Russell 2000

The last six months have not run according to anyone’s plan.  Who would have thought that equity market structure would yield a best-selling book, after all?  As ConvergEx's Nick Colas notes, on the fundamental side of things, interest rates across the developed world are lower, not higher – counter to the consensus view just 180 days ago. Mutual fund investors first bought U.S. equities earlier in the year, then in the last 6 weeks have begun to liquidate in earnest. Exchange Traded Fund investors are buying more fixed income products than those dedicated to U.S. stocks. Large cap stocks are trouncing small caps in terms of performance. And as for volatility – well, Elvis has clearly left the building on that one. So which of these surprises has staying power into the back half of 2014?

For the 5th month in a row, US treasury bonds started with a 2-day sell-off as yields rose arond 6bps today (back to unch from FOMC). Gold, silver, and copper all gained notably (despite a knee-jerk lower on the ADP data). The US Dollar jumped instantly on the ADP print then flatlined for the rest of the day but USDJPY pushed higher. However, stocks chose to ignore their ubiquitous drivers - VIX was slammed lower (stocks ignored it) and USDJPY surged (stocks ignored it) as early weakness in Trannies was overtaken by Russell 2000 losses as the S&P and Dow flatlined in a very narrow range. Shortly after the US markets opened, credit markets diverged notably from equity markets (but caught up into the close). VIX closed lower. The Dow had its narrowest range since Dec - funny what happens when there's no $190 billion repo injection, eh? The S&P and Dow closed marginally green at new record highs. (and Camera-on-a-stick tumbles 17% from its highs)

VIX was monkey-hammered lower once again today, lifting stocks vertically to Russell 2000 record highs and The Dow within a point of 17,000. The question is who (or what) is doing it. Nanex seems to have found out who... It appears the un-visible hand of VIX manipulation (that we have shown previously) has been forced into the open public markets as Barclays goes dark. Simply put, massive bursts of 1-lot TVIX orders flood and delay the markets enabling HFTs to manipulate the tail that inevitably wags the market (via VXX, SPX options hedges and leverage) and now that the dark pools are disappearing, we see it all in real-time.

The USD is unchanged; Commodities are unchanged; and Treasury yields are up only 2-3bps... but that didn;t stop July 1st from being a banner day for US equity markets (on the back of missed PMI and ISM data). The Dow, Russell 2000, and S&P closed at record highs but sadly the Dow missed out on 17,000 by a mere 1.5 points (despite the best VIX and AUDJPY manipulation $189 billion of repo liquidity free money can buy). Stocks got their start with yet another epic short squeeze at the open then ramped higher thanks to carry to record-er highs; stalling when it seemed Dow 17,000 was elusive. VIX traded with a 10-handle once again.

Despite 2014 consensus GDP now languishing at 2.2% (below its 2.9% hope in March, and gas prices near record highs for the time of year; it seems the Q1 growth scare that saw small caps, momos, biotechs, and half the Russell 2000 collapse has been all but forgotten as the favorite index of short-squeezes and algorithmic ignition has just recovered all its losses and regained its all-time record highs from March. Mission accomplished? Bear in mind that over 600 of the Russell 2000 names are still 20% below their 52-week highs.

Gold is the best performing asset in H1 2014 (just beating crude oil). The USA is the worst-performing macro-economy in the world's majors in H1. The S&P 500 is up now 6 quarters in a row - its best run since 1998. The Russell 2000 had its best month since September but Trannies are leading the Dow by over 900bps year-to-date. "Most shorted" stocks had their 'best - biggest squeeze' month in 11 months. Gold and silver had great months. Today saw stocks rally then fade and bond yields rose then fell (down 1-2bps). The dollar slipped markedly on the day to 2-month lows as commodities surged (ex Oil) with Gold, silver, and copper all reaching multi-month highs (amid short-covering and CCFD unwinds). VIX closed the month higher.

One hundred years ago today the world was shook loose of its moorings. Every school boy knows that the assassination of the archduke of Austria at Sarajevo was the trigger that incited the bloody, destructive conflagration of the world’s nations known as the Great War. But this senseless eruption of unprecedented industrial state violence did not end with the armistice four years later. In fact, 1914 is the fulcrum of modern history. It is the year the Fed opened-up for business just as the carnage in northern France closed-down the prior magnificent half-century era of liberal internationalism and honest gold-backed money. So it was the Great War’s terrible aftermath - a century of drift toward statism, militarism and fiat money - that was actually triggered by the events at Sarajevo.

Fear - or no fear. VIX was monkey-hammered to fresh cycle lows at 10.34 today (still double-digits for now) and OPEX lifted US equity markets (Dow Industrials, Transports, and S&P) to new record highs. Notably European peripheral bond spreads jumped higher (worsened) by their most in 15 months this week. "Most shorted" stocks rose a massive 4.6% this week (surging this afternoon) - the biggest squeeze in 14 months. The USD lost ground (-0.4% on the week) led by EUR strength as JPY closed unch (hardly supportive of the 2% gain in the high-beta honeys this week). Treasuries were nothing like as exuberant as stocks this week (30Y +3bps, 5Y unch) having traded in a 10-11bps range all week. The ubiquitous late-day VIX slam forced stocks to all-time highs. Precious metals had their best week in 4 months closing above $1300 (gold) and $20 (silver) back at 2 and 3 month highs respectively and pushing gold above the S&P year-to-date.

The only thing that can be said about Janet Yellen’s simple-minded paint-by-the-numbers performance yesterday is that the Keynesian apotheosis is complete. American capitalism and all political life, too, is now ruled by a 12-member monetary politburo, which is essentially accountable to no one except its own misbegotten doctrine that prosperity flows from the end of a printing press.

Cognitive biases are an anathema to portfolio management as it impairs our ability to remain emotionally disconnected from our money.  As history all too clearly shows, investors always do the "opposite" of what they should when it comes to investing their own money.  They "buy high" as the emotion of "greed" overtakes logic and "sell low" as "fear" impairs the decision making process. Here are 5 of the most insidious biases that will keep you from achieving your long term investment goals. As individuals, we are investing our hard earned "savings" into the Wall Street casino. Our job is to "bet" when the "odds" of winning are in our favor. With interest rates at abnormally low levels, inflation rising, economic data continuing the "muddle" through and the Federal Reserve extracting their support; exactly how "strong" is that hand you are betting on?

What is there to add here: clearly the central-planning academics at the Marriner Eccles building are doing a great job at pushing the Russell 2000 to, well, 2000. Oh wait, this was an article about the Fed's GDP "forecast." Lol.

Another Tuesday, another sell-off in bonds and rally in stocks. The hawkish inflation data this morning sparked stock weakness and bond weakness but while the latter saw yields keep pushing higher, the former rallied back extravagantly ignoring the dismal housing data - well why not, its Tuesday today and FOMC tomorrow. The Russell 2000 was the winner once again as traders embrace high beta as alpha (and financials outperformed (2s30s steepened for once). 10Y Treasuries saw yields jump the 2nd most in 2 months (with 7Y the worst performer +6.5bps). Gold, silver, and copper all rose notably after the inflation data but oil prices decided to waterfall lower having briefly reached unch for the week (as soon as POMO ended). "Most shorted" stocks were smashed higher today (+2%) enabling the early ramp and while a late-day selling scramble nearly rescued failure from success, VIX pressure was enough to save stocks' green track record.

Treasuries oscillated in a 3-4bps range all day to end flatter with 30Y -1.5bps and 2Y +1.5bps as stocks flip-flopped around like Charlie Sheen in a Phat Phong whorehouse. Trannies resumed their post-Iraq drop (-0.3% today) but high-beta honeys sent Russell 2000 up 0.4% with the S&P and Dow unchish. Stocks recoupled with bonds after 2 attempts to spark new all time higherer highs. Ahead of this week's FOMC, the USD weakened as EUR gained and oil, gold, and silver all slipped in a highly correlated manner. VIX rose 0.4 vols to 12.6 - notably decoupling from the S&P as Iraq/Fed uncertainty prompted some hedging. The now ubiquitous buying panic took hold at 330ET and Russell closed at highs of the day.

Overnight weakness following The World Bank downgrade, China's flip-flop on CNY and failed auction, Cantor's 'compromise-shattering' loss, appeared to be stabilized by a levitating USDJPY but when the budget deficit hit (as expected) it appears the market was hoping for a bigger deficit (and thus more to monetize and moar QE). Stock are diving lower with Trannies worst along with the Russell 2000 -1%. CNBC is already discussing if this is the pullback to buy for the next leg higher in stocks as money on the sidelines floods in...

The tidal patterns of this market have become so well-known to even the least observant: push the USDJPY (or other JPY carry pairs) higher starting around 6am Eastern, then ramp it just before US open to launch cross-asset momentum ignition algos in FX which then carry over to spoos and the broader "market." In the meantime, overnight selling of USDJPY allows a reset before ensuing buying during the US daytime session. Rinse. Repeat. Sure enough, just after 6 pm Eastern, the same USDJPY which catalyzed yet another all time high close had been sold off, leading to a 0.85% drop in the Nikkei and US equity futures which are showing an unprecedented ungreen color. Don't worry though: the pattern is too well-known and practiced by now, and we fully expect USDJPY levitation to pick up shortly, which is the only signal ES-algos need, trampling over any kind of newsflow both good and bad, and leading to yet another all time record high which it goes without saying is completely detached from any underlying reality at this point and at any time over the past 5 years.