No volume melt ups have become the norm under the Bernanke regime - everyone is forced to expect the most ridiculous, manipulated excreta possible from the primary dealers. When people realize, soon enough, that the fair value of their 401k are about 95% lower, maybe, just maybe, something will change about this broken record. Until then, just bet on the chopper - Benny will make it all good until everything ultimately blows up.
RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 09/07/10
RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 09/07/10
It is 3pm on a Friday - do you know where your unsupervised market ramping, Keynesian lie perpetuating algos are? With their masters long gone to the Hamptons, here come the binary terrorists, and they are so enthused to blow the market up to new highs, that they are providing a lovely opportunity for everyone else with sodium/potassium pumps to smack them down a little, with the daily dose of decoupling. As always - sell stocks, buy AUDJPY and wait for the money to come in. Easy as pie plus you get the extra gratification of knowing you caused some stupid computer a paper loss at the end of the day.
Brandon Rowley over at Wall Street Cheat Sheet has penned a post conveniently summarizing some of the most critical market structure trends that we have been highlighting for the past year. In a market that is increasingly computerized, the only key benefit presented by the pro-algo lobby has been that liquidity has increased. And while that may indeed be the case for the 50 or so most traded stocks whose trading is dominated by HFTs, the trade offs have been a spike in the average quotes per minute over the past decade, a fake order depth which disappears on a moment's notice, a dramatic shift away from traditional marketplaces and to "gray" venues, and most importantly, a massive surge in the cancellation to execution ratio, which is currently at an all time high, with the Nasdaq seeing 30 cancels for every execution. With so much probing and poking by computers to test which bids and offers are real, it is a miracle we don't have flash crashes every single day, as the bulk of the liquidity, likely well over 90%, is a sham.
Some harsh words from the former Morgan Stanley's Asia vice chairman addressed to Bernanke, saying that "his policy approach has always been since he was an academic to condone asset bubbles, argue that central banks do not need to pay attention to asset prices in setting monetary policy, that they had the firepower to clean up a mess after the bubble had burst." Ironically, Roach has been a steadfast supporter of Chinese monetary policy, which many objective observers have opined is a one-for-one replica of our own Fed's policy right here in the United States, which invoked the question during the interview: "Are you China’s Alan Greenspan?". Regardless, Roach is sticking to his side of the story: "I think it’s really wrong to view China as an enormous macro property-bubble story." On the other hand, entire ghost cities, empty apartment buildings, massive losses on bank property books and urgent recapitalization efforts by most of the China's top property lenders, seem to indicate otherwise. Either way, how nobody has figured out to put Chanos and Roach in the same room together, tape it, and become an instant millionaire is confusing.
RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 09/07/10
The latest survey conducted by Credit Suisse's FX Sales team confirms our conclusion from reading yesterday's bearish report on the USD from Goldman, namely that the time to buy the dollar is here. Per CS: "Our clients’ most bullish currency views seem to be AUD, EUR and CAD. For the first time since December 2009, our sales force thinks clients have turned net bullish on the euro. Our clients’ top bearish currency views seem to be the USD and NZD. In terms of client flow, our sales team witnessed net buying of EUR and AUD, and net selling of USD and MXN over the past two weeks." We are confident today's CFTC COT report will confirm the recent collapse in speculative EUR bias, indicating that it may well be time to go long the EURUSD, if only for the contrarian play, now that everyone is once again on the other side of the trade, presumably based on the silliest of catalysts, the "stress test" circus.
SEC To Force Market Making Band Around NBBO, Eliminate Stub Quotes As Flawed Response To Flash CrashSubmitted by Tyler Durden on 07/09/2010 11:23 -0400
In another indication of just how conflicted, confused and reactive the SEC is, Reuters reports that instead of focusing on such market destabilizing events as bid/offer cancellation and churning, Reg NMS loopholes, flash trading (yes, it is still legal, and Direct Edge is still making millions allowing those who desire and pay, to see anyone's orders ahead of time), and sub pennying, the SEC instead will focus on the completely irrelevant, and bracket market makers to submit quotes to within 10% of prevailing prices, as well as eliminating stub quotes, which in essence removes liquidity. Of course, the thought of actually removing the conditions in which stub quotes would be activated (instead of cancelling a $0.01 bid getting hit in Accenture), have never occurred to the SEC. After all, half its workforce is actively seeking employment at various HFT outfits, such as Getco, and if Mary Schapiro's worthless organization were to actually do something that may impair her employees from getting well-paying jobs from those whose interests it truly serves, it might potentially force the SEC "enforcers", "regulators" and generally, clowns, to find honest jobs, suited to their skill level, such as digging trenches, unplugging sewers, explaining how the market surges in weeks seeing unprecedented fund outflows, being brain donor recipients, and broadly volunteering for Phase III drug trials focusing on the treatment of galactic stupidity.
Major Bond-Equity Divergence Implies Stocks Are Mispriced By 60 Points; Goldman Warns Not To "Chase Equity Bounce"Submitted by Tyler Durden on 07/09/2010 08:25 -0400
Just like the daily occurrences of dislocations in the carry trade and risk assets, another major divergence has developed in the market, this time between bonds and stocks. As the following chart from Goldman points out, over the past month, stocks and 10 year yields have diverged quite notably, with a convergence of the two series implying an up to 60 S&P point disconnect. As these types of convergences are by far the least risky trades available (or most risky, depending on the amount of leverage), a recoupling bias would suggest shorting the broader market and selling the 10 Year (betting on a yield increase). Either way, it is obvious that the credit market, which is inevitably always right compared to the computerized pandemonium of stocks, suggests a substantial overpricing in equities.
The ECRI Leading Indicators just can't stop falling. From a revised annualized -7.6% drop last week, this week the index dropped to a fresh low of -8.3%. Should be sufficient for another major leg higher in stocks. Of course, the funniest thing is listening to the index creators describe how while the index was a perfect leading indicator on the way up, it is completely useless on the way down. With an attitude like that, one would almost think Columbia is part of the Ivy League, and status quo perpetuation is a prerequisite for not losing tenure. But yes, according to the index the probability of a recession is now about 90%; compare this number to that spewed forth by Goldman's Recession Prediction Eight Ball, which has the risk of a double dip at just about precisely 1.6%.
Capital Markets 101 - Futures surging as volume plummets. Computers subpennying any and every VWAP order far above fair execution price. Rinse repeat. Any questions?
This it the kind of bad news that is now sufficient and necessary to send stocks higher: wholesale sales have plunged from a revised 0.9% to -0.3%, missing the consensus 0.5% by about a mile, and the first decline since March 2009. Yet wholesale inventories were in line, coming in at 0.5%, compared to expectations of 0.4%, even as the prior month was revised to 0.2% from 0.4%, thus washing the two month benefit as well. In sales, the biggest hit was felt by lumber which went from +8.6% to -8.7%, automotive from 1.8% to 0.6%, computers dropped from 3.5% to 1.8%, electrical goods from 3.1% to 0.6%, and hardware from 3.1% to 1.0% And as we see huge mutual fund outflows, stocks rip on this latest batch of bad news. After all QE 2.0 is now getting priced in and the cost of cash will soon be negative all over again.