The avuncular Art Cashin opines on the roller-coaster of unreality that has been the equity markets for the last few days as outcomes become increasingly binary and investors increasingly herded from one direction to another. His sage advice - as if spoken by the most-interesting-person-in-the-world - "Stay nimble", my friends.
Via Art Cash of UBS,
Rumors Versus Reality With Rumors Resurgent At The Wire
Yesterday, there were rumors about that Chinese authorities were working on a new stimulus package. That cheered Asian markets and allowed European bourses to tiptoe around a deteriorating situation in Spanish banks.
Even before the U.S. markets opened, the semi-official Xinhua news agency of China began pooh-poohing the rumors. The rumormongers would have none of the denials.
A package would be announced after the markets closed (presumably in Europe - circa 11:30).
That backdrop allowed U.S. stocks to open better in a rather sharp, sigh of relief, oversold rebound.
They even shrugged off some lousy consumer confidence numbers at 10:00. Since the confidence data sharply countered Friday’s University of Michigan numbers, traders deemed them likely inconclusive.
The rebound rally held into the European close.
The rumors apparently morphed again. Simon Hobbs on CNBC said his sources suggested some announcement might come after the European close. The sense seemed to be that it would emanate out of Europe - not China.
After the 11:30 European close, U.S. stocks began to fade and rather rapidly at that.
The Euro fell through a trapdoor.
Was it just disappointment at no announcement? It looked a little too sudden and sharp for that.
Attention shifted to the cut in Spain’s rating by Egan-Jones. The timing was certainly coincidental, but did the somewhat small agency have that much clout?
Also contemporaneous with the Euro drop were analyses of an odd switch in a weekly ECB report.
There was a decline of over 25 billion Euros in collateral posted on the most recent LTRO. In another part of the ledger there was an increase of over 34 billion Euros in “other claims” (frequently smoke for emergency loans).
That raised speculation that the ECB may have “called” a loan, as the value of the posted collateral deteriorated. The bank, perhaps, could not find valid replacement collateral and shifted to emergency loan status.
While that seemed rather technical, if true, it raised fears that the banking situation in Spain, and elsewhere could even be worse than we knew.
The Euro-led selloff petered out around 1:30 EDT after cutting the morning gains in half.
As the day wore on, the China stimulus story began to resurface. That led to a bit of a flurry in the final half hour. Also, helping were media reports that election polls in Greece were shifting toward Euro-safe sentiments.
Overnight - EU Proposal Starts Roller-Coaster Ride - Pre-dawn this morning the situation in the Spanish banking community took several sharp turns.
The FT had reported that the ECB had vetoed the Bank of Spain’s plan to recapitalize its banks, particularly Bankia.
The Euro fell to a two year low before the ECB tweeted that there was no veto. European markets stabilized.
Then, the other shoe dropped.
Around 7:00 EDT, the EU commission issued a surprise plan to channel aid directly into European banks rather than through the treasury of their sovereign.
The announcement caught the European markets off-guard and sharp spike rallies erupted, erasing all, or most, of the earlier selloffs.
Then the doubts began to pop up. Would this clear the Merkel wing? Could it be set up within existing treaties?
The doubts stopped the rallies and prices faded but failed to go into freefall. That’s why I keep stressing staying nimble.