Equity Market Goes Winehouse
Sometimes we just shake our heads. Other times, we just sob anxiously into our handkerchieves. This afternoon's rumor-ramp-denial-no-dump was absurdity at its very best. A 16pt rip in ES on the basis of rumor of another bigger bazooka from the IMF (courtesy of Nikkei not the FT this time as we all know what their rumors are full of) was ignored by pretty much every other asset class. We tweeted almost instantly that the denial would be forthcoming in 10 minutes and sure enough it was. But wondrously, what goes up, does not come down as ES gave back a measly 5pts leaving it very far bereft of broad risk asset's perspective of value.
We use CONTEXT here to show the divergence from risk assets in general but we note that TSYs, EUR, even commodities hardly budged on this rip higher in ES until it had well and truly gone ballistic. As is clear from the chart below, TSYs were not impressed at all (no selling and risk rotation there), DXY (driven mainly by EURUSD obviously) didn't budge initially and even when it did, hardly got enthusiastic, and ES which tore higher hardly gave any back on the denial from the IMF.
Credit indices (which seemed thin all day and were just being reracked by dealers in our opinion) did follow suit but HYG did not. We also note that around the time the rumor hit HYG and JNK were being pretty aggressively sold (majorly underperforming) and given our previous perspectives of the support we believe the ETFs have on the HY secondary bond market, why are we not surprised someone tried the stick-save rumor.
Unsurprisingly, financials benefited most from the rumor and again unsurprisngly gave almost none of their gains back into the close after the official denial...
As for the rumors, first ZH predicted the original one (granted we miscalculated that now even the Japanese media has become a sellout whore to the highest bidder) at around 2:40 pm:
And then the denial at 3:49:
Our tweet says it all...
We assume this will be called 'resilience'...we have a slightly different term for it...
Peter Tchir, of TF Market Advisors, offered a short-and-sweet perspective on this incessant rumor and its folly:
I do not believe that the IMF can create a new plan above its existing unallocated money without new commitments from its members. The EU is effectively out. The US will struggle to approve anything. China, Russia, and Brazil are not necessarily in position to increase their commitments as they all have domestic problems. Japan and the UK just keep hoping the bond vigilantes continue to leave them alone.
The IMF may borrow from someone, but not to get leverage but because their members are reluctant to fund existing commitments! The IMF is going to need money for existing plans. Countries aren't going to be happy to issue bonds so that they can give the IMF money.
This is all circular and that circularity is coming back to haunt those people desperately trying to come up with new ways to extend and pretend.
How much has France committed to but not paid for? Has anyone added up their unfounded liabilities to EFSF, IMF, EU, EIB, Dexia? I'm guessing the number is meaningful and that I have missed potential commitments.
(h/t John Lohman for the title)
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