Crash 2014?

Is It Fair to compare this sell off to the Great Recession of 2008 and 2009?

Sort of, Kind of, and not really.    No Baby, No bathwater, not yet.    

Let’s check the tape.  SP500 at the peak of the “unrest” in the crisis was at 666.79, March 2009. Dollar index (DXY) during the same week was 89.522.  

Conversely, March 2008 DXY was at 70.698.  SP500 was 1325.61 during the same time period.  The high for the SPX before the crisis was 1578.11. From the high to the low of the crisis the SPX index fell 57.74%. (1578.11-666.79/1578.11)

Crisis SPX volatility


The DXY increased 26.63%.  (89.522-70.698/70.698)

DXY crisis volatility

Let look at the current situation, numerically.  High of the SPX before this sell-off was 2019.26.  Let’s suppose we close near the 1850 levels.  From this recent high to current levels, we have a sell-off of 8.38%. Apples to Apples, we have about 1/6 of the move from 2008. 

Recent SPX volatility

Recent DXY volatility

Let’s bring the dollar back into the picture.  We can infer that the DXY was at 78.906 (May 8, 2014) October 3, 2014 the DXY hit a high of 86.732. The increase in the DXY was 9.91%.  The recent increase is 37.21% of the move during the crisis of 2008.

Equating the DXY increase with the SP500 decrease (26.63/57.74) we get a factor of .4612. Equating the current situation (9.91/8.38) we get a factor of 1.1826.  In order this market to react in a similar way as in  2008/2009 we would need the SPX to move 21.49% lower from the high of 2019.26.  This would mean the SPX would need close at 1585.32 to make the equation work. And yes, this would put the index in a bear market.  

Economically and philosophically speaking, the two situations are difficult to equate.  The Great Recession, The Crisis of 2008, The 2008 Depression, whatever you want to call it, the impedance for the event was on several fronts. Over bloated lending mechanisms,  consumer mortgage based debt, Asset Bases Securities (ABS) euphoria, popularity of Collateralized Debt Obligations (CDO), rampant involvement in Credit Default Swaps (CDS) by institutional and Hedge Funds.  At the peak of this euphoric period, the notional value of ABS, CDS, CDO held by investors was 14-16 times global GDP. To complicate matters, the internals of CDO’s held highly suspect securities and reaped the benefit of high ratings from trusted analysts. These CDOs found their way into balance sheets of banks, funds, and government entities. 

The crisis was not only a perfect storm of complication and insolence but involved multiple industries and worked perfectly into the disruptive nature of events. Since then we witnessed a deleveraging by investors across the globe. The perception of risk and ratings on securities has changed. BASEL III has now entered the picture and financial institutions have revamped their Tier 1 ratios to comply with the new regulations.  As a side comment, perhaps this is why we have a bid in the 10 year US notes.  But that is a topic for our next article.

Let’s return back to the present.  Do we have a market addicted to QE? Yes.  Commodities, Energy, and Raw Materials have dropped significantly in recent weeks.  What is this reason behind this drop?  Potential recession in Europe, Chinese economic slowdown, OPEC countries jockeying for position to gain market share? Are these inter-industry, potentially disruptive events? Not sure, yet.

Putting things into perspective: Here is a slight philosophical and macroeconomic opinion on developed G8 category economies.  No matter where the leading economic are pointing to, a developed economy has a set amount of implicit activity to sustain some level of growth.  Short of a cataclysmic or debilitating event; i.e. a full pandemic EBOLA outbreak that has infiltrated a New York, London, Paris, etc; economic activity will churn to some degree to sustain some semblance of an isolated GDP. 

Let’s recap: We do not have a banking crisis on our hands.  We do not have a systemic financial crisis.  We do have a softening of global macro-economic growth. Certainly, the recent memory of the crisis conjures up unpleasant and extremely volatile conditions.

A check of oil: Although we did not provide analysis of oil in this article, suffice it to say that oil’s low during the crisis of 2008/2009 was $33.2.  The high was $147.27.  This current oil swoon took us from $107.21 to current levels of $81.66.  Certainly, this has been a tighter range of momentum.

The dovetail risk: EBOLA.  This is the only non-quantified aspect of most trader’s models and algos.  This would be a very difficult scenario to quantify with respect to markets, domestic and global economies.  Since we live in an interconnected world, the fact that EBOLA has reached industrialized countries should not be a huge surprise.   The objective is to quantify the potential disruptive nature of EBOLA on society and the functionality of economies. Could this be the proverbial Black Swan? Maybe.  From a social and humanitarian perspective, this is the last thing we need.  This is the possible inter-industry, inter-global economic disruptive event. 

If we continue to receive news that EU countries are at the ready for possible QE-like actions and “dovish” sentiment from the US FED, we will most likely avoid a major relapse of the macro markets.  The proverbial “bid” in the market.  

We will certainly continue with the volatility but instinct and a bit of history dictates that rational thought should supersede “fear”, just don’t forget about EBOLA. 

via Zero Hedge Pivotfarm

Welcome to Arcadia – The California Town Where Wealthy Chinese are Building Mansions in Order to Park Cash

Screen Shot 2014-10-16 at 1.53.00 PMThe city, population 57,600, projects that about 150 older homes—53 percent more than normal—will be torn down this year and replaced with mansions. The deals happen fast and are rarely listed publicly. Often, the first indication that a megahouse is coming next door is when the lawn turns brown. That means the neighbor has stopped watering and green construction netting is about to go up.

Arcadia is a concentrated version of what’s happening across the U.S. The Hurun Report, a magazine in Shanghai about China’s wealthy elite, estimates that almost two-thirds of the country’s millionaires have already emigrated or plan to do so.

– From the Bloomberg article: Why Are Chinese Millionaires Buying Mansions in an L.A. Suburb?

The surge in foreigners buying up U.S. real estate has been well documented in recent years. Of all this buying, no nation has demonstrated a bigger increase in purchases than China. In fact, it is estimated that 24% of all foreign purchases of domestic real estate this year have come from China, up 72% from last year alone. In my post from July, Chinese Purchases of U.S. Real Estate hit $22 Billion as The Bank of China Facilitates Money Laundering, I noted that:

continue reading

from Liberty Blitzkrieg

Your Driving History is Public, Unless You Want a Copy

From the moment they were reported, the Edward Snowden leaks
captured the public’s attention and raised the specter of mass
surveillance. That surveillance is not just being carried about by
large clandestine intelligence organizations like the National
Security Agency (NSA), either. Following the lead of their federal
counterparts, local police departments are now getting in on the

One example is Monroe County, New York, where police are using
high-speed cameras to monitor and record the whereabouts of
vehicles. The scale of this surveillance is reminiscent of the

NSA’s “collect it all” motto
. From
The Intercept:

As of July, the County’s database contained 3.7 million records,
with the capability to add thousands more each day.

Monroe County justified its warrantless surveillance by claiming
that people have no expectation of privacy when they drive in
public. This is despite a 2012
Supreme Court ruling
 in which the majority held that
individuals do have an expectation of privacy when it comes to
their long-term whereabouts, even when driving in public.

But no need to worry—Monroe County is committed to protecting
your privacy­. At least that’s what it claimed when the
Democrat & Chronicle filed a freedom of information
law (FOIL) request for the records on seven of its journalists.
Again from The Intercept:

The request was denied on the basis that releasing the data
could be an invasion of personal privacy or could interfere with a
law enforcement investigation.

Even putting aside the unlikely possibility that all seven
journalists are subjects in ongoing criminal investigations, this
justification makes little sense. How can Monroe County police
claim that no expectation of privacy exists when they conduct
surveillance, and then claim that it would be a violation of
privacy for people to access the records of their own

If Monroe County actually respects residents’ privacy, it should
end warrantless surveillance and cease violating people’s
Fourth Amendment rights. Failing that, it could at least
mandate that whoever handles the county’s FOIL requests undergo
some training in basic logic.

from Hit & Run

Scott Shackford Asks: What’s on Your Ballot?

Already bored of the endless, exhaustive,
never-ending analysis of which party will control the Senate after
the midterms? Maybe it’s because you realize it’s probably not
going to change anything substantial about how Congress or the
president behaves anyway.

Perhaps take a gander at some ballot initiatives instead. There
are hundreds of ballot initiatives—on the state, county and
municipal level—that will go before voters in November. Reason
can’t possibly outline all of them. But we can draw attention to
many of interest to libertarian or independent voters. Reason’s
Scott Shackford takes a look at how subjects like guns, drugs, and
as always, money, are driving what’s on the November ballot besides
the candidates.

View this article.

from Hit & Run

Poll: If We Arm Syrian Rebels Americans Say 78% Chance Weapons Will Be Used Against US Eventually

Americans are becoming
increasingly skeptical that strategic US military interventions
abroad won’t eventually backfire. The latest
Reason-Rupe poll finds
 that 55 percent of Americans oppose
arming Syrian rebels in efforts to fight against ISIS, while 35
percent support such action.

One reason Americans oppose sending weapons to the rebels may be
that they believe there’s a 78 percent chance those weapons will
eventually be turned around and used against American soldiers or
US allies.

Public reluctance to arm Syrian rebels to fight ISIS may be
indicative of a broader hesitancy to be as involved in the Middle
Eastern region. Reason-Rupe finds only 28 percent of Americans want
to increase US military presence around the world. Another 36
percent want to decrease American global military presence, and
another third are content with the status quo.

Perhaps one reason Americans aren’t more supportive of expanding
US involvement is disillusionment with US handling of the 2003 Iraq
War. Only 14 percent believe the war actually reduced the threat of
terrorism; another 38 percent think it instigated even more
terrorism. Forty-five percent think the Iraq war had little effect
protecting US citizens from terrorist threats.

Foreign policy hawkishness cuts across demographic groups and
party lines but is certainly more pronounced among Republicans. In
fact, Republicans are nearly twice as likely as both Democrats and
independents to favor increasing US military presence
abroad (41% versus 20% and 26% respectively). In reverse, Democrats
and independents are almost twice as likely as Republicans to want
to decreasemilitary presence (42% and 39% versus 25%

Consistent with findings that young
people are the only group to oppose air strikes against ISIS
Americans under 34 are about half as likely (21%) as Americans over
55 (37%) to desire an expanded global military presence. Instead,
41 percent of younger Americans want to reduce US military presence
abroad compared to 27 percent of those over 55. A third of both
groups support the status quo.

Opposition to arming Syrian rebels, however, is generally
non-partisan. Sixty-one percent of Republicans, 58 percent of
independents, and 51 percent of Democrats oppose the US providing
weapons to rebel groups to fight ISIS.

Again, younger people are more skeptical of intervention. Only
28 percent of 18-29 year olds support arming Syrian rebels, and 62
percent oppose doing so. In contrast, 45 percent of seniors favor
providing weapons and 47 percent oppose.

Americans are beginning to believe there are limits to the US’s
ability to engineer favorable outcomes through military
interventions abroad. There are fears that weapons we provide to
assumed allies will be the very weapons we are fighting against in
the future. There are also serious concerns that our past military
strategies have not achieved their desired outcomes, and have not
reduced the threat of terrorism.

The Reason-Rupe national telephone poll, executed
by Princeton Survey Research Associates International,
conducted live interviews with 1004 adults on cell phones (503) and
landlines (501) October 1-6, 2014. The poll’s margin of error
is +/-3.8%. Full poll results can be found here including
poll toplines (pdf) 
and crosstabs (xls). 

from Hit & Run

D.C. Issuing Concealed Carry Permits Again, ISIS on the Run in Kobani, All Hail Selena Gomez: P.M. Links

  • Selena GomezFor the first time in decades, the Washington,
    D.C. police department
    will begin accepting applications
    for concealed carry permits.
    The move is a direct result of a recent federal court ruling that
    struck down the city’s handgun ban.
  • U.S. airstrikes
    killed hundreds
    of ISIS terrorists in Kobani, Syria,
  • Michigan officials could
    charge up to 30 kids
    with felony child porn charges for sexting
    with each other. We are supposed to take solace in the fact that
    they will likely be treated as juveniles.
  • Los Angeles Unified School District Superintendent John Deasy

    today. He seems to be leaving on good terms, although
    some of policies—the iPad
    , for instance—proved controversial.
  • Ezra Klein faces continued
     over his support for “Yes Means Yes.”

  • Selena Gomez
    to adult critics: “I wish I could just sit them
    down and say, ‘What were you doing at 15? What were you doing at
    18? What were you doing at 21?’ Because I can guarantee you it’s
    not half of what I’ve done.”

Follow us on Facebook and Twitter,
and don’t forget to
 for Reason’s daily updates for more

from Hit & Run

Dow Drops 6th Day – Longest Losing Streak In 14 Months

An ugly dump in stocks early on sent all the major indices to yesterday's lows (and bond yields to yesterday's lows) but for a smorgasbord of reasons (pick from: Bullard "QE4", jobless claims, industrial production, oil rising, lack of Ebola panic, oh and POMO) stock performed the ubiquitous bounce and extended gains quite handsomely before fading back in the afternoon. Volume was considerably lower than yesterday but solid (driven mostly by the dump). All major asset classes ticked together all day with USDJPY, Treasury yields, stocks, and oil all rising with one another. The USD was flat (despite some intraday kneejerks) as were gold and silver. Copper slid lower as oil jerked dramatically higher intraday before falling back (holding above $82). VIX fell modestly to around 25.5. Once again early manic-selling led to late buying panic (but the volume buying was dramatically lower). The Dow closed red for the 6th day in a row – longest losing streak since Aug 2013.


Russell & Trannies were the best performers on the day as the major indices all closed around unchanged despite the best effortsof JPY…


The weakness in stocks (during the European session) is evident from futures…


Ramp volume (which lifted S&P Futs back to VWAP) was weak relative to selling volume


Sectors saw the worst first today as Energy rebounded…


Everything was nicely coupled today…


A very big swing in HY CDX today (looks like hedges being unwound and managers reducing risk into the rally)


VIX decoupled again at the close (same as the last 2 days)…


The USD kneejerked higher and back down around EU and US data to close very marginally higher (-0.9% on the week)


Treasury yields rose 3-4bps on the day – across the curve


Oil surged (but faded back), gold and silver flat, copper lower…


Charts: Bloomberg

Bonus Chart: GOOG….

via Zero Hedge Tyler Durden

What Americans Are Thinking (And Asking) About The Fed

Via ConvergEx’s Nick Colas,

When will the Fed… Raise rates? Stop buying bonds? End quantitative easing? Common questions, those, from Wall Street to Main Street. And – apparently – the online world as well, because they also reflect (literally) what Google autofills when individuals pose inquiries about future monetary policy action in the famously simple Google search box.

Since Google’s autofill algorithm constantly updates commonly entered completions for the most typically searched phrases, it provides telling insight into what Americans are thinking and asking about the Fed. And because Fed related inputs are broader than the more geographically sensitive such as “Movie theater in…” or “Shopping mall in…”, completions offered by the search engine are based on larger populations. Don’t worry – we checked. Here are some of the top autofills that followed our unfinished queries:

“The Fed Will…” Three out of the top four autofills reads “Never taper”, “Not taper”, and “Never stop QE”. The Fed is on track to close out its bond buying program this month, but after almost six years with three shades of QE, it seems the public is reluctant to believe it.


“The Fed is…” Second on the list shows Americans classifying our central bank as “behind the curve”. Autofills may highlight the perception of the Fed as dovish, but not rightly so for those typing the phrase into Google’s search box. In fact, an input of “I want the Fed to” elicits “decrease money supply”.


“Interest rates will…” This phrase conjured mixed responses of “rise” and “go up”, and “fall in 2014” and “never rise”. The third wager is highly unlikely based on fed funds futures, which signal a rise in mid-2015; the question isn’t a matter of direction, but when the grind higher begins.


“Low interest rates are…” “Here to stay” autofilled first, yet “bad for the economy” and “bad” trail behind. Even still, “economic growth” and “economic recovery” appear next to “low interest rates help”. Near-zero rates may have helped stimulate the economy during the early years of the sluggish recovery, but Americans also understand that maintaining these low levels for too long could act as an impediment. “Higher interest rates will help” produce “economy” and “the economy”.


“The economy is…” Besides the doomsayers autofill of “going to implode”, “getting better” and “improving” appear. On the labor market front, “Jobs are…” produce “not enough”, “hiring”, and “hard to find”. An entry of “Wages have” paints the gloomy picture of wage inflation: “not kept up with inflation”, “not increased”, “not stagnated”, “remained stagnant”, and “stagnated”. These tensions underscore the Fed’s patience when it comes to normalizing rates.

Just as Google autofills offers a unique view on how Americans negotiate monetary policy, the Beige Book captures the economic sentiment of each regional Fed District. This information proves particularly useful in gauging the Fed’s decisions since it colors each district’s respective Fed President. Given his or her spot on the Federal Open Market Committee, we provide customary analysis of the report after it is released eight times a year. Please continue reading for our takeaways of the Federal Reserve’s “Current Economic Conditions”.

Although the Fed continued to describe economic growth as “modest” and “moderate”, the pace of growth remained largely unchanged across districts. With that said, many districts experienced “slight” to “moderate” growth in consumer spending, cited strong tourism activity, and noted retailers’ positive outlook for the balance of the year. Nonfinancial services, transportation services, and manufacturing activity also fared better in most districts. Additionally, commercial construction, real estate activity, and banking conditions—particularly commercial loan volumes—improved across most regions.


These steady trends carry over into the two components we watch most closely—inflation and the labor market—which also showed slight improvement or little change. According to the Fed, the state of employment generally stayed the same from the prior Beige Book. Finding skilled workers continued to prove most challenging for many districts, but once again helped the other half of the Fed’s “Dual Mandate”, at least in terms of increased wage pressure for some industries and professions. However, price levels were mostly reported as “unchanged” or “up slightly”.


Given the cautious tenor of the Federal Open Market Committee minutes from last week, central bank monetary policy will likely echo this report in remaining mostly unchanged. Despite the strength of the most recent jobs report, FOMC minutes showed the Fed’s concern about the impact of slow global growth on the U.S. economic recovery. This worry has riled financial markets for over the past week, and recent U.S. economic data, such as today’s weak retail sales number and negative reading for producer prices, will encourage the Fed to stay patient with respect to raising near-term interest rates.

Beige Book Summary: Overall national economic activity continued to expand in September and October, according to the Federal Reserve’s most recent Beige Book released today. Six of the twelve Federal Reserve Districts experienced “moderate” economic growth during the reporting period, while five Districts noted “modest” expansion and Boston’s economic conditions were described as “mixed”. In terms of labor market conditions, growth in employment, wages, and prices remained mostly unchanged. Employers continued to struggle finding skilled workers, which put some upward pressure on wages in certain industries and professions. What does this mean for monetary policy going forward?

While Beige Book findings suggest the U.S. economy continues to improve, this report clearly does not portend a rise in short-term rates over the near future. Given widespread global growth concerns, a large contributor to today’s market sell-off, the Fed will likely wait to see how the slowdown in Europe and China impact the U.S. economic recovery, as touched upon in the latest FOMC minutes.

via Zero Hedge Tyler Durden

Ezra Klein Meets Mao Zedong

America’s sexual revolution handed women control over their
sexual destiny while hanging on to liberal notions of Scout Willisjustice and due process. But now affirmative
consent or “yes-means-yes” law proponents think that these notions
are inconvenient obstacles in their quest to deliver total safety
to women. Rape, they claim, is such a big problem that they have to
trade in their “ends don’t justify the means” philosophy with “by
any means necessary” battle cry.

Boosting these efforts is Ezra Klein, the champion of the hot
new genre of fact-based explanatory journalism. He declares that
this “terrible law is necessary.” Why? Because there is an ugly
“culture of entitlement” among American men and “ugly problems
don’t have pretty solutions.”

What’s truly ugly, I note in The Week, is accepting
totalitarian notions of justice to address a problem that is
nowhere near as rampant as the proponents of “yes means yes” laws
claim and that women are perfectly capable of handling on their

Indeed, if the rape culture was rampant, not only would it show
up in reliable statistics, but women’s behavior too. For example, I

Scout Willis, Bruce Willis and Demi Moore’s daughter, wouldn’t
have fearlessly strolled topless in Manhattan to protest
Instagram’s policies against nude pictures last summer. Sure, she’s
quasi-famous. But nonetheless, try doing that in the pre-sexual
revolution America or modern-day India (my native country) without
getting assaulted or worse.

Willis chose going topless as her form of protest precisely
because, contrary to Klein’s assertion, there is no longer a
“culture of entitlement” among American men. Her stunt was possible
only because social mores that used to work against women now work
for them. Far from facing any sanction, she could count on those
around her acknowledging — even cheering (like me) — her right to
wield her sexuality as she saw fit without becoming prey to jerks
who believe she’s “asking for it.”

to read the whole thing.

from Hit & Run

Cop Blames Media Coverage for Distrust of Cops

copThe Daily Caller
has a column by a cop
writing under the name “Deputy Matt” who
complains about how much harder his job has become since Ferguson,
Missouri, became a national news story. The cop begins by telling a
story about responding to a call about a belligerent teenage son in
a “fairly nice complex” where they were “able to calm him and get
him into handcuffs without any blows being thrown” but not before
the teen refused to follow their orders. According to the cop, the
teen, who he described as half-white and half-Hispanic, said he
wouldn’t listen to the cops because he didn’t trust them because of
“Ferguson.” The cop says the parents apologized “profusely” for
their son’s comment.

Deputy Matt says he works 1,700 miles from Ferguson but that
it’s become the “latest defense for committing crime,” presumably
by people who would be committing crimes anyway, but that this

The same people who we used to count on for support, the good,
law abiding general public, are now reluctant to trust us.

We, the local cops they have seen and contacted in the past,
have not changed.  We have done nothing different.

What has changed is the public’s perception of us, created by
the reckless reporting by nearly every news outlet very early after
the shooting of Michael Brown. The rush to be first with the story
over the desire to be correct is having dire consequences
nationwide, and quite honestly, has made my job more difficult and
more dangerous.

Were Michael
the only person police shot since August, or in August,
or if he were the only unarmed person shot that week or anywhere
close to it, Deputy Matt’s complaints, where they’re accurate,
might have some merit.

Reporting about Ferguson isn’t what’s caused the public’s trust
in the police. Increased attention to long-existing patterns and
practices of police brutality, from California to New York island,
thanks in part to the ubiquity
of personal recording devices, has been eroding that trust for far
longer than Ferguson’s been in the news.

It’s important to note, too, in the face of Deputy Matt’s
chicken little-ish depictions, that cops remain, at
least according to Gallup
, among the less distrusted
institutions in society, polling a fairly steady 50-ish percent
trust since Gallup started asking in
the early 1990s

from Hit & Run