USD Surges By Most In 7 Months As Stocks Stumble And Bonds Bid

Tyler Durden's picture

Keep Calm and Keep Buying. We are sure this will be the message as for the first time this year, the Dow closed the week in the red. First time in 42 years that the S&P 500 started the year up six weeks in a row... as the S&P and Nasdaq managed modest gains (thanks to AAPL's help) - making new multi-year highs as yet another high stop-run was sent out early. After testing back under 13%, VIX popped back higher in the afternoon to close the week slightly higher. However, while stocks stumbled along sideways not really doing anything - every other asset class saw significant risk-off related moves. The USD saw its biggest weekly rise in 7 months! Treasury yields dropped 6-8bps - the biggest rally in bonds in 5 weeks. High-yield credit has suffered its biggest 2-week plunge in 9 months. WTI Crude saw its biggest weekly drop in 2 months. Given the USD strength, gold performed very well (ending the week unch). Stocks remain significantly dislocated from credit, rates, and FX markets in the medium-term (all of which closed the week with a risk-off shift). Volume, amid the blizzard, was dismal today.



Been a divergent week in risk assets...


as stocks just storm away from their risk-related brother in credit...


The USD surged by its most in seven months this week!


as the EUR lost 2% against the USD this week (and JPY is unch)...


HY Credit has seen the biggest 2-week drop in nine months!


Stocks ended the week notably out of line (short-term) from risk-assets - but all of the stock buying was early as the rest of the day saw risk in general being sold (as rates and the USD rallied and credit sold off). VIX and Stocks clung close together once again but VIX term structure steepened to its highest in a month...



While tracking the optical difference between credit and equity markets is useful...


...the relationship is notably non-linear. However, Capital Context provides a more useful tactical model to ascertain the separation between stocks and credit - for now, as the charts below show - stocks are 2.5 to 3% over-valued relative to credit (but bear in mind that as and when stocks correct, credit will also be offered and the mispricing can exacerbate). For now, the S&P 500 and Russell remain notably rich... suggesting market neutral positioning for any long book.


and of course, fundamentally, things do not look too supported here...


The major indices saw some heavy blocks go through into the last few seconds and AAPL was fading off its intrday highs - but today's volume was 20% below average.


In case you were wondering what was catching stocks each time they dropped - it appears (for now) that convergence trades with the old favorite 2s10s30s Treasury butterfly have been doing well...


Charts: Bloomberg and Capital Context


Bonus Chart: It seems once again that what European banks lose, Apple gains as the two fulcrum securities of the world look to be converging once again...

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VonManstein's picture

Bonds up, Stocks up, USD up

will result in

Bonds down, Stocks down, USD down

whoever doesnt realise this is dumb

Sudden Debt's picture

better enjoy the time before the big crash

Say What Again's picture

Starting from 11/16/12 the S&P500 is virtually a straigt line up except for the blip at the end of the year.

Now get this... 

The CAGR for the SP500 is just a bit under 50% !!!

The CAGR for the RUT is about 70% !!!!!

How sustainable is that?!?!?!?

Everyone on CNBC (including Ms. Fox) tell me this will continue for many months -- if not years!


kliguy38's picture

Yes I still remember like it was yesterday when I had a large short position in 2007 and CNBS continued to cackle daily how strong the market was and cheelead every higher high.......until the music stopped

TWSceptic's picture

They are an excellent contrarian indicator. When everything will look great and it seems the economy will follow the stock market, watch out below. Hard to say how close we are, but if Jim Rogers thinks it's close that should worry people. On the other hand inflation could keep stocks up until the bond market crashes (and perhaps even after), that's another possibility.

Sudden Debt's picture

And how is the S&P doing compaired to the Venezuela stockmarket?
same same I guess?

Silverhog's picture

"Joe For Oil" is fucked.

Banksters's picture

Navy: Lincoln Refueling Delayed, Will Hurt Carrier Readiness

The move by the navy is the second this week involving funding for carriers. On Wednesday it announced it would delay the deployment of the USS Harry S. Truman (CVN-75) to the Middle East do to the ongoing budget strife bringing the total number of carriers in U.S. Central Command (CENTCOM) to one until funding normalizes.

Ye Ole Navy can't afford fuel.   Time to tell the boys it is time to attack another country.   That script seems to be the most effective.  
Yen Cross's picture

 I have this tinfoil taste in the back of my throat?

SunRise's picture

Fillings leaking mercury & silver?

DoChenRollingBearing's picture

O/T, but of interest to anyone who might need the money...  Fringe Blogger Bearing offers $5.00 to the first correct guess as to WHAT that object is, whether by email (my moniker at gmail) or Comment:

"What is This?"


1)  One guess per person

2)  Contest ends 22 Feb at 11:59 PM US ET

DoChenRollingBearing's picture

Re Contest, "Matt C" has already won at 4:56 PM.

The answer is "Osmium".  It is a 1 oz pellet.

Dareconomics's picture

Dollar strength is temporary. € fundamentals point to a strengthening to $1.40 with the ¥ continuing to weaken in line with Japan's economic and fiscal picture:

Laser Shark's picture

King Dollar is back, baby! 

Kudlow should be happy now.

PAWNMAN's picture

Japanese currency devaluation is "working" as evidenced by recent government trade figures. If this continues, count on Helicopter Ben to doing some major devaluing USA style, and show them Japs how it's done. Let the currency wars begin!

VonManstein's picture

..........and it was 7 months ago that the DX topped.

not much left to the north

Melson Nandela's picture

Yes but thursday was a rare orgy for the shorts which means cover.

Melson Nandela's picture

Yes but thursday was a rare orgy for the shorts which means cover.

flow5's picture

I commented on 12-16-12, 01:50 PM #1 flow5

"We’re close to seeing the real power of OMOs. R-gDp is likely to accelerate earlier & faster than anyone now expects. The roc in M*Vt before any new stimulus is already above average. With low inflation (given some deficit resolution), Jan-Apr could be a zinger"

M1 - Jan 28 release @ $2,480.8T. This is very alarming growth. How will the Fed stop it?

We're fkd?

flow5's picture





2012-07 ,,,,,,,



2012-08 ,,,,,,,



2012-09 ,,,,,,,



2012-10 ,,,,,,,



2012-11 ,,,,,,,



2012-12 ,,,,,,,



2013-01 ,,,,,,,



2013-02 ,,,,,,,



2013-03 ,,,,,,,



2013-04 ,,,,,,,



Roc's in MVt are to soar!


Seasmoke's picture

i will be the guy in class who admits i dont understand.....please explain.....thanks

IridiumRebel's picture

Thanks Seasmoke....I had my hand up too.

IridiumRebel's picture

Better water the fucker down then.....THEN THE NUKES FLY!!!!FUCK YEAH!!!!

flow5's picture

Contrary to economic theory, & Nobel laureate, Dr. Milton Friedman, monetary lags are not “long & variable”.  The lags for monetary flows (MVt), i.e. the proxies for (1) real-growth, & for (2) inflation indices (for the last 100 years), have been mathematical constants.  However, the FED's target (interest rates), is INDIRECT, varies WIDELY OVER TIME, & in MAGNITUDE.

flow5's picture

First, there is no ambiguity in forecasts: In contradistinction to Bernanke (and using his terminology), forecasts are mathematically "precise” :


(1) “Money” is the measure of liquidity; the yardstick by which the liquidity of all other assets is measured;


(2) Income velocity is a contrived figure (fabricated); it’s the transactions velocity (bank debits - Vt) that’s statistically significant (i.e., financial transactions are not random);


(3) Nominal-gDp is the product of monetary flows (M*Vt) (or aggregate monetary purchasing power), i.e., our means-of-payment money (M), times its transactions rate of turnover (Vt);


 (4) The rates-of-change (roc’s) used by economists are specious (always at an annualized rate; which never coincides with an economic lag). The Fed’s technical staff, et al., has learned their catechisms;


(5) Friedman became famous using only half the equation (the means-of-payment money supply), leaving his believers with the labor of Sisyphus;


(6) Contrary to economic theory, & Nobel laureate, Dr. Milton Friedman, monetary lags are not “long & variable”.  The lags for monetary flows (MVt), i.e. the proxies for (1) real-growth, & for (2) inflation indices (for the last 100 years),  are mathematical constants.  However, the FED's target (interest rates), is indirect, varies widely over time, & in magnitude;


(7) Roc’s in (MVt) are always measured with the same length of time as the specific economic lag (as its influence approaches its maximum historical impact (not an arbitrary date range); as demonstrated by the clustering on a scatter plot diagram);


(8) Not surprisingly, the companion series, ....(their roc’s), corroborate both of monetary flows’ (MVt) distributed lags –-- their lengths are identical....;


(9) Consequently, since the lags for (1) monetary flows (MVt), & ...., are synchronous & indistinguishable, economic prognostications (using simple algebra), are infallible (for less than one year);


(10) Asset inflation, or economic bubbles, are incorporated: including housing, commodity,, etc. This is the “Holy Grail” & it is inviolate & sacrosanct:  See 1931 Committee on Bank Reserves Proposal (by the Board’s Division of Research and Statistics), published Feb, 5, 1938, declassified after 45 years on March 23, 1983.;


(11) The BEA uses quarterly accounting periods for real-gDp and the deflator. The accounting periods for gDp should correspond to the specific economic lag, not quarterly.  Because the lags for gDp data overlap roc’s in MVt, the statistical correlation between the two is somewhat degraded.  However the statistical correlation between roc’s in MVt, & for example, the bond market is unparalleled;


(12) Monetary policy objectives should not be in terms of any particular rate or range of growth of any monetary aggregate. Rather, policy should be formulated in terms of desired roc’s in monetary flows (MVt) relative to roc’s in real-gDp;


(13) Combining real-output with inflation to obtain roc’s in nominal-gDp, can then be used as a proxy figure for roc’s in all transactions. Roc’s in real-gDp have to be used, of course, as a policy standard;


(14) Because of monopoly elements, and other structural defects, which raise costs, and prices, unnecessarily, and inhibit downward price flexibility in our markets, it is advisable to follow a monetary policy which will permit the roc in monetary flows (MVt), to exceed the roc in real-gDp by c. 2 – 3 percentage points;


(15) Monetary policy is not a cure-all, there are structural elements in our economy that preclude a zero rate of inflation.   In other words, some inflation is inevitable given our present market structure and the commitment of the federal government to hold unemployment rates at tolerable levels;


(16) Some people prefer the “devil theory” of inflation: “It’s all Peak Oil's fault", ”Peak Debt's fault", or the result of the “Stockpiling of Strategic Raw Materials/Industrial Metals” & Soaring Agriculture Produce.  These approaches ignore the fact that the evidence of inflation is represented by "actual" prices in the marketplace;


(17) The "administered" prices would not be the "asked" prices, were they not “validated” by (MVt), i.e., “validated” by the world's Central Banks;


EclecticParrot's picture

Given it's Friday of a tough, annoying market week, and many of you East Coasters will soon be socked with a big storm, do you mind if I simplify?  You're worried about sudden inflation due to Bennie's Printing Press, right?  Well, then -- why didn't you say so in the first post :)

In my haste to preserve brain cells on a Friday for more imporant things (such as watching our phenom Kyrie play in a few hours) I assumed 'Roc' referred to the mythical Persion bird of prey which, in the context of your overall dissertation, makes more sense than rate-of-change.

Finally, it's worth mentioning, purely for personal reasons, that the economist I most respect in your above exegesis was Sisyphus, who would undoubtedly understand my battle YTD with TZA. Still, according to Camus, anyone going short over the past few months is a postmodern hero, something to be proud of.  It's not the destination that matters, but your principles.

runforthehills's picture

Our analysis tonight also shows that the decoupling between high-yield and equity probably won't last much longer

flow5's picture

In Irving Fisher's "equation of exchange": roc's in MVt = roc's in nominal-gDp.

flow5's picture

I commented on 12-16-12, 01:50 PM #1 flow5

The Fed doesn't know a bank (which creates new money whenever it makes loans or invests), from a non-bank (the turnover of existing money), i.e., doesn't know money from liquid assets (Keynesian confusion).

Expanded FDIC insurance coverage induced dis-intermediation within the non-banks (resulting in a de facto tightening of FOMC money policy). What caused M1 money growth to surge was that customers transferred their balances between deposit classifications - from savings/investment type accounts (interest-bearing without reserve requirements), to transactions based accounts (non-interest-bearing with reserve requirements).

M1’s growth rate simply represented both an indifference on the part of depositors/savers given historically low yielding assets, & a preference for reduced risk (saver/holders received 100% unlimited FDIC insurance in the deposit classifications where they moved their money).

Stocks current moves are PROOF:

Scaling back coverage will partially reverse prior trends. Prior reductions in RETAIL sweeps to MMDAs, & reductions in COMMERCIAL sweeps to money market instruments (T-Bills, Euro-Dollars, & institutional MMMFs), will also contribute to a higher future velocity of money & collateral.

The precise effect is hard to measure as contrary forces were at work. I.e., Operation Twist ended Dec 31st 2012 having re-infused short-dated "safe-assets" into the money market (facilitating shadow-bank lending or money velocity).

But savings that were formally impounded within the CB system will again be released & flow back through the intermediaries (intermediaries between savers & borrowers), where they are "put to work" (matching savings with investment). I.e., savings held within the CB system are "lost to investment" resulting in a leakage in National Income Accounting. Contrary to all economists, CBs do not loan out existing deposits, saved or otherwise.

As savings flow back thru the intermediaries it will boost the markets/increase real-gDp. It should also re-balance the EUR/USD exchange rate (as currencies will be converted), because it will stimulate growth in the unregulated, prudential reserve, money creating, Euro-dollar banking system.

flow5's picture

You'll notice that the roc in MVt fell in Oct & Nov foreshadowing declining gDp. But it has since rebounded. The trajectory for the figures is less than the numbers shown as the calculations haven't been normalized.

EclecticParrot's picture

Are you available for parties?  Specifically, a children's theme party?

flow5's picture

I'm not an apologist. I just seem to be the only one who knows that Ben Bernanke is directly responsible for the Great-Recession as Bernanke's team conducted a contractionary monetary policy that caused it (roc's in MVt were negative figures):

POSTED: Dec 13 2007 06:55 PM |

10/1/2007 * temporary bottom












10/1/2008 * possible recession

11/1/2008 * possible recession

12/1/2008 * possible recession

Exactly as predicted:

Even as the Commerce Department said Retail sales increased by 1.2% over October 2006, and up a huge 6.3% from November 2006.

flow5's picture

No completely booked up.

EclecticParrot's picture

How foolish of me to ask.  

Still, I'm a bit disappointed.  I was going to have you do a presentation on the importance of noncompetitive acetylcholinesterase inhibitors in driving scholarly achievement to a bunch of 5-yr-olds dressed in princess costumes.

SunRise's picture

No doubt, my face, this very moment looks like their faces would look.  This sounds like cool information, but it's inaccessible to me.  Still, it holds this glittering promise of value, so it's worth asking:  Could someone summarize(briefly) why this info. is important to me & my 5 year old in the princess costume? 

 I understand words like cheeseburger, shake, jeans, broke, rich, love, poof, and LOOK OUT BELOOOOWWW.

EclecticParrot's picture

It's possible he thinks Bernanke et. al. allowed the recession to happen by not diligently monitoring the rate of change in money flows in relation to GDP growth, and that now the reverse is happening and the ROC of GDP will explode, hence the markets shrugging off the negative 4Q GDP print.  

I suspect, however, that a better guidepost to the overall state of the world is the number of times Mendelssohn's Octet and/or Brahms or Dvorak's Sextets have been checked out of your local library.

moonshadow's picture

too much medical marijuana must be driving Your scholarly achievement

Grand Supercycle's picture

As mentioned, a significant USD rally awaits.

Equities,PM's,commodities,EURUSD,AUDUSD etc. will drop.

Grand Supercycle's picture

Capital Context: 'Stocks remain significantly dislocated'

Mmm.. where have I heard that before ?

flow5's picture

It's Leland Pritchard's theory (Ph.D. -Chicago, economics, 1933), 



flow5 (2/26/07; 14:34:35MT - msg#: 152672)

Suckers Rally

If gold doesn't fall, then there's a new paradigm.
Some people think Feb 27, 2007 started across the ocean. "On Feb. 28, Bernanke told the House Budget Committee he could see no single factor that caused the market's pullback a day earlier". In fact, it was home grown. It was the seventh biggest one-day point drop ever for the Dow. On a percentage basis, the Dow lost about 3.3 percent - its biggest one-day percentage loss since March 2003

flow5's picture


Written on Mar 30 11:31 am prior to the MAY 6th FLASH CRASH:

Assuming no quick countervailing stimulus:

jan..... 0.54.... 0.25 top
feb..... 0.50.... 0.10
mar.... 0.54.... 0.08
apr..... 0.46.... 0.09 top
may.... 0.41.... 0.01 stocks fall

Been saying this for the last 6 months. Should see shortly. Stock market makes a double top in Jan & Apr. Then the real-output of final goods & services falls/inverts from (9) to (1) from Apr to May.

Recent history indicates that this will be a marked, short, one month drop, in rate-of-change for real-output (-8).


flow5 Message #10 - 05/03/10 07:30 PM
The markets usually turn (pivot) on May 5th (+ or - 1 day).

flow5's picture


Monetary flows (MVt) peaked in July. "the stock market should be topping & in the process of a downtrend" Jul 21, 2011, 8:32pm by flow5

flow5's picture
The rate-of-change in the proxy for real-gdp (monetary flows MVt) peaks in July. The rate change in the proxy for inflation (monetary flows MVt) peaks in July. Therefore it should be obvious: interest rates peak in July. Because interest rates top in July, the exchange value of the dollar should resume it’s decline. A very good time to buy gold! The "Holy Grail" has no disclaimer posted by flow5 at 7:50 AM on 06/29/07
flow5's picture

These are posts.  I don't forecast.  My best call was the 1981 peak in yields.  Predicted AAA corporates to reach 15.48% Actual rate was 15.49%.

It wasn't luck.

flow5's picture

"The Federal Reserve Plans To Identify “Key Bloggers” And Monitor Billions Of Conversations About The Fed On Facebook, Twitter, Forums And Blogs"

This was meant to censor the Fed's technical staff.  Those Ph.Ds in economics that know what's happening.


flow5's picture


Quantitative Easing and Money Growth:
Potential for Higher Inflation?
Daniel L. Thornton

This is our means-of-payment money (transaction accounts) & the money multiplier (the true monetary base).