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Selective Interpretation Of European Newsflow Demonstrates Ongoing QE3 Promise-Driven Risk On Confirmation Bias

Tyler Durden's picture




 

In yet another confirmation that absent some dramatic headlines which likely will not transpire due to all of Europe being on vacation, we will likely see another day of low volume levitation, is the over night split in action between stock futures and FX, which in turn demonstrates the selective interpretation of macro stories to validate any given cognitive bias. After dropping to overnight lows just above 1200, the futures are now preparing to print largely in the green following an overnight meltup driven, purportedly, by one single theme, namely that there is increasing German support of the EFSF after it was announced that that Germany's opposition Greens will approve new powers for the euro zone's bailout fund in a vote later in September, the party's parliamentary floor leader Juergen Trittin said on Wednesday. Per Reuters, Trittin was speaking after Chancellor Angela Merkel informed parliamentary floor leaders of the changes to the fund, which also supposedly would have bank recapitalization abilities, refuting all the rumors to the contrary from before. In other words, Europe has once again resorted to the old playbook where it floats one rumor then immediately turns around and refutes it to gauge market impact, as it did all though June and early July during the foreplay for the Second Greek Bailout. Yet ironically, while futures benefited from this, the EUR, which should be the biggest beneficiary of European stiblility actually fell substantially against Europe's safe haven currency, the CHF, on a 180 degree read of the just the same news flow. As Bloomberg explains, the CHF outperformed overnight in otherwise muted price action on concern regarding Germany’s willingness to expand EFSF commitment- bunds fall further after German cabinet backed measures to expand EFSF, allaying fears of further deterioration in Greece and Europe’s sovereign debt crisis and implying increased debt burden on Germany. On the other hand, Finnish reluctance to budge on the collateral issue then weighed down on the euro, negating all core risk transfer benefits.

In other words, the same set of news is interpreted as both bullish and bearish based on preexisting biases. And yet the underlying theme once again reinforcing the equity cognitive bias is nothing but expectations of more, in fact "much more" QE3. As said two days in a row, the market will continue to price this theme in as the fall of 2010 fast forwards by 265 days.

 

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Wed, 08/31/2011 - 07:44 | 1618288 Boilermaker
Boilermaker's picture

The 'juice the futures' game is completely back.  This shit will go on and on and on.  Just keep doing it.  Shove the optimism feeding tube deeper and deeper down the throat of the public.

This is truly some seriously sick shit.  I can't believe that NOBODY in the MSM EVER points it out.  Where is Biderman?  Has he been paid off?

Wed, 08/31/2011 - 08:02 | 1618314 Thomas
Thomas's picture

I don't know if they are juiced or just algo-dominated, but most days seem to have a look that is anything but millions of investors trying to struggle to establish discovery.

Wed, 08/31/2011 - 07:48 | 1618296 4D
4D's picture

Aussie algos kept running into selling then in last 30 mins they got it to 0.4% up, and in the final auction nice ramp of all the large caps for 0.6%. Great window dressing, but it was clear except for a short spell in very early Europe currencies were not playing the game.

Looks to me like the risk-set is all tapped out and the financial placebo effect has run its course!

Wed, 08/31/2011 - 07:48 | 1618297 holdbuysell
holdbuysell's picture

And the disconnect between the stock market and the reality on Main Street grows even wider.

Wed, 08/31/2011 - 07:52 | 1618302 DefiantSurf
DefiantSurf's picture

But Greenspunk said "the markets are the best indicator of the economy" apparently he left out the word "contrarian" ?

 

Wed, 08/31/2011 - 07:51 | 1618301 Cdad
Cdad's picture

Nice story, Tyler.  Thanks for this one.  It confirms we are juuuuuust about done on the BS rally thingy.  These sorts of correlation breakdowns are sweet signals of discontinuity and desperation.  And I absolutely love desperate criminal syndicate bankers. 

Too many conflicting algos will ruin the soup...and the slower, helmet wearing fund managers responsible for this, one of the weakest and sickest meltups, will be arbitraged by the end of the session.  Sweet!

 

Wed, 08/31/2011 - 08:37 | 1618379 IMA5U
IMA5U's picture

this rally probably has legs

Wed, 08/31/2011 - 09:00 | 1618456 Cdad
Cdad's picture

And two heads.

If this markup is to advance, they'll have to take down gold and Tbills.  Good luck with that.

Wed, 08/31/2011 - 07:57 | 1618312 janus
janus's picture

how to build a better algo

Wed, 08/31/2011 - 08:07 | 1618320 dcb
dcb's picture

I don't understand what the issue is, you will never loose money betting that the status quo will spend unlimited amounts of other people's money supporting the status quo. The screwed up thing is that voters (who have no say in the issue) haven't realized they livein a facist state.

Wed, 08/31/2011 - 08:11 | 1618331 Construct
Construct's picture

If people do not resist they deserve what they get.

Wed, 08/31/2011 - 08:38 | 1618384 IMA5U
IMA5U's picture

we are going into an election year for many world leaders

 

expect things to go to hell AFTER obama is elected

Wed, 08/31/2011 - 08:45 | 1618399 SmoothCoolSmoke
SmoothCoolSmoke's picture

It's the week before July 4th redux.  Gottta give Ma and Pa Main St. a happy Labor Day weekend.  I knew this was coming .....but sadly did not follow my own intution.

Wed, 08/31/2011 - 08:49 | 1618411 TradingJoe
TradingJoe's picture

This is my "playbook" and yes, I may be totally WRONG but...we are going to have some NH primaries in just 6 moths or so, Feb I believe, In order for MR Odumba to be re elected them 401Ks need to be dripping of fiat, for this to happen he needs MONEY which he can't get without a STRON POLITICAL REASON, aka a huge SELL OFFFFF, it's EndOfTheMonthWindowDressing, "neet to make them bonuses yada yada yada", then all bets are off because without a strong SCARE there won't be ANY political Support for more Printing! The Reps won't give in unless they are as well Scared Shittlessss! This why I believe we will have a meltdown in the 875 to 950 to 1050 range on the S&P, they are clearly running out of time so by Sept 21st ALL needs to be said and DONE! Reps seek power with "no more printing, no more debt" allegedly, Dems want to keep power with "wi'll take care of y'all" so whacha gonna happen?!?!

Wed, 08/31/2011 - 08:57 | 1618442 SheepDog-One
SheepDog-One's picture

Unless it all really has just gone full retard.

Wed, 08/31/2011 - 09:24 | 1618529 TradingJoe
TradingJoe's picture

Sheep, we are in full retard since 2008 Bubba! But for this retard to continue they need a sell off and a big one otherwise no money! But again I could be dead wrong and my puts will go to ZERO!

Wed, 08/31/2011 - 08:57 | 1618444 dcb
dcb's picture

Oh, if you don't know why this came out today, then you are a lousy charter and have no reason to be trading stocks.

Wed, 08/31/2011 - 09:21 | 1618519 Awakened Sheeple
Awakened Sheeple's picture

FFS! Its fucking annoying knowing why the world economy will eventually collapse but only being able to be right about it once. I now know how Ron Paul feels.

Wed, 08/31/2011 - 09:25 | 1618537 Thunder_Downunder
Thunder_Downunder's picture

I hate trading good news is good news, bad news is good news. So frikkin messy, my blood pressure doesn't need it.

Mon, 09/05/2011 - 09:21 | 1633975 shacai
shacai's picture

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