Former Lehman Trader: "There’s More Pain To Come For Markets"

Some apt observations on the morning after the biggest VIX move in history (in percentage terms) by Bloomberg macro commentator and former Lehman trader, Mark Cudmore, who has certainly been here before.

There’s More Pain to Come for Global Equity Markets: Macro View

There’s been a rapid deterioration in market fundamentals and that means that, even at these much lower prices, global stocks don’t look attractive yet.

It’s true global growth is still supportive, and so this is unlikely to be the start of a long-lasting bear market. But, one of the other pillars behind the rally has been severely weakened during the past month: liquidity.

Two-year U.S. yields closed Thursday 90 basis points above their finish on Sept. 8. That speed of tightening hasn’t been seen since the first half of 2008. And we all know how that year ended.

There’s more from this angle: five-year U.S. yields also tightened by more than 90 basis points over the same period. That has severely diminished the net-present value of expected future cash flows from stocks, effectively making them look more expensive on this basis.

And now we also have an explosion in volatility. That will have a lasting impact on VAR (value-at-risk) calculations, sustainably reducing potential leverage levels for both banks and hedge funds for the rest of this year. Another severe blow to liquidity.

This is all coming amid a flurry of data and metrics showing how January was a record month for equity inflows and bullish sentiment across a number of markets. There’s far less cash on the sidelines to buy the dip than there was only a few weeks ago, which again hurts the liquidity support.

To top it all off, the main reason I suddenly turned bearish last Wednesday, remains worryingly valid. It was the first time in many years that regular bears weren’t getting excited by a 1.8% fall in stocks. That suggested investors were too complacent then, and they’re still too complacent today.

Until yields fall further, investors deleverage more and we see a preponderance of bears openly roaming, we can expect to see lower equity prices. That all may happen very quickly, but it needs to occur before we find a base.

One extra warning: Don’t get too excited if we get a big bounce soon. Risk-averse markets see the most powerful short-term swings in these sorts of conditions, when liquidity is lower and wealth destruction means many traders have weakened hands and reduced conviction.

Comments

TheWholeYearInn mcbond Tue, 02/06/2018 - 06:43 Permalink

From link:

 

"Credible money will continue to arise from central bank decisions, taken in the light of day and in the public interest."

 

IOW ~ only central banks are allowed to print money out of thin air, give it to their friends while charging you interest on it. Manipulate the price of everything, launder drug money, and do any number of illegal things with it, depreciate it's value, and, if you complain about what's going on, crash the whole financial system.

 

Did I miss anything?

In reply to by mcbond

Never One Roach TheWholeYearInn Tue, 02/06/2018 - 06:54 Permalink

My take:

 

"There's more correction to come in the markets."

 

Lets face it, the last 8 years---- energy has been decimated. Retail has been decimated. The others will follow as a result of destruction of America's middle class.

Fundamentals can be a bitch. After 8 years of destruction the correction is inevitable. However, i'm sure the lefties and far left MSM will blame the guy who just came on board, Trump.

Obama's destruction of the middle class has consequences.

In reply to by TheWholeYearInn

CatInTheHat Never One Roach Tue, 02/06/2018 - 11:50 Permalink

Clinton + Bush + Obama + Trump. 

And since 2001, WAR, WAR, WAR.

And more war. We are 22 trillion in debt. And the defense contractors and the elite want still another raise. I guess 700 billion wasn't enough. 

Offshoring of jobs and the continued decline and destruction of the middle class with each successive Administration

In reply to by Never One Roach

BritBob Tue, 02/06/2018 - 06:00 Permalink

Time to buy into oil?

Falkland Oil Project Eyes Green Light This Year as Prices Rise - 11 Jan 2018

 

  • $1.5 billion of capex is required to achieve first oil
  • Premier Oil, Rockhopper are partners on Sea Lion project

An oil project off the tip of South America is on track to get the go-ahead by the end of this year as the companies involved in the development work to secure $1.5 billion in financing.

It’s eight years since Rockhopper Exploration Plc discovered the 220 million-barrel Sea Lion field off the Falkland Islands. A green light for the project -- which is operated by Premier Oil Plc -- would signal renewed confidence in the outlook for the oil industry after a three-year slump in investments due to low prices.

“The project of course is looking a lot better at $68 a barrel,” Tony Durrant, chief executive officer of Premier Oil, which holds 60 percent of Sea Lion, said in an interview on Thursday. “It’s a project that’s very sensitive to oil prices.” (Bloomberg 11 Jan 2018)

What about Argentina? And what does the law say about the ownership of natural resources?

Argentina's Continental Shelf Claims and The UN CLCA Commission (1 page):-

https://www.academia.edu/33898951/Argentinas_Continental_Shelf_Claims_-The_UN_CLCS_Commission

 

 

new game Tue, 02/06/2018 - 06:05 Permalink

"find a base" well, the water went out and the home is tilted with some water damage. still inhabitable!

and i see a dead cat crawling, oh my, bring on the PPT, or surely fema to post some insurance policy of sorts.

which gov. org front will carry the print to unfortunate beach front property owners?

new game Tue, 02/06/2018 - 06:10 Permalink

the real "easy trade" will be bonds. long on bonds. the bottom was put in. there will  be no bond bubble bust. sorry stockman. can't happen or we all be toast. the fed will print til infinity before that will ever happen. bonds will be the winner,- this year with bigly returns.

simple shit maynard.

davatankool Tue, 02/06/2018 - 06:16 Permalink

 

What’ll happen next? Dip buyers will come in, maybe at this very moment, or maybe later, and some of them will likely get plowed under, but there is way too much cash lined up in hedge funds specifically set up to profit from sell-offs. And dip-buyers have been rewarded relentlessly over the past eight years, and it’s not until the dip buyers get massively destroyed and stop dip-buying that the market is in real trouble.

https://wolfstreet.com/2018/02/05/so-what-do-i-think-about-the-crash-in…

Sick of Govern… Tue, 02/06/2018 - 06:20 Permalink

The FED had to wait for a year into Trump Presidency before crashing the market so it can't be blamed on Obummer.  The Fed pushed this market up from 2008 until now.  NOW they are letting it look bipolar.

Avichi Tue, 02/06/2018 - 09:35 Permalink

Classic FEAR Psychosis- Watch for President #TRUMP  drive another dragger into the FED manipulation and send FEAR- Today they NASA IS SENDING ANOTHER SECRET MILITARY SPACE MISSION. WARIII -T-100..99...98 "EMERGENCY WILL BE DECLARED" -MARTIAL LAWDemocRATS and the CABAL(ROTHCHILDS/CLINTON FOUNDATION/BERKSHIRE HATHAWAY/BILL/MALINDA FOUNDATION/HOLLYWOOD CABA/WALL-STREET CABAL) are going TO GO UNDERGROUND,OBAMA,CLINTON AND HER CRIME FAMILY ALONG WITH SOROS AND THE GANG ARE GOING UNDERGROUND. WE WILL HUNT YOU DOWN.

MILITARY INTELLIGENCE IN FULL CONTROL

 

THIS IS A WAR BETWEEN GOOD Vs. EVIL - PLANE AND SIMPLE

THESE BASTARDS HAVE TO BE PURGED AND ELIMINATED

 

GO #MAGA #TRUMP