A nervous peace prevails in the financial markets as central banks sit on their throne, fingers at the ready on the liquidity switch. As UBS' Bhanu Baweja notes, most volatility buyers have been 'rolled' into their graves. As they have explicitly targeted risk premia in addition to rates, a lot more hangs on the monarchs of monetary policy today than it has in previous cycles. While growth and inflation are both low, they are not necessarily uncertain; and although every crisis is different, certain patterns tend to repeat and certain events have reliably driven volatility higher.
In what appears to be the first real action post-Flash Boys, NY AG Eric Schneiderman will announce at 4pm ET that Barclays will be sued over fraud allegations related to its Dark Pool's preferential treatment of high-frequency traders. As Bloomberg notes, Barclays runs one of the market's largest dark pools. This comes 2 months after the NY AG sent requests for information to various major HFT shops. It seems, just as we noted here, that a potential scapegoat is being primed 'just in case' this 'market' can't withstand the Fed's pullback.
When all the dust settles, Palo Alto is definitely going to look a lot more modern than it did when I first moved here. All I can say, though, is that when the current bubble finally bursts, whether it's next month or next decade, there are going to be an awfully lot of expensive, empty, class A office buildings situated around town, holding nothing but the memories of ping-pong games past.
These Fake Rallies Will End In Tears: "If People Stop Believing In Central Banks, All Hell Will Break Loose"Submitted by Tyler Durden on 06/24/2014 15:11 -0400
Investors and speculators face some profound challenges today: How to deal with politicized markets, continuously “guided” by central bankers and regulators? In this environment it may ultimately pay to be a speculator rather than an investor. Speculators wait for opportunities to make money on price moves. They do not look for “income” or “yield” but for changes in prices, and some of the more interesting price swings may soon potentially come on the downside. They should know that their capital cannot be employed profitably at all times. They are happy (or should be happy) to sit on cash for a long while, and maybe let even some of the suckers’ rally pass them by. As Sir Michael at CQS said: "Maybe they [the central bankers] can keep control, but if people stop believing in them, all hell will break loose." We couldn't agree more.
The Federal Reserve’s policy of quantitative easing has produced a historically prolonged period of speculative yield-seeking by investors starved for safe return. The problem with simply concluding that quantitative easing can do this forever is that even speculative assets have to compete with zero. When a safe zero return is above the medium or long-term return that one can estimate for a very risky asset, the rationale for continuing to hold the risky asset becomes purely dependent on expectations of immediate short-term price gains. If speculative momentum starts to break, participants often try to get out the door simultaneously – especially if there is some material event that increases general aversion to risk. That’s the dynamic that produces market crashes.
Once Central Banks get out of markets, and I know some critics think that once they get in they are here to stay, healthy volatility and actual price discovery should come back to asset classes.
For the last two decades Coach (COH) could do no wrong. Its aspirational handbags flew off the shelves at hefty prices, causing its sales to soar from $1.3 billion to $5.1 billion during the 10-years ending in fiscal 2013. Better still, its EPS soared by 6X, representing a 20% earnings growth rate over the same period. Greatest of all, its share price peaked at nearly $80 in 2012 after having opened the 21st century at $3 per share. Needless to say, the believers and speculators who got on board for the 27X gain in twelve years were fabulously rewarded, as was its founder and largest stockholder, Lew Frankfort, who became a billionaire along the way. So the capitalist dream is still working in America, right? Not exactly.
Is the Fed trying to start the very bond run it is allegedly attempting to prevent? Read the following, then decide.
One major factor to the slow growth/low inflation in the U.S. is the Wall Street Yield Trade. By incentivizing unproductive use of capital, low interest rate via monetary policy is actually deflationary.
Could this be the last straw?
Below, for the third year running, we present the 50 most shorted (and most convex) Russell 2000 names, which are sufficiently small and illiquid, that even the tiniest rumor or upgrade by a contrarian research shop is able to send into a short covering frenzy. They are sorted by short interest as a % of the float in declining order, which means that the absolutely most hated stocks are at the top.
Using espionage for gain in negotiations is an age-old tactic; but are the norms of 'appropriate' espionage changing?
It seems David Tepper's "frigging" "dangerous" market is hitting home as asset managers have greatly rotated their portfolios to hold the most cash in 2 years. Of course, as BAML is quick to point out - this is great "wall of worry" climbing news, "it’s people taking money off the table and playing defensive. There is some inherent buying power." We have now seen almost 6 months of institutional selling and retail investor buying and Bloomberg does a great job rounding up the best market mantras for why it's different this time, and everything is fine... remember "Today’s bearish investors are tomorrow’s bulls."
The Dow Jones Industrial Average (DJIA) Index is the only stock market index that covers both the second and the third industrial revolution. Calculating share indexes such as the Dow Jones Industrial Average and showing this index in a historical graph is a useful way to show which phase the industrial revolution is in. Changes in the DJIA shares basket, changes in the formula and stock splits during the take-off phase and acceleration phase of industrial revolutions are perfect transition-indicators. The similarities of these indicators during the last two revolutions are fascinating, but also a reason for concern. In fact the graph of the DJIA is a classic example of fictional truth, a hoax.
Confused by the market? You are not alone with irrational and "Fear of Missing Out" momentum trades and (not so great) sector re(un)rotation all that matters (as has been the case for years with fundamentals not relevant for about 24 months now), so here are some tips from Scotiabank's Guy Haselmann who believes "market noise can be simplified into the following: QE= risk on, End of QE=risk off. QE is now half way toward ending, so now is the time to adjust. The fact that…… EM central banks are hiking, China is attacking its credit bubble, and Japan hiked its VAT tax while the “third arrow” is M.I.A., are also reasons to de-risk. If sanctions on Russia expand to products or industries, then real problems to EU growth will arise. This is something to watch carefully."