Same Old Same Old As VIX Dips, EUR Rips, And Equities BTFDs

Tyler Durden's picture

UPDATE: TXN misses and guides down:For the third quarter of 2012, TXN expects:

  • Revenue: $3.21 – 3.47 billion vs consensus Exp. of $3.53 billion,
  • Earnings per share: $0.34 – 0.42, vs consensus Exp is $0.43

VIX opened north of 20%, traded to 20.49%, and then it was decided that this level of premium over a recent calm realized vol period is too much and the front-end of the volatility market was crushed over 2 vols lower. While VIX closed up 2.3vols at 18.6%, the sell-off into Europe's close recovered handsomely on low volume leak back up to VWAP (thanks to HYG and VXX's stability) and then an afternoon push to last Monday's close before giving most of the afternoon gains back in a few mins after the cash close. The EUR dip-and-rip, the stick-save in the S&P whenever it tumbles with any kind of velocity, the fearless selling of short-dated vol, juxtaposes the general state of safe-haven seeking in Treasuries (and Swiss/German bonds) as the entire TSY curve saw record closing low yields amid a 3bps flattening at the long-end. Equity volume was meh, average trade size was meh - though as cash closed near day-session highs we saw heavy blocks selling, and ES traded between its 61.8% and 50% retracements of the March-to-June swoon. Broad risk assets did not play along with stocks this afternoon (though equities and gold recoupled) and neither did TRIN which remained very flat all day. The USD ended stronger by 0.2% (in line with EUR weakness) but SEK was the day's best major performer as AUD lagged (down 1% against the USD today). Volatility pulled plenty cheap to equities once again which remain notably more sanguine than credit and TSYs but the magic 1340 level in ES appears to be the line in the sand for now - though given a 10Y at 1.40%, do not expect NEW QE anytime soon - though Gold outperformed its peers on the day as WTI slid over 4% from Friday's close.

ES found some significant short-term support and resistance as it auctioned down and up today...


All 8 sectors of the S&P lost ground on the day but there appeared to be heavy rotation intraday as BTFD'ers were playing along ahead of AAPL's earnings, but VIX's undershoot on Friday's close (OPEX) forced a responsive overshoot on today's open which was enough ammo to drive a vol compression all day...


FX market saw their by now ubiquitous EUR selling into the US open and EUR buying into the European close. Notably SEK was a major outperformer relative to its peers...


but gold and stock stayed coupled until the drop in the early part of the day-session only for stocks recouple right into the close (and then selloff)...

but leaves ES at the lower end of a trend channel (though failing to make higher highs this time)...hovering at the 1340 level...

Risk assets didn't play along this afternoon - and rather notably, ES just reverted back down after the close...

Charts: Bloomberg

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YesWeKahn's picture

Tyler, do you know the difference between a human and a computer?

computer does the same thing again ang again using the exact same logic.

BlueCollaredOne's picture

I feel sorry for you old timers. You got spoiled by charts and a market that used to make sense. I'm a young investor, and i make more money playing blackjack than I ever would investing.

Adapt or die bitchez

pkea's picture

expect fluctutations until fall and let's see how they are ready for what's coming then....:)

ACP's picture

All you can do is play the bullshit until the right bullshit excuse is used to end the existing bullshit.

2010: Greece.

2011: US debt limit.

2012: ?

Xanthias's picture

Did anyone else notice spreads increased to 2 or 3 cents in Sep. SPY options?  Bearish?  I remember the nickel spread in 10/08.

sessinpo's picture

Things are looking very weak. Still see surprises to the downside over the next few weeks. Things could get ugly real fast.

laomei's picture

Here's a stat from the other end of the economy... the poor.

1976: Median household income: $10,962
1976: Poverty threshold (assuming a 2 person household, no kids): $3,838
Earning 35% or less of the median was legally considered poverty.
Minimum wage in 1976 was $2.30 an hour.

2011: Median household income: $51,413
2011: Poverty threshold (assuming a 2 person household, no kids): $15,063 
Earning 29.3% or less than the median was legally considered poverty.
Minimum wage in 2011 was $7.25 an hour.

"Median individual income" stats would make this easier, as "per capita" is kinda bullshit. And I would really be interested in calculating this all out on an individual basis using a poverty line for singles.

So, anywho, looking at this. To hit the poverty threshold in 1976 at minimum wage it would take 32.1 hours a week, 52 weeks a year.

At present, it takes 39.955 hours just to hit poverty.

Poverty in 2012 means a full time, 40-hours a week job at minimum wage. You have to work 19% more just to get to the same fucking place you would be at 36 years ago.

How about how much you get to keep of that poverty wage? (No, I am not bothering with state taxes here)
1976 tax rates:

 14%: $0-$1000

 15%: $1001-$2000

 16%: $2001-$3000

17%: $3001-$4000

Standard minimum deduction of $2100 filing jointly. FICA was 5.85% leaving $3,613 pretax and $1,513 taxable. Taxes would be $217. End of the day, in your pocket you have $3,396 or an effective overall tax rate of 11.5%. Or in real terms, you worked 3.69 hours a week for the taxman. Inflation adjusted, this is $13,696.09 today.

2011 tax rates:

10%: $0-$17,000

Standard deduction of $11,600 filing jointly. FICA was reduced temporarily to 5.65% leaving $14,212 pretax and $2,612 taxable. Taxes would be $261. End of the day, in your pocket you have $13,951 or an effective overall tax rate of 7.4%. Or in real terms, you worked 2.95 hours a week for the taxman. Inflation adjusted, this is $14,232.51 today.

Sure, I could have picked a few years later on, but this was more or less near the end of good times, and when things started turning to shit.

Let's look at 1982, 30 years ago... just for laughs.
1982: Median household income: $18,422
1982: Poverty threshold (assuming a 2 person household, no kids): $6,487 
Earning 35.2% or less than the median was legally considered poverty.
Minimum wage in 1982 was $3.35 an hour.

To hit the poverty threshold in 1982 at minimum wage it would take 37.24 hours a week, 52 weeks a year.

1982 tax rates:

12%: $3401-$5500

14%: $5501-$7600

Standard minimum deduction of $3400 pre-figured in for filing jointly. FICA was 6.70% leaving $6,052 pretax and an income tax of $329. End of the day, in your pocket you would have $5,723 or an effective tax rate of 11.8%. Or, in real terms, you worked 4.38 hours a week for the taxman. Inflation adjusted, this is $13,609.35 today.

Of course, what's not being included in that inflation stat, are the actual costs of things like health insurance or education. CPI is also manipulated (obviously). In 1970, total health care expenses (average per capita) was $356. By 1980 it was $1,110.

Rent has outpaced inflation as well.

Poverty levels, in relation to the median have not tracked at all, they are off 6 percentage points from what it was before. To hit that poverty level, you also are working more at a minimum wage job. Working that 1976 minimum wage job for a full 40 hours a week. After FICA, taxes, and inflation, you'd be looking at the equivalent of $16,732.94 right now. Pre-tax, it's an equivalent of $9.28 an hour.

Compare that to today @40 hours a week.
1976: $16,732.94
2011: $14,232.51
That sound you hear is you being fucked out of 15%, right off the top.

Let's readjust poverty levels by those 6 points now eh, just bump it to the 35% to keep the figure nice.
Adjusted 2011 Poverty Level: $17,995
That results in you needing to work 47.73 hours a week to hit it at minimum wage, or $8.65 an hour at 40 hours a week.
So, cool.. let's factor for that. Post tax you're sittin' on $16,440 or $16,771.74 in 2012 dollars. Sure hope you got that raise to keep up with the inflation. Bust that hump for that extra $40 a year slave!

Let's look at college again eh?

This is looking at public, in-state, 4-year universities including tuition and all other fees. Average rate in 1976-77: $1,218 per year. That's a whopping 10.2 hours a week at minimum wage. Or essentially a solid summer of full time if you ignore taxes. In 1982-83 it was $2,139. Ok, it got bumped up to 12.28 hours a week now. Working all summer is gonna gap you about $500.

How about now? Well, in 2009-2010 it was $12,804. Obviously higher now, but what the fuck, let's use that number. Assuming no changes, a minimum wage job is going to demand 34 hours a week (ignoring taxes). Working all summer full time? Not even fucking close. You're only out? Loans obviously, which are all much higher than inflation even for the fed ones. The ones that don't fuck you as much are capped at $5500 a year for freshmen. You have been gapped, enjoy the fun of private loans and co-signers! You are now destined to graduate into an economy that increasingly does not need you and has been screwing you for 40 years.

What's really funny is looking at that 34 hour figure. To get through college, you have to work more than it took to get to poverty status for an empty nest couple back in 1976 (ignoring taxes of course). But let's look at taxes! Using standard deductions and the education deduction it's $13,925 pretax or 37 hours a week at minimum wage. Congrats! You are now doing 1982-levels of poverty threshold work for a empty nest couple! If you are not being claimed, you can snap up to $13,500 a year with no income taxes. That's still 36 hours a week.

So it totally makes sense now if you have boomer parents. Dad worked as a part-time janitor to pay for all of college. Grandpa did a little side-work to put mom through. No debts at all in the end. Why the hell can't you bootstrap your ass and do the same? After all, they were able to do it just fine.

Scholarships, grants... sure ya might get a few to help out. If you are lucky maybe you saved some cash up to pay for college. If you are lucky you have parents who are willing to foot the bill. But we're not looking at those, we're looking at poor average people. For the simple fact that being at a level of poverty back in the day wasn't as easy as it is now. A blue collar, minimum wage household could still find a little room to put a kid through college. Or the kid could, with a little work put themselves through at a decent place. I'm not talking about the gifted, the lucky, the talented here... I'm talking average realities.

Now if you want to talk median... $51,413 in a state with no income taxes and taking no credits or deductions beyond the standard is $43,822 a year or $3652 a month. How much is left after rent/mortgage+taxes+insurance/utilities, car expenses, medical and other insurance, food, etc? Now, do keep in mind, that it's the median, so 50% are below that number. 
And here's a nifty little thing for you consumer units to calculate with: 
How much is left over after all taxes and I do not believe that this covers loan payments.

And yet, people wonder why everything is fucked....

So, once you take all of this into account, you can see how everything is just barely (read "not at all") scraping by. Unwilling to face the reality of the situation, it's just far easier to yell about taxes, which would free up a tiny bit more money. When there's enough money already, taxes are not really a big issue. When money's tight, it feels like theft. Unfortunately, no one is really putting forth the question of WHY everything is fucked, but that really has more to do with who actually controls the national dialogue, and it sure as hell isn't the self-declared "middle class".

Beam Me Up Scotty's picture

You forgot to add in the Earned Income Credit. That wasn't available in the 1970's. I know plenty of people who don't want to move up to e better paying job because it might require more work and more responsibility. You can't be a dishwasher all your life and make 6 figures when you retire.

laomei's picture

It's rather inconsequential for the stats being run here.  This is looking specifically at an empty-nest couple.

For tax year 2011, the maximum EITC for a single person or a married couple filing jointly without qualifying children is $464, up from $457 in tax year 2010.

While it is "something", it's hardly much of anything significant.  I am also ignoring other random credits that were handed out over the years.


Why look at the poverty levels? Because the percentage of the population that falls within it is rising rapidly.  I'm also fairly certain that no one WANTS to be a dishwasher their whole life, but there's this funny little issue of economic realities where there are no fucking jobs and at the end of the day, well, sorry, but someone's gotta wash the dishes unless you like eating off of a dirty plate.

What you are seeing here is the growing gap.  Back in '76 working a full time job at minimum wage for a single-wage earning couple would bring them higher than the poverty level, and the poverty level was 35% of the median income.  When you are talking about quality of life, you look at the median.  I am also ignoring the higher food stamp and AFDC benefits.  I'm ignoring the FACT that in 1976, the average food stamp benefit was a solid 25% of the poverty level.  I'm ignoring the fact that eligibility for food stamps was also much more lax back in 1976.

I'm ignoring the FACT that in the 70s, the average household savings rate was 9.6% as well.  What does all this tell you? This is screaming that yes, back then, you could support a family on minimum wage working part-time.  It would be tough, but doable.  You can pay rent, you can put food on the table, and when that kid comes along, you can put them through college affordably.  


Back in 1976, you could be a dishwasher for 10 hours a week and put yourself through college without a problem.  That's 2 days a week, or 1 day with a long shift.  You will graduate without any debt and have endless job opportunities.


And here's the kicker.  Using 1976 poverty thesholds, there were 11.8% of all people living in poverty.  in 2010 that's 15.1% using the 29% of median figure, or about 20% using an adjusted 1976 figure.  One out of every 5 living in poverty and that poverty threshold of 125% where benefits kick in doesn't cover the adjusted figure.  

But please, do tell me again about this magical world you live in where none of this matters.

In short, you're an ignorant fool.

Cursive's picture

"They" can only suppress the tidal wave only so long.  We bout to have a full blown tsunami shortly.

max2205's picture

Fear of the Ben invisible visible Hand keeps shorts covering end of day. A crash is the only way the market will clear out. One day you wake up limit down.

q99x2's picture

'ES just reverted back down after the close'

Someone call the police on them.

buzzsaw99's picture

1350 seems to be the bot target.

SmoothCoolSmoke's picture

Ahhhhhh.  Seems the BS PM pump has gotten taken to the woodshed AH.   Nice.

css1971's picture

Here's an interesting chart I had pointed out to me...  Since you don't include RMB in your FX list. RMB is weakening against the US dollar for the last 2 months. This basically hasn't happened... ever...

Now, if china goes hard landing and the rmb drops further, won't they have to start selling their USD holdings instead of buying to maintain their trading range?

laomei's picture

A weaker RMB is a good thing for China, it's completely intentional.

gatorengineer's picture

China likes to pay more for oil...... and grain, and raw materials from austrailia.....  Meanwhile their export prices are squeezed from lower priced asian competition read vietnam...  This is the nuts in the vice scenario that the west used on Japan, and now China.  In 10 years Chinas bank will be dry and sitting in Austrailia, and the middle east, and the world will be teeing up Thailand Vietnam, Malaysia and Indonesia....


laomei's picture

China has been buying up oil rights quite rapidly in case you hadn't noticed.

Conman's picture

Uh is it me or is TXN up after hours. (at the time of this post)

I should be working's picture

Don't expect QE because the 10 year is at 1.40%?

When did low bond yields ever stop the Fed from buying?  QE2 raised yields on the 10 year note.  

I very much hope we aren't in for more half-baked CB intervention.  QE2 juiced the markets and the lousy returns of the past 18 months have been mean reversion.  But hey, we've been stealing from the future since 1980 so why not try to keep doing it.

orangegeek's picture

Gold fell marginally, but Gold Bugs Index (stocks) gapped down on the day.

chump666's picture

Yawn.  Yes ECB on the EUR support trip, it's all they can do now, HFTs gaming (stocks) momo with 50 and 100 ma supports.  But Euro-centric and American-centric trading will be your peril.  If Asia DOES not consolidate next 4hrs or so, then the dips will be sell.

Dow and S&P are heading towards payback.

shullbitter's picture

nobody takes notice of these ratings agency's as they are all bought and paid for by the same interests.

we need to look at other ratings agencys that are more in our state of reality than in cuckoo land