"The Entire Risk Paradigm Is Shifting" - Stocks Join Global 'Reality' Adjustments

Tyler Durden's picture




 

Submitted by Jeffrey Snider via Alhambra Investment Partners,

The focus on China as if their problems were only Chinese is highly misplaced, though you can understand the appeal of the excuse. This sentiment was expressed over and over today (just as it was in August):

Do we all live in China now? Investors could be excused for thinking that, given that arcane indicators such as a Chinese manufacturing index and the value of the Chinese yuan are inducing nauseating drops in the U.S. stock market. And the surprise halt to trading in the latest Chinese session, a mere 30 minutes after markets opened, has thrown U.S. and European markets into a tailspin.

 

Last we checked, however, the Dow Jones and S&P 500 indexes were composed of U.S. companies that might do some business in China, but still earn the vast majority of their revenue elsewhere. And elsewhere, economic fundamentals are looking way better than the gloomy start to this year’s trading would suggest.

This is one of those forest and trees moments that get caught up on the surface of anachronistic thinking. Even if all that were true, the fact that China is an export economy having trouble finding any sustained and sufficient demand for its industrial capacity is a direct reflection upon global “demand”; which still includes the same business climate that US companies derive their revenue and earnings from.

But it never really is so much about business today as it is risks for business tomorrow. In raw terms, if Chinese firms and its economy can so struggle in this environment it stands to reason to at least contemplate why that might be – and how that might directly reflect on domestic considerations. Further, as noted earlier, risk perceptions have changed as the FOMC is no longer given blanket faith to declare whatever sky color they wish. Stocks really haven’t had much success, overall, in a year and a half; a pause that itself should register as complimentary to the Chinese struggles.

The S&P 500 is down just over 7 percent from its May high, but the average stock in the larger S&P 1500 was down 24 percent from its high as of yesterday’s close, according to new research from Bespoke Investment Group. A bear market is defined as a decline of 20 percent or more, meaning the average stock has already reached that threshold.

As Bespoke points out, the pain in stocks is not just energy-related shares. Small caps are among the hardest hit (the S&P 600 small cap is down an astounding 28% from its high!) as well as consumer discretionary stocks; the very sorts of economically-sensitive issues that should be leading the market if this was just China as China. Instead, they suggest China is, again, finding difficulty in no small part because of intensifying US struggles. That much has been obvious from trade figures which declare in no uncertain terms the great and ongoing lack of US “demand.”

From that visible contradiction, the entire risk paradigm is shifting more so than it already has. Commodities and “money” more broadly are winning the argument, so to speak, having declared long ago greater downside risks. Now that those are becoming rapidly the actual baseline, even for stocks, what is taking place in China is the connected realignment of monetary condition in that frightening direction. Stocks are finding more downside volatility because stock investors are being forced to recognize in truly comprehensive fashion that there is an actual and sizable downside.

ABOOK Jan 2016 Dollar HYG GSG SP500

This is increasingly taking on the proportions of a global reset. As such, the “dollar” stands right in the middle of it as both messenger and agent. You cannot separate China from the whole as China isn’t really the problem but rather the most visible symptom of it. If there were a full recovery as the FOMC claims in moving against the possibility of overheating, financial firms would be at the front of that greedily taking up the mantle of raw financial opportunity. They did so in times past, usually in direct relation to the QE’s – and were only burned for their trouble. There is no recovery opportunity, which is why they have been retreating in “money” in really precipitous fashion.

It is the very mechanism of discounting. The fact that stocks may also be participating is a very important indication of how much that has penetrated into broad and systemic perceptions. China matters, but not so much just for China. The US may look lackluster (to some, a narrowing minority) by comparison to the direction of China’s economy, but that really doesn’t tell us as much about tomorrow as is repeatedly claimed. A chronically ill economy is highly susceptible not to catching fire and taking off, but rather to converging with all the very real disasters already spreading globally – the risk that money markets are increasingly discounting and carrying out. Financial markets are obviously more and more worried that memories of lackluster will be all that there was of the QE-driven cycle.

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Fri, 01/08/2016 - 15:40 | 7018575 Bastiat
Bastiat's picture

Looks like the Clinton "Risk Paradigm" may be changing too:

The latest batch of Hillary Clinton emails released by the State Department early Friday contain what may be the smoking gun that forces the Justice Department to charge the former secretary of state with a crime, according to former federal prosecutor Joseph diGenova.

“This is gigantic,” said diGenova. “She caused to be removed a classified marking and then had it transmitted in an unencrypted manner. That is a felony. The removal of the classified marking is a federal crime. It is the same thing to order someone to do it as if she had done it herself.”

http://www.lifezette.com/polizette/smoking-gun-email-suggests-hillary-co...

 

Fri, 01/08/2016 - 15:41 | 7018587 surf0766
surf0766's picture

good arrest all the progressives.

Fri, 01/08/2016 - 15:59 | 7018668 Mark Mywords
Mark Mywords's picture

Hillary Rodham Clinton, a progressive. Thanks. That was the best joke I've read all day.

As for arresting all of us progressives, just be cognizant that us *true* progressives are with you on ending the Federal Reserve and doing away with billions upon billions of dollars in waste and corporate welfare.

Fri, 01/08/2016 - 16:12 | 7018764 Unstable Condition
Unstable Condition's picture

The partisan divide helps keep us all at each others throats and the sociopaths in charge.

Fri, 01/08/2016 - 16:47 | 7018961 Bastiat
Bastiat's picture

How about  "Charge a bloody sociopath with a felony when you get a chance." 

It's like getting Al Capone for tax evasion.

Fri, 01/08/2016 - 18:42 | 7019437 Consuelo
Consuelo's picture

If by 'progressive' you mean progressing towards a vastly pared-down State apparatus, along with what you already mentioned, I'm with you all the way ---

Fri, 01/08/2016 - 23:47 | 7020517 TrustbutVerify
TrustbutVerify's picture

"Progressive" = "Regressive" 

Fri, 01/08/2016 - 15:46 | 7018608 Bastiat
Bastiat's picture

A downvote?  A "my-Clinton-right-or-wrong" progressive?

Fri, 01/08/2016 - 15:55 | 7018649 2ndamendment
2ndamendment's picture

Progressive Democrats care about the result, not who or what they have run over to get there. 

 

RULE 12: "Pick the target, freeze it, personalize it, and polarize it.” Cut off the support network and isolate the target from sympathy. Go after people and not institutions; people hurt faster than institutions.

Fri, 01/08/2016 - 15:54 | 7018632 lakecity55
lakecity55's picture

Valerie and Bath House get their revenge on Hitlery; Shotgun Joe and Pocahontas for the Nomination this summer!

 

"Those cuffs look good on you, Hitlery. That's why I had the Marshalls charge you here in the oval orifice!"
" You tricked me! You and Val invited me for lunch!"
"They serve a bag lunch on the prison bus."
Grrr! I'll get you both! Help me, Bill!"
"Ahh, honey, ah didin have anythang on that server. I warned you about it! I want these US Marshalls to hear that, too!"

Fri, 01/08/2016 - 15:57 | 7018659 Hitlery_4_Dictator
Fri, 01/08/2016 - 16:04 | 7018700 Soul Glow
Soul Glow's picture

+400 Monday?

Fri, 01/08/2016 - 16:25 | 7018853 Yen Cross
Yen Cross's picture

 I wouldn't be surprised to see even more weak longs evaporated on Sunday.

 I think your idea is valid... It's just delaying the inevitable though.

Fri, 01/08/2016 - 16:58 | 7019030 Angel_Eyes
Angel_Eyes's picture

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Fri, 01/08/2016 - 17:17 | 7019124 The Saint
The Saint's picture

Call me psychic but I'm sure we had already heard about this email with Clinton telling her aid to strip the headers and send the damn classified information.

Fri, 01/08/2016 - 15:38 | 7018576 buzzsaw99
buzzsaw99's picture

"markets", "risk", lulz. you mean it isn't all rigged anymore?

Fri, 01/08/2016 - 15:43 | 7018600 Osmium
Osmium's picture

You bet.  But it is strange that there wasn't a 3:30 ramp today.

Fri, 01/08/2016 - 15:50 | 7018610 DogeCoin
DogeCoin's picture

We got a 3:30 dump. Even better, Americans need to trim some fat.

Fri, 01/08/2016 - 15:51 | 7018634 WTFRLY
WTFRLY's picture

This is kinda like watching a drunk person who is about to vomit. Some can see it coming a mile away and don't get splashed.

Fri, 01/08/2016 - 15:55 | 7018648 Son of Loki
Son of Loki's picture
Kohl's Corp. (KSS) Plunges 5.72% last I looked today. Moar "Robust Recovery" from the "Yes we can" peeples.
Fri, 01/08/2016 - 15:56 | 7018655 847328_3527
847328_3527's picture

"Recovery" spreading looks like.

 

 

"Exceptional!"

Fri, 01/08/2016 - 16:05 | 7018705 techpriest
techpriest's picture

I sold what stocks I had last June. "Panic early and beat the rush!"

Fri, 01/08/2016 - 21:23 | 7020092 SquadronVBF94
SquadronVBF94's picture

The only stocks I still hold are PM miners and oil well eqip. suppliers. PMs will go up and take the miners with them and no matter what the current "over supply" situation is the world isn't going to stop needing or using oil anytime soon.

Fri, 01/08/2016 - 15:47 | 7018615 buzzsaw99
buzzsaw99's picture

well according to dudley there is no fed equity market put so there's that.

Fri, 01/08/2016 - 15:57 | 7018662 xrxs
xrxs's picture

The ramps have been at 11:30 it seems of late.

Fri, 01/08/2016 - 16:40 | 7018922 LawsofPhysics
LawsofPhysics's picture

Exactly. Life on main street has always been "risky". I will believe that a shift in that paradigm has occurred when I start seeing blood from the severed heads of the bankers/financiers and the political class.

Could be a while.

Fri, 01/08/2016 - 15:41 | 7018588 DogeCoin
DogeCoin's picture

"We frontloaded an enormous stock market rally." Richard Fischer former Texas Fed Bank President.

Fri, 01/08/2016 - 15:42 | 7018591 KnuckleDragger-X
KnuckleDragger-X's picture

It's merely a glitch in the Matrix. OK, everbody, act surprised like it's completely unexpected........

Fri, 01/08/2016 - 15:43 | 7018598 buzzsaw99
buzzsaw99's picture

the algoz are merely raising cash for the next rally

Fri, 01/08/2016 - 15:48 | 7018617 Soul Glow
Soul Glow's picture

The cash/dollars are ever inflating their purchasing power away.  The diminishing reterns on this over-indebted "market" are starting to show.  Buybacks ain't what they used to be.

Fri, 01/08/2016 - 15:43 | 7018595 Soul Glow
Soul Glow's picture

At least Janet still has utility stocks.

Fri, 01/08/2016 - 15:50 | 7018616 Slowdrip
Slowdrip's picture

Winky and whores numbers, look to take a hit this weekend in the Hamptons. Booze sales, probably up, in anticipation of 'Black Monday'.....or, maybe not....

Fri, 01/08/2016 - 15:50 | 7018624 Janet Shalom Be...
Janet Shalom Bernanke's picture

The market got "El Chapo"ed today.  Wll it escape again thru the floor of the toilet?  Not likely.

 

Fri, 01/08/2016 - 15:49 | 7018625 BiteMeBO
BiteMeBO's picture

Stocks are Pet Rocks.

Fri, 01/08/2016 - 15:51 | 7018637 Yen Cross
Yen Cross's picture

 I guess the FANG's are catching down to reality?

 Yeah, the divergence is catching down, as it should be.

 What's funny, is how these assclowns try to> re-lable growth to value.

 Dividends aren't going to save you bitchez.

Fri, 01/08/2016 - 19:35 | 7019626 Farmer Joe in B...
Farmer Joe in Brooklyn's picture

Hahaha.... I have friends who think they are so smart buying a basket of dividend-paying stocks.  The 4-5% current income won't do jack shit for them when the equity price gets cut in half... AND they reduce or suspend the dividend. 

Oh well... I've tried talking sense into people. Hope they don't come to me for handouts later.

Tick tock, tick tock...

Fri, 01/08/2016 - 15:54 | 7018640 TheRideNeverEnds
TheRideNeverEnds's picture

Times may be uncertain in equities but at least you can still count on silver going lower.  

Fri, 01/08/2016 - 15:56 | 7018653 Squid Viscous
Squid Viscous's picture

lol - how much you down since end of 2015 window dressing chump?

Fri, 01/08/2016 - 15:54 | 7018644 Sanity Bear
Sanity Bear's picture

It's 3:30pm... buy buy buy buy buy!!

 

no wait it's going the other way today.... sell sell sell sell sell!!!

Fri, 01/08/2016 - 16:09 | 7018741 reload
reload's picture

whtat an Ugly close

at the lows of the week. i dont watch the talking heads, but would love to se how they spin it tonight!

Fri, 01/08/2016 - 15:55 | 7018647 irishlink
irishlink's picture

Is China having a 1929 moment? Can you imagine a Great Depression in a country with a population 5 times bigger than USA in 1929

Fri, 01/08/2016 - 16:39 | 7018915 Raging Debate
Raging Debate's picture

Irish - The violence is going to be even more epic than here. Still, in about 3-4 years may move there I think they will find a way. Always did like the chinks I just dont want to continue emulating there entire culture of command economy. 

Fri, 01/08/2016 - 15:57 | 7018660 LawsofPhysics
LawsofPhysics's picture

The tyranny/takeover began in 1913, the last string keeping the monechangers in check with reality was cut in 1971.

Honestly, I am surprised the FRN is still accepted at all, but it is a FIAT world after all.

Fri, 01/08/2016 - 15:58 | 7018664 Jack Buster
Jack Buster's picture

No 3:30 ramp......glad I stayed away from this.  2 more oz of gold to be delivered today.  Think I'll go shopping for more food storage and some 9mm & .223.

 

All you pm naysayers ....... soon to be sol.

Fri, 01/08/2016 - 16:01 | 7018681 Bastiat
Bastiat's picture

Waterfall protection team steps in for the last few minutes juices the DOW off it's lows, S&P, not so much.

Fri, 01/08/2016 - 16:02 | 7018692 gaoptimize
gaoptimize's picture

They leave early on fridays.

Fri, 01/08/2016 - 16:15 | 7018788 jcdenton
jcdenton's picture

I prefer the term -- Restart ..

 

Even better ..

Re-grouping

 

There are numerous Intel insiders and true Patriot “Intel Cowboys — White Hats”, members of the High Military Command and many others who are working to restore the American Dollar to what it should rightfully be, real true Constitutional money, backed by Gold and other commodities. This coming major World Financial Reset should more realistically be called a World Monetary “Restart” or “Re-grouping” rather than “Reset.”

 

The final result of all this is likely to be a major Restart and Re-grouping of monetary and credit policy inside America and a restoration of Constitutional Currency without offshore, City of London controlled foreign invaders disguised as bankers. As long as cooler heads prevail and prevent the World Zionist invaders and hijackers of America from starting a nuclear WW3, a major new war in the Mideast or the Ukraine, or Homeland Security from provoking a major Civil War inside America, it looks like Americans will see a return of the real USDollar, real United States Constitutional Money.

 

http://www.veteranstoday.com/2014/07/30/the-coming-return-of-the-real-us...

Perhaps the Sino turmoil we are witnessing is more an indication of what happens to a fiat currency adopted and injected with steroids in a shorter period of time. It is believed that the PRC's debt to GDP is closer to 3:1 (or 300% of GDP). At the same the USA is closer to 1:1. Why the USA is not suffering same turmoil as the PRC at present, and may never suffer such. All the more reason because an alternate monetary system is in progress and in parallel. Almost undetectable. Further evidenced via plans to greatly reduce the national debt, as a debt monetary system is systematically weened off of .. 

http://eagleonetowanta.com/?p=297

Fri, 01/08/2016 - 16:42 | 7018939 Raging Debate
Raging Debate's picture

Jc -  A lot of good effort but expect the nukes. Traitors are not going to step up a and say hi send me to jail please. Yes, the Republic will be rebuilt. Look after one another and it will be less harsh and will be rebuilt faster than some here think. 

Fri, 01/08/2016 - 16:22 | 7018837 Yen Cross
Yen Cross's picture

 The euro devalued much less than 30%. This guy is clueless, and knows NOTHING about how the euro was cross hedged in the Chinese markets.

Fri, 01/08/2016 - 17:35 | 7019179 Gambit
Gambit's picture

Yen, as your biggest troll I am asking you if you could kindly share your thoughts on this as I would like to educate myself. And no, I am not being facetious.  

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