With a 180 point high to low plunge during the day, the Dow underperformed the rest of the major US equity indices which ended practically unchanged on the day. The market appears to be replaying the same opening POMO/EU pump to afternoon dump mode - with today's late-day ramp attempt to scramble back to VWAP. Treasury yields also oscillated but closed +/-1bps. But elsewhere, markets were turmoiling. The USD is up 0.5% on the week with 1.5% drop in JPY today which entirely disconnected from US equities after Europe closed. Credit markets were the voice of reason and equities (once again) ripped and dipped back to their sanity. WTI crude surged up near $100 (+3% on the week) as the USD weighed on gold and silver which are -0.6% and 1.6% on the week. Another day, another failure for the S&P's 50DMA.
The volatility of recent weeks is but a mere small taste of the volatility in store for all markets in the coming months and years. The global debt crisis is likely to continue for the rest of the decade as politicians and central bankers have merely delayed the day of reckoning. They have ensured that when the day of reckoning comes it will be even more painful and costly then it would have been previously.
We appeared to go from good is good (but the underlying macro data this morning also provided some bad is good news) to good is bad by the close. The Discretionary sector almost reached back to unchanged from the FOMC statement but that appeared to be the short-term-top as it faded back by the close. Interestingly with bonds rallying notably from overnight high yields, bond-like stocks actually suffered today (great un-rotation?). Credit markets were entirely unimpressed by the early excitement in stocks and as we entered the last hour stocks began to sink and credit rally for the divergence. Gold and Silver diverged this afternoon with the yellow metal holding gains and coupling with WTI for a 1.5% gain on the day (and gold's best 2 days in over 4 years) while Silver slipped this afternoon to end -0.3%. The USD slow-leaked all day (-0.2%) amid AUD strength and modest JPY weakness (that provided some support for risk-assets early on). Volume was awful - around 30% below average. VIX fell on the day but rose notably more than stocks would imply into the close as hedgers grabbed on but stocks were sold as the Egyptian situation escalated.
Gold has gone down Friday to under $1, 200 an ounce and that means it’s reached its lowest point for the past three years. Worse than that: it’s been the worst quarterly performance for gold for 45 years!
The late 20th century was a jam-packed time for stock-market crashes that would change, shape and alter our lives in so many ways.
The Japanese stereotype of excessive courtesy is being confirmed by the actions of prime minster Shinzo Abe who is giving the world a free and timely lesson on the dangers of overly accommodative monetary policy. Whether or not we benefit from the tutorial (Japan will surely not) depends on our ability to understand what is currently happening there. This time around investors in the Japanese market were similarly deluded by fairy tales. Leading economists told them that Japan could cheapen its currency to improve trade, use inflation to create real growth, increase prices to encourage spending, and drastically increase inflation without raising interest rates. In short, monetary policy was seen as substitute for an actual economy.
The Federal Reserve has had $1.2 million swiped from a flight somewhere between Switzerland, the land of secret banking, and New York City. Now, in the ranking of thefts that have taken place in history, this one seems like it is rather untimely! Has anybody seen Ben Bernanke lately?
It was bound to happen some might say. We were warned! Chinese banks have stopped lending due to pressure from liquidity deposits. Some branches of the Bank of China and the Industrial and Commercial Bank of China have issued statements in which they announce that they are halting lending for a temporary period.
The Financial Times has revealed that Italy is facing losses of €8 billion due to derivative contracts that were taken out in the 1990s and that were restructured during the Eurozone crisis.
Jean-Claude Trichet, the former head of the European Central Bank, in an interview with CNBC stated that there was only so much that central banks could do to save the economic situation at the present time.
What magic Chinese rabbit has been pulled out of the hat now?
China’s central bank issued a statement that the Chinese banking system had liquidity levels that were “reasonable” today. There by hangs a tale. ‘Reasonable’ is that which may fairy and properly be required of an individual (a case of prudent action observed under a set of given circumstances).
Claiming that enough time had surely passed since they last caused a global economic meltdown, top executives from the U.S. financial sector told reporters Monday that they are just about ready to completely destroy the world again. Representatives from all major banking and investment institutions cited recent increases in consumer spending, rebounding home prices, and a stabilizing unemployment rate as confirmation that the time had once again come to inflict another round of catastrophic financial losses on individuals and businesses worldwide. “It’s been about five or six years since we last crippled every major market on the planet, so it seems like the time is right for us to get back out there and start ruining the lives of billions of people again,” said Goldman Sachs CEO Lloyd Blankfein. “We gave it some time and let everyone get a little comfortable, and now we’re looking to get back on the old horse, shatter some consumer confidence, and flat-out kill any optimism for a stable global economy for years to come.”
Europe is a disaster-zone. Here’s the round-up of what’s going wrong right now. The longest day? It would have been a long day, whatever happened, so you might as well enjoy it.
As if the Greeks don’t have enough to deal with right now with their country cut off from the benefits of a national television and radio station. What is it they say in the UK? Something like ‘when it rains it pours’.