New Normal

While yesterday everyone was focusing on the ongoing escalation in Ukraine, or BBQing, the real story was the sudden and quite dramatic collapse, or as we called it, "bloodbath" in global manufacturing as tracked by various PMI indices. Here is the summary.

Everywhere...

• Off balance sheet vehicles?  Check
• Conflicted bank "research" recommending muppets buy stock while soliciting banking fees from same stock?  Check
• Hoping to sell debt on to muppets?  Check
• Chinese corruption? Check
• State bailout of failed bank? Check

Nowhere was the humor of central planning better exhibited than in Brazil was a clear outperformer with the BOVESPA (+10%) posting its best monthly performance since January 2012. Why? Because Brazil just entered a recession. Perhaps the reason why the joke that global thermonuclear war will send futures limit up is funny, is because it's true...

As regular readers are well aware, when it comes to "more than arms length" equity market intervention in New Normal markets, the New York Fed's preferred "intermediary" of choice to, how should one say, boost investor sentiment aka "protect from a plunge", is none other than Chicago HFT powerhouse, Citadel. Recently we discovered that the true culprit behind the May 2010 Flash Crash was not Waddell & Reed, but quote stuffing. The most recent revelation for Citadel is that quote stuffing is not just some byproduct of some "innocuous" HFT strategy, as none other than the Nasdaq has now stated on the record, that the most leveraged hedge fund (at 9x regulatory to net assets), and the third largest after Bridgewater and Millennium, used quote stuffing as a "trading strategy." The following 2 clips give a sense of what goes on from day to day inside the firm that trades more volume than the NYSE every day...

Remember all those allegations that Obamacare would be an unmitigated disaster for businesses, especially smaller companies? Well, now we have some facts. A week ago we noted that the Philly Fed found that Obamacare was a disaster for business, and now no lessor entity than the Congressional Budget Office (CBO) is out with its latest forecasts, concluding "certain aspects of the Affordable Care Act will tend to reduce labor force participation." While we already noted that 'work is punished' in America, it appears now that with Obamacare, non-work is actually incentivized.

Shortly after it was revealed by Politico that NBC had stooped to new lows in favoritist nepotism, having paid Chelsea Clinton an annual salary of $600,000 for "occasional" reporting work, in effect making her one of the highest paid if not the highest paid "reporter" in the world, the former first daughter quickly stunned everyone when, in the aftermath of her mother's just as stunning commentary on personal wealth and what being "broke" in the New Normal apparently means, she stated rhetorically that "I was curious if I could care about money and I couldn't." So, moments ago, to prove that she really no longer cares about such earthly things as money, since between her hedge fund husband and her parents, she has more than she can possibly spend in one lifetime, AP reported that Chelsea Clinton is quitting her job as a reporter at NBC News.

According to Russia's RIA Novosti, citing business daily Kommersant, Gazprom Neft has agreed to export 80,000 tons of oil from Novoportovskoye field in the Arctic; it will accept payment in rubles, and will also deliver oil via the Eastern Siberia-Pacific Ocean pipeline (ESPO), accepting payment in Chinese yuan for the transfers. Meaning Russia will export energy to either Europe or China, and receive payment in either Rubles or Yuan, in effect making the two currencies equivalent as far as the Eurasian axis is conerned, but most importantly, transact completely away from the US dollar thus, finally putin'(sic) in action the move for a Petrodollar-free world.

Since in the New Normal no geopolitical events appear to have any adverse impact on risk and asset prices (because the central banks are always there to protect investors should the market "plunge" by say 5%) with general newsflow completely irrelevant on what has been a straight line up in the S&P since the announcement of QE4 in December 2012, one might as well see how much further geopolitical events can be pushed further before it all crashes. In other words, time for this weekend's geopolitical update which covers everything from India, Pakistan, Iran, Israel, Iraq, Syria and Qatar. 

Confused by what Janet Yellen said? As it turns out, so is everyone else, where the prevailing sentiment across the sell-side analysts was that Yellen was not dovish enough. Then again, with expectations bordering on Yellen giving the "BTFATH" green light, there is no way she was not going to disappoint...

The auto loan subprime bubble may be the latest to burst (after student loans) as the rate of car repossessions jumped 70.2 percent in the second quarter, with much of that increase coming from finance companies not run by automakers, banks or credit unions. "The number of delinquencies and repossessions rising is what we would expect as the auto industry sells more vehicles," "But this slight uptick is one to keep an eye on." The surge in delinquencies and repossessions is being driven primarily by borrowers with subprime and deep subprime credit scores.

As classic Ferraris break records on the shores at Pebble Beach, the "poor" rich-man's (and girl's) best friend (fine-wine and diamonds) has tumbled to 4-year lows. On the heels of a crackdown on corruption in China, as Bloomberg notes, Fine Wine prices have plunged over 30% from July 2011 highs and the end of the "show-off" era in Xi's new normal has sent 1 carat dimaond prices also down over 30% from their highs. It would appear the world's wealthiest are done with such small increments of wealth as fine wines and diamonds, preferring $100 million apartments and $38 million ferraris.

As regular readers are well aware, when it comes to "more than arms length" equity market intervention in New Normal markets, the New York Fed's preferred "intermediary" of choice to, how should one say, boost investor sentiment aka "protect from a plunge", is none other than Chicago HFT powerhouse, Citadel. Yet one question had remained unanswered: just how does Citadel manipulated stocks? We now know the answer, and perhaps more importantly, it also links in to the true culprit behind the May 2010 Flash Crash, no not Waddell & Reed, but quote stuffing. Most importantly, the revelation that for Citadel quote stuffing is not just some byproduct of some "innocuous" HFT strategy, is that none other than the Nasdaq has now stated on the record, that the most leveraged hedge fund (at 9x regulatory to net assets), and the third largest after Bridgewater and Millennium, used quote stuffing as a "trading strategy."

The numbers out last night were once again largely on the weak side of disappointing, with very little reaction and even less of an intuitive reaction. As Bloomberg’s Richard Breslow writes, this is the downside of everyone having the same positions. Simply put, we've been trained to catch the falling knife by the CBs, one of those trading strategies that will work until it doesn’t and when the knife slips you will really have a taper tantrum.

Worst Japanese consumer spending data drop ever - BTFD. China financing slowed - BTFD. European industrial production tumbled - BTFD. US retail sales miss dramatically - BTFD. The worse the news the better the buy-the-dippiness as between JPY (102.50) and VIX (12 handle), US equities shrugged off shitty data and worsening geopolitics to jump to August highs. But it wasn't just stocks... investors piled into Treasuries (slamming yields 7bps lower from pre-retail sales), bought gold (back over $1310), bid for US Dollars (now up 0.25% on the week), and lifted oil prices (WTI $97.50). S&P futures volume was the worst of the week (50% below average). Notable oddities: Copper clubbed today (-2% on the week), Brent-WTI jumped $1.50, and the VIX curve remains inverted for 14th day in a row.