If anyone was curious why the Fear and Greed index is at 13 (up from 5) despite the biggest 2-day surge in the Dow Jones ever, the answer is very simple: nobody believes the "broken market "any more, as confirmed by the biggest weekly equity outflow on record.
This is the first time that the 50-day moving average crosses below the 200-day moving average since August 2011, creating the ominous-sounding "death cross." The month following this 'event' has produced negative returns 80% of the time...
The relief rally from the market drop that resulted over fears of a Fed rate hike, has pushed financial conditions back to a level which allows the Fed to hike again, which in turn means the market can drop again having risen enough to allow the Fed to do what it has done.
After 3 days of carnage and a day of stability, it appears the death of the bond bull market has once again been greatly exagerated. Whether it is China's absence after a strengthenig in the Yuan overnight or month-end rebalancing amid equity vol, Treasury yields are notably lower this morning...
As the situation in China continues to move into the realm of a full-blown crisis, you have to wonder how much more of their massive stockpile of treasuries are they willing to dump on the market?
After forensically analyzing Morgan Stanley's balance sheet (which is very much like the rest of Wall Street's balance sheet) I can draw direct parallels to that of Lehman and Bear Stearns in 2007. It's a party!
While the headline spending and income data consists of marginal moves, personal spending missed expectations by the largest amount since the dismal weather-strewn days of January. Consumption rose 0.3% in July, less than the 0.4% expectation and flat from the 0.3% June print. Income rose 0.4% - in line with expectations - ticking up YoY to 4.3% 0 juiced by a $13 billion government transfer receipts print - the most since March. The savings rate ticked up once again as those darned consumers refuse to spend as the elite demand.
Earlier this week, as the financial world was mesmerized by a min-stock market crash, the Financial Times published a dastardly little piece of fascist propaganda titled, The Case for Retiring Another “Barbarous Relic.” When you start to see increased propaganda about banning cash, you know the status quo is very scared and things are getting very serious. You’ve been warned.
"As soon as people sense the government is withdrawing from direct intervention, there will be lots of investors starting to dump stocks again."
- Stock Halts Added to Monday’s Market Chaos (WSJ)
- Fed Up Investors Yank Cash From Almost Everything Just Like 2008 (BBG)
- Drop in Stock Futures Signal Halt to S&P 500's Relief Rally (BBG) - at least until the BOJ ramps USDJPY up again
- Hacker Killed by Drone Was Islamic State’s ‘Secret Weapon’ (WSJ)
- Greece's Syriza to win election but face setback, poll shows (Reuters)
- Puerto Rico Spends More Than $60 Million on Debt Restructuring (BBG)
Over the past several years, the two-day Jackson Hole symposium had garnered a particular prominence among economists and market watchers as this is where various key inflection points by the Fed were hinted, leaked or announced, including QE2, QE3 and the taper. This year, however, the gathering of central bankers in Teton County, will be less exciting due to the absense of the most important central banker in the world: Janet Yellen, which means the highlighter will be Vice-Chairman Stanley Fischer when he speaks tomorrow at 10:25pm which will be a key event given the recent market turmoil.
Overnight's start attraction was as usual China's stock market, where trading was generally less dramatic than Thursday's furious last hour engineered ramp, as stocks rose modestly off the open only to see a bout of buying throughout the entire afternoon session, closing 4.8% higher, and bringing the gain over the last two days to over 10%. This happens as China dumped a boatload of US paper to push the CNY higher the most since March, strengthening from 6.4053 to 6.3986, even as Chinese industrial profits tumbled 2.9% from last year: this in a country that still represents its GDP is rising by 7%. Expect much more Yuan devaluation in the coming weeks.
The size of the epic RMB carry trade could be as high as $1.1 trillion. If China were to liquidate $1 trillion in reserves (i.e. USTs) in order to stabilize the yuan in the face of the carry unwind, it would effectively offset 60% of QE3 and put around 200 bps of upward pressure on 10Y yields. So in effect, China's UST dumping is QE in reverse - and on a massive scale.
The EU doesn’t seem to have any idea what’s causing the wave of refugees entering ‘its’ territory. When the refugees themselves state “we’re here because you destroyed our countries”, Brussels will simply say that is not true. That kind of admission is way beyond the consciousness of the ‘leadership’. But it’s a denial that won’t get them anywhere. The refugee issue can and will not be solved by the EU, or inside the EU apparatus, at least not in the way it should. Nor will the debt issue for which Greece was merely an ‘early contestant’. The EU structure does not allow for it. Nor does it allow for meaningful change to that structure. It would be good if people start to realize that, before the unholy Union brings more disgrace and misery and death upon its own citizens and on others.