Bonds & Bullion Bid As Dow Dumps To 4-Month Lows Amid Geopolitical Chaos

Tyler Durden's picture

A day dominated by geopolitical headlines saw stocks hit 4-month lows, gold jump to 3-week highs, and bond yields tumble to 14-month lows. The Dow made new "sell in May" lows today, now -1.5% from end-April (joined in weakness since then by the Russell). The S&P 500 broke its 100-day moving-average (and did not bounce) as USDJPY broke the critical 102.00 level. The Dow stalled at its 200-day moving-average (16343).  10Y Treasury yields continued to plunge pressing a 2.41% handle - new 14-month closing low-yields. Gold jumped above $1315 closing near the highs of the day (and silver above $20). The USD ended up on the day but JPY carry unwinds continued. VIX broke back above 17 (and remains inverted for the 10th day in a row). Equities continues to catch down to high-yield credit's weakness. A late-day buying-panic, sparked by VIX-slamming, was triggered as S&P futures broke 1900.


Gold reacted notably to every headline...


USDJPY was in charge (as EURJPY was off limits thanks to ECB and AUDJPY blew up last night)... 102.00 was all that mattered... fun-durr-mentals


Interestingly, The Russell 2000 remains green on the week with Trannies worst...


All the major indices are at or breaking key technical levels... (except Russell which is holding below)


"Sell In May" is working...


Stocks continue to slide towards credit's warning levels...


VIX pushed back above 17... but once the S&P 500 futures dropped to 1899.75, VIX was rammed lower...


With the VIX term structure inverted for 10 days now...


10Y Yields close at 14-month lows...


as the week sees compression accelerating


FX market were active with the USD ending higher - balanced between EUR weakness (Draghi's jawboning was mostly undone though) and JPY strength (carry unwinds)


Gold is up on the week as today saw oil prices start to react more as Iraq headline shit...


Charts: Bloomberg

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fightthepower's picture

Fuck you Rothschilds!

DoChenRollingBearing's picture

Stocks, bonds, real estate, etc. are all good investments.  But everyone should consider holding some alternative investments.  Especially quiet assets like gold.  Even Bitcoin and assets in other countries (think) are good diversification.

And diversification is good.

knukles's picture

Ta dah!
Getchur long income-stream now!  Offset with PMs!

That or make sure your job has beaucoup security and pay stability.
We be goin' down the Japanese path here, fellow Hedgies

Muh Raf's picture

I managed to avoid repaying all my debt obligations and make a full insurance claim through this little known trick which never fails to pay out :

aVileRat's picture

It's called taking profits on 2 days of vol. trading. This site used to have a strong following of pit makers & traders. Now ? 200 million notional is a ZOG plot.



SilverRoofer's picture

Marc fabre may be right 30 %correction doesnt seem to far off lol at the Humanoids calling him an idiot few weeks back

SheepDog-One's picture

30% 'correction' when everyone is leveraged around 30% means a whole lot of people completely wiped out and then some. Remember if you're 30% leveraged, it only takes about a 3% drop and that's a 100% loss.

Spungo's picture

Is it bad when VIX inverts?

jarana's picture

No, it's XIV.

Sorry, I had to say it ;)

knukles's picture

XIV + VIX = 7
Christie Legarde is satan's bitchez!

Cangaroo.TNT's picture

Iraq headline shit?

Tenshin Headache's picture

That's pretty much what we've been seeing when the Iraq headlines hit.

rum_runner's picture

"4-month lows"

The horror...  after a multi-year solidly up bull market this merits nothing more than a shrug.  Wake me when the acrid smell of fear is in the air and the talking heads actually get their tempers up.

hitting snooze.

El Vaquero's picture

You mean when the margin calls create a cascading effect?  We can only hope...

pods's picture

When fonz reports seeing "Watch for Falling Bankers" signs along Wall Street.


r00t61's picture

I have been saving articles since mid-2012 that have been calling for a stock market correction of 30-40%.  The authors run the gamut from Chris Martenson to Michael Snyder to Jim Kunstler, to Gerald Celente to Marc Faber to Peter Schiff and Nanex.

ZH just posted this less than 2 months ago:

Since those original calls we've had some blips, but the S&P and Dow have climbed relentlessly higher.  Even the Cyprus event in March of 2013 was shrugged off without a care.

I think we all agree that fundamentals are as bad if not worse than they were in '07/08, but the financial markets don't reflect that at all.  And if the markets have really become Skyneted to the point where the majority of trades are simply 2 HFT algos talking to each other, I don't think it's possible for a drastic market correction like the kinds predicted to occur of its own accord.  It would have to be something deliberate and based on human intervention, like the decision to whack Lehman Brothers to make Goldman Sachs whole in 2008.

Duffminster's picture

It is very easy to begin to believe this is true but unlike Chess, the derivatives markets are not a zero sum game and there are no predictable outcomes as the number of degrees of risk are N dimensional where N is greater than the number of counter parties and associated collateral.  So, no matter how complex the algorithms are, events such as the recent Portugese banking meltdown are not factored in.  A single major geopolitical or credit event can create massive risk singularities.   In many ways, while short term risks are less and smootheness is greater, the potential for larger scale instability is heightened as a result of long term massive QE.  

The situation in the Chinese Shadow banking sector itself is a massive, opaque and increasingly risky field of potential credit events.  Any sort of major disruption in Chinese real estate could set that sector off in my opinion. With ISIS in control of Mosul Dam the situation in Iraq has now reached a much higher risk of regional instability in my opinion.   The situation with Russia and the Ukraine is also extremely tense and ensuing events of that stand off have almost infinite risk ramifications.  Its no wonder 10 year treasury yields are at record lows even as QE is being wound down.  The market is aware of the huge increase in risks.  The VIX is manipulated in my opinion to make it seem like there is little volatility but those days may be ending shortly, depending on how geopolitical and credit markets play out.

Here is a little data I've pieced together on the situation in regard to China and its shadow banking situation:

It is the combination of the extremely high degree of opaqueness, secretiveness and shadow banking that underlies its global leadership in borrowing money that is at the root of this view.  I've compiled a number of different articles that serve as the basis of this view.

"China's $343 Billion in the Shadows"
China's "trust companies" are a growth industry, notable not for imparting stability to the $9.2 trillion economy, but for the red flags they raise. One figure stands out: the $343 billion these nonbank lenders owe in interest and principal repayments this quarter alone.

This topic may not sound very exciting to those far removed from the mechanics of China Inc. and President Xi Jinping's efforts to rein in credit and investment bubbles. But these nonbank lenders are at the core of the shadow-banking industry that makes China's financial system both opaque and fragile. The greater the repayment requirements, the greater the risk of a miss and the turmoil that might follow.

"China Default Storm Seen as Record Private Bonds Mature"
"...Premier Li Keqiang has sought to expand financing for small companies, which account for 70 percent of China’s economy, as expansion is set to cool to the slowest since 1990 at 7.4 percent this year, according to a Bloomberg survey. ..."

"...“The current risks exposed in the private-bond market are
probably a prelude to a storm,” said Sun Binbin, a Shanghai-based bond analyst at China Merchants. “There’s been improvement in only some sectors of the economy, not in all.” ..."

"China Inc borrows $14 trillion, overtakes U.S. as top corporate borrower: S&P"
"...The Chinese corporate bond market has overtaken the United States as the world's biggest and is set to soak up a third of global company debt needs over the next five years, according to rating agency Standard & Poor's,  underscoring the growing risk China's debt market is imposing on the global financial system. ..."

"...The Asia-Pacific region, led by China, is seen accounting for half of global corporate debt financing needs of $60 trillion over the five-year period to 2018 when the region will account for more than half the projected total debt outstanding of $72 trillion.

China, the world's second-largest economy is currently financing a quarter to a third of its corporate debt through its shadow banking sector and this had global implications, S&P said.

"This means that as much as 10 percent of global corporate debt is exposed to the risk of a contraction in China's informal banking sector," the agency said, estimating this at $4 trillion to $5 trillion. "With China's economy likely to grow at a nominal 10 percent per year over the next five years, this amount can only increase."

Cash flows and leverage at Chinese corporations are the worst among global peers, having deteriorated from being the best in 2009, according to a corporate financial risk trend measure used by Standard & Poor's...."

"China, the Death Star of Emerging Markets"

"...On any list of banking accidents waiting to happen, China is assured a place at the very top. But could a crash there take the entire global economy down with it?

Absolutely, says Charlene Chu, who until recently was Fitch's headline-generating analyst in Beijing. Chu has fearlessly trod into an area that China is trying desperately to keep off limits: its vast shadow-banking system. Now that she's working for a private firm that doesn't have to rely to governments for revenue, as do rating companies, Chu is free to speak completely openly. And is she ever. 

"The banking sector has extended $14 trillion to $15 trillion in the span of five years," Chu, who is now with Autonomous Research, told the Telegraph. "There’s no way that we are not going to have massive problems in China." What's more, she added, China "could trigger global meltdown." ..."


Eyeroller's picture

CNN and MSNBC all afternoon pushing "help the poor Christians trapped in Iraq".

Since WHEN did the lamestream give a rat's ass about Christians???

How is the plight of Christians in Iraq any worse than the Christian slaughter in Syria?

THEY HAVE BEEN GIVEN ORDERS to push for military intervention in Iraq.  WHY?

Methinks it's a trial balloon to get us ready for military intervention in Ukraine.

SofaPapa's picture

If it were not for an unbelievable restraint from Russia, with war on its borders yet not explicitly crossing that border, war would already be here.  TPTB want it.  Syria / Ukraine / ISIS proves it.  They are desperate for a "real" war.  They are desperate to deflect attention away from their own failures and on to another stage.  They also do not like the world watching the immoral slaughter of innocents going on in Gaza.  We are being sold "Putin is an evil man" HARD.  I pray in the west we are further evolved than to fall for such a blatant propaganda effort.  When people are awake enough to see that while Putin is a hard man and capable of brutality, he is no worse than the ones directing the effort against him, we will be getting somewhere.

I Write Code's picture

I just got an email:

I'd like to connect with you on LinkedIn.  
Janet Yellen  
Chair at Chair of the Board of Governors of the Federal Reserve System

I'm very excited.  I've never counted Janet Yellens on LinkedIn, but there are a couple of dozen Barack Obamas.



Jack Sheet's picture

did she specify what form the "connection" would take?

Debeachesand Jerseyshores's picture

Go Gold and Silver etc............

WarPony's picture

More like, buy mid-May and sell on late July.  But WTF do I know?

Bossman1967's picture

just to think this morning all seemed good and wham bam thank you ma'am all hell broke loose

NoIdea's picture

Big bounce coming tomorrow - the Fed has your back. BTFD!

Rainman's picture

Squid predicted 1900 by year end so this gotta be the floor ... double BTFD !

disabledvet's picture

I agree with this. We'll see but with Japan now openly managing their monetary policy as a "portfolio acount" it's hard to imagine the Fed not doing the same thing.

I certainly think I understand the PRINCIPLE behind the ACA (get something other than war for your tax dollars) but it sure doesn't look like anything other than a catstrpohic roll out.

In the meantime "we're talking airstrikes."

Or I should say "a lot more than just airstrikes." I mean seriously (and obviously) "we're up to our eyeballs in War right now" and I ain't talkin Grenada.

ghostzapper's picture

1890-1905 potential reversal zone not a guarantee but the most likely scenario currently.  if that happens full retard momo bonanza one final time to 2100ish.


interesting indeed Russy showing the best relative strength.  maybe da boys getting a step ahead in case the above did indeed come to fruition.  nah, never happen right?


plunge through 1890 toss all this out the window and wait and assess again. 

Ban KKiller's picture

Twelve inches of snow in NYC. Hawaii sinks into ocean. Wall Street works for main street. 

Press release from tomorrow...

WTF you don't like my news?

Jack Sheet's picture

Guess we'll have to wait a few more years for the "Bonds Buggered" headline.

SheepDog-One's picture

Gee, and everyone piled in long this morning for the big POMO up day.

TheRideNeverEnds's picture

Well I do hope we get some sort of bouce here, with this down move my deltas have gotten back up from an irrisponsibly large negative number to basically flat and now I feel long to the gills.   Admittedly in retrospect I covered some stuff too early but whocouldaknowed?

Keltner Channel Surf's picture

With no desire to hurt the small investor, I still believe it would be healthy to see a major breach, whether geopolitically or technically fueled, starting in the Russell soon that drags its bigger brethren down sharply, say 350+ points on the Dow, with follow thru next week. 

Unfortunately, having stared at every 2, 5, 15 and 60-min bar in RUT for nearly 3 years, I believe it’s far more likely, based on this week’s action, that we’ll instead see a morning ambush that leads TNA screaming past 72 (and the 200 DMA) by noon, with the normal 12:35 shorts goosed silly til 2:45 or later, at the very first hint of a morning “good news” geopol headline, sometime within 5 days.

I could be wrong -- I hope I’m wrong – but the fact that the most “risky” Yellen-chastised index outperformed, stayed well above Friday’s lows, defended Monday’s low EASILY despite headlines, and saw a positive hourly Aroon since Monday’s close, makes the risk, absent stronger headlines, greater for shorts than longs.

jubber's picture

anyone expecting an overnight rip your face off ramp?

I Write Code's picture

Yup.  Or could wait until Monday.  Unless, y'know, Armageddon intervenes.

I Write Code's picture

Dow is now on the 200ma.

McClellan summation index (an intermediate VIX-like indicator) is now just about zero.

This is where Yellen catches the markets and holds them tightly between her knees for just about as long as she can.  So a moderate rise is pretty much required Friday or Monday.

So much for the equities markets, meanwhile bonds have moved up (yield lower) which was not in the script.  So what happens next, on-script or off, for bonds and/or equities?

Stay tuned, bat-traders, same bat markets, same bat indicators.