Volatility

There were a few different stories coming out over the last few days that reveal the true nature of government and the apparatchiks who use disinformation, devious machinations, fraudulent accounting, and taxpayer money to cover up their criminality, lies, and the true state of the American economy. The use of government accounting tricks to obscure the truth about our dire financial straits is designed to keep the masses sedated and confused.

It appears a double in a week has prompted - just as we saw yesterday - some more profit-taking in Bitcoin as after topping $500 earlier today, the virtual currency has plunged (considerably more than yesterday) to $368 in late US trading as a high volume selling program was unleashed on the virtual currency.

While FX volatility, and frontrunning mammoth central bank orders was clearly profitable to Virtu, many were wondering how would the recently public company return to its roots of making the most money in equities. Earlier today, when Virtu released its earnings we got the answer: as the chart below shows, while the market was plunging in the third quarter, Virtu was making off like a bandit, with revenue from American Equities soaring by 68% to $46 million in the quarter - the highest quarterly revenue in that category Virtu has generated in history!

In an interview on CNBC's "Trading Nation," the Gloom, Boom & Doom Report editor revealed he may not be as bearish as some may think and that he is actually a “great optimist.”

Over the past decade; our markets have ceased to behave like “markets”, at all. 

"The options market seems to either be anticipating an inflection higher in the economic data, no rate hike, or an extreme lack of catalysts between now and year-end," according to Goldman Sachs' Krag Gregory. With VIX trading with a 13 handle, Gregroy warns, it is notably under-priced relative a 19 handle more in line with economic and policy uncertainty. The potential for volatility to swing higher seems more likely. Bottom line: a VIX back at 2013-2014 levels seems low if a December rate hike really is in play.

Following what has been a tremendous surge in bitcoin, which as we noted earlier had doubled from its August lows, rising as high as $420 less than an hour ago, a furious selling program was unleashed moments ago taking down the digital currency by nearly $50 on a sudden and dramatic surge in volume.

It's a busy night in AsiaPac. The ubiquitous Japanese stock buying-panic at the open quickly faded. China weakened the Yuan fix quite notably and injected another CNY10bn of liquidity but news of the arrest of the President of China's 3rd largest bank and a graft investigation into Dongfeng Motor's general manager sparked greater uncertainty and Chinese stocks extended the losses from yesterday. Commodities had started to creep lower, with Dalian Iron Ore pushing 2-month lows with its biggest daily drop in 3 months, were extended when the Aussie central bank kept rates steady (as expected) but sparked turmoil in FX markets with forward guidance of th epotential for more easing.

Bitcoin is up 123% from its January lows and over 50% higher than its early-September (post-Bitcoin XT anxiety) lows when we first warned about the virtual currency's relationship with possible China outflows. Despite promises of easing capital controls (and the chaos in the Yuan market over the last few days), it appears the Chinese are not waiting for the other shoe to drop and as offshore Yuan tumbled, so Bitcoin surged above $340 this morning (rallying all the way back to unchanged YoY).

"... we have more single short names than long positions in our book today. We have reduced our net exposure by nearly a third through sales and new shorts over the past few months."

As the crackdown against Zexi was taking place, Shanghai police also arrested 3 suspects as they cracked a case of stock futures price manipulation involving over 11.3 billion yuan (US$1.8 billion), police said yesterday in a statement. According to Shanghai Daily, Yishidun, a commercial company registered in Jiangsu Province’s Zhangjiagang City in 2012, was found to use an illegal stock futures trading software to destabilize the market and profit from volatility.

On a day full of Manufacturing/PMI surveys from around the globe, the numbers everyone was looking at came out of China, where first the official, NBS PMI data disappointed after missing Mfg PMI expectations (3rd month in a row of contraction), with the Non-mfg PMI sliding to the lowest since 2008, however this was promptly "corrected" after the other Caixin manufacturing PMI soared to 48.3 in October from 47.2 in September - the biggest monthly rise of 2015 - and far better than the median estimate of 47.6, once again leading to the usual questions about China's Schrodinger economy, first defined here, which is continues to expand and contract at the same time.

• World stocks on course for best month in four years (Reuters)
• Global Stocks Up Amid Stimulus Hopes (WSJ)
• BOJ Refrains From Adding Stimulus Even as Inflation, Growth Wane (BBG)
• U.S. Avoids Debt Default as Congress Passes Fiscal Plan (BBG)
• China naval chief says minor incident could spark war in South China Sea (Reuters)
• Exclusive Club: No High-Frequency Traders Allowed at Luminex (WSJ)

"... judging from market-based implied measures of longer-term inflation expectations, the effectiveness of the ECB’s announcements has proved limited so far."

- Goldman Sachs

It appears even Goldman Sachs was surprised by the recent rally in US equities - especially in light of the explicit hawkishness of The Fed yesterday. In a trading note this morning, the bank says that market risks are real and rising (but are not overwhelming) as it explains, we assume with no intent at humor or sarcasm, that they "prefer to think of the recent equity rally as 'macro-free' rather than 'low quality'," reiterating their view of the cycle and of markets as "fundamentally upbeat." They do, however, admit over the last month, the likelihood of a drawdown in the US equity market further increased, and remains at mildly elevated levels.