Market Snapshot: What's Left?

Tyler Durden's picture

What was already a relatively volatile morning leading up to the European close, paused for an hour or two until the FOMC statement was released with TSYs unch and ES at VWAP right before. Immediately, stocks ripped and dipped, the TSY curve started to flatten - pivoting around the 7-10Y, the USD took off, commodities and PMs dropped, and credit cracked wider. Somewhat interestingly, while all this chaos was occurring, ES remained relatively well behaved with regard a broad basket of risk assets - which while not a positive per se, did indicate that this was a very broad de-risking and not simply a US equity market prone to vicious dips, rallies, and retracements. It seems very obvious now, and fit with our indications of an exuberant equity market relative to the 2s10s30s fly, credit, and risk in general, that the rally in equities (which baffled anyone with common sense given the background of worsening macro data) was on pure hope and perhaps the sell-off's harshness today will have burned a few fingers as it seems the Bernanke Put strike just moved a lot further out-of-the-money.

Chart: Capital Context

As we closed, ES was perhaps a little overdone relative to a broad risk-basket but it certainly showed no sign of pulling back right into the 415ET close - only 1pt off its lows.

The Treasury complex was the story of the day (in terms of volatility-adjusted smash-mouth moves) with 30Y 30bps lower in yield from Friday and 19bps alone today. The whole curve flattened but it was the sell-off in the front-end that was notable with 2Y and 5Y +3.6 and 1bps higher in yield on the day respectively.

It was the highest beta sectors that obviously saw the most pain today with some of the major financials decimated. Financials wewre the hardest hit today -4.8% but Materials, Industrials, and Energy were also very weak. Tech outperformed and remains the only sector that is positive for the month of September now.

Financials are the worst performers for the month so far down around 11% - hardly surprising given the crutch of government support being taken away (and the removal of yet another source of easy money - the curve carry trade) - BAC -7.4% today lone ending at its low around $6.39.

The lack of LSAP-speak from Bernanke saw a relatively weak USD, as we went into the witching hour, take off - up over 1% today alone and of course this had a significant impact on the commodities and precious metals space. Gold, Silver, Copper, and Oil all fell after the FOMC statement with oil dropping the most and gold the least with oil and copper at the week's lows.

Credit markets were just as weak as equities with both the new IG index (which we noted was already relatively offered anyway) and the legacy HY index both losing significant ground on the day. In fact IG underperformed on a beta-adjusted basis as we suspect managers grabbed at whatever the cheapest hedge was in hope of saving some face on the day. By the numbers, IG17 ended the day around 8bps wider at 141.5bps, while intrinsics widened only 4-5bps as liquidity and pressure stayed in the index hedges - reracks tomorrow morning will be exciting. HY16 ended +37 at 705bps while intrinsics only widened 16bps - again clearly a mad scramble for liquid protection as we sold off this afternoon.

Corporate bonds appeared relatively net bought reflecting almost perfectly the shift in TSYs with the belly being most bought and short and long ends of the curves being least bought. Most notably was the underperformance of CDS indices relative to their underlyings. Chatter was that today was very much a buyer's strike in corporates as opposed to too many sellers as it is increasingly clear to everyone in the HY market especially that too much selling will tip this market down fast. It was clear that managers were using index overlays as opposed to rushing for the exits in their bond funds today and as we have noted before - as the basis between index marks and underlying portfolio illiquidity increases (especially if we some heavy concessions in new issuance) then pressure will come on bond fund managers to liquidate as opposed to manage risk - we love the smell of BWICs in the morning.

This reach for macro hedges fits well with our recent discussions of the normalization in the volatility markets - i.e broad investor base is not/less hedged. Today we saw the VIX rise and skews steepen as they start to converge up to where we discussed implied correlation was betraying they should be.

Charts: Bloomberg

UPDATE: we have had a number of comments/questions on whether this sell-off has legs. Of ocurse we have no idea other than, as we mentioned above, the rally seemed based on more dollar devaluation and portfolio disequilibrium which Twist is far less than expected. However, based on the long-run relationships between credit and equity markets, the following chart shows that it appears equities have further to fall until they reconnect with credit's expectation. This is of course a relative-value perspective but does warrant concern over equities' current pricing.

This stock indiator is based on the Capital Context Corporate Index. While today's sell-off in stocks did push the indicator back towards the equilibrium, stocks remain notably expensive relative to credit market expectations on an empirical basis.

Comment viewing options

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

We're lookin' good for tomorrow...

max2205's picture

I am going to learn to speak Japanknees. Could be useful

BrocilyBeef's picture

good times, noodle salad.

WestVillageIdiot's picture

GS closed at $97.86, just above its new 52-week low.  Morgan Stanley also took out its lows.  I could see Goldman shorting its own shares on this huge ride down and making money.  Morgan Stanley isn't smart enough. 

Great times for the financials.  And yet the water ferries still whisk the Wall Street crooks back and forth across The Hudson.  I hope some of those fuckers lost it all today. 

BrocilyBeef's picture

what does it mean when you lose someone else's money?

Zero Govt's picture

not much longer now, every ponzi comes to its grinding grizzly end ...Blankfein, Dimon, Bernanke, couldn't happen to a nicer bunch of cunts

Freddie's picture

I would love for all of them and Buffett to be coughing up their feces until they finally shut down to take the dirt nap they deserve.  F**kers.

tawdzilla's picture

did we run out of vapor yet?

BrocilyBeef's picture

nope, we've got cases left.

BrocilyBeef's picture

I just checked a few minutes ago but now we're all out!

WestVillageIdiot's picture

Thank god I didn't pull the trigger on those October 22nd QQQ puts.  I had my finger on the trigger and said, "fuck it.  I'm out."  I don't want back in, even though they would have made me money.  TODAY.  And what about tomorrow and some bullshit announcement?  I lost a lot of money playing these games.  I have learned humility.

And what are these markets going to do without all the pigeons like me that want to short the shit out of it but won't come back in because we've been fucked 1,001 too many times?  Good luck, cocksuckers, you drove your customers away.  Now let's see what you can do. 

Logiclee03's picture

Quit whining....did you have a plan...a target..a stop loss>>>doesn't sound like it! Buy damn straddles till it breaks the top or bottom and if you are not sure where they are.....I'd suggest you comment in the National Enquirer>>

WestVillageIdiot's picture

Thank you for that foolproof strategy. Where can I send the check for your consulting fee?



Panafrican Funktron Robot's picture

Straddles, wow, that's so fucking foolproof.  /bows before your greatness.

Chappy's picture

Good luck with stop losses.  The HFT drive the atock prices down until they bounce off your stop.  I've had that happen in several ETF's and other stocks.  I thought I just had bad luck then I begam to realize the games they play.


Nobody For President's picture

Yep, been there, watched it happen so fast I couldn't even get to the mouse to cancel...60cents down and back up before you could hiccup. Don't much use stops with ETFs any more.

propflow's picture

straddles.. that easy huh. ? good one. lol



duo's picture

That's why I used Friday's SPY puts.  Minimum premium.  Doubled my money in 15 minutes.  Premiums ATM were $1.50, instead of $5 for the October's

That being said, the AUD/JPY cross, with almost perfect correlation to ES, says we should be at 1100.  It's not too late to short this.

WestVillageIdiot's picture

It is for me.  I would rather sleep well at night.  I will hold my reserves until I buy more shiny objects. 

NotApplicable's picture

Did you miss yesterday's article about trades taking place 190 ms before the quote even existed? I'd say TPTB are far beyond needing actual humans in the 'market' anymore. Even a casino has to have some level of integrity, Wall St. on the other hand, merely needs the SEC to STFU and go back to watching tranny-midget porn.

BlankfeinDiamond's picture

I feel your pain.  My fucking QID is finally going somewhere.  I guess I was naive enough to think that the Fed couldn't keep pulling rabbits out of its hat.

YHC-FTSE's picture

@Westvillageidiot +1

Ditto. Only a few days ago I posted that it's a risk on world, and I regret that bitterly. I'm out, but it was easy while it lasted. I'll stick to buying physicals and being a spectator for awhile. It's tempting to envisage a rally tomorrow after such a hard sell today, but I think the article is spot on about the last credit-equity relationship and according to the charts, the sell off has legs. So, interesting days ahead and I get to sleep at night.

propflow's picture

after what came out from the fed today, your shiny objects have seem to have some downside. be advised

EB1's picture

The markets are always trying to psyche us out.  Clear your head and jump back in at the right time.   



Freddie's picture

Just buy the f*cking dip.

Caviar Emptor's picture

Whatever "risk-on hard-on" was left is now limp. 


Josh Randall's picture

People in the business are now walking around with The old white elephant -- front pant pockets turned inside out, and the zipper down and c*%k hangin out....thanks Ben

Waffen's picture

So Rule 48 tomorrow morning and a benign beginning of the day I presume?

Caviar Emptor's picture

The equity market has devolved into a barometer for monetary expansion. 

So they got to trim the sails a little more, but then it'll move sideways until the next time the Fed prints. 

GeneMarchbanks's picture

I think it's pronounced:   


BrocilyBeef's picture

pick one: a) dirt b) silver c) water d) magnesium

jdelano's picture

gold miners.  If gold holds they will be the only place to pick up gains.  Watch them rocket once everybody figures that out.  I'm switching all my gld for gdx tomorrow.  

BrocilyBeef's picture

agreed. mutual funds or pick stocks though?

troublesum's picture

Seriously.. you haven't learnd a damn thing in the 3 weeks youve been on this site...its called DEFLATION!! (more technically stagflation but its assets that are getting the deflating and commodities that are getting the inflating) is gold an asset or a commodity?  f-ing gold pumpers wont be happy till they lose everyone elses money along with their own...

jdelano's picture

Hello Troublesum.  Rough day?  That's too bad and I feel for you, but I don't like being a whipping post so a couple of points in my defense.  I've been reading the tylers regularly for over a year.  Just never felt the need to get involved with commenting until the wheels started to come off this market.  As to your hostility.. 'Methinks you doth protest too much.'  Go back through those three weeks of posts and you will see that my calls have been dead on and as I have been trading off them, I have been having a very good year.  What exactly is it you'd have me learn?  (How to spell "learned"?  I've mastered that one already--keep trying and someday you will too.  I believe in you.)  Am I genius?  Probably not. But I read a lot and can think for myself.  The scenario at the moment is this---flooded M1 in a deteriorating macro environment.  No catalyst at the moment to drive gold wildly higher, yet also too much concern about currencies to drive it much lower.  In other words, not unreasonable to expect that the price of gold will hover close to where it is.  Gold miners have hugely lagged the advances in gold, so much so that the operating increases are negligible and profits will be very impressive.   Hence my call to shift from gld to gdx.   You know it makes sense, otherwise it wouldn't piss you off so much.  Let go of your hate, Luke.       

Alea Iactaest's picture

Did you even read the article? Or better yet, a screen?


OIl: Down

Silver: Down

Gold: Down

Copper: Down

Fertilizer: Down

Ags: Down


Not sure which commodities are inflating at the moment. Sure seems likely they will in the future, just not right now. So I'm not sure if I'm agreeing with your DEFLATION!! or pointing out that commodities are *not* inflating atm.

Freddie's picture

What happened to gold during late into Jerry Ford's term and all through with that co** s***er Carter?   Huge debt hangover from JFK/LBJ's Vietnam War.    Same thing today as Carter but about 20X worse with the Kenyan muslim.

Zgangsta's picture

But... but... didn't Paul Krugman said that deflation is bullish for gold!?

Panafrican Funktron Robot's picture

Gold miner stocks.  Key word:  stocks.  They're stocks.  They are not gold.  Ergo, stay the fuck away.

DoChenRollingBearing's picture

Miners have other risks:

-- expropriation or higher taxation

-- strikes

-- mismanagemnt (hedging)

Stick to the hard stuff: physical gold!

stateside's picture

It surprised me a bit that the FED chose to throw stocks off the cliff today.  This was the one area (although with no major support) where people could actually smile a bit when they opened their 401k statements and have a bit of confidence.  They have lost their jobs and the FED can't help and hire anyone.  Their homes are worth less than their mortgage and the FEDS can't increase house prices or demolish homes to spur demand.  The only thing the FED could have done temporarily to save what is left of the US consumer confidence was to print more and save the stock market.  Instead, they chose to let the stock market die and with it any remaining consumer confidence and any chance of the annointed one getting re-elected.  Interesting ........