Perhaps those accusing Bridgewater of being the market-moving catalyst did have a point, because after posting a total AUM of $10.8 billion at June, this total declined by a whopping 31% to just $7.5 billion as of September 30.
Oil companies have sold $61.5 billion in stocks and bonds since January as oil prices have tumbled. However, the fees geneated are a tiny fraction of the bank's real exposure to the energy sector, at over $150 billion. So have the banks learned their lesson? "The bankers have gone through this before,” says Oscar Gruss’s Meyer. “They know how it works out in the end, and it’s not pretty." Then again, perhaps banks are just sailing on an ocean of liquidity allowing them to postpone the day of Mark to Market reckoning, especially since this time, everyone is in it together....
Asian markets are bouncing modestly off a weak US session, buoyed by more unbelievable propaganda from Japan. Abe's proclamations that "deflationary mindset" has been shrugged off was met with calls for more stimulus, more debt monetization, and an admission by Etsuro Honda (Abe's closest adviser) that Japan "is not growing positively" and more QE is required despite trillions of Yen in money-printing having failed miserably, warning that raising taxes to pay for extra budget "would be suicidal." Japanese data was a disaster with factory output unexpectedly dropping 0.5% and retail trade missing. Markets are relatively stable at the open as China margin debt drop sto a 9-month low. PBOC strengthened the Yuan fix for the 3rd day in a row to its strongest in 3 weeks.
Another rip sold. Dow futures are down over 140 points in the pre-open (as it appears Cramer's pajama-wearers are derisking again). Following the 4th day of Yuan weakness, EUR-based carry trades continue their unwind and that pressure is driving USD Index notably lower, bond yields gapping lower, and commodities tumbling... except gold
Having cited China and EM concerns, The Fed's chickening out from a rate-hike was 'supposed' to provide some support from the drastically derisking emerging markets of the world... it did not. In fact, MSCI Emerging Market FX index just crashed to its lowest since September 2009 with Brazil, South Africa, and Indonesia seeing the biggest plunges post-Fed.
US equity futures have retraced the late-day ramp from Friday with Dow down around 65pts. Asia is opening weaker (NKY -900 from Thursday highs) with EM FX appearing not to get the "but we didn't hike" message from The Fed with MYR the worst hit for now (after a few days of strength). EM outflows accelerated according to Morgan Stanley, down 6% AUM in 12 weeks. PBOC devalued the Yuan fix by 0.11% (the most in 2 weeks). While Fed uncertainty and fears about China have caused global derisking, PBOC chief Fan says "the economy is stable," and China's Beige Book suggests 'everything is awesome', as the survey summarizes, "perceptions of China may be more thoroughly divorced from facts on the ground than at any time in our nearly five years of surveying the economy." If that's the case, then why is Janet in panic mode?
"The 17-year river [of reserve currency buildup and QE around the world] is no longer flowing," warns Appaloosa's David Tepper, and "turbulence" is now the norm. VIX 22 is too low - "expect surging volatility", 18x PE is too high - "margins are set to drop - I have problems with earnings growth and problems with multiples"
Simply put - "Flat stocks is not a bad place to be...unless central banks are on our side again, then every rally should be sold."
It is what happened in investment grade fund flows in the latest week that is making CEO, especially those whose compensation is a direct function of how much stock they repurchase, very nervous because as Lipper reported overnight IG funds just saw $1.8 billion in outflows, the most in over two years or since June 2013. And without the fund inflow train into IG funds operating smoothly, suddenly stock buybacks appear in jeopardy...
10 year Greek bond yields are spiking this morning (and prices therefore plunging) as trading actvity picks up in the dormant peripheral capital markets. The 2025s are downover 5pts from their last traded price back in late June with yields spiking back up toward 12.5%. This derisking comes after, as we detailed earlier, not only is the Greek economy collapsing but while Brussels is "satisfied with the smooth and constructive cooperation with the Greek authorities and that should allow us to progress as swiftly as possible," Greek PM Tsipras is threatening snap election as rebellion within 'his' party grows.
By removing liquidity via massive purchases of high quality (and in some cases) low quality collateral, the impact on investors of central bank repression of interest rates around the world can be summed up in three simple words: "reach for yield." These three ever-so-simple words provide blanket excuse for 'investors' to pile head long into far riskier investments than they ever would before and considerably lower levels of compensation than they would ever have accepted before... but hey, as long as the central bankers have got their backs, there will always be a greater fool? However, as BofA notes, the mania for "yield reaching" is showing signs of fatigue with the biggest cumulative outflows since 2008...
For the 2nd time in a month, China's Shanghai Composite entered a correction, plunging 10% from local highs as headlines of delayed IPOs and large-scale steel 'dumping' at a loss combined with global monetary policy fireworks and European event risks. The rest of the more highly sensitive and manic Chinese equity markets are also plunging with CHINEXT and CSI-300 down over 7% in the last month (and 17% from the highs in the case of the former). Chinese stocks have gone nowhere in a month...and are now in fact notably lower in June.
With the crucial May 12th €774mm Greek IMF payment looming (and thus even more critical May 11th deadline for the Eurogroup's decision to release around €7bn in additional funds to Greece), the much-discussed 'splintering' of the Troika (The Institutions as the Greeks would prefer we describe them) appears to be gradually un-splintering. Today's statement from the EU talks that the members of the Troika "share the same objective" may reassure some after the 'limbo' of serious disagreements between the European Commission and The IMF. However, with various 'red lines' remaining unaddressed, EU sources say a deal on Monday is not possible.