Red Knight Plunges And Financials Flounder As Fed Is Flummoxed

Tyler Durden's picture

A slow leak higher in risk assets (assisted by Knight Capital's exposing the 'tickle-algo') into the FOMC in general was abruptly extinguished by a lack of anything new to report at all. The knee-jerk derisking was then caught as BTFD'ers could not resist and while FX markets in general were not buying the rebound, Treasuries sold off as stocks reverted back up into the green, above VWAP and above pre-FOMC levels. But as the real trading of the last 90 seconds of the day began, stocks smashed back down towards their lows with JPY crosses also dragging lower. Financials appeared to be the signal that 'all bets were off' as they went all humpty-dumpty and couldn't get back to pre-FOMC levels. Treasuries ended up 4-5bps with the belly underperforming (though off their worst levels), Gold and stocks recoupled lower, the USD closed at its highs of the day, VIX staged a come-back and closed unch at 18.9% (as stocks caught down to it too and it ended at its flattest in 10 weeks), and while HYG staged what appeared to be a miraculous effort to save the day to close unchanged (but was HYG-SPY arb), equities ended at their lows - underperforming credit notably. Of course KCG was the talk of the day, dumping over 32% of its market cap to end with a $6 handle as all those market-making algos start to look each other in the eye and fight over that last 100-lot 'real' transaction.

Equities are at a crtical trendline and there has ben a lot of heavy action selling up here...


Financials were ugly after the FOMC with WFC (thanks Knight) and BofA worst...

but overall  financials and utilities were hurt the most?


but S&P 500 e-mini futures knee-jerked down and then trickled back up to VWAP to allow the money out slowly - until the real exits came at the close...

VIX pushed up toward 19% after some early losses - but ended the day with the vol term structure at its flattest in 10 weeks...


and across asset classes, Treasuries underperformed and stocks and gold recoupled (interestingly) as the USD pushed to new highs...


and in an attempt to explain why HYG was so ebullient while stocks weren't...


Bear in mind what Louis Bacon said today - about credit liquidity - HYG now diminated the market for cash corporate credit (as dealer inventories are dwindling) and if HYG is ever let go even a modest amount then the knock-on impact into cash bonds will be devastating (but don't worry - you'll be out before everyone else, right?)

Charts: Bloomberg

Bonus Chart: Good Knight...

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Abraxas's picture

It’s taking a long time for this low-interest policy to make a full impact on the markets, jobs, standard of living, etc. but it is certainly having an effect of dissolving the very fiber that’s keeping this society together. The traditional values and morals have been persistently undermined in the entire Western World for decades now, mainly via mass media and the education system. There is an ample evidence of that for anyone who wants to see. We are in the final stages of that process. The goal is nothing short of the absolute control and unfortunately, we’ll need more than silver and gold for protection.

There’s always someone around who will point that this reeks of “conspiracy theories” and should automatically be dismissed and necessary to laugh at. Still, what other theory better fits what’s happening around us? It seems too consistent to be an accident.

hannah's picture

funny...abraxas, as i only half agree with the statement that the corruption is so pervasive and we are now collapsing because of it. if EVERYONE is a crook, will it end...? LOL most of america is on the dole. fraud is a way of life now. if everyone is a crook, does anything matter any longer...?

Dr Benway's picture

You are 100% right. Everyone is now dependent in some way on a scam, and everything has in some way become a scam.

It matters in the sense that the wider the scam has spread, the greater the pain after the collapse, and this cancer has metastized everywhere.

TrustWho's picture and live like a prepper. Practice makes perfect. 

crawldaddy's picture

its like watching an old movie/documentary about times gone past where as you say" everyone from top to bottom is in on the hustle.  We always like to think we are well past those days, the reality however is that everyone still is a crook, and with the govt giving a pass to the largest crooks, its just means thing get much worse before they get better.

smoke a joint, go to jail, steal a billion, get a building named after you.


Abraxas's picture

Hannah, I don't see myself as a crook as I think most of the people around here don't (you probably don't see yourself as one either).

That's what THEY want us to become, so they fashion men in their likeness.

Dr Benway's picture

Most people here live lifestyles HEAVILY subsidized by various scams.


Most people here live in countries that for 30 years at least have lived beyond their means and borrowed from the future to do so through various means (sovereign debt, inflated stock markets, inflated property markets)


Everyone is to varying degrees suckling at the teat of the scam

Abraxas's picture

Agree! And who benefits the most?

AnAnonymous's picture

In this order, from most benefits to least benefits:

-the US citizen middle class
-the US citizen upper class
-the US citizen lower class

Abraxas's picture

It turns out I am in the benefit group!!! This is the first.

And how do I benefit from moral degradation? Hope my child will turn out to be a promiscuous drug addict?


Totentänzerlied's picture

Sorry to play devil's advocate, but this is a natural consequence of economics. No Western school of economic thought is not thoroughly productivist and totally reliant upon the division of labor. Division of labor and transmission of knowledge give us lots of nice - and otherwise impossible - things, like ice cream and cheeseburgers and everything else we could not produce or do ourselves for any number of reasons - natural limitations. But the cost is independence and simplicity, because division of labor and specialization of knowledge makes everyone more and more reliant upon others. When the society and its institutions become corrupt, everyone in that society is henceforth implicitly involved in corruption by mere participation in, or "association" with, any element of that society.

Examples are literally endless, but the number explodes in an advanced economy when it reaches critical corruption, inefficiency, malinvestment, capital misallocation, complicity, etc. - like ours. Every taxed transaction is a vote for the status quo. All taxes support unconscionable actions by unaccountable men, done in your name. Every vote is a vote for more of the same. All economic activity is leeched off of by parasites. Participation in the casino financial markets contributes to their survival. It is more expensive to be healthy, wealthy, and free, than not. Everyone is programmed, successfully or not, to believe in the permanence, power, and justness of the state. Use of the courts implies recognition of their standing to pass judgment and some degree of faith that they will do the right thing. Attempts at reform suggest that the system is capable of, and worth, being reformed.

It is a Gordian knot of corruption. And only the more so because we all participate, in some way, in the all-pervasive state. Let he who has never transacted in Federal Reserve Notes cast the first stone.

Disenchanted's picture





Did he just say we've all become funny money whores?

JohnKozac's picture

abraxis, you forget, "values and morals" are only for the Little People.

veyron's picture

time to buy knight .. loss will be less than expected.

Snakeeyes's picture

The Fed has no where to go. Low M2 Money Velocity, massive regulations and taxes in New France (aka, USA). banks aren't lending etc.

swissaustrian's picture

Velocity will come. When? No clue.

It's probably going to be a political trigger, e.g. an oil price shock due to war.

BurningFuld's picture

Say what? No printing announced and Gold barely moves? (Aside from the obvious leak on the speech this AM that is)

monopoly's picture

Bonus Chart. gotta luv it.

Well, at least GMCR did well after the close.....Oh, never mind.

swissaustrian's picture

Gold recoupling with ES (and EUR/USD) after selling off hard at the CRIMEX opening is an exact replay of the last FOMC meeting in July. Nothing to see here.

Silver also traded like in July. Intraday lows were made right after the CRIMEX opening and the FOMC news didn't push it to new lows as opposed to gold. Nothing to see here either.

RockyRacoon's picture
Times have changed since 1983!

"The membership of this club is restricted to a handful of powerful men who determine daily the interest rate, the availability of credit, and the money supply of the banks in their own countries. They include the governors of the U.S. Federal Reserve, the Bank of England, the Bank of Japan, the Swiss National Bank, and the German Bundesbank. The club controls a bank with a $40 billion kitty in cash, government securities, and gold that constitutes about one tenth of the world's available foreign exchange.

Things money-wise are so much worse, but the machinations are the same.   This archived article is well worth the read to see that nothing has changed -- and any hope that the gold/silver markets will become fully functional is a dream (nightmare might be more like it).

Clueless Economist's picture

assisted by Knight Capital's exposing the 'tickle-algo'??? is that like the "Tickle Monster" Jerry Sandusky?

Mr Pink's picture

Red knight goin down..down,down,down......

GlomarHabu's picture



O/T Over at The Daily Bell they offer thoughts on the growing threat, actually fully in bloom threat that US Inelligence agencies pose to our freedoms ...


Yen Cross's picture

 Usd/Jpy caught a nice pop off the Fed. as the T10 yields moved higher, when the market was denied the Fed. (put). I suspect the move will be short lived in Asia though.

Renewable Life's picture

So was this another attempt at a "flash crash" that got thorted, or will this be called another "mystery" of the market and "no one knows whats going on?"

disabledvet's picture

I guess we'll have to send the B52's to Bulgaria first then.

Conman's picture

Dow 13k hat off.

Disenchanted's picture



long on Dow 13k hats...those things really hold their value.



JR's picture

Recovery! on QE steroids!

A tech salesman acquaintance of mine in San Jose has found work after four years of unemployment – at Save Mart Grocery making $13 an hour, WITH BENEFITS!


And O’Connor Capital Partners, the real estate investment company based in New York City that’s bought the high-end Carmel Plaza shopping center in Carmel-by-the-Sea, California (home to such national retailers as Tiffany), for $52 million is advertising for “management” positions that pay $8 an hour.

Recovery! you can believe in!

Writes the Carmel Pine Cone: “O’Connor’s website says it is ‘currently investing a $500 million fund focused on retail property in the United States and Mexico.’ Although the company is based in New York City, it maintains a regional office in Mexico City…” 

Recovery! by GLOBALIZATON! beleeeve me! Central planning raises all boats:

“The number of Americans on food stamps has risen from 32 million to 46 million since Barack Obama became president.”  

In short, the Ben and Goldman story! of RECOVERY!!!

As Anthony Sanders says on Confounded Interest today regarding Bernanke’s NO! to “instant monetary relief”:  

“Not surprising in the least. The US has morphed into a highly regulated, highly taxed, hamstrung economy with low M2 Money Velocity. It is difficult to generate further recovery from monetary stimulus when lower rates can’t really do anything.”

In short, when you’re in negative territory, you’re washing out the economy!

Hype Alert's picture

Dieting to the point of muscle loss. 

Ned Zeppelin's picture

Can't agree on the too much regulation part -  the Greenspanian notion of less regulation was the birth crib for the banksters who massively defrauded the system in the first place, which is the real reason the ecomony still sucks.  It is still reeling from that episode, and there is no quick fix.   No politician can write a big enough check to fill that hole, although they dearly want to try.  Actually, it is time for plenty of sensible regulation, and it doesn't need to be complicated.   Bring back Glass-Steagall.  Reduce spending, start programming an eventual reduction of entitlements, and reduce taxes overall (but more tax for the wealthy who have shirked their economic duties for years). 

Obama or Romney - no difference. 

JR's picture

Agree on all counts. Well said.  But Sanders, I think, means you and I are over regulated, not the banks. At least that’s how I read his statement. We are corralled and ruled with a banking cartel whip while they, the dangerous financial criminals, roam free and prey upon the people..

And the financial regulations that have been used, of course, arrive through the good offices of the investment banks seeking to hold down competition.

skipjack's picture

Haha - you think the SEC or any of the other porn-watchers cares ?  Good luck with that !


Had the banks been allowed to fail in 2007-08, then we'd be out of this mess by now without the TBTFs AND without corps like GE, GM etc.   Now THAT's regulation I can believe in.

Getting Old Sucks's picture

I think we all saw this coming back in the early 90's.  China, India, Indonesia, Viet Nam, all of Asis working for a couple of dollars a day drew all U.S. corporations over there.  Does anyone believe that they're going to come back to pay an American living wage with benefits?  No way.  However, if they can get Americans to work for a low enough wage that together with logistic savings, that comes close to what the cost was over there, they might give it a try.  Starve the people and they will comply.  The new American family might look something like both parents working for say 20k each a year with no benefits.  Kids turn 16, mow lawns or flip burgers after school to help the family out.  Get the government to provide health care, and supplemental food assistance.  Adjusted for inflation, that would probably be a higher standard of living than during the great depression.  Welcome to the new U.S. A.  Watch what happens to Europe.  It may very well provide the incentive for Americans to accept their new serfdom. 

JR's picture

No, G.O.S., we are going to survive.

 A system of credit concentrated in the hands of a few men that is washing out the economy through central thieving isn’t something that can continue and continue. These financial controllers are not going to be able to make this operate much longer. They’re killing themselves, here as they are in Europe. This is not recovery; this is not policy; this is destruction.

Bernanke is destroying the goose that would lay the eggs; he is killing the potential; pursuing a losing strategy… over and over and over…

You and I are not going to sink, G.O.S. We will survive and we will have a chance to take out these people who dominate us in this once-in-a-century opportunity. It’s time to pile on them - while the destruction is happening, while their system is imploding. For the first time in a hundred years, we have the attention of the people; for the first time, they’re listening. For the first time, End the Fed is resonating. Ron Paul made the difference; he focused attention on the machinations of the Fed while the people were receptive...

The banking cartel's name is on this devaluing currency; the Congress farmed out the currency to them - without any strings attached. They told the international bankers to take control of the people’s money and to do with it what they wanted. And now, it’s a private company. U.S. Steel makes steel and the Federal Reserve's private bankers make dollars. And make no mistake; they sell that currency to you at a price. You want dollars? This is what they cost. You saved your currency? This is what it’s worth. You want to use the currency? This is what it will cost.

And, there is no more private company in the world than this company. The Fed is not audited; there is no Congressional oversight of the Fed; the Fed operates in total secrecy; and the Fed is backed, not just by the U.S. government, but by all the governments in the western world.


And now it’s coming to an end… because the world can no longer survive it.

wiggles's picture

Brilliant writing on the first paragraph of this summarizing market activity today.

Reminds me of the other genius first paragraph in writing history which was

that in the book Rabbit is Rich by John Updike.   Love those killer first paras!

Josh Randall's picture

Knight turns Red, Pants turn Brown

larz's picture

Dont need a Meyer model or a LTCM model to see this shiite doesnt work PhD anyone?

SheepDog-One's picture

'Tis but a FLESH WOUND!' sez the Red Knight

Monty Python-The Black Knight - YouTube

lizzy36's picture

Nanny state involves Dk'ing sophisticated investor errors....fuck that.

Massiver errors should = massive losses and people getting fired.

Fraud is a lifestyle choice of both the top 10% and bottom 50%....Why wouldn't it be. There are no positive results from doing the right thing. Work, save, pay down manageable debt, that is not being encouraged. Hell that is being actively penalized.

So everyone is on the take - the bigger question is why wouldn't they be?

SheepDog-One's picture

People still think theres some kind of high stakes chess match going on here....LOL if they pulled back the curtain they'd see monkeys fukin footballs.

ZeroAvatar's picture

Speakin' of monkeys and footballs, NFL starts up in a few weeks, no?   (Howard Coselle:  " I like to watch the really tough little monkeys on the big screen!")

adr's picture

Are we now at the point that there are too few human traders left to have an effect on the market?

Algos have gone wild the past few weeks. The computers infest the trading of every single stock.

All there is left is to prepare and hope the strike doesn't kill you. After the attack you'll need to fight off the scavengers for whatever scraps are left.

SheepDog-One's picture

Its a pretty scary situation, bunch of bankster centra planner parasites who have run out of hosts to feast on...this could get real ugly fast.

The Gooch's picture

The new muppet! "Tickle Me Algo".

pmm009's picture

The 5 companies in which trades are being busted are small cap nobody companies.  There are relatively few trades being busted by NYSE and the loss will be very small because they don't have to make up phantom profits.  The loss will be a few million at most for KNC.

What is more troubling is that their own stock has a few executions at 8.15 when the market was at 7 just after the close?????  Just a few hundred shares???

larz's picture

who needs humans none of us built anything any way any how according to Obama and his LOVELY wife Michelle Re elect Obama! or wait Mittens damn now I forgot NSA can you email that to me?

slewie the pi-rat's picture

i'm sorry, but this is NOT like last year

is it?  L0L!!!