Today's NYSE total volume has a run-rate around 15-20% below its average for this time of day. This is 2 standard deviations below average and most notably the lowest non-holiday day/week volume so far. At the same time, volume in the futures market is even worse with S&P 500 e-mini futures (ES) trading volumes around 30% below their recent average. It is perhaps no surprise then that ES is jiggling in a narrow 3pt range between its lows and its VWAP/unch level.
The expanding-multiple-dependent US equity market that we have discussed numerous times (most recently here) appears to have hit a snag. While we noted the almost perfect correlation between forward-looking P/Es and the market during the last three years - and the clear hope-iness nature of said multiple expansion (and reality contraction) - what we failed to note until now is the significantly diminishing multiple-expansion impact from each of the Fed's actions. QE1 created a plus-4x multiple expansion (from ~10 to ~14), QE2 created a plus 1.5x pop in multiples, and Operation Twist around the same. Critically though, as soon as the Fed-sponsored money-supply 'flow' expansion ended, so the P/E multiple-expansion ended (and indeed reversed very quickly). It really is about the flow; and the threat of a crack-addicted market's requirement for perpetual QE.
Brazilian Drugs Lords Show More Integrity Than Central Bankers, Refuse To Sell Crack To Their PeopleSubmitted by Tyler Durden on 07/30/2012 14:03 -0400
Just over three short years ago, as equity markets were re-surging on a wave of taxpayer-funded bailout euphoria, we wrote "There is nothing that can be done at this point to prevent the administration from leeching every last dollar out of its taxpayers to benefit the terminally addicted and zombied bank system". We, in the imagined words of Ryan Lochte on Saturday, "Nailed It" as we see a market now so bereft of any human-based reaction to reality and merely a product of a drug-peddling central bank that appears to have become self-aware in its omnipotence. To wit, the present day; as we are teased and tickled day after day with the promise of more CB crack if we are just good boys and BTFD, the sad nay terrible fact is that even the most 'say hello to my little friend' of drug-dealers - those of the Brazilian Favelas - have decided to refuse to sell their 'crack' to their own people since it "also brought destruction in [the] community". Maybe, just maybe, the Fed will up its level of conscience this week to that of Brazilian drug-dealers.
First some German dares to suggest Mario Draghi's ECB should be sued for getting a "bigger than god complex", and now the EU's ombudsman has the temerity to suggest Mario Draghi may have conflicts of interest due to his previous jobs, most notably at Goldman Sachs, a topic beaten to death on these pages... and various other factors. From Spiegel: "As soon as you took office, there were discussions about his past in the U.S. investment bank Goldman Sachs - now has Mario Draghi, head of the European Central Bank, and problems with the EU ombudsman. It's about the membership of an influential banking lobby organization." What are the "other factors": well, one is Draghi's presence in the Group of 30 which as we have explained previously, is the real behind the scenes central planning group which decides the fate and future of the world (an extended write up here). The other factor? Mario's son Giacomo, who just happens to work as an interest rate trader at Morgan Stanley London.
- *COMMERCE DEPARTMENT ISSUES DECISION ON WASHERS IN STATEMENT
- U.S. FINDS DUMPING OF SOME LARGE WASHERS FROM MEXICO, S. KOREA
- *U.S. SETS DUTIES OF AS MUCH AS 82% KOREA-PRODUCED WASHERS
- *U.S. SETS DUTIES OF 72% ON MEXICO-PRODUCED WASHING MACHINES
Factual data point after factual data point is indicating more than a little stress in the Chinese economy (and the Asian engine of growth in general). Whether it is bank loan losses escalating, shadow-banking stress, real-estate corruption, dismal retail spending, the shrinking textile industry, the artificial production in the crushingly slow metals industry, the construction industry's contraction, or the massive '50%-above-demand' channel-stuffing now occurring in the Chinese auto market, Diapason Commodity's Sean Corrigan succinctly notes: "China bulls will not heed any of this, of course, for they are prisoners of the nested illusion that all increases in outlay represent genuine growth (cf, Occidental property bubbles) and that higher growth must imply greater profitability. They will also argue, on any uptick in the macro numbers, that the worst is not only behind us, but that it has been more than fully priced in." Given a picture paints a thousand words; Asian trade volumes have ended their rebound and are now exhausted, just as Chinese authorities are still giving off signals that they will not repeat the indiscriminate orgy of spending of 2009-10.
Timothy Geithner and Wolfgang Schäuble today met on the island of Sylt to use the informal atmosphere for an open exchange of views on global, U.S. and European economies. They emphasized the need for ongoing international cooperation and coordination to achieve sustainable public finances, reduce global macroeconomic imbalances, and restore growth.
Two months ago it was the Schrodinger market, best exemplified by China where the economy was both rising and contracting at the same time depending on what data one looked at. Now, that the global contraction is confirmed and one can no longer claim anyone is decoupling from anyone else (especially not with a fiscal cliff looming), it is the Copperfield market: everything and anything all about distraction. Today we present the latest math-based fact that will need the loudest distraction from the ECB yet (or maybe, the reason why Draghi, for three days in a row, was posturing with promises of inevitable intervention). As the ECB has just announced, and as the Fed will disclose on Thursday with the usual 4 day lag, 10 European banks, via the ECB's swap line with the Fed, have demanded a whopping $8 billion in 7 Day FX swap operations for the week starting July, double the prior week's $4.2 billion (by presumably the same 10 banks), and the most so far in 2012. Looks like not only is Europe not fixed, but banks suddenly have developed a huge appetite for USD - could it have something to do with forced over-repatriation of all EUR-based assets, in a desperate attempt to keep the EUR higher, even if it means ending up with far less USD than capital levels demand? No worries, there is always the ECB to cover the underfunding if and when needed.
With expectations for a muddle-through slight positive print, the headline Dallas Fed index just printed at -13.2 (exp. 1.9). This is its lowest level since September of last year and the biggest miss of expectations since May of last year. The headline index is teetering on the edge of its worst levels since 2009 as the month to month change in the general business activity index dropped a massive 19pts - its largest drop since April 2005. Specifically it appears the outlook for capital expenditures was among the largest sub-index to have its hope crushed - and this strongly suggests (and confirms) a sub-50 ISM print.
Another week of central bank watching ahead, and markets will play their customary game of chicken with the U.S. Federal Reserve and the European Central Bank. Both central banks have policy meetings this week – the Fed’s concludes on Wednesday, the ECB’s on Thursday – and capital markets have been moving higher in recent days on the hope of coordinated action. For investors and traders, this sets up a classic “Buy the rumor, sell the news” pattern for the week ahead - as the overarching theme is that human history repeats because human nature does not change. But Nic Colas of ConvergEx asks the deeper question, and the one that will retard any lasting move to the upside, is how much central banks can do without help from fiscal policymakers.
As everyone is staring off into the distance and admiring the sunset we advise you to turn your head towards what may be truly important and that is our old friend Greece.
Greek political leader, "We agreed on one thing - that we disagree on everything. The Troika men came to Greece as doctors and prescribed the medicine that would save the Greek economy and people; but in the end they proved to be charlatans."
Uncle Scrooge. “Them that’s got the gold makes the rules”
We submit that Draghi can say what he likes. He may wave the flag in front of the gates of Hell filled with good intentions but it is not his call; will never be his call. It will always be the Bundesbank who will allow the monetary spigot to be opened or demand that it be closed.
To some, Paul’s stubborn persistence in the campaign has been just that: a stubborn unwillingness to lie down and die despite evidence of sure defeat. But what they have missed is a common misperception of a subtle yet powerful age-old strategy at play - the archetypal shi (pronounced “sure”) strategy expounded and employed by Chinese philosophers and military strategists for thousands of years. More than anything else, we can see Paul’s greatest shi advantage in his outsized support among the young. In this society of immediate gratification and winning right now at all cost we need to ask ourselves: why should future elections and platforms matter so much less than the current ones? There are powerful cognitive biases at work - among them the temporal myopia of hyperbolic discounting, or excessively undervaluing the future, while focusing on the nearer term - which make fuzzy in our minds the importance of victories in the years ahead (a view that is promulgated by the media). The ultimate war is against intrusive, burgeoning government, in the ongoing insurgencies of the battles yet to come—Ron Paul’s grand shi strategy.
It would be odd to suggest that one of the most scathing critiques of the ECB's attempts to talk up the market on nothing but hope, promises and expectations would come from rating agency Moody's, yet that is precisely what has happened. With Swiss, Dutch, Finnish, and German short-dated bonds once again hitting new record low (negative) rates (and Italian 10Y is weakening), it would appear that at least some of the market is not drinking the all-things-risk kool-aid.
Anyone hoping that the bitter animosity between Mario Draghi and Germany will be any less hostile this morning, following last week's guarantee by Draghi that all shall be well and the ECB will do "anything" to preserve the EUR, only to be followed by Germany's Schauble essentially saying this is certainly not the case, today we get a clarificationary follow up by Joerg-Uwe Hahn, a member of Merkel's junior coalition partner, FDP, who said that the German government should consider the "unusual step" of taking legal action against the European Central Bank over bond purchases. While Hahn's comments are for now seen fringe, the fact that Die Welt has openly broached the topic to an increasingly angrier population (and Spain's remarks that Germany itself has to be grateful for being bailed out after WWII will not help) will likely only strengthen the resolve of Germany to not relent to provocations by either Monti, as of the June 29 summit, but to demands from both Draghi and Juncker to accept that the ECB's printing utopia is in fact reality.