailout mechanism - pooling CNY2 Trillion of Pension funds for "investment"
A busy night in AsiaPac before China even opens. Vietnam had a failed bond auction, Japanese data was mixed (retail sales good, household spending bad, CPI just right), Moody's downgrades China growth (surprise!), China re-blames US for global market rout, and then the big one hits - China's bailout fund needs more money (applies for more loans from banks) - in other words - The PBOC just got a margin call. China margin debt balance fell for 8th straight day (although the short-selling balance picked up to 1-week highs). China unveiled some economic reforms - lifting tax exemption and foreign real estate investment rules. PBOC fixesds the Yuan 0.15% stronger - most since March, but even with last night's epic intervention, SHCOMP looks set for its worst week since Lehman.
In a well-worn tradition, where it takes one cover to offset a cover, here is Bloomberg Businessweek's latest, which shows that bears were were "covering" everywhere in the market yesterday (and continue to do so today), and certainly on the front page of the latest issue of Bloomberg's publication.
Dow Follows Biggest Crash Since Lehman With Third Biggest One Day Surge Ever As China Dumps TreasurysSubmitted by Tyler Durden on 08/26/2015 20:05 -0400
This is what we said on Friday afternoon when we reported that someone was aggressively bidding VIX 50 Sept calls: "what would be far scarier is if whoever is suddenly offering a nickel for the VIX Sept 50 calls actually knows something. Because if he "does", that would suggest a market move 'Straight out of Lehman.'" Fast forward to Monday, when we had a market move that was, drumroll, straight out of Lehman indeed, and shockingly, the VIX 50 calls, which were bought when the VIX was trading at half that value, were briefly in the money!
Here We Go Again: US Equities Surge Even As Chinese Stock Market Rollercoaster Tumbles To 8 Month LowSubmitted by Tyler Durden on 08/26/2015 08:16 -0400
It seemed like finally China's relentless and increasingly futile attempts to have a green stock close would work: interest rate cuts, liquidity injections, direct stock interventions, even threats on the Prime Minister's head, and just to make certain moments before the close news very deliberately broke that government funds are buying large financial stocks, especially state-owned banks, to support the index, in the latest clear signs of government support, the Shanghai Composite seemed on pace to end an unprecedented series of consecutive tumbles which have dragged the composite down nearly 1000 points, or 25% in one week, and then... red close, with the SHCOMP down 1.3% to 2927, and a stunned China watching in horror as the central bank and government lose control, and everything they throws at the biggest market bubble of 2015 does absolutely nothing.
Following the biggest (and only) market correction in years, the biggest weekly surge in the VIX ever, the second wholesale market flash crash in history coupled with the first ever limit down trade in the Nasdaq and the E-Mini, not to mention the biggest intraday bearish reversal since Lehman, it would appear that the "smart money" actually was aptly named.
"It's not necessarily out of control yet. But if they do not provide some stability pretty soon it will begin to affect not only the markets over there, but - as we saw today and somewhat last week - it affects markets all around the world. Financial Markets are correlated. We learned that back in 2008 When the fall of Lehman spread all around the globe."
Goldman's 3 key reasons for China's "surprise" rate cut: i) Activity growth weakened meaningfully after a brief rebound in 2Q; ii) Outflows re-emerged and drained liquidity; iii) Equity market has been falling very rapidly. The conclusion: "These cuts are positive moves which are much needed to support the economy and market. But they are unlikely to be sufficient by themselves."
As the cost of insuring equity market risk (VIX) spiked higher this morning (having been broken for minutes after the open), catching up to the cost of insuring credit market risk (CDX HY) which has been screaming dead canaries for weeks, a funny thing happened to the volatility of volatility. VVIX (the estimate of the uncertainty of the cost of insuring equity risk) exploded to a level never seen before - as various ETF/hedging strategies imploded - a level twice as high as during the Lehman crisis...
The last three times inflation expectations tumbled this low, the Fed was about to launch QE1, QE2, Operation Twist and QE3.
Three weeks ago, "something just snapped." Now, it is getting worse by the day.