What do you do when GDP prints twice as bad as expected... buy stawks! And so it is that -1.0% GDP print for Q1 has been greeted with a buying drive in S&P 500 futures to lift it back near all-time record highs this morning. Gold, silver, and the USD are also rising.. and bond yields are rising very modestly.
There can be no doubt that computer science knowledge is currently in great demand; however, we do believe that there are some signs that the boom is - so to speak - 'getting out of hand' and is beginning to reflect the effects of the technology echo bubble on Wall Street. The give-away is the size of the demand for computer science studies relative to other fields of study. The last time enrollment in computer science peaked was in the year 2000 – concurrently with the technology mania. This is obviously no coincidence. What is slightly disconcerting is that the current peak in enrollments towers vastly above that previous bubble peak.
Large speculators (read - hedge funds or the supposed "smart money") have shifted their S&P 500 positioning to net short, increased their Russell 2000 short positioning and decreased their NASDAQ longs to one-year lows. Market-neutral funds have dropped exposure notably in the last week and long/short funds are well below market norms for their long positioning. But what has the bond bears really scratching their heads (as they added to their shorts in the last week) is that the last time so many people were convinced that rates can only go higher (based on CFTC data), bad things happened in stocks.
S&P (futures over 1900 for first time), Dow, and Nasdaq futures markets are all pressing new higher-highs this morning on the heels of Europe's dismal election news overnight. Helped early on by JPY weakness, stocks now have a mind of their own and have disconnected from an unchanged Treasury futures market (cash is closed) and a fading EURJPY/USDJPY carry trade. European peripheral bonds are the must-have asset of the day with Portuguese bonds particularly loved. Italian stocks are the high-beta idiot-maker trade today (+2.8%).
It seems that no market tops until the bag has been fully passed to retail muppets, and we appear to be in the process of that happening right now. The retail investor is getting back into the stock market and is seemingly focused on the riskiest types of shares; unlisted penny stocks. They aren’t just dipping their toes in either, the pace exceeds that of the tech boom of the late 1990?s and has just hit the highest amount on record.
As we noted in the pre-open this morning, with the weekend just around the corner, it was virtually assured that the S&P would close at an all time high today - after all the people need to be confident when they go shopping at malls with money they don't have (but delighted by paper profits they haven't booked) so they boost the US non-GAAP GDP (at least before the BEA too, like Italy, changes the definition of GDP to include cocaine and hookers). Finally, assuring a (likely record) low-volume levitation today is the early closure of the bond pit ahead of Memorial Day holiday which also means only a skeleton crew of algos will be frontrunning each other to push the S&P over 1,900. Summing it all up perfectly - VIX closed at 15-month lows, Russell 2000 had its best week in 3 months, and Treasury yields are 13bps lower than when the S&P was last here... un-rigged.
- The Fed can't print trade? World Trade Flows Fall in First Quarter (WSJ)
- PBOC’s Zhou Says China May Have Housing Bubble in ‘Some Cities’ (BBG)
- ECB's Weidmann - Reviving ABS market not task for central bank (Reuters)
- LOL: Fitch upgrades Greece by a notch to 'B'; outlook stable (Reuters)
- LOL x2: Spain Sovereign Debt Rating Upgraded by S&P (BBG)
- China Will Vet Tech Firms After Threatening U.S. Retaliation (BBG)
- US to claim victory over China in WTO car dispute (BBG)
- Obama urges Democrats to vote in midterms, attacks Republicans (Reuters)
- U.S. Military Pushes for More Disclosure on Drone Strikes (WSJ)
Another day, another melt-up on the lowest volume of the year and VIX collapse. The Dow and the Nasdaq almost made it back to unchanged for the year; The Dow almost made it back to unchanged for May; but as the S&P surged towards its record highs once again, "most shorted" stocks led the way with a massive squeeze (almost 4% in the last 2 days). VIX broke back below 12 once again trading at its lowest in 14 months. Equity markets decoupled notably once again from bonds. Treasury yields rose once again at the long-end (30Y +8bps on the week, 5Y -1bps) but the steepening trend stalled today. The USD rose today (+0.2% on the week) led JPY weakness. USDJPY was in charge of stocks with a correlation over 90% once again. Commodities all closed higher with WTI testing $104 again. HP's 'early' release of earnings appeared to take the shine off things into the close as VIX gapped higher back above 12 to close...
The clip-on camera company has filed for its IPO. GoPro, which will list on NASDAQ under the symbol GPRO, would, however, probably prefer you not focus too closely on its financials... sshh - EBIDTA -30% YoY for comparable quarter?
Forget international capital flows, forget central banks (even though the world's reaction to the ECB enacting such an extreme policy - QE- this far down the 'recovery' raises questions about the entire false state of the world), and forget positioning... Rick Santelli - stunned at the disconnect between stocks and bonds off the February lows... says there is only one number that matters for lower rates - Nasdaq 3996.
- Qatar Bank: Deutsche Bank to raise $11 bln with help from Qatar (Reuters)
- AstraZeneca rejects Pfizer's take-it-or-leave-it offer (Reuters)
- China Home-Price Growth Slowdown Spreads as Sellers Discount (BBG)
- The new face of NSA: Mike Rogers (Reuters)
- Putin orders troops near Ukraine to return home (AP)
- Wall of Worry Rebuilt as Nasdaq Rout Sends Cash to High (Nasdaq)
- Bank of England's Mark Carney highlights housing market's risk to UK economy (Guardian)
- Greek Selloff Shows Rush for Exit Recalling Crisis (BBG)
- Anti-austerity Greek radicals ahead in Athens local election (AFP)
For the 4th day in a row, selling pressure in US equities climaxed as Europe closed. The big buying-panic today though was sparked with about an hour to go as VIX was pummeled lower and stocks levitated to save all kinds of key technical levels - (S&P unch, Nasdaq green on the week, S&P back above its 50DMA, Russell off its 7-month lows). Trouble with all that exuberance... bonds, the USD, commodities, JPY carry, and credit weren't buying it. The USD rose 0.2% for the 2nd week in a row (led by 0.5% weakness in the EUR) and JPY strengthened. Commodities all closed higher on the week, led by oil and copper (+2%) with WTI over $102. Treasuries sold off modestly into the late-day buying scramble in stocks but ended the week 10bps lower in yield (biggest weekly drop in 2mo, lowest in 6mo). VIX plunged back to almost 12 with its biggest daily drop in a month. T-Bonds and Bullion are both +7.2% YTD, S&P +1.6% YTD, Russell 2000 -5%YTD.
Nasdaq and S&P back into the green for the week... Dow back into the green for the year... mission accomplished (but a little premature). And all it took was an options-expiration debacle-driven collapsed in VIX...
Momentum stocks, the money transfer machine the city relies on, are crashing. Fallout hits record home prices. This is so 2007.
With two of Tepper's top six positions being new, and quite massive, calls in either the SPY or QQQ, we would be nervous too...