UPDATE: VIX just spiked again to 19.53%
While we have already heard this morning of numerous Nasdaq options markets prices being crossed, the latest SNAFU involves nothing less than that ultimate lever of market performance - the VIX - which just flash-smashed:
*VIX EARLIER SURGED TO 21.26 IN SINGLE TRADE THAT WAS ERASED
*VIX SURGES TO 15.27 BEFORE IMMEDIATELY DROPPING TO 14.17
It would appear that fist-stomping the "Sell VIX" button too many times on the Fed's Bloomberg terminal keyboard temporarily exposed reality. Or did the Fed realse its statement prematurely once again?
In what can only be characterized as a stunning moment of transparency for the Obama administration, now 5 years into its reign of "unprecedented transparency" not to mention hope and change, US Health Secretary actually did the unthinkable: she took responsibility. "Hold me accountable for the debacle," Sebelius said in response to accusations at a congressional hearing today that her deputies failed to do their jobs. "I’m responsible."
BNP: "The Bigger The Rally, The Worse The Sell-Off Will Be" And "When The Fed Tightens, Bad Stuff Happens"Submitted by Tyler Durden on 10/30/2013 10:50 -0400
- History tells us that when the Fed tightens, bad stuff happens. The bond sell-off this summer on the mere announcement of QE ‘tapering’ is a case in point.
- Bonds will suffer when actual ‘tapering’ is announced. When it starts, we are likely to trade through the previous high for yields.
- Equities may look fairly immune at first, but as QE buying fades and eventually stops, take care. Any equity sell-off will have a knock-on effect on bonds and the economy.
- How large the effect on the markets will be will depend on how much the markets rally while QE is ‘on’. The bigger the rally, the worse the sell-off will be.
"We now rely on social structures that barely existed 150 years ago. The order and functioning of modern societies, economies and militaries depend upon tight coordination of logistics and operations. Disrupt the synchronization, and the whole system of systems becomes unreliable—thus diminishing the nation’s power and influence."
"The century-old dream and nightmare of crippling a modern society by wrecking its infrastructure—or just by disturbing its synchronization of functions—is now a reality others are dreaming of employing against the United States"
"The NSA and USCYBERCOM operate under multiple layers of institutional oversight that reinforce our commitment to privacy and civil liberties."
"Far from imperiling civil liberties and privacy, the tight links between the NSA and our growing cybercapabilities help to ensure professional, sober and accountable consideration of potential impacts from our operations."
"Building that extended cyberenterprise now is indispensable to our ability to deter and defeat enemies in cyberspace so that they do not threaten our security, prosperity and way of life."
In yesterday's stage-setting drama, "coming in mid-November" replaced of the often heard "plead the fifth" as response of choice for Marilyn Tavenner (CMS Administrator). Today brings the main event, amid another server crash, as Kathleen Sebelius (HHS Secretary) takes the stand to explain healthcare.gov's shortcomings and how great it will all be at some point in the future if we just have some patience, spend a few more billions of taxpayer money on lines of code, and ignore the fact that the website is just the start of the problems with Obamacare... Her initial remarks (released early - below) are almost exactly the same as her testimony to Congress (and a carbon copy of Tavenner's remarks): “I want to assure you that HealthCare.gov can be fixed, and we are working around the clock to give you the experience that you deserve.”
US and European stock markets (and European sovereign bond markets) have been sliding since early in the European morning overnight. The blame for the weakness appears to be coming from a double-whammy in Germany. First the German government resolved to push for the financial transaction tax (despite banks rejection of the proposal - well they would wouldn't they) and then later in the day when Germany's emerging coalition rejected the last-best-hope for shared sacrifice (or using more of Germany's balance sheet) - The Debt-Redemption Fund - leaving more pressure back on Draghi to save the day. Anxiety in the US is clear with VIX (and credit spreads) rising as hedgers are active - and of course, markets are broken with NASDAQ options prices 'crossed' acording to some sources.
There was a time when the Fed's QE was, at least on paper, supposed to generate jobs (the broad inflation will come on its own, in due course). After all, the prospect of injecting $85 billion in liquidity into a market with the sole goal of pushing the stock markets that benefit the purchasing power of about 10% of the population would hardly have received broad approval even by the co-opted Congress. So, to all those who still naively claim Fed is not the sole reason for the market's relentless march higher, those billions in liquidity must go into the economy, and specifically into job creation, right? As a result, we decided to back into what the average private sector job has ended up costing the US population in pure dollar terms (which in turn ultimately manifests itself in terms of unsustainable government debt and pent up inflation) via the Fed's monetary pathway. Well, according to the ADP data released earlier, in which a paltry 130K private sector jobs were created in a month in which the Fed, as always, injected $85 billion, the bottom line came to a whopping $654K per job! And taking the average job growth throughout 2013, this number, as can be seen on the chart below, is a laughter-inducing $553K!
Another day, another broken market microstructure:
- *BATS OPTIONS HAS DECLARED SELF-HELP VS INTL SECURITIES EXCHANGE
- *NASDAQ OMX PHLX HAS DECLARED SELF HELP AGAINST ISE, ISE GEMINI
Perhaps we should rename the US equity (stock and options) markets - NasdaCare
It's painfully obvious that real estate valuations are once again at asset-bubble extremes. Defenders of current real estate valuations can draw upon an array of justifications, but they boil down to the same one used to justify valuations in every asset bubble: this time it's different.
If there was another reason for the Fed to keep its foot 'through' the floor, it is the fact that despite a record growth in the Fed balance sheet YoY, CPI (ex food and energy) dropped to 1.7% and missed by its biggest margin in 14 months. This is the 2nd lowest print in two-and-a-half years. Perhaps most dismally, real hourly wages rose at only 0.9% year-over-year - around half the rate of inflation. Overall, energy costs rose the most MoM (+0.8%) while Apparel fell 0.5% MoM (its biggest drop in 6 months as we suspect the JCP-driven sales deflation has begun already); and given Sebelius' testimony today we note that healthcare costs are up 2.4% YoY (almost triple the rate of wage increase).
As we mentioned earlier, if there was one thing that would guarantee an 1800 print in the Stalingrad and Propaganda 500 index today, it was a 0 or negative ADP print. Well, it wasn't that bad. But it was close: with a paltry 130K private jobs created in October, this was a monthly plunge in private (i.e. non-government) payrolls, well below expectations, and substantially lower than the September 166K print which also was revised lower to 145K. It was also the 4th consecutive monthly decline starting with a 190K print in June, and it's all downhill from there. Finally, this was the 7th ADP miss in the past 8 months. We can't wait as the spinmasters do all they can to explain how private payrolls were affected by a government shutdown.
Remember when minutes before the September FOMC announcement everyone was absolutely certain the Fed would announce tapering, only to leave a lot of very angry traders fuming? Fast forward one month when everyone is absolutely certain, again, that there is no way the Fed can announce anything even remotely suggesting a taper. One wonders though: since the Fed has by now burned all credibility bridges, and since the capital market bubble is now far greater than it was when both Stein and Bernanke, implicitly, warned about a building asset bubble (a chorus which has now been joined by JPM, Pimco and BlackRock) in early 2013, would today not be the best opportunity for the Fed to once again stun the market with a dramatic policy U-Turn, just to teach those momentum wave-riding vacuum tubes who is in charge? Probably not. However, as Lloyd Christamas noted, there is a chance. Deutsche Bank's Jim Reid explains why.
- Morning Humor from Hilsenrath - Fed Balance Sheet Not Seen Returning to Normal Until at Least 2019 (WSJ)
- Health Policies Canceled in Latest Hurdle for Obamacare (BBG)
- Was there anything RBS was not manipulating? RBS Said to Review Currency-Trading Practices Amid Probe (BBG)
- Sebelius to Testify Before House Panel (WSJ)
- And more humor: Spain's Statistics Institute Confirms End of Recession (WSJ) ... and now we await the triple dip
- Finally some credible reporting on Yellen's "foresight" - Yellen feared housing bust but did not raise public alarm (Reuters)
- Japan government moves closer to Fukushima takeover (FT)
- China to step up own security after new NSA allegations (Reuters)
- Blackstone Vies With Goldman in Spain Rental Housing Bet (BBG)
- In new U.S. budget talks, Republican proposal has flipped the script (Reuters)
The overnight fireworks out of China's interbank market, which saw a surge in repo and Shibor rates (O/N +78 to 5.23%, 1 Week +64.6 to 5.59%) once more following the lack of a follow through reverse repo as described previously, and once again exposed the rogue gallery of sellside "analysts" as clueless penguins all of whom predicted a quick resumption of Chinese interbank normalcy, did absolutely nothing to make the San Diego's weatherman's forecast of the overnight Fed-driven futures any more difficult: "stocks will be... up. back to you." And so they were, despite as DB puts it, "yesterday saw another round of slightly softer US data that helped drive the S&P 500 and Dow Jones to fresh highs" and "the release of weaker than expected Japanese IP numbers hasn’t dampened sentiment in Japanese equities" or for that matter megacorp Japan Tobacco firing 20% of its workforce - thanks Abenomics. Ah, remember when data mattered? Nevermind - long live and prosper in the New Normal. Heading into US trading, today the markets will be transfixed by the FOMC announcement at 2 pm, which will likely say nothing at all (although there is a chance for a surprise - more shortly), and to a lesser extent the ADP Private Payrolls number, which as many have suggested, that if it prints at 0 or goes negative, 1800 on the S&P is assured as early as today.