In the midst of turmoil among asset classes, investors tend to make irrational decisions, such as panicking and liquidating at inopportune times. Nobel Prize-winning Psychologist Daniel Kahneman helps explain ill-conceived reactions to the market with his concept of loss aversion. That’s the fear and feelings of loss surpass the joy one may receive from a similarly sized potential gain. In order to frame this discussion of volatility, we dug up old surveys of institutional and individual investors that recorded their responses to the 1987 market crash
Overnight's start attraction was as usual China's stock market, where trading was generally less dramatic than Thursday's furious last hour engineered ramp, as stocks rose modestly off the open only to see a bout of buying throughout the entire afternoon session, closing 4.8% higher, and bringing the gain over the last two days to over 10%. This happens as China dumped a boatload of US paper to push the CNY higher the most since March, strengthening from 6.4053 to 6.3986, even as Chinese industrial profits tumbled 2.9% from last year: this in a country that still represents its GDP is rising by 7%. Expect much more Yuan devaluation in the coming weeks.
Since the GFC, 'The Great Wall of Money' that Bretton Woods II has furnished via its vendor-financing relationship, has masked the deleveraging of our world economy. The Great Wall is about to collapse and fall.
"Price insensitive" flows are starting to materialize, and our goal is to estimate their likely size and timing. These technical flows are determined by algorithms and risk limits, and can hence push the market away from fundamentals. The obvious risk is if these technical flows outsize fundamental buyers. In the current environment of low liquidity, they may cause a market crash such as the one we saw at the US market open on Mondaay"
Aggressive Chinese Intervention Prevents Another Rout, Sends Stocks Soaring 5% In Last Trading Hour; US Futures JumpSubmitted by Tyler Durden on 08/27/2015 06:48 -0400
After a 5 day tumbling streak, which saw Chinese stock plunge well over 20% and 17% in just the first three days of this week, overnight the Shanghai Composite was hanging by a thread (and threat) until the last hour of trading. In fact, this is what the SHCOMP looked like until the very end: Up 2.6%, up 1.2%, up 2.8%, up 0.6%, up 2%... down 0.2%. And then the cavalry came in: "Heavyweight stocks like banks and insurance companies helped pull up the index, and it’s possibly China Securities Finance entering the market again to shore up stocks," Central China Sec. strategist Zhang Gang told Bloomberg by phone. Net result: the Composite, having been red just shortly before the close, soared higher by 156 points or 5.4%, showing the US stock market just how it's down.
With professionals proclaiming yesterday's meltdown "historic," and generously telling investors "don't try to overthink what you're seeing," it is clear that the real impact of the carnage wrought by a combination of Fed-indiced crowded trades and HFT illiquidity-providers is yet to be fully appreciated. While Financial advisers, almost unanimously, have cautioned clients not to panic... As one retail investor exclaimed, yesterday's open "was a life-changing 20 minutes."
RANsquawk Week Ahead - 24th August: Black Monday sees weakness in equities throughout Asia and Europe, as well as filtering through to commodities and USDSubmitted by RANSquawk Video on 08/24/2015 07:21 -0400
- Risk averse sentiment dominated the price action overnight, with Chinese equities (Shanghai Comp -8.5%) again under heavy selling pressure as market participants were left disappointed by the lack of action by the PBOC to ease monetary conditions further.
- US data is set to remain in focus as participants continue to try to gauge the possibility of a September rate lift off after last week’s Fed’s minutes highlighted concerns over China
- This week sees the first preliminary August CPI readings in Europe from both Germany and Spain
We warned on Friday, after last week's China rout, that the market is getting ahead of itself with its expectation of a RRR-cut by China as large as 100 bps. "The risk is that there isn't one." We were spot on, because not only was there no RRR cut, but Chinese stocks plunged, with the composite tumbling as much a 9% at one point, the most since 1996 when it dropped 9.4% in a single session. The session, as profile overnight was brutal, with about 2000 stocks trading by the -10% limit down, and other markets not doing any better: CSI 300 -8.8%, ChiNext -8.1%, Shenzhen Composite -7.7%. This was the biggest Chinese rout since 2007.
"Clearly, markets have lost faith in the ability of unorthodox monetary policies to kick start the economy over time. This also fits the findings of academic literature suggestion diminishing returns from subsequent rounds of QE."
A non-bombastic discussion of market forces and what to expect next
Steep losses in the dollar, stocks and commodities, for sure, but does it really signal a systemic crisis?
Curious why someone just pulled a trapdoor from under the market? JPM's Marko Kolanovic, head of quant strategies explains. "Given that the market is already down ~2%, we expect the market selloff to accelerate after 3:30PM into the close with peak hedging pressure ~3:45PM."
Dazed And Confused: Futures Tumble Below 200 DMA, Oil Near $40, Soaring Treasurys Signal Deflationary DelugeSubmitted by Tyler Durden on 08/20/2015 07:00 -0400
It is unclear what precipitated it (some blamed China concerns, fears of rate hikes, commodity weakness, technical picture deterioration although it's all just goalseeking guesswork) but overnight S&P futures followed yesterday's unexpected slide following what were explicitly dovish Fed minutes, and took another sharp leg lower down by almost 20 points, set to open below the 200 DMA again, as the dazed and confused investing world reacts to what both the Treasury and Oil market signal is a deflationary deluge. Indeed, oil is about to trade under $40 while the 10Y Treasury was last seen trading at 2.07%. Incidentally, the last time oil was here in March of 2009, the Fed was about to unleash QE 1. This time, so called experts are debating if the Fed will hike rates in one month or three.
Naysyers are warning that the recent plunge in Bitcoin prices - from almost $318 at its peak during the Greek crisis, to $221 yesterday - due to growing power struggle over the future of the cryptocurrency that is dividing its lead developers could spell the end of the cryptocurrency. On Saturday, a rival version of the current software was released by two bitcoin big guns. As Reuters reports, Bitcoin XT would increase the block size to 8 megabytes enabling more transactions to be processed every second. Those who oppose Bitcoin XT say the bigger block size jeopardizes the vision of a decentralized payments system that bitcoin is built and represents a "governance coup.". However, the turmoil in the price also coincides with some rather notable global macro events from Asia (where Bitcoin is extremely popular).
It was a relatively quiet weekend out of China, where FX warfare has taken a back seat to evaluating the full damage from the Tianjin explosion which as we reported on Saturday has prompted the evacuation of a 3 km radius around the blast zone, and instead it was Japan that featured prominently in Sunday's headlines after its Q2 GDP tumbled by 1.6% (a number which would have been far worse had Japan used a correct deflator), and is now halfway to its fifth recession in the past 6 year, underscoring Abenomics complete success in desrtoying Japan's economy just to get a few rich people richer. Of course, economic disintegration is great news for stocks, and courtesy of the latest Yen collapse driven by the bad GDP data which has raised the likelihood of even more Japanese QE, the Nikkei closed 100 points, or 0.5% higher.