ta001 A cluster of November 2010 intra-day lows were SPX 1173-11
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"Now What?"
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This is simply too much...I am off to report you...
“Anarchism is a political philosophy which considers the state undesirable, unnecessary and harmful, and instead promotes a stateless society, or anarchy. Any information relating to anarchists should be reported to your local police.” – City of Westminster Police
1:23 PM
Bravo TMM, that was a very cogent layout of the problems at hand. Bravo.
1:27 PM
It's one thing to be calm and cerebral but this market is full of limbic systems on steroids and computers. We had a shocker yesterday trying to be logical.
In retrospect, yesterday was a confluence of a few factors: anticipatory selling ahead of today's NFP and a disorderly unwind of dollar carry trades set off by a short-term dollar squeeze that was perhaps inadvertently triggered by the joint Swiss and Japanese interventions.
Once again we are sitting waiting for the number. A few people have a negative whisper number. Once again today, we may see some the results of high leverage and inappropriate positioning.
1:27 PM
So, bounce back day or simply luring in more longs to the inevitable slaughter?
Claus
1:33 PM
See? TWINE trade. The World Is Not Ending.
Now, steroidal market participants, get in line, take a number, and I will allow you to come and buy some leveraged long vehicles from me, and yes, you horribly mispositioned overnight shorts are going to get squeezed, and then the wretched trading bots will have to climb on board. It's going to be messy.
1:34 PM
Claus, one might easily imagine that a textbook 50-61.8% fib retracement is in the immediate future - the longer term picture still depends on how the latest vintage of Ch. Eurobolleaux™ is received by the critics after the vignerons and négociants have finished their deliberations.
I am obviously in the minority here, but for the US to create +150k private jobs in July is a step in the right direction, as this is traditionally a very weak month. There are clearly a few non-indications of non-collapse here (in keeping with TMM's non-predictions). Wonder how long it will take punters to catch on to this low rate environment and snap up all the 10-20% high yield that is sitting around?
If the Europeans were to get their sh*t together, and make an appropriately supportive statement today, these markets might absolutely scream northwards.
Of course, it's temporary, and the underlying instability of the Euro area remains, until a more lasting solution (the easiest is a twin speed EU, with North/South €) can be found.
1:44 PM
NFP day can often be curious affair--think MM's old "five minute macro." Looks like cooler heads are prevailing and doing the sensible thing in light of the ongoing EZ blaze: panic.
1:47 PM
Not sure if there is anyone left to panic who didn't already do it yesterday. It may be slowly developing today or even Monday, in view of the backdrop, but I think that a lot of people have their nuts in the vice this morning, and starting a squeeze is simply too tempting for the fast money. Add in the real money guys out looking for bargains and most of the pieces are already in place. Once the spooz surmount 1230 and the computers join in, it will definitely be falsetto time.
2:01 PM
...and here comes "Notorious" Nouriel Roubini to let off a few shots and deliver a démarche to the bulls.
2:02 PM
The too-late equity shorts have entered the room, undone their belts, and turned around. They will soon bend at the waist, trousers around ankles, ready to receive the customary punishment. Good heavens this will be ugly.
More sensible folk will see the festivity as occasion to unwind what they can at more favorable prices.
2:09 PM
You reckon the euro may just sit on their hands until the FED next week.
One step after the other but not necessary following each other in the norm.
Its was nice being wrong.
2:20 PM
Yes, there are certainly one or two things that LB will not be hanging on to for long today! But some of the dips into the muck yesterday might prove profitable.
The longer term picture for the US is turning out to be a lot more Japanese/New Normal than some observers expected. We have been railing against the drivel spewed by the over-heated hyperinflationistas for as long as we can remember, and eventually the other inflation hedgers will meet the same fate as the crude oil speculators yesterday.
We still think that there is a strong case to be made for equities that have a healthy yield. This decade promises to serve up a slow growth, low rate environment for what The Beard likes to call "an extended period".
2:21 PM
Had a go at GBPCAD at 6000. The Swerve is on deck next week, and the return of the carry minions (as per LB's point above) after they have been rightfully crucified this week should open some downside on that pair.
2:24 PM
Mr Shorty is loving it this morning, I am sure. Cold Steel for brekky today, and then Edward II over lunch?
2:37 PM
Great post TMM, but left me wondering. What sort of a policy reponse are you looking for? The only thing that seems at all possible at this juncture is an expansion of the EFSF.
2:38 PM
I am not feeling the big short squeeze here. The thing I am thinking about is where the lemmings go?
Pile furhter into shorts or cover to squeeze the bunker crowd? But then I remember the market can go up, down or well sideways :)
Claus
2:45 PM
As the narrative of the trapped bulls develops, their hopes are pinned on a eschatological-type killer rally, to end their bad dream and prove them correct in the end. Indeed it represents the triumph of hope over experience.
2:50 PM
Claus, I think the lemmings are all slowly being herded into precious metals. There is still ample scope for a decidedly non-apocalyptic end to the year, even if we can clearly see that a new expanded EFSF solution is held together with duct tape.
Anon, the trapped longs may yet turn out to be those in gold and 2y USTs. Last time I looked neither of those things could be used to generate income.
3:11 PM
When you have huge market moves like this, you need to recalibrate yourself to the lemmings. Every MSM news program had the markets as their lead story. This is going to provoke some action from Joe Sixpack. Mutual fund cash levels are at the bottom of historical levels, and I have to think that there are so many common people whose memory of being badly burned a few years ago is quite recent. Now three years on, they are going to be a lot faster to pull the trigger, out of fear. Bottom line is that market action may be driven by a different cohort from what we are used to when markets are more stable, and less headline grabbing.
3:17 PM
Trapped in gold? That's a good one, China has actually placed a semi-permanent bid under the market, not sure why so many can't fathom it.
WellRed, IMHO they should let Banco Santander file for bankruptcy, Lehman style. After that everything should sort itself out.
3:18 PM
Well LB, difficult to disagree with you on UST and of course gilts too which seem to me to be extremely rich.
Claus
3:21 PM
Agreed PPM, the limbic system is in charge, led by the amygdala (the brain's fear/anxiety centre). I am inclined to agree that this morning's selling was a bit of leftovers from Joe Sixpack on the phone to Brian the Broker, and the mutual funds having to raise cash for those who wanted to bail yesterday.
Anyway while we are sitting around, time for another edition of Yield Watch™ (I have to do this to stay sane).
DVY 3.73, EFA 3.18, DIA 2.69, SPY 2.02, EEM 1.99, IWM 1.32.
30y 3.74, 10y 2.49, 5y 1.20, 2y 0.29. Gold 0.00.
It is unusual for DIA to yield more than the 10y and especially rare for small caps to yield more than the 5y. It isn't going to take forever for the rest of the world to take note.
3:39 PM
Thanks! I was going to ask for a list to so I know what I can expect to pickup at the Leftback Liquidation Sale.
3:42 PM
BTW, here is what Gold actually yields, ol' chap.
GOFO 1 Month 2 Months 3 Months 6 Months 12 Months
05-Aug-11 0.34250 0.35750 0.37750 0.41750 0.44000
3:46 PM
Hi wellred, ....plaza 2 style or louvre accord? Local restrictions on short selling short term, more restrictions on leverage, enforced increase in margins on exchanges..
There does seem to be a lot of chat here in the comments trying to catch knives. Is it really worth it? Are you really that convinced? I m sticking to short term "if in doubt-stay out". For the bigger moves its worth waiting for clarity.
3:49 PM
gold call vol is in the 20s. not stellar but the negative carry moniker hardly fits. silver's is in the 40s. i'm ready to pocket theta all day long.
3:53 PM
It's always a pleasure to hear from Goldfinger and Long John Silver on days like these, isn't it? They are invariably cheerful, yet sadly absent when it finally melts.
Banning short selling never works, P, and would be a terrible idea. It usually just starts a panic as there is no-one left to cover at the end of the day. Margin limits would be a great improvement, though, and prevent a lot of commodity volatility. Expound further on upcoming global debt pow-wow?
LB's long term holdings are fine (I think everyone else here likes NLY and a few cases of red wine). The short-term punting wasn't too clever this week. Still have a decent pile of cash for a suitable entry point. These events don't turn around in a heartbeat.
4:08 PM
Actually gold hasn't "melted" below (or even touched) its 200 DMA since you were shorting the breakout more than two years ago. Keep those recommendations comin'.
4:24 PM
PP - left the US out of your good historical review. What Europe accomplished by permitting simultaneously a low savings rate and a below replacement birth rate was achieved over there by handing out credit cards with 25,000 limits to any Schmo with a pulse.
Structural market measures have to address the supercharged herding behaviour (like this week's sudden discovery that there's a real economy out there, too) that computers have engendered. A progressive Tobin tax, rate linked to volatility?
My pipe dream has it that today's Merkel/Sarkozy/Zappo conference call didn't include Silvio because they're going to politely ask him to take his country out of the EMU. Throw the earmarked money directly at German and French banks and be done with the debt issue.
4:45 PM
Oh, and farming? Consult first.
4:52 PM
Look, Goldfinger, we do enjoy your commentary but there are entire sites dedicated to your ilk so you could go over there and engage in mutual activities.
A cluster of November 2010 intra-day lows were SPX 1173-1179, which is more or less where we are. Technical types will probably have their eyes on that as a zone of potential support. Unless we have already knifed through it by the time this appears, he typed, not having lost his dark sense of humour.
4:57 PM
Time to clutch at falling cutlery, eh? How many have the stones to hold shorts over the weekend? 1170-80 are indeed popular with the phrenologists.
5:05 PM
Haha, where else could I find that combination of unadulterated arrogance and folly that you so graciously provide, day after day?
5:07 PM
Careful now, Goldfinger, you might burn yourself with the laser of your own brilliance, or cut yourself with your rapier-like wit. He jumps out of the plane in the end, you know.... the movie always ends the same way.
5:26 PM
I have not held gold so Im hardly a goldbug,but the simple fact is it's been called down time and time again.Yet where is price today? Yu can't argue with that without looking a little like someone trying to justify their fixed position. As to the latter it's something I try to avoid says' 'Confused from Cheltenham' as my shorts have hardly been ticked and certainly not squeezed said 007.
5:44 PM
Shorting the PMs is strictly a 1-2 day opportunistic activity. Until the day of the final denouement for shiny stuff. Then it will go down and down for years....
Looks like it's time for the Spooz to choose: Will it be "Down, Down, Deeper and Down"? LB would prefer we go with "Die Another Day"...
5:52 PM
C'mon Mr Shorty, off you pop, it's almost the weekend. Time to cash in your chips.
(You just know that those chefs are in the ECB kitchen whipping up another splendid helping of Eurofudge™).
If the market closes green, we can pop open a magnum of Ch. Eurobolleaux™, mes amis...
5:56 PM
"Time to cash in your chips" ...
You read my mind LB, I am thinking 1175 was as good a time as any to take home the winnings and clock out for the day.
Claus
6:01 PM
Polemic, I am often accused of being cynical (especially when it comes to politicians in this day and age), but I think it is going to take a lot more red for politicians to actually sit down and hammer out anything comprehensive. Maybe because what a comprehensive agreement would contain doesn't seem at all obvious to me (so how on earth would they figure it out).
The European periphery is pretty straightforward I guess (something along the lines of what has been in the The Economist time and time again), but the US is in a consumer liquidity trap of sorts which does not lend itself to effective policy. Pile on a litany of structural headwinds, and I really do not see room for a short term fix (nor do I hold hope that the necessary long-term fixes will be put in place - people are too myopic to support such reforms).
6:38 PM
Yup. Unless Mangler and Silvio feed each other fudge and get it on over live TV this weekend, there might still be lingering Euro concerns. Can't rule out another mini-plunge to test that low zone, before The Beard rides in with another "Extended Duration" and hints of more OMOs.
Still shaking my head at having steadily Kevlar'd a pile of NOK this week. It is going to zero one day, but not immediately.
Right, don't hang around and overstay your welcome today, Mr Shorty, you are really going to regret it if you do... lunchtime....
6:39 PM
ECB on the wires saying that they are ready to buy Italian debt if Berletchsconi brings forward reforms.
I guess if you've already blown your bankroll, you might as well double. I mean hell, it's Germany's money anyways, right?
6:52 PM
That'll be why he's confirmed accelerated reforms then ;)
7:11 PM
VIX peaked at 39 but it is falling fast here, I reckon Mr Shorty has indeed left the casino and is off to spend his winnings. Anyone who lingers too long is going to get a visit from the Proctologist.
7:16 PM
LB, what do you make of BAC and C's performances today? Pretty nasty stuff. From where I am standing, this doesn't bode well for next week
7:43 PM
So what's it to be chaps ...
http://www.youtube.com/watch?v=1gDhR1R3S0s
Enjoy the rest.
8:24 PM
Well Red, sure, BAC and C are loathsome dogs, and the market can't rally w/o financials and energy. All true, but both have been taken behind the woodshed this week, and there is only so much flogging that can be handed out before the profit-taking inevitably begins.
9:07 PM
Wonder what the correlation is between MM comment frequency and market lows? On quiet up days in April you could hear the crickets chirping...
9:09 PM
LB re short selling bans and effectiveness i fully agree but that has never stopped the in the past.
Wellred .. Yes, unfortunately that is so true re response speed. But we do feel that without anything at all then that red is going to be all over the screens early next week . Of course the BTP buying came in after my last comment and could be the "better than nothing". How much ammo tho and where from? . Expanding swap lines with BoE and Fed?
Do we get joint coordinated QE? Or Capital controls?
We just hope there is a small surprise present in the markets stocking by monday open.. even if its just an orange.
thanks Charles, nice point re US - i d love to talk farming.
Have a good weekend all ..
PP
9:11 PM
Thank you, TMM. I am putting couple of lines from here as my quote of the day.
Sincerely, Moreliver
http://morelivers.blogspot.com
9:24 PM
Equities are the obvious expression of the underlying stresses visable to the media and the public, but the pain that really hurts the world is in the bond markets. Equities matter squat by comparison and are only a response.. This weekend better see some serious policy response as the markets are in cardiac arrest and in our eyes well beyond responding to any NFP sticking plaster.
We could put up reams of charts and graphs that show that these sort of moves haven't occurred since [insert last time] but that's pretty pointless unless you are a 12yr old quant trying to justify your losses to your boss.
Yesterday's FX jousting became a side show in the scheme of things, both BoJ and SNB were dismounted by Mr Mkt by sundown and we are now in the main arena ready for the big fight. Markets vs Politicians, or in Europe the final showdown between European Socialist ideals and capitalist business practices. The European dream of equality has always been based on assumptions - the first that treating everyone as equals and ignoring differences meant they did not exist (the Eurostrich syndrome we have seen echoed throughout the last 2 years of crisis management). The second assumption was that if barriers were removed to trade, funding and nationality then geographical mobility would iron out local hot spot differences. The third was that the dream was perfect, unassailable and defendable by regulation so there would never be the need for safety nets.
In 2008 we had the attack on capitalism and now with Euro 2011 we have an attack on Euro-socialism. We think this will end up with both socialism and capitalism left wanting but with no clear alternative. Sadly, on the way we have to endure the Politicos chucking everything they can legislatively at stemming the attack, which will most likely lead to an acceleration of socialist policies with central control and an acceleration of federalism. To the purist Eurocrat this could be seen as a short-cut to the dream but the cost of the gamble is going up. The key point that the great European assumptions missed is that someone has to fund the dream and that lender is effectively Europe's client. Whilst the Eurocrats have always felt that they are running their shop along the lines of a Moscow store in the 1970s, where supply side control dictates what the customer gets, the modern investor has choice and Europe now has to compete for global capital. Unfortunately instead of improving the quality of their product we expect the European response to be to lock the doors to prevent the customer leaving and to threaten extortion on those that don't buy. Which may work short term but doesn't encourage repeat business.
If we look at the very big picture and look at history (well we do like looking at what happened "last time" in markets) we normally need a revolution or uprising to sort these sorts of things out, where a super-critical political state has phase transition triggered by an event. Traditionally a stretch in wealth differentials is needed to catalyses such an event. The serfs have a greater tendency to chuck bricks at their overlords as they have little to lose. But with an abundance of middle classes with too much vested interest to upset their own boat it harder to see a trigger. In Europe the brick chucking is probably going to be triggered by a disaffected youth as they spill out of their higher education to find no jobs available. As an aside TMM wonder if the next UK misselling scandal will be led by said young demanding to know why they were told to borrow huge amounts in order to pay for degrees that don't lead to the promised jobs. But the middle class uprising model could be the Arab uprisings, where the Egyptian middle class revolution has resulted in a sort of stalemate of democracy, where swiss style referendums are instead effected by racing down to the town square shouting a lot until the overlords act.
We are sorry if we have gone into a bit of a ramble but hey, is that not allowed once in a while? As for the short term .. do we buy here? .. does it bounce?.. TMM would like to think that the politicians around the world may have finally got the message form the market and will respond in some way and that by Monday "something" will have been announced, but are fast losing faith. If nothing is forthcoming we might as well take up farming.
posted by Polemic at 1:15 PM on Aug 5, 2011