Thanks to the miracle of VIX slamming, USDJPY-stop-running, CBOE breaking, US equity market opening, "we're not worried about no stinking Ukraine civil war or Chinese economic collapse", low volume levitation, stocks knee-jerked off early dumping lows to recover comfortably into the green today. Not everything was exuberant though (as Trannies and the Russell 2000 ended red - bouncing once again off its 200DMA). Gold gained almost 1% today (back over $1310) for its best 2-days since January. The USD closed unch (with notable weakness in SEK). USDJPY ranged down below 102 and rammed stops to lead the charge higher in stocks (even with Japan closed for 2 days). Stocks tracked JPY but benefitted from a dead-cat-bounce in Treasury yields. VIX closed higher on the day (unable to regain the late-slam from Friday). AAPL regains $600 and Biotechs bounced 4.5% - so everything's fixed.
6 Years After the Financial Crisis Hit, The Big Banks Are Still Committing Massive Crimes
One Wall Street strategist who appears to have thrown in the towel on the entire rising wages debate is none other than BofA's chief economist, Ethan Harris, who in a note released on Friday fires the proverbial shot across the David Rosenberg bow regarding rising wage pressures: "Don't hold your breath."
Over the weekend, Bloomberg had an interesting piece about two of the main reasons why while stocks continue to rise to new all time highs, the expected selling in bonds - because in a normal world, what is good for stocks should be bad for bonds - isn't materializing, and instead earlier this morning the 10 Year tumbled to the lowest since February, while last week the 30 Year retraced 50% of its post-Taper Tantrum slide, or in short a complete disconnect between stocks and bonds.
This week, markets are likely to focus on US ISM Nonmanufacturing, services and composite PMIs in the Euro area (expect increases), ECB’s Monetary Policy Decision (expect no change in policy until further ahead), and Congressional testimony by Fed’s Yellen.
With Japan out and Europe quiet, markets are without their normal random Nikkei headline or ECB quote of the day to juice JPY (unable to break back above 102) and stocks (for now)... and of course, it's not Tuesday. Treasury yields are lower for the 5th day in a row with 10Y breaking below 2.57% (Feb lows) to its lowest in 7 months; 30Y continues to tumble to fresh 11-month lows (below 3.35%). Gold remains bid, now pressing up to $1315 (and well above its 200-day-moving-average) and silver is rallying. Stock futures are weak having lost the post-China PMI lows as Ukraine fear continues to rise. As far as "costs", Russian stocks are down for the 2nd day in a row (around the same as US stocks for now) but the Ruble is modestly stronger even as Russian bonds weaken slightly to 9.43% yields.
After months of ignoring events in Ukraine, HFT algos suddenly, if one for the time being, have re-discovered just where the former USSR country is on the map, and together with the latest economic disappointment out of China in the form of its official manufacturing PMI which missed expectations for the sixth month in a row, futures are oddly non-green at this moment now that talk of a Ukraine civil war is the new black (after two months of ignoring the elephant in the room... or rather bear in the room). Lighter volumes, courtesy of holidays in Japan and UK, have not helped the market breadth and stocks in Europe are broadly lower with the DAX (-1.33%) and CAC (-1.19%) weighed upon by risk off sentiment and market positioning for the eagerly anticipated ECB policy meeting especially after the EU cuts its Euro-Area 2014 inflation forecast from 1.0% to 0.8%. But what's bad for stocks continues to be good for equities, and moments ago the 10Y dropped to a paltry 2.57%, the lowest since February... and continuing to maul treasury shorts left and right.
The weekend's re-escalation in Ukraine has sent gold popping $10 (and back above its 200DMA) and FX carry (and thus US equities) sliding in the early overnight trading. With Japan out (and Europe set for another holiday) volume are, and will likely remain, low. Critically, USDJPY is back under 102, even as Japan's central bank governor proclaims:
*KURODA SAYS PRIVATE ECONONISTS UNDERESTIMATE JAPAN, CNBC SAYS (but the government ones are spot on?)
Which means Nikkei futures are also lower - down over 300 points from Friday's highs (and Chinese stocks are falling on the back another weak PMI print). Treasury futures are bid suggest 2bps more yield compression back below Friday's low yields at 2.57% for the 10Y.
From fears of Argentinian devaluations (and a 26-year-old running policy) to Japan's structural collapse; from Europe's false hope to China's bubbles; and from the Fed taper to the US hydrocarbon revolution, Hayman Capital's Kyle Bass provides a broad-based presentation of global risks and opportunities in the clip below. The Q&A is where Bass comes alive and is well worth the price of admission for a hedge fund manager unafraid to discuss the possibility that the status quo is unsustainable. Bass sums it all up perfectly succinctly, "proceed with caution."
Simply put, there are three downside risks for markets - that appear to be off the 'meme of the day' beaten track of any average investor nowadays eyeing the record highs and gloating at any bear left standing:
1) China has shifted from a monetary policy of choice to a monetary policy of necessity.
2) The Narrative of Fed Omnipotence continues to reign supreme, but now in a tightening monetary policy environment.
3) The Hollow Market is cracked open by well-intentioned but destructive regulators.
Too long to read? Attention Deficit Disorder let you down...? Read!
China is a case of bastardized socialism on credit steroids. At the turn of century it had $1 trillion of credit market debt outstanding—-a figure which has now soared to $25 trillion. The plain fact is that no economic system can remain stable and sustainable after undergoing a 25X debt expansion in a mere 14 years.
A perfect sign of the times is the unexpected success of a 700-page economics text called Capital in the 21st Century by French college professor Thomas Piketty reigniting the popularity of Marx's view of the world. Marx’s critique of the modern world was right-on, and the first half of his scenario is playing out just as he predicted; unfortunately, he went on to predict that the revolt of the 99% would result in a “dictatorship of the proletariat” in which workers of the world abolished private property and ran things so wisely that government would just fade away... This is of course crazy, and when it was tried in the 20th century it failed with catastrophic consequences for the Soviet Union, China, and a long list of smaller but no less tragic countries. The result: brutal dictatorships and the eventual dismissal of the Marxist ideas on which those societies are founded. Now the challenge is devising a monetary/financial reset that brings the 99% back into the game without producing a stagnant dictatorship. It will help if we understand why it’s happening.
Some thoughts about the price action, or lack thereof, in the foreign exchange market.
The joint naval drill is another example of the growing military, economic and political ties between China and Russia.
We have detailed the straitjacket into which the Japanese have been strapped for the past two decades numerous times in the last few years (in great detail here) but as Grant Williams leaned back in his most comfortable chair after reading an article about proposed changes to the GPIF (Government Pension Investment Fund), Japan’s public pension fund; the thought popped into his mind - "Japan really is totally f##ked." What led him to that well-thought-out and eruditely expressed conclusion? Read on...