The S&P 500 has now managed the longest weekly winning streak (7 weeks) since May 2007 (when it managed a 9% gain). Off the recent lows, the current run is an impressive 9.6% (for the S&P) with Trannies up 12.5% in the same period. (we hesitate to mention that May 2007's run-up was halted by the first of the structured credit funds imploding) On the week, Trannies and NASDAQ ended back practically unch, Russell 2000 outperformed but the afternoon melt-up in stocks (on the back of more shorts being squeezed) held the S&P above 1,800 close for the first time ever. Bonds rallied (recovering a lot of their mid-week losses), the USD was offered in general (led by EUR strength) but AUD's 2% loss was notable. VIX was manhandled to 12.25% into the close to maintain the headline-grabbing 1,800 as gold and silver clung to their lows.
A new opportunity to play "What's wrong with this picture" arose recently, with Larry Summers’ recent speech at the IMF and Paul Krugman’s follow-up blog. The two economists’ messages are slightly different, but combining them into one fictional character we shall call SK, their comments can be summed up "...essentially, we need to manufacture bubbles to achieve full employment equilibrium." With this new line of reasoning, SK have completely outdone themselves, but not in a good way. Think Jamie Dimon’s infamous “that’s why I’m richer than you” quip. Or, Bill Dudley’s memorable “but the price of iPads is falling” excuse for increases in basic living costs. Dimon and Dudley managed to encapsulate in single sentences much of what’s wrong with their institutions. Yet, they showed baffling ignorance of faults that are clear to the rest of us.
What Carl giveth, Carl can taketh away. We have warned for a month that credit markets have been decompressing (amid saturation) even as stocks went only one way. The S&P has hit almost its LABIA-based Fed fair-value and VIX/VXV hit extreme complacency levels so we were primed for a fall so it's ironic that Icahn pricked the bubble (at least for one day). More ironic still was CNBC's dismissal of his warning "as he is not a market timer" - when they wait with baited breath for his next 'buy AAPL' tweet. Bill Dudley's economic bullishness (and hawkish policy talk) also weighed on stocks. Credit was weak from the start - even as equities broke to new records; Treasury yields slid all day (with a small bounce higher after Europe closed). The USD's early weakness retraced to unch by teh close - rallying from the US open (but EURJPY was a big driver of weakness in stocks). Commodities did not bounce - all flushed lower around the European close and never recovered as stockd dumped.
It may appear to be safe for everyone to be on the same side of the boat, but the gunwale is awfully close to the water.
While the relentless multiple expansion (if not so much earnings growth and certainly not revenue contraction) looks set to push all three main stock indices over the key psychological levels of 16000, 1800 and 4000, with the all time bubble high on the Nasdaq increasingly looking like the next big target, the stock market mania has nothing on Bitcoin, which only yesterday crossed $500 for the first time ever, and as of this morning is already 20% higher, having just crossed $600 minutes ago. Which means that anything prices in Bitcoin has entered bear market in just the past day. How high BTC goes, is nobody's guess (Raoul Pal had a truly stunning price target): once the buying frenzy kicks in, step aside, especially since China is increasingly looking like it may be jumping on board the latest mania.
- What can possibly go wrong: Tepco Successfully Removes First Nuclear Fuel Rods at Fukushima (BBG)
- Japan's Banks Find It Hard to Lend Easy Money (WSJ)
- U.S. Military Eyes Cut to Pay, Benefits (WSJ)
- Airbus to Boeing Cash In on Desert Outpost Made Field of Dreams (BBG); Dubai Air Show: Boeing leads order books race (BBG)
- Sony sells 1 million PlayStation 4 units in first 24 hours (Reuters)
- Russian Tycoon Prokhorov to Buy Kerimov's Uralkali Stake (WSJ)
- Google Opening Showrooms to Show Off Gadgets for Holidays (BBG)
- Need. Moar. Prop. Trading: Federal Reserve considering a delay to Volcker rule (FT)
- Raghuram Rajan plans ‘dramatic remaking’ of India’s banking system (FT)
- SAC Capital's Steinberg faces insider trading trial (Reuters)
The only numbers that matter today are 16000, 4000 and 1800: those are the Fed's closing targets for the Dow Jones, the Nasdaq and the S&P. Following last night's Chinese euphoria which saw the Shanghai Composite surge by 2.87%, or up 61.4 to just under 2,200 on renewed hopes for Chinese reform by 2020, the Fed's price targets should all be quite easily achievable. And not even the rising home prices in 69 out of 70 cities year over year, and 65 over month - the same as last month, with new nome price inflation at 0.6% overall and 0.8% for the first tier cities, was able to put a dent in the reflationary spirits in the Mainland. Additionally, news that China would join the US and Europe in "adjusting" its GDP calculation method, which would add R&D expensing into the bottom line, and as a result boost the overall number, is, well, helping things. Finally, with today's POMO a rather whopping $3-$4 billion, it is only a matter of time before all three of the previously noted psychological resistances are promptly taken out by the Fed's open markets desk.
"Every American family deserves a false sense of security," said Chris Reppto, a risk analyst for Citigroup in New York. "Once we have a bubble to provide a fragile foundation, we can begin building pyramid scheme on top of pyramid scheme, and before we know it, the financial situation will return to normal." Despite the overwhelming support for a new bubble among investors, some in Washington are critical of the idea, calling continued reliance on bubble-based economics a mistake. Regardless of the outcome of this week's congressional hearings, however, one thing will remain certain: The calls for a new bubble are only going to get louder. "America needs another bubble," said Chicago investor Bob Taiken. "At this point, bubbles are the only thing keeping us afloat."
Despite a 10% collapse in CSCO (which apparently is not a bellwhether anymore at all) - notching a mere 18 points off the Dow, Yellen's confirmation of everything we thought we knew (and bad macro data) was enough to send the S&P and Dow to new all-time highs. Treasuries rallied 2bps (5-8bps on the week) and gold lifted back to unchanged on the week. VIX limped lower. On the day, the USD closed higher (thanks to JPY weakness supporting stocks) but was lower from early highs. Credit markets rallied very modestly but remain hugely divergent in this supposed QEeen-fueled surge. And on it goes...
If yesterday's 10 Year auction was a success, today's $16 billion issue of 30 Year paper was poorly received by the market, with the 3.810% yield tailing the 3.796% When Issued, accentuated by a tumble in the Bid To Cover from 2.64 to 2.16, the third lowest in the past 4 years, excluding just the auctions from August of 2011 and 2013 when there was led indicated demand. The internals were less remarkable, with Directs taking down a stronger than average 18.3%, Indirects holding 35.3% of the auction and Dealers left with 46.5% of the auction. Overall, hardly the ringing endorsement in the long-end the Treasury needs.
Discussion of a market bubble (in stocks, credit, bonds, Farm-land, residential real estate, or art) have dominated headlines in recent weeks. However, QEeen Yellen gave us the all-clear this morning that there was "no bubble." Are we currently witnessing a market bubble? It is very possible; however, as STA's Lance Roberts notes, if we are, it will be the first market bubble in history to be seen in advance (despite Bullard's comments in opposition to that "fact"). From a contrarian investment view point, there is simply "too much bubble talk" currently which means that there is likely more irrational excess to come. The lack of "economic success" will likely mean that the Fed remains engaged in its ongoing QE programs for much longer than currently expected - and perhaps Hussman's pre-crash bubble anatomy is dead on...
Curious where the "hedge fund hotel" is currently located, for both most loved and hated asset classes? The following table shows both the penthouse and the basement of the most recent groupthink, which not surprisingly, indicates that hedge funds, which have simply become highly-levered momentum and beta chasers, are most bullish on the Nasdaq, and offsetting this, are most bearish on 10 Year notes. Of course, since the bulk of the very highly levered marginal cash (for those who haven't seen it, Balyasny's leverage chart is a stunning eye opener) is already deployed, all that remains now is the profit-taking, and as such anyone who wishes to take advantage of the inevitable and recurring hedge fund hotel collapse would be advised to put on a short Nasdaq, long 10Y pair on and await the unraveling.
Treasuries rallied 4-6bps on the day (with the POMO-driven belly outperforming). The USD dumped back its knee-jerk gains on Europeans trying desparately to talk down the EUR early on. High yield credit banged higher into the close. VIX was man-handled back under 12.5% (despite being bid early). Oh - and every US equity market malted up in an insane intrday swing which seems to be pinned on the back of expctations Yellen will open her shirt tomorrow showing a big red "S" on it. So while every flow-driven market banged higher in a mad scramble of un-tapery goodnesss, gold went sideways and silver was monkey-hammered (-4.5% on the week). The last 3 days have seen "most shorted" names double the market's performance. Nasdaq's swing from low to high is the largest positive intraday move for the index in 5 months!
The Nasdaq and Trannies closed green, Dow and S&P red (the latter pinned to VWAP thanks to some late-day JPY ignition dragging it off the lows). Volume was 'average and into the close VIX was bid as stocks clung to VWAP. Treasury yields limped higher from yesterday's small rise (30Y +1bps on the week, 5Y +4bps). The USD index would suggest a quiet day (practically unch of the week) but dispersion with EUR strength and AUD and JPY weakness was notable. Credit markets continued to slide notably. The biggest moves of the day were in commodity land with silver -3.5% on the week and gold and oil pinned to each other (petrogold?) -1.5% on the week, and copper -1% on the week. Today was all about POMO (as usual) and dueling Fed speak (Lockhart talked us down and Kocherlakota saved the day).
With Ben Bernanke's tenure closing, many financial TV pundits delight in touting the stellar performance of Ben Bernanke as Federal Reserve Chairman with just a couple months left in his term. Before the re-writers of history begin spinning performance, we thought why not compare Mr. Bernanke against all the other Federal Reserve Chairman to determine which Chairman deserves recognition. Bernanke's overall score across all factors was the lowest (let the spin begin counterfactualists). The data suggests that Mr. Bernanke ranks last in performance between the two mandates since 1948. Quite an accomplishment considering what events transpired during the last 60+ years; Korea & Vietnam, Oil Shock, high interest rates, etc...