"Lights Out Stories Making The Rounds On Huge Losses"

Tyler Durden's picture

Some thoughts on markets from RBC's Charlie McElligott


Pockets of risk are notably higher off the initial "shock" levels seen last night (i.e. GBP trading back to 1.388 last from 1.323 low / JPY to 103.1 last from 99.0 low / FTSE from -8.7 to now “just” -5.1% / SPX at worst -120 handles to 1999, now 2032 last), as tactical market participants front-run expected liquidity injections and interventions from CB's to either ‘dip buy’ for a trade, or sell into.
Nonetheless, the ‎psychological damage overnight is simply jarring, and the long-term implications of the first domino in a potential "unwind" of globalization / shift to populism / protectionism / nationalism (see every nationalist right party calling for referendums throughout their respective countries in the EU) plays-out against a trading world lulled to sleep by the siren-song of "free carry," low vol and leverage.  As stated last week, when people, goods and money are unable to move freely, it's a global growth negative, period.

Just...wow. The "left tail" scenario has played-out, and now, we are in the midst of a real-time "Minsky Moment" in Europe.
The UK has voted to leave the EU, shocking pollsters, book-makers, statisticians and--even just a handful of hours ago--the universal "market" embrace‎ of an assumed "remain" scenario. I was part of that complacency.  On account of this “all clear” view, many market participants had spent much of this past week "grossing back up."
The market carnage is staggering with regards to the violence seen in such a short period of time, as the stress and convexity of the move is exacerbated by the inability and unwillingness of market-makers to provide liquidity. There are few bodies capable of catching the falling knife right now, which has been the exact "unintended consequences" of post-crisis regulation that banks and brokers have warned about. Markets could SURE use that dealer balance sheet, prop desk or stat arb market-making book to mitigate such exaggerated price-action, i.e. JPY moving 450pips in about 7 seconds last night when it made absolute lows.
Moves of this magnitude are pure reads on "force outs"...that wasn't discretionary selling / covering, as NOBODY was positioned for this.  The tide has "gone out"...and we are about to see who's been swimming naked.
It's "game over" for anybody out there who was short duration.  ‎CTA's / systematic trend strategies / managed futures funds / Crude and FX carry traders--all of whom exist on leverage--here comes "Mr Margin" calling on your risk longs.  Obviously the "long cyclical beta" equities trade, which has been the basis of the recovery off the February lows, is about to come unglued when the US opens.  Bank options dealer desks who by definition are "short volatility," as well as many clients who've made a living shorting vol in the post-GFC era as well--there are going to be some "lights out" stories making the rounds on huge losses...very scary stuff
LARGEST OVERNIGHT MOVERS ON Z-SCORE BASIS: EU-centric obviously, but the drag-down implications of the Dollar move higher (see: crude and EMFX) are very troubling.


And don’t sleep on EU credit, where both SubFin and Xover are seeing 3.5+SD moves (SubFin just behind Lehman for all-time largest % one day move).


WHAT IS MOST “AT RISK”?: EU periphery equities (BANKS BANKS BANKS SX7E now -16.3% on day and 32.7% YTD, along w/ consumer discretionary), Eu peripheral Bonds (BTPs and Bonos), EU FX (Sterling resets to a new level in light of current acct deficit, Euro resets on existential risk uncertainty freezing the entire union economy), EMFX breakdown on USD move and leveraged deployed in space, and flight to safety in Yen and Franc crushing Japanese and Swiss exporters and thus local stock markets.

-WHERE DOES THE $ GO?: Gold and all things US—UST’s, USD, even US equities (not immediately of course, but eventually on relative basis) seeing enormous safe haven bid.  "Low vol" / "anti-beta" market neutral / defensive sectors like utes, staples, telco and sleepy healthcare will obviously outperform against aforementioned cyclicals, beta, consumer discretionary and financials.

-WHAT MIGHT BE DIP-BUYABLE A LITTLE CLOSER TO THE “HOT ZONE”?: There will be support "at a price" on the ability for ECB to intervene in EU credit and periphery sovereigns (although CDS will u/p cash bonds)…but that is real “Kevlar gloves” trading with tight stops.

-RETURN OF THE DEFLATION TRADE: Dollar strength should be absolutely crushing for crude / commods / EM, as the deflation trade spectre rears its head again.  Difficult to touch any of this stuff for a long time as I anticipate persistent weakness in Euro continuing to help strengthen the Dollar.
So is there any silver-lining here? Most likely, all the "bad news" is out there for now as we enter the haze of the article 50 / Lisbon Treaty "trigger" (3 month lag while PM Cameron transitions the government) and an ambiguous negotiated withdrawal that follows.
Now, we watch for "market stabilizing forces"--central banks, FX and pension rebalancers, corporates hedgers etc--to "do work." IT'S TIME TO BE AWARE OF UPSIDE "GAP RISK" NOW AS THESE PLAYERS ARE FORCED INTO ACTION. Even more obvious are the conditioned "dip buyers" who are already front-running the above inevitable action.

-BoE rate cut just a matter of time…

-Coordinated liquidity‎ CB swap lines…

-Fed inability to act preemptively with a cut of their own as it's not a local issue.  QE4 not relevant as rates have only plummeted lower. Tough spot for Yellen.

-What's the PBoC to do?‎  Yuan fixes at weakest level against the Dollar since Jan ’11.  Watch this. 

-Govts intervening in FX mkts‎ real-time, esp the Swiss National Bank, and EM's (south Korea, India and likely Singapore already), with risk of BoJ soon...
Welcome to your summer.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
nibiru's picture

So finally we have the Brexit which can push the EU as a failed experiment off the cliff. 


Before that happens the Eurozone itself may collapse as Draghi has terrible record in fixing southern economies with printing.

We came a long way since EUR being 'as strong as Deutsche Mark'.


Government needs you to pay taxes's picture

We're heading in the direction of the D-mark as weak as the lira.

The Saint's picture

I just hope George Soros loses his ass during this volatility.

peddling-fiction's picture

I would bet against Soros losing his behind.

bamawatson's picture

in addition to soros, this is how we lost America

https://www.youtube.com/watch?v=fTEcL7bw6U4 (start at 1:32)

CPR Steps_30 pumps_2 breaths_then repeat's picture

Soros is bearish, betting on gold miners and the likes = he is making PROFIT!

MrBoompi's picture

People like Soros make money during episodes like this.  Who do you think manipulates the markets?  Who owns the algos and are the best front runners?  And even if they were on the losing side, a stretch in belief, would anyone feel sorry if Soros or a Rothschild lost 20% of his wealth?  These folks sell and buy through surrogates all over the globe.  Hard to track who owns what anymore, and that's how they like it.  

mkkby's picture

As a trader, I would be looking to buy in a week or 2. 

Funder mentals don't change a bit.  This is a pure emotional news event.

It will be interesting to see which funds die today.  Making leveraged one way bets with 50:50 odds is pretty bad business.  Maybe picking up those nickels in front of the train wasn't such a great idea.

Farqued Up's picture

It becomes more than emotional when Deutsche Bank, for example, has to be bailed when Holland or Spain or France hits the silk. It would be one helluva lot more emotional if the Fed were audited and Americans could see their tax money being funneled to foreign banks.

runningman18's picture

You have it backwards - the fundamentals are terrible. It's events like this that remind dopey investors of those fundamentals and that's why stocks are down. It's not emotion, it's the investment community being slapped out of their perpetual daze.

Kickaha's picture

You mean stocks selling on average at 24x GAAP trailing earnings?  Those fun dementals?

Bush Baby's picture

ZH ran an article stating Soros was loading up on shorts a few days back

Antifaschistische's picture

"there are going to be some "lights out" stories making the rounds on huge losses...very scary stuff. "


So, "traders" who spend their life using CB invented debt for highly levered bets......are  scared?


MalteseFalcon's picture

"lights out"


I want to see these parasites carried out on stretchers.

thesonandheir's picture

Loading up on risk just before the biggest risk event of the year.


And these guys are supposed to be pro traders?


Fuck me sideways. 

Mine Is Bigger's picture

It's other people's money.

They would not do it with their own.

Shift For Brains's picture

All I could think of when I read this and saw the boards was, "Fuck 'em all. Fuck 'em all. Fuck 'em all."

I hope this move pushes their brains out their nose and they have to use an orbital sander to get the shit stains off the trading floor.

Chore for today: Locate Union Jack pennant for my car. We're all Brits today.

Shift For Brains's picture

For those who would like to visually promote this historic vote, a Union Jack is one way.


I get no royalties, only satisfaction, from posting this.

Shift For Brains's picture

TD must have installed an Auto-Stutter Filter on this new site format. I've never had repeated posts until now...but what a grand day to get to repeat oneself.

New_Meat's picture

"fuck 'em all, fuck 'em all, the long and the short and the tall ..."

VAD's picture

What a great day it would be if the lights went out permanently on financial "markets".

11b40's picture

My sentiments exactly.  Crash this house of cards and let's start a rebuild on a real foundation.  The market riggers are getting burned along with the skimmer parasites playing in the rigged casino.  As someone who woke up and got out of the markets, seems like a good thing to me.  The things of real substance will bounce back quickly after the bubbles pop.

ack's picture

Oh noes...muh shekels!

DavidC's picture


"...NOBODY was positioned for this".

GOOD. If they were arrogant enough to assume there was no doubt of the result of the referendum they DESERVE to have their asses handed to them on a plate.


Hugh_Jass's picture

I always loved the Lira. Carrying around those L100,000 bills made me feel so rich!



JohnG's picture



I went to Rome in 2000.  Every morning we went to the ATM and withdrew 1 million Lira for spending money - like 500 bucks.  I thought it was sorta fun....


Bought my wife some jewelry, the conversation with my credit card security guy was interesting - 14 million Lira!!!


A shopkeeper tried to rob me.  My wife ordered a table runner....for 32,000 Lira.  When we went to pick it up it was 320,000 Lira.  She was pissed when I caught it - suddenly no speaky english.  It was fun listening to her bitch.....then walk out.

doctor10's picture

Finally!!! The end of the 20th century!!

We'll now see the worlds villains coming together to attempt to prevent the reclamation of sovereignity and wealth that comes with it

bamawatson's picture

the "unwinding" process will be fascinating to watch

a reality show learning opportunity for all

ebworthen's picture

The Euro is a failure, as is every other currency backed by Central Bank printing and bailouts of banks/corporations/insurers at the expense of the individual and the meaning of labor.

Central Banking and the unhinging of money from Gold and Silver, along with "globalization" was intended to rescind the Magna Carta and return the masses to serfdom; nothing less.

duo's picture

The speculators using leverage were never creating real wealth in the first place.  Why should we feel sorry for them?

DirkDiggler11's picture

Not all of the spectators are on the long side of the trade..

11b40's picture

I think I know what you mean, but I'm not sure you know what you said ;-)

Spectator vs speculator.

Fisherman Blue's picture

Any long with common storks that is not selling this morning is an idiot in denial and I do not care how hard the plung protection teams works it.

Truther's picture

Kill the fucking Bank(st)ers. Let them Screaaaam.

jamesmmu's picture

Britain's Vote To Exit Union, Bank of England Offers 250B euro Bail In!


nibiru's picture

Man exactly what happened in Austria - European Bail-on directive is going to be used a lot this summer.


Imagine if this can be done to medium-sized banks - what if they can do it to te whole sector?


NoDebt's picture

C'mon negative UST rates, come to papa.


Philo Beddoe's picture

Check its diaper. I think it is full of shit. 

But, yes, buy the shit up. No/sarc.


Government needs you to pay taxes's picture

The central banks will have to step up and 'define' the new floors in our highly manipulated markets.  True price discovery would mean equty prices down ~60%.

NEOSERF's picture

ANYTHING less than a 500 pt decline in the Dow is proof positive of the manipulation ability of the Fed, Treasury and large banks to move the markets in just about any direction at any time...

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) NEOSERF Jun 24, 2016 8:57 AM

Unleash the share buybacks!

kizell's picture

Very correct.   Last night s&p futures were down about 90 points.  A few hours later news circulates that CB's are meeting and making announcements, and what do ya know,  the s&p has erased half those losses.....and its not even 11:00 yet.   Hell the major indices may be green by day's end.

Calculus99's picture

It's why sytems are bullshit - you need to move/bend/meander with the price action to stand a good chance of making cash.

Having said that systems are good for making cash but only if you're the one running the firm and have lots of outside cash then you can skin them for that 2/20 and hope you get 3-5+ years before everything blows up.

These morons were probably long Cable yesterday when it was AT yearly highs and before a vote that could have wiped 20 cents within a few mins. What was the potential upside, maybe 5 cents at best, probably not even that. Morons.

adr's picture

Which way will the DOW break?

Up 1000 today or down 1000 today.

Philo Beddoe's picture

As an investor I will be big buyer at 330.  

DirkDiggler11's picture

Normally I would agree, but there are many people out to teach the peasants in the UK a lesson here, I see pain with a purpose for about 3-4 months.