Volatility

Steep losses in the dollar, stocks and commodities, for sure, but does it really signal a systemic crisis? 

Shockwaves from China’s devaluation have conspired with sluggish global demand and an attendant commodities slump to wreak havoc on developing market currencies the world over. On the heels of Kazakhstan's dramatic move to float the tenge, here's which currencies are next in line to tumble.

When paying a premium for equities, or any asset for that matter, one runs the serious risk of capital impairment. Worse, most professional investment managers falling prey to the bullish sentiment currently surrounding this period of extreme valuations will likely not live up to their overriding fiduciary duty – the preservation of wealth. Following the herd may have its benefits at times, but following the herd over a cliff never ends well.  As Seth Klarman warned. “Risk is not inherent in an investment; it is always relative to the price paid”

Even if it is short term oversold, this is actually a quite dangerous market – caveat emptor, as they say.

Dow Theory flashes sell signal. S&P 500, NYSE & Russell 2000 all closed below key supports.
No tactical capitulation. Not 90% down. ARMS below 2.0. 10-day total put/call ratio not showing panic. But VXV/VIX oversold.

Members of Syriza's Left Coalition, led by Panagiotis Lafazanis who once plotted to storm the Greek mint, seize the country’s reserves, and arrest central bank governor Yannis Stournaras, have broken away and formed their own political party which they say will support Grexit and stand firm in the face of German "blackmail."

"Short-term, markets seem intent on forcing either the Fed to pass in September, or the Chinese to launch a more comprehensive and credible policy package to boost growth expectations. Alternatively, a credit event in commodities (note CDS is widening sharply for resources companies – front page chart) may be necessary to cause policy-makers to panic. Markets stop panicking when central banks start panicking."

News That Matters...

"After roughly matching the S&P 500 through most of 1H 2015, funds lowered net exposures as the market declined in late June and failed to benefit as the index rebounded in July. The typical fund has returned +0.5% YTD, with equity long/short funds rising 1.3% and event-driven funds falling by 2.0%."

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.

But Not There Yet...

One month ago we asked: "Which will be first: Trafigura, Mercuria or Glencore." Today we got our answer.

Seconds ago, someone accidentally (we hope) pulled a Janet Yellen as the following just came across the wires

FOMC MINUTES: MEMB 'GENERALLY AGREED' MORE INFO NEEDED TO HIKE
FOMC MINUTES: NO TIP TOWARDS SEPT LIFTOFF, DOESN'T RULE IT OUT

But the bottom line is that the Fed just admitted things are going from bad to worse: "The risks to the forecast for real GDP and inflation were seen as tilted to the downside." The question now is what comes first: QE4 or the first rate hike in nearly a decade.

Another day, another technical breakdown, only this time not for the US but for the entire world. As BofA points out, "the weekly global A-D line shows a 2011-style breakdown", which it notes "is a market risk", although it remains unclear if central banks, and China's National Team in particular, use technicals when deciding to manipulate stocks.

Turkey’s lira is once again in free fall, after testing all-time lows against the dollar during multiple sessions of late as political turmoil and civil war wreak havoc on the currency. As BofAML notes, "now that the CBT has left rates unchanged and announced that it will largely rely on selling more FX to tame volatility in FX market while waiting Fed to hike first, TRY still remains a fair game."