Between escalating Grexit concerns and Podemos 'victory' in Spain, European bond and stock markets shuddered somewhat today. EURUSD continues to close lower - back below 1.1000. All major bourses across Europe are in the red with Greece and Spain worst (ASE -3%) but the most notable shift is a collapse in Poruguese bonds. Illiquidity has always been an issue for PORTUG bonds but today's near 4 point collapse in 10Y bond prices (and 48bps spike in spreads) is dramatic to say the least. Bond yields and spreads are now higher than before Draghi announced Q€ in January and dramatically higher since bond-buying began. If EU leaders proclaim they can see no contagion from Greece, show them these charts. Finally, despite cash markets being closed, US equity futures also suffered (despite an exuberant BTFD rip higher in China overnight).
Last Thursday, it was Avon that was cheated higher after a fake takeover filing provided just enough momo juice for the machines to destroy any and every short in the stock instantly. Today, it was Quest Diagnostics turn to be manipulated.
Record highs in stocks....thanks to the illegal miracle of spoofing.
A gentle reminder from the minutes that many seemed to have missed: "some indicators suggested that valuations remained stretched for some asset classes."
Bond yields are leaking higher, The USDollar is flat (but noisy), but with no macro data to spark a momo run, US equities have tumbled out of the gate... especially Dow Transports. Dow & S&P are back to unchanged on the week...
Over the years many have wondered how it was possible that a hedge fund could exist that did nothing more than ride momentum and heatmaps higher or lower without almost any insight into the fundamentals of the underlying corporations. That hedge funds, of course, is John A. Thaler's JAT Capital, which did nothing but buy the most talked about, "storied" momo stocks and ride them higher. Or lower, as the case may be. Because the hedge fund which only managed $3.7 billion as of March 31 just because it was a Tiger Management spin off, is no more.
In short, the very project of counting “jobs” is essentially laughable in the context of the US economy as it is currently structured - for better or worse. But regardless of the equities and efficiencies of the current labor market, one thing is abundantly clear. The Payroll Friday report amounts to virtually meaningless noise. It is bad enough that the bubble vision Romper Room and the casino robo-traders are oblivious to this reality. What is scary is that the Eccles Building is just as clueless.
In welfare state America its virtually certain that through one artifice or another taxes will go up and the national debt burden will rise to crushing heights in order to keep the baby boomers’ entitlements funded. While Keynesians and Wall Street stock peddlers are clueless about the implications of this - it actually doesn’t take too much common sense to get the drift. Namely, under a long-term path of fewer producers, higher taxes and more public debt, the prospects for rejuvenating the previous historically average rates of real output growth are somewhere between slim and none - to say nothing of the super-normal rates implied by the markets’ current bullish enthusiasm.
The initial euphoria over a small Cushing draw has not stopped as the machines have run WTI crude up over $59, tagging all YTD stops and pushing the front-month to its highest since December 12th.
Honest price discovery is essential to capitalist prosperity since it is the miraculous mechanism by which capital is raised from savers and investors and efficiently allocated among producers, entrepreneurs and genuine market-rate borrowers. What the central banks have generated, instead, is a casino that is blindly impelled to churn the secondary capital markets and inflate the price of existing assets to higher and higher levels - until they ultimately roll-over under their own weight. The Easy Button addiction of our central bankers is thus not just another large public policy problem. It is the very economic and social scourge of our times.
Well that escalated quickly...
Unfortunately there is not enough macro data for the algos to consider bad enough to be good today...