Jueves 08/27/15 GDP (PBI), Indice ventas casas pendientes

[Fenix]

¿Comprar o no comprar?

Jueves, 27 de Agosto del 2015 - 12:00:00

Buy the dip? Sell the rally? Admito que me inclino por comprar en la caída, siempre. ¿Cómo llevar la contraria a los bancos centrales dueños del “dinero”? ya saben las tres reglas:

1. Los mercados siempre tienen razón
2. Nunca se tiene suficiente dinero para llevarlos la contraria
3. Las crisis ocurren porque no se anticipan

Yo las cumplo a rajatabla. Pero, cuando los bancos centrales se han convertido en el “mercado” han distorsionado al menos las dos primeras reglas. Y han amortiguado los riesgos de la última. En definitiva, han pretendido (y lo han conseguido) matizar el riesgo de contrapartida y al mismo tiempo han eliminado el riesgo de iliquidez. Sin embargo, en la reciente “mini crisis” este último riesgo ha reparecido con total virulencia. Aquí tienen la raíz de la facilidad con que los mercados globales han sobrereaccionado ante el deterioro de los acontecimientos (bolsa) china.

La volatilidad de la volatilidad ha alcanzado niveles que no veíamos desde el principio de la Gran Recesión. Pero, como decía ayer, con una importante diferencia: en estos momentos no estamos ante una recesión.

La cuestión de fondo sigue siendo la de siempre: ¿a qué escenario económico nos enfrentamos? Con los datos en la mano, la recuperación económica mundial sigue su curso pero a un ritmo más moderado de lo esperado. Y China no es la única responsable, considerando de nuevo la menor recuperación a lo esperado en los países desarrollados. Pero, seguimos viendo output-gap elevados en estas economías al mismo tiempo que la mejora en las condiciones financieras y hasta la caída de los precios del crudo pueden ayudar a mejorar la recuperación cíclica. ¿Estructural? Responder a esta cuestión es mucho más complicado. Más allá de reformas estructurales pendientes, lo cierto es que el crecimeinto potencial se ha resentido durante la Crisis y hasta el momento no se ha recuperado en países que ya acumulan tres años de crecimiento. Pero, crecimiento es crecimiento. Y los mercados ahora no deberían dudar de la continuidad de la recuperación económica. Repito, con la información disponible.


Entonces, ¿por qué los temores actuales de mucha gente “sensata”? Es la liquidez en el mercado. Al final, es la profundidad del mercado lo que ha quedado de nuevo en entredicho con su comportamiento en las últimas semanas. ¿Una cuestión estival? Quizás, aunque admito que no las tengo todas conmigo. Y esa gente sensata a la que me refería antes, tampoco parece tenerlo muy claro. De hecho, algunos, los menos hasta el momento, ya se están preparando ante lo que han denominado “una nueva época”. ¿Sobre qué argumentos? Buscan similitudes con la Crisis asíatica de finales de los noventa, en aquel momento (como podría ser ahora) una crisis con origen financiero. Precisamente el cambio de modelo de crecimiento que propició, desde la demanda interna hasta el sector exterior como motor de crecimiento, es lo que se ha puesto en cuestión con la reciente recesión. En el caso concreto de China, cuando se defiende una estrategia de “mejor crecimiento” con un coste a corto plazo de “menor crecimiento”. Pero, espero, sobre la base de que la economía china sigue creciendo a ritmos suficientes.

Ya lo ven: es la estrechez del mercado lo que ahora debe preocuparnos, como fue también un factor de preocupación siete años atrás. ¿Serán capaces los bancos centrales de volver a crear mercado?. En el fondo, como decía la propia Merkel ayer “hasta al FMI le ha pillado desprevenida la reciente crisis en China”. Y es que las crisis se producen porque son inesperadas. El problema surge cuando la crisis, limitada en tamaño como es la propia caída de la bolsa china, tiene la suficiente entidad para convertirse en un nuevo problema global de confianza. Sí, tenemos un problema. Pero espero que se vaya amortiguando a corto plazo. ¿Y el futuro? Claro, sigue siendo incierto. Pero esto ya lo sabíamos antes del verano.

José Luis Martínez Campuzano
Estratega de Citi en España

[Fenix]

Rusia necesita un nuevo modelo de crecimiento

Jueves, 27 de Agosto del 2015 - 12:26:00

La economía de consumo de Rusia, impulsada durante más de una década por la energía, está en agonía. La situación está empeorando, según los datos publicados por la oficina de estadísticas en Moscú.

Los salarios ajustados por la inflación se desplomaron un 9,2 por ciento el mes pasado respecto al año anterior y las ventas minoristas cayeron en la misma proporción.

Tras una recesión prolongada en los precios del petróleo y el rublo en nuevos mínimos, la lista de candidatos para reemplazar el motor de crecimiento de Rusia es corta. La mayoría de los economistas sólo pueden pensar en una cosa: la inversión.

Con los inversores extranjeros evitando Rusia en medio de las sanciones internacionales, el ahorro interno pueden tener que soportar la carga de financiación, de acuerdo con UralSib Capital, que estima que la economía el año pasado súfrió un déficit de alrededor de 60 mil millones de dólares para un crecimiento deseado del 3 al 4 por ciento al año.


"Si va a haber crecimiento, será debido principalmente a la inversión en los próximos 10 años", dice Yaroslav Lissovolik, analista de Deutsche Bank en Moscú. "Sin ella, vamos a agotar al consumidor y no vamos a alcanzar ese potencial, que se concentra principalmente en el componente de inversión."



Nos enfrentamos a un periodo como al principio de la década del 2000

Carlos Montero
Jueves, 27 de Agosto del 2015 - 12:56:00

El analista Peter Schiff realiza un interesante gráfico de las rentabilidades de distintos activos e indicadores en diferentes periodos de tiempo. El propósito de este estudio es intentar anticipar en que escenario temporal nos encontramos y que podríamos esperar para los próximos años. Veamos:

A final de la década de los 90 fue una época dorada para la historia económica de EE.UU., y los inversores parecían estar en el mejor de los mundos posibles. Varios eran los motivos: Administración Clinton que había implementado una política monetaria de bajos tipos de interés, condiciones empresariales favorables, buenas condiciones para la inversión empresarial, y un presidente de la Reserva Federal de EE.UU. a quien amaba Wall Street.

La década de los 90 fue uno de los mercados alcistas más sostenidos de la historia. Pero en la última parte de la década, los mercados comenzaron a subir en una trayectoria sin precedentes. A medida que la burbuja comenzó a inflarse, Greenspan era renuente a seguir la máxima de que el trabajo de la Fed era desinflar la burbuja antes de que fuera inmanejable.

Pero mientras que los mercados estadounidenses despegaban, el resto del mundo languidecía.

En marzo del 2000 la música dejó de sonar y la burbuja punto com estalló, provocando caídas en el Nasdaq cercanas al 50% a final de año, y un 70% para septiembre de 2001.


En los 7 años posteriores al 2000 el S&P 500 subió solo un 11%, con una media anual del 1,6%. Sin embargo, los mercados emergentes que habían sufrido durante los cuatro años anteriores, presentaron una subida del 273%.

El periodo también fue positivo para el dólar y para las acciones mineras.


En los últimos años, los inversores han evitado el dólar y las economías desarrolladas altamente endeudadas, sufriendo muchas de las frustraciones vividas al final de la década de los 90. Los mercados internacionales, la energía, las materias primas y el oro sufrieron, mientras que el dólar y el mercado de EE.UU. subía como lo hicieron el periodo 1997-2000.


Dicen que la historia no se repite pero rima. Si esto es así, hay varias razones para creer que las rentabilidades relativas globales volverán ahora como al inicio de la década del 2000. Quizás de forma aún más decisiva. Del mismo modo que en 1990, los inversores parecen estar ignorando las banderas rojas.

Carlos Montero
Lacartadelabolsa

[Fenix]

S&P 500: Objetivo de caída del 17-20% desde el máximo

Análisis técnico Citi
Jueves, 27 de Agosto del 2015 - 13:28:00

Mirando el gráfico adjunto, la semana pasada cerramos por debajo de la media móvil de 55 semanas por primera vez en 3 años y 3 meses. El promedio móvil de 55 semanas se ubica actualmente en 2051, mientras que la media semanal de 200 (nuestro objetivo) se sitúa en 1708.

Esto sugeriría que en última instancia, veremos movimiento desde los máximos del 17% al 20% (aunque no al ritmo de caída visto hasta ahora).

Estaríamos más inclinados a esperar que el ritmo general de la caída sea similar al observado en los descensos del 20-22% observados en 1990; 1998 y 2011.


El mayor movimiento de los tres se llevó a cabo en aproximadamente 12 a 13 semanas. En los 3 casos la parte impulsiva de la caída se llevó a cabo durante un período de tiempo casi idéntico.

[Fenix]

13:54 Exxon Mobil: la curva descendente prevalece
CMC Markets
Punto pivote (nivel de invalidación): 79,5

Preferencia: Posiciones cortas debajo de 79,5 con objetivos en 66,5 y 63,05 en extensión.

Escenario alternativo: Arriba de 79,5 buscar mayor indicación al alza con 83,2 y 90 como objetivos.

Comentario técnico: A pesar de que no se puede descartar una continuación del rebote técnico, su magnitud debería ser limitada.

15:27 El índice dólar podría caer a 87/88
Análisis técnico Citi
Continuados cierres por debajo de la media móvil de 200 días confirma la validez de la ruptura, así como la del triángulo que apunta a un objetivo de caídas entre 87.89 y después 86,37. Esta caída acercaría al índice a cerca de un soporte de largo plazo (ver más abajo).


Una nueva prueba de la zona de ruptura sería un desarrollo constructivo en la tendencia del dólar a largo plazo.

[Fenix]

Una cosa es deber y otra poder

Jueves, 27 de Agosto del 2015 - 15:53:00

Esperamos con suma atención la conferencia del Vicepresidente de la Fed este sábado. Más allá de los datos macro positivos (y esta semana hemos tenido un buen ejemplo de ellos), lo relevante ahora es cómo valora el escenario en términos de estabilidad financiera la Fed.

Me decía un cliente amigo que si finalmente no suben los tipos en septiembre, ¿cómo podría argumentar una subida en diciembre? Bueno, es cuestión de considerar sólo que no se daban las condiciones. No se puede, pero ¿se debe hacerlo?. Al debate se ha incorporado el Gobernador del BOJ que considera que una subida de tipos en USA es lógica y hasta apropiada, precisamente para facilitar que el mercado recupere la confianza. ¿Y si no es así? En definitiva, ¿tiene toda la información apropiada la Fed para calibrar el impacto y la profundidad de la actual crisis en China?.

En lo que todos estaremos de acuerdo es que, en teoría, se dan las condiciones a nivel doméstico para comenzar a subir los tipos de interés oficiales en un proceso de normalización con un objetivo final de tipos que sí se enfrenta a un fuerte debate. En concreto, entre tipos del 2.5-3.25 % según la Regla de Taylor en dos años. Pero nosotros esperamos que no vaya más allá del 2.5 %, cuando el consenso del mercado los fija en 2 %.

La cuestión de fondo es doble: 1. ¿se pueden asumir los riesgos a medio y largo plazo de mantener unas condiciones financieras demasiado laxas?; 2. ¿se puede asumir el riesgo ahora de comenzar la normalización en un entorno de potencial inestabilidad financiera internacional?. Entre medias, una mejora indiscutible en el mercado de trabajo y un nivel de inflación (y expectativas) bien por debajo de niveles objetivo.


Pero, por otro lado, una caída de los precios externos puede aumentar la capacidad de compra de las familias y mejorar las perspecta de resultados de las empresas. ¿Puede compensar todo esto la subida del USD? al final, sin existir una política concreta de tipo de cambio la apreciación del USD sí puede actuar como amortiguador de la subida de tipos a corto plazo. Pero el caso es que la subida del USD está siendo más moderada de lo que esperábamos inicialmente.

Nosotros esperamos que el consumo privado recupere una tendencia de aumento por encima del 3.0 % en los próximos meses. Al mismo tiempo, la mejora en los beneficios empresariales y creciente estrechez en algunos segmentos del mercado de trabajo podrían traducirse en salarios al alza. Y la política monetaria radica su éxito en ser preventiva….

Pero, mientras algunos consejeros de la Fed priman más bien el margen de subidas de tipos frente al momento de iniciarlas otros, la mayoría hasta el momento, opinan todo lo contrario cuando dejan en el aire el objetivo final de tipos. Ya lo veremos.

José Luis Martínez Campuzano
Estratega de Citi en España

[Fenix]

Tiffany Stock Tumbles After Revenue And Profit Drops, EPS Slide 16%; Forecast Cut; Strong Dollar Blamed
Submitted by Tyler D.
08/27/2015 - 07:58

Even the rich are starting to feel the pinch, at least according to the favorite jeweler of the upwardly mobile middle-to-upper class (especially in China and Japan), Tiffany & Co., which earlier today reported Q2 EPS of $0.86, below the $0.91 expected, with GAAP EPS of $0.81 some 16% below the $0.96 record last year. Like other retailers, TIF was quick to blame the surging dollar (which isn't going anywhere if the Fed indeed proceeds with a rate hike), blaming it for lowering the value of the Tiffany’s sales overseas, where the company gets most of its revenue. Currency fluctuations also have kept tourists from making purchases at U.S. stores, dealing a second blow to revenue.


The Stock Market After The Mini Crash
08/27/2015 08:20 -0400
Submitted by Pater Tenebrarum,
A Post Mortem – the Influence of Black Box Systems

Here is a brief update on the recent market action and what we think one should watch out for now. First of all, we already noted in our last market update that something about the recent “mini crash” was quite unusual. For one thing, it started to get serious in an options expiration week, which happens only rarely. One rather scary precedent is actually the 1987 crash: on that occasion the market declined sharply during expiration week and crashed the following Monday.



post-mortem

Photo credit: Oocoskun – dreamstime.com





However, something else is quite strange about this decline. We did of course get ample warning from deteriorating market internals, which we have extensively written about in the time period shortly before the mini crash (see e.g. “The US Stock Market and a Major Recession Warning” posted at the end of July), so in that sense it wasn’t a surprise that the market went down. What is surprising is how it happened. We have never before seen the stock market plunge at similar speed from a trading range just a few percent below an all time high so shortly after the ATH was put in.



1-SPX-LT

S&P 500 over the past four years. The recent decline is highly unusual – click to enlarge.



Normally, crash patterns involve an initial decline that undercuts a support level, followed by a rebound that then fails, in most cases at a lower high. Usually this initial part of the crash sequence looks perfectly harmless. Nothing of this sort happened here – instead, the market just crashed “out of the blue” and the decline looks anything but harmless, given how much technical and psychological damage it has inflicted.

There are several possibilities here. Perhaps this actually was the “initial decline” and things will really get dicey after a rebound that fails at a lower high. Another possible explanation is that the increased computerization of trading – with about 70% of all trading volume executed by HFTs and systematic “black box” trading programs – has fundamentally changed market action.

Readers may recall our frequent remarks over the years about extremes in sentiment and positioning data which the market seemed to completely ignore on the way up. Computers obviously don’t have emotions. A black box system that trades primarily on price information and charts ultimately follows a set of fairly simple rules. Thus a break of an important moving average or a predefined support or resistance level may be all it takes for a great number of such programs to execute buy or sell orders in unison. In fact, we believe that this has indeed happened and has exacerbated both the rally from the 2009 low as well as the recent decline.


What Happens Next?

So what to expect now? It is of course extremely difficult to call short term moves in such an extremely volatile market environment. The market’s bounce attempt on Tuesday seemed a natural development, but surprisingly, it actually failed to hold. As we are writing this, the market is trying for another bounce, and it seems likely to us that it will actually succeed this time around. Sentimentrader’s short term optimism index (or Optix) on the stock market recently went to zero – it cannot go any lower. This makes a rebound highly likely (but not mandatory – in 2008, similar readings did not keep the market from plunging further in the short term).



2-Optix

The short term Optix on stocks recently hit zero – click to enlarge.



Luckily the decline has established easily identifiable resistance areas which will help us to determine failure or success of the any upcoming rebound attempts. A reversal at or below these resistance areas will be a major warning sign that the worst is yet to come. Conversely, if the market were to overcome these resistance areas, one would have to reassess the situation. In that case it could be that the decline merely represented a brief “growth scare” that was necessary to make market participants less complacent.

We believe the latter scenario has a very low probability though. The ferocity of the decline actually makes us think that it represents the “kick-off move” to a bear market – quite possibly a major one. Here are daily charts of the DJIA and SPX with their respective resistance areas penciled in:



3-DJIA

The DJIA has strong resistance in a region between approx. 16,900 and 17,200. A rebound that fails at or below this resistance area would signal that an even worse decline is yet to come.



4-SPX, daily

S&P 500 daily, close-up – major resistance awaits between 1,970 and 1,980 – click to enlarge.



We could post more such charts, but this should suffice to get the drift – all the major indexes are in roughly similar positions now relative to resistance. In terms of support levels, it is the low of October 2014 that is decisive.

The DJIA and the NYA have already broken below it, but the RUT (Russell 2000), SPX and Nasdaq Composite haven’t. In the short term, this actually represents a slight positive divergence, but the important point is this: if the SPX breaks below this level in the next downturn as well, it will represent confirmation from a technical perspective that a significant bear market has begun.

In fact, it is actually worth to take a look at the NYA and the SPX relative to the October 2014 support level. One thing this is telling us is that the broader market continues to be far weaker than the handful of big cap stocks that has held the market up until very recently. So even though the divergence could be interpreted as short term bullish (i.e., indicative of short term rebound potential), its longer term message remains actually bearish.



5-NYA and SPX rel to 2014

The NYA vs. the SPX – the former has undercut the October 2014 low both on an intraday and closing basis, the latter hasn’t – at least not yet – click to enlarge.



Finally we would like to add that there are very good reasons for us to doubt that the market will just go back up and things will return to “business as usual”. We have recently posted three charts of long term significance, which you can see by clicking on the following links: margin debt, mutual fund cash ratio and the retail money market funds/SPX ratio.

In combination with the fact that valuations are extremely high (in terms of both the Q ratio and the CAPE), these data are telling us that the potential for a major unwinding of the bubble is enormous. This is in spite of the fact that the market continues to receive a lot of support from fairly strong money supply growth.

With the Fed’s “QE” operations out of the picture, money supply growth currently depends on commercial banks increasing their inflationary lending further. However, private banks don’t act in a vacuum. In view of deteriorating economic data, and several extant sub-credit bubbles, which are either already bursting or in danger of doing so in the not-too-distant future, banks will likely become increasingly reluctant to extend additional credit. The credit sub-bubbles we are referring to here are corporate junk bonds (especially those of energy and commodity producers), the student loan bubble (which will be bailed out by tax payers) and the sub-prime lending bubble in car financing.



6-JNK

Junk bond ETF JNK, weekly, over the past 5 years – click to enlarge.


Conclusion

Crash waves are notoriously volatile – several of the biggest one day rallies in history have occurred before and during crash waves (record one day advances happened in the DJIA either shortly before or during crashes in 1987, 2000, 2008 to name a few examples; enormous volatility was also a hallmark of the 1929 to 1932 bear market, which was host to several of what were then the largest one day and weekly rallies ever seen). This makes short term forecasting even more of a coin flip than it normally is.

However, we believe it is important not to lose sight of the forest for the trees; stock markets around the world have been in bubbles driven by extremely loose monetary policy, which ipso facto allows us to identify them as an example of artificial price distortion. Such bubbles always collapse sooner or later – unless the monetary authority decides to simply destroy the currency it issues, as has happened in Zimbabwe and is currently happening in countries like Venezuela and to a slightly lesser extent Argentina.

We don’t expect the central banks of the developed nations to follow suit, at least not yet. It seems more likely that central banks like the Fed, ECB, BoJ and BoE could end up destroying their currencies by mistake rather than by design – simply by dint of eventually underestimating the long term effects of their money printing. However, we are still far from that point.

At the moment, central bank bureaucracies are still very much focused on self-preservation, as the example of the SNB recently showed. After pumping up the Swiss money supply in unprecedented fashion to defend the peg to the euro, the SNB relented and discontinued the exchange rate floor overnight – and we believe it did so because it wanted to ensure its own survival.

As long as this self-preservation instinct drives the actions of the central planners, we should expect them not to go totally overboard with the printing press. However, there is still plenty of room for more intervention on their part, and we will definitely see this if the market downturn should worsen significantly. Our main point is though that one cannot rely on their willingness to attempt to prevent a stock market downturn at all costs prior to a major decline. Moreover, we believe that when this attempt is eventually made, it could very easily fail.

[Fenix]

Initial Jobless Claims Ends Losing Streak, Unchanged Since January
Submitted by Tyler D.
08/27/2015 - 08:38

After four weeks of rising - the longest streak since Feb 2009 - initial claims dropped very modestly to 271k this week. This means initial jobless claims has gone nowhere since January 23rd.


September Rate Hike Back On Table: Q2 GDP Soars In Revision From 2.3% To 3.7% Driven By Record Inventory Build
Submitted by Tyler D.
08/27/2015 08:43 -0400

Well, if the Fed is truly data-dependent, September is now squarely back on the table following the first revision of (double seasonally-adjusted) Q2 GDP data which soared from 2.3% to a whopping 3.7%, blowing out the Wall Street consensus estimate of 3.2%, and printing above the highest Wall Street forecast (the 3.6% from JPM).



This is what the BEA said about the source of the upside:

The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE), exports, state and local government spending, nonresidential fixed investment, residential fixed investment, and private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased.



The acceleration in real GDP in the second quarter reflected an upturn in exports, an acceleration in PCE, a deceleration in imports, an upturn in state and local government spending, and an acceleration in nonresidential fixed investment that were partly offset by decelerations in private inventory investment, in federal government spending, and in residential fixed investment.

Here is the breakdown:



But the real reason for the surge is shown in the chart below: from an inventory build of $124 in the first GDP estimate, the BEA now sees a total of $136.2 billion in inventory build in Q2. This is an all time record, and a number which suggests the upcoming inventory liquidation will be truly epic, not to mention recessionary.



So, paradoxically, as the market bulls scramble to find some bad news in this report which in isolation puts a September rate hike back on the table, the reality is that the inventory liquidation is result in a tumble in Q3 GDP (or Q4, or Q1 2016 - whenever it does take place). As such, the market bulls can point to the latest Atlanta Fed "nowcast", which after yesterday's "strong" durable goods number was revised from 1.3% to just 1.4%.

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 was 1.4 percent on August 26, up from 1.3 percent on August 18. The forecast for real GDP growth increased 0.1 percentage point to 1.4 percent after this morning's advance report on durable goods from the Census Bureau. The report boosted the model's forecast for equipment spending in the third quarter from 7.7 percent to 8.9 percent, and led to a slight improvement in the contribution of real inventory investment to third-quarter GDP growth.

As a result of the record increase in inventories, expect the Atlanta Fed to promptly cut its already painfully low Q3 GDP estimate, which may just be the hook the Fed will use to avoid hiking rates in three weeks time.

[Fenix]

If You Doubted The Central Bankers' Brave New World, You Were Right
08/27/2015 09:45 -0400

Submitted by Lee Adler via
Ben Bernanke and his cohort central bankers built a Brave New World (SOMA, SOMA, SOMA!) where central bank money printing would boost stock prices and the wealth created would trickle down to workers and cause a booming economy. If you doubted that, you are now seeing proof that maybe this world was a little bit of Lewis Carroll’s Alice in Wonderland along with the Aldous Huxley. Here’s what that could mean for your trading and investments now.

The Fed’s balance sheet remained virtually unchanged last week as the central bank finished up its regular mid month MBS purchase settlements, offsetting some creative and mysterious spaghetti pushing that cut assets. The Fed recorded a $15 billion drop in other assets, along with a long footnote about a few of the old alphabet soup programs that were instituted in the wake of the financial crisis. Most of these have been consolidated into the Fed’s standard balance sheet line items. The $15 billion reduction in “other assets” smells like a write down of the dregs of those special purpose programs that were never repaid. In today’s balance sheet terms, that’s not even a rounding error.

And so the gam-es go on. The Fed entices the banks to move money from their regular deposit accounts (aka reserves) to RRP accounts or Term Deposits with the incentive of an extra basis point or two above the interest paid on excess reserves (IOER). They are supposedly testing the “operational readiness” of these programs as tools to raise interest rates. In reality, shifting excess funds from one balance sheet line item to another, with only difference between them being an infinitesimal difference in the required holding period, is a shell game. To the holders of the funds it’s all short term money, readily accessible, if not in an instant, in a day. And since they are excess funds for which they have no use, what difference does it make what they are called or whether they are demand deposits or 7 day term deposits?

If the FOMC really thinks these measures will work to raise interest rates by PAYING banks more income on excess funds, then the Fed is even crazier than I thought. Of course, the stock market seems likely to make the whole question of raising rates moot for the foreseeable future as stocks plunge and Treasuries rally.

Once the Fed stopped outright purchases last October, stock prices started to top out. But the BoJ continued to print, and the ECB started printing in March. Since all major central banks pump into one worldwide liquidity pool, and all the plumbing leads to the US sooner or later, we had wondered whether that would be sufficient to bolster US stock prices.

Since this long term QE business is all historically new, we had no basis on which to judge. We also wondered whether after 6+ years of seeing QE send stock prices higher, if at some point that would no longer work. I viewed the collapse of gold and oil as templates or signals that at some point the same thing might happen to stocks, but we couldn’t be sure.

It was the same when the Fed started outright purchases of Treasuries in March 2009. I thought it would work to push stock prices higher, but couldn’t be sure until we saw it working. By April 2009 it was clear to me that the fix was in, that it was working and would continue to work. The technical analysis told us that.

Now we are seeing the mirror image. We had wondered whether central bank money printing by two of the Big Three, with the Fed sitting on the bench, would be enough to keep stock prices bubbling away. The answer is now clear. They are not. The technicals are unequivocal, as I have chronicled in our Daily Market Updates. The money created by the BoJ and ECB isn’t sufficient to counter the capital destruction being forcibly exported out of China by the Margin Call Heard Round The World.

The biggest players in the China pool are outlawed from selling there so they use the rest of the world as a liquidity sink. The margin calls that have already happened have extinguished massive amounts of margin debt, and margin debt is money. That’s money that is no longer available to goose markets. The illusionary collateral that backed it has disappeared.

Regardless of how long the actual margin destruction goes on, the mindset of the major dealers and leveraged speculators around the world has shifted from generating bubble profits by marking up prices, to generating profits on the short side, and if conditions are adverse enough, to self defense. That entails deleveraging, thereby extinguishing money.

With collateral devaluation and diminished appetite for risk on the upside the world has changed. QE has been defanged. The players who have access to it will now use it largely to pay down other debt, and thereby extinguish the money that came into being when that debt was issued. At best we will be on a treadmill but the potential is great for the unfolding of the worst bear market in modern history.

The game of central bank market rigging has run its course. This brave new world we have witnessed is really the same old world, only stretched and distorted beyond recognition. We who have believed that when you stretch conditions too far, they revert violently, are probably in the process of being proven correct.

[Fenix]

Bears Are "Covering" Everywhere, Especially Here
Submitted by Tyler D.
08/27/2015 - 10:31

In a well-worn tradition, where it takes one cover to offset a cover, here is Bloomberg Businessweek's latest, which shows that bears were were "covering" everywhere in the market yesterday (and continue to do so today), and certainly on the front page of the latest issue of Bloomberg's publication.


HFTs Are Overheating: CenturyLink Reports "Catastrophic" HVAC Failure At NJ2 Data Center, Starting "Safe Shut Down"
Submitted by Tyler D.
08/27/2015 - 12:40

If today's ridiculous move is the kind that no retail investors would chase, it is precisely what HFTs around the globe love: nothing but momentum, momentum, momentum. In fact, HFTs are trading so much, they are literally overheating!


S&P 500 Surges 5.9% - Biggest 2-Day Spike Since Fed Announced QE1
Submitted by Tyler D.
08/27/2015 - 11:26

The 5.9% rise in the last 2 days is the largest for the S&P 500 since March 11th 2009 - when The Fed announced QE1...

[Fenix]

VIX Backwardation Continues - It's Not Over Yet
Submitted by Tyler D.
08/27/2015 12:52 -0400

While oil prices are surging (global economic meltdown averted), stocks are back in the green on the week (crisis averted), and bonds are collapsing (not because of China selling according to the mainstream because "everything is awesome" again), we point traders' attention to the continued inversion in the VIX term structure. While well off the peak crisis levels, we have a long way to go to "normalized" levels of risk...

And once again today, we see 'signalling' in HFT flash moves...


No Weakness Here : 7 Year Auction Stops Through, Highest Bid To Cover Since November
Submitted by Tyler D.
08/27/2015 - 13:10

If the last two auctions, the 2 and 5 Year, were both wildly disappointing and confirmed what we had said that foreign central banks are no longer a strong demand presence in the short-end, today's 7 Year was a welcome surprise to anyone who is holding on to Treasury longs. Moments ago the 7 Year When Issued was trading at 1.939%, so when the 1.930% high yield print hit the tape, longs everywhere collectively exhaled in approval observing the 0.9 bps stop through. The internals were likewise strong, with the Bid to Cover of 2.526 highest since November's 2.635, as Indirects kept their take down flat, absorbing 50.84% of the auction as Directs took down 14.15%, the highest since January, leaving 35.00% to the Dealers.

[Fenix]

Chinese Man Jumps From 17th Floor In First Stock Market Casualty
Submitted by Tyler D.
08/27/2015 - 13:41

It appears the collapse of China's stock market has officially taken its first victim. While we have heard from desperate farmers who lost everything after realizing that making money in stocks is not easier than farmwork, RT reports that a 57-year-old man has allegedly committed suicide in Shenyang, the largest city in Liaoning Province, by jumping off the 17th floor of a building with a black briefcase "full of stock-related materials," local press reported.


Who Will Be The Bagholders This Time Around?
Submitted by Tyler D.
08/27/2015 - 14:06

Anyone betting China's GDP is really expanding at 7% and the U.S. economy will grow by 3.7% next quarter is angling to be a bagholder. Once global assets roll over for good, it's important to recall that somebody owns these assets all the way down. These owners are called bagholders, as in "left holding the bag." Those running the rigged casino have to select the bagholders in advance, lest some fat-cat cronies inadvertently get stuck with losses.


A Nation Divided - Northeast Happiest In 8 Years As MidWest Comfort Collapses
Submitted by Tyler D.
08/27/2015 - 11:35

Presented with little comment, aside to ask why is Bloomberg "Consumer Comfort" for The NorthEast region at its highest in 8 years, when The Midwest region's "Comfort" is plunging to its lowest since Nove 2014?

[Fenix]

JPM Head Quant Warns Second Market Crash May Be Imminent: Violent Selling Could Return On Thursday

Submitted by Tyler D.
08/27/2015 14:20 -0400

Last Friday, when the market was down only 2%, we presented readers with a note which promptly became the most read piece across Wall Street trading desks, which was written by JPM's head quant Marko Kolanovic, who correctly calculated the option gamma hedging imbalance into the close, and just as correctly predicted the closing dump on Friday which according to many catalyzed Monday's "limit down" open.

Recall:

Given that the market is already down ~2%, we expect the market selloff to accelerate after 3:30PM into the close with peak hedging pressure ~3:45PM. The magnitude of the negative price impact could be ~30-60bps in the absence of any other fundamental buying or selling pressure into the close.



We bring it up because Kolanovic is out with another note, one which may be even more unpleasant for bulls who, looking at nothing but price action, were convinced that after the biggest two day market jump in history, the worst is behind us.

In the just released note, the head JPM quant warns that a large pool of assets controlled by price-insensitive managers including derivatives hedgers, Trend Following strategies (CTAs), Risk Parity portfolios and Volatility Managed strategies, which is programmatically trading equities regardless of underlying fundamentals, is about to start selling equities, "and will negatively affect market in coming days and weeks." For good measure, he casually tosses the word "crash" in the note as well.

By way of reference, JPM notes that a good example of how price-insensitive sellers can cause market a disruption/crash is the price action on the US Monday open. It says that technical selling related to various hedging programs, in an environment of low (pre-market) liquidity indeed caused a ‘flash crash’ on Monday’s open. S&P 500 futures hit a 5% limit down preopen, and then a 7% limit low at 9:31 and 9:33. The inability of hedgers to short futures spilled over into large cap stocks that were still trading and could be used as a proxy hedge. Had it not been for the futures limit down event, the selloff would likely have been worse as indicated by the price of the index implied by individual stocks. The figure below shows the S&P 500 futures, SPY ETF and S&P 500 replicated from
the largest stocks that were trading near the market open.

Kolanovic correctly takes credit for his prediction and notes that "in our Friday note we forecasted end-of-the-day selling pressure due to option gamma hedging. We saw similar price impacts on Thursday, Friday, and Monday (pushing the market lower into the close) and an upside squeeze on Wednesday. Our estimate is that up to 20% of market volume was driven by hedging of various derivative exposures such as options, dynamic delta hedging programs, levered ETF stop loss orders, and other related products and strategies (note that levered ETFs have gamma exposure of only ~$1bn per 1%, i.e., much smaller than that of S&P 500 options). We estimate the cumulative selling pressure from options hedging during the market selloff to be ~$100bn. Options gamma is expected to remain substantially (in excess of $20bn) tilted towards puts while the S&P 500 is between 1850 and 2000.

The figure below shows Put-Call Gamma assuming current open interest and different spot prices. JPM expects high volatility to persist (should we stay in this price range) and cause quick intraday moves up or down, particularly towards the end of the trading day.

According to the quant, it is not only derivative hedgers who are pushing the market around like a toy with barely any resistance: :in fact, there is a much larger pool of assets that is programmatically trading equities regardless of underlying fundamentals."

It is these investors who, "in the current environment" are selling equities and "will negatively impact the market over the coming days and weeks."

Trend Following strategies (CTAs), Risk Parity portfolios, and Volatility Managed strategies all invest in equities based on past price performance and volatility. For instance, in our June market commentary we showed that if the equity indices fall 10%, these trend followers may need to subsequently sell ~$100bn of equity exposure. These types of ‘price insensitive’ flows are starting to materialize, and our goal is to estimate their likely size and timing. These technical flows are determined by algorithms and risk limits, and can hence push the market away from fundamentals.

This is where it gets scary for the bulls who thought we may be out of the woods, and that the crash was behind us. If Marko is right, as of this moment we are merely in the eye of the hurricane:

The obvious risk is if these technical flows outsize fundamental buyers. In the current environment of low liquidity, they may cause a market crash such as the one we saw at the US market open on Monday. We attempt to estimate the amount of these flows from three groups of investors: Trend Following strategies (CTA), Risk Parity portfolios, and Volatility Managed strategies. These investors follow different signals and have different rebalancing time frames. The time frame is important as it may give us an estimate of how much longer we may see selling pressure.

So, how much longer may we see the selling pressure?

1. Volatility Target (or Volatility Control) strategies provide the most immediate selling as a reaction to the increase in volatility. These strategies adjust equity leverage based on short-term realized volatility. Typical signals are 1-, 2-, or 3-month realized volatility. Volatility target products are provided by many dealers, index providers and asset managers. Volatility targeting strategies also became very popular with the insurance industry. After the 2008 financial crisis, many Variable Annuity (VA) providers moved from hedging their equity exposure with options to investing directly in volatility target indices (e.g., 10% volatility target S&P 500). It is estimated that VA issuers have ~$360bn in strategies that are managing volatility; some of these use options to manage tail risk, some buy low volatility stocks, and some invest in volatility target strategies. We estimate that strategies that are targeting a particular level of volatility or managing to an equity floor could have $100-$200bn of assets.

Assuming that, on average, these strategies follow a 2-month realized volatility signal, we can estimate their selling pressure. 2M realized volatility increased over the past week from ~10% to ~20% (i.e., doubled), so these strategies need to reduce equity exposure by up to ~50% to keep volatility constant. This could lead to $50-$100bn of selling, and it likely started already this week. There is often a delay of 1-3 days between when a signal is triggered and trade implementation, and positions are often reduced over several days. We think this could have contributed to the ‘unexpected’ selloff that happened in the last hour of Tuesday’s trading session. While these flows may continue to have a negative impact over the next few days, they would be the first to reverse (start buying the market) when volatility declines.

2. Trend Following strategies/CTA funds have an estimated ~$350bn in AUM. We modelled CTA exposures in our May and June commentaries, and estimated flows under different scenarios for asset prices. In particular, under a 10% down scenario in equites we estimated CTAs need to sell ~$100bn of equities. In our model, the bulk of selling was in US markets, some in Japan and relatively little in Europe. S&P 500 futures did underperform Europe (by ~3%) and Japan (by ~2%) over the last two trading sessions (European hours), which may indicate that CTA flows have started to impact equity markets. The rebalance time frame for CTA strategies is typically longer than for volatility control strategies. CTA funds may act on their signal in a period that ranges from several days to a month. We believe that selling from CTAs may have just started and will continue over the next several days/weeks.

3. Risk Parity is one of the most popular and (historically) successful portfolio construction methodologies. Risk Parity allocates portfolio weights in proportion to assets’ total contribution to risk (a simplified version, called Equal Marginal Volatility allocates inversely proportional to the asset’s realized volatility). In a survey of quantitative investment managers (~800 clients in US and Europe), we found that ~50% prefer a Risk Parity approach (vs. 15% for traditional fixed weights (e.g., 60/40), 20% Markowitz MVO, and ~20% active asset timing). Estimated assets in Risk Parity strategies are ~$500bn and ~40% of these assets may be allocated to equities. Risk Parity portfolios may also incorporate leverage, often 1-2x. Risk parity funds often rebalance at a lower frequency (e.g., monthly, vs. daily for volatility target) and use slower moving signals (e.g. 6M or 1Y realized volatility). The increase in equity volatility and correlation would cause Risk Parity portfolios to reduce equity exposure. For instance, 6M realized volatility increased from 11% to 15% and a modest increase in correlations would result in approximately a ~20% reduction of equity exposure. Based on our estimate of Risk Parity equity exposure, this could translate into $50bn-$100bn of selling over the coming weeks.




In summary, JPM estimates that "the combined selling of Volatility Target strategies, CTAs and Risk Parity portfolios could be $150-$300bn over the next several weeks. Rebalancing of these funds may appear as a persistent and fundamentally unjustified selling pressure as these funds execute their programs. In addition, there may be a positive feedback loop between all of these sellers – Gamma hedging of derivatives causes higher market volatility, which in turn leads to selling in Risk Parity portfolios, and the resulting downward price action invites further CTA shorting. All of these flows pose risk for fundamental investors eager to buy the market dip. Fundamental investors may wish to time their market entry to coincide with the abatement of these technical selling pressures."

* * *

In other words, if JPM is right, yesterday and today are merely the eye of the hurricane - enjoy them; tomorrow is when the winds return full force.

[Fenix]

For Albert Edwards This Is The One Definitive Measure That "We Are Now In A Bear Market"
Submitted by Tyler D.
08/27/2015 11:54 -0400

Over the years, Socgen's Albert Edwards has repeatedly expressed his skepticism of both the economy and the market (the longest US equity "bull market" since 1945) both propped up by generous central banks injecting liquidity by the tens of trillions (at this point nobody really knows the number now that the 'black box' that is China has entered the global "plunge protection" game) and yet never did he have as "conclusive" a call as he does today. As the following note reveals, when looking at one particular indicator, Edwards is now convinced: 'we are now in a bear market."

First, Edwards looks east, where he finds nothing short of China's central bank succumbing to the "wealth effect" preservation pressures of its western peers:

After holding firm last weekend and resisting pressure to give the market what it wanted namely a cut in interest rates and the reserve requirement ratio - the PBoC caved in, unable to endure the riot in the equity markets. In giving the markets what they want China is indeed acting like a fully paid up member of the international financial community. I am not thinking here about freeing up their capital account and allowing the renminbi to be more market determined. I?m thinking instead of China?s replicating the failed US policies of ramping up the equity market to boost economic growth, only to then open the monetary flood gates as equity investors turn nasty.

We disagree modestly with this assessment because as we described first on Tuesday, the RRR-cut had much more to do with unlocking $100 billion in much needed funding so that China could continue to intervene in the FX market by dumping a comparable amount of US Treasurys since its August 11 devaluation, something which as we reported earlier today, China itself has also now admitted. But the reason why we do agree, is that while the RRR-cut may have had other "uses of funds", today's dramatic intervention by the PBOC in both the stock market, leading to a 5.5% surge in the last hour of trading, as well as a dramatic intervention in the FX market, it is quite clear that the PBOC will do everything in its power once again to prevent any market drops.

Edwards, then goes on to observe something which is sure to anger the Keynesians and monetarists out there: no matter how many trillions central banks inject, they will never replace, or override, the most fundamental thing about the economy: the business cycle.

Despite deflation fears washing westward and US implied inflation expectations diving to levels not seen since the 2008 Great Recession, there remains a touching faith that the US is resilient enough to withstand further renminbi devaluation. And if it isn?t, why worry anyway, because QE4 will be around the corner. But let me be as clear as I can: the US authorities CANNOT eliminate the business cycle, however many QE helicopters they send up. The idea that developed economies will decouple from emerging market turmoil is as ridiculous as was the reverse in the first half of 2008. Remember EM and commodities had then de-coupled from the west?s woes?until they too also crashed.

Which brings us to the key point - the state of the market, and why for Edwards the signal is already very clear - the bear market has arrived:

Although I am a bear of very little brain one thing I have learned is that most investors only realise the economy is in a recession well after it has begun. The same is true of an equity bear market. We need help before it is too late to react. Hence when Andrew Lapthorne shows that one of his key predictors of a bear market registers a 99.7% probability that we are already in a bear market, there might still be time to act!







... one feature of the market ?internals? in recent months has been the incredibly strong performance of high quality stocks (as defined by a variety of mainly balance sheet measures). This strength is now leading to price momentum and quality strategies becoming closely linked, with a 90% correlation (see chart below). Quality is now essentially price momentum and history tells us when these two strategies collide the omens are not good as it is a phenomena associated with equity bear markets. This becomes even more evident when we plug this data into one of our six bear market indicators, which now shows a 99.7% probability we are in a bear market.



So if we are then what? "In a secular bear market being wedded to hope destroys portfolios as the bear slashes to ribbons the hard-fought gains of the previous bull market. Gains that have taken years to accumulate are gone in months."

Ah yes, but not before central banks, which as Albert also correctly implies, are all in do everything in their power to prevent even the most modest market drop, because if there is anything first Bullard's comments in October, and then NY Fed president Bill Dudley's yesterday have shown, is that for the Fed none of the economic data actually matters - the only thing that does is the S&P500, and worse: even a modest 10% market correction is enough to lay total destruction to the Fed's best laid plans of an "imminent" rate hike, and even hint at QE4.

At the end of the day, this will be the most epic fight between what little "free market" forces are left, and the biggest and coordinated printing fest ever witnessed in modern economic history. While the ultimate outcome is clear to all, it is the process how we get there that everyone is fasctinated with. Our guess? First the central banks will take out all the bears, then take out all the bulls, until finally just the HFTs algos are left trading with themselves, in a "market" where the only signal is whether other algos are buying, or - Fed forbid - selling.

[Fenix]

Rutgers University Warns Students - "There Is No Such Thing As Free Speech"
Submitted by Tyler D.
08/27/2015 - 14:43

"Things have changed since I started teaching. The vibe is different. I wish there were a less blunt way to put this, but my students sometimes scare me - particularly the liberal ones....The idea that institutions must acknowledge wrongdoing is central to academic work."

BINGO. This is so essential to a functioning, ethical society, and is something that never happens in modern America. Ever.


Art Collectors Pawn Masterpieces To Meet Market Rout Margin Calls
Submitted by Tyler D.
08/27/2015 - 15:20

“Ten years ago no one in the art market paid close attention to these corrections in the stock market. Now clients respond immediately."

[Fenix]

Air Conditioner Failure At CenturyLink Data Center Takes ITG Dark Pool Offline
Submitted by Tyler D.
08/27/2015 - 15:38

NEW JERSEY DATA CENTER WHERE ITG OPERATES HAS HVAC ISSUE
ITG SHUTDOWN INCLUDES POSIT DARK POOL
ITG SAYS IT WON'T BE TRADING FOR REMAINDER OF DAY


Margin Calls Mount On Loans Against Stock Portfolios Used To Buy Homes, Boats, "Pretty Much Everything"
Submitted by Tyler D.
08/27/2015 - 15:40

"In a securities-based loan, the customer pledges all or part of a portfolio of stocks, bonds, mutual funds and/or other securities as collateral. But unlike traditional margin loans, in which the client uses the credit to buy more securities, the borrowing is for other purchases such as real estate, a boat or education..." The result was "dangerously high margin balances,' - the products became “the vehicle of choice for investors looking to get cash for anything.” Mr. Sica and others say the products were aggressively marketed to investors by banks and brokerages.


Freeport-McMoRan Up Nearly 50% Today After Carl Icahn Goes Activist, Announces 8.5% Stake
Submitted by Tyler D.
08/27/2015 - 16:31

Earlier today FCX announced that in order to save its business, it would lay off 10% of its employees, and that it now expects $4 billion in capital expenditures for 2016, down from a prior estimate of $5.6 billion. Its 2015 capital expenditure budget currently stands at $6.3 billion. The resultant surge in the company, which exploded by 30% in the regular hours, made many wonder if there wasn't more to the story. The answer is: yes, there was, and moments ago none other than Carl Icahn announced an 88 million, or 8.46% stake in the copper miner, in a 13D which said that said the company was "undervalued" and that Icahn is now seeking a board seat.


A Bottom, But Not THE Bottom
Submitted by Tyler D.
08/27/2015 - 17:00

With prices and valuations elevated, and earnings deteriorating, the backdrop for a continued "ripping bull-market" is at risk. The problem for the "perma-bulls" is that the deflationary backwash, combined with already weak economic fundamentals, continues to erode the ability for earnings to meet elevated future expectations. It is likely earnings will continue to disappoint in the quarters ahead and put further downward pressure on asset prices to close the current gap between "financial fantasy" and "economic realities."