Tag: finance

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

With no plan to manage an economy in which expanding credit no longer generates growth, the two nations are rapidly reaching Peak Everything.

Let's call the strategy of picking all the low-hanging fruit in an economy Plan A: you know, expanding credit, lowering interest rates, building infrastructure, fueling speculative frenzies, all the good stuff that fans the flames of "growth."

Now that the central banks and political leadership of the U.S. and China have plucked all the low-hanging fruit, they have no Plan B. With no plan to manage an economy in which expanding credit no longer generates growth, the two nations are rapidly reaching Peak Everything:

 

 

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But the pretty people on TV said the Fed Minutes proved they were the most dovish ever and initial claims hit recovery lows… What a total disaster – Equity markets peaked within a few minutes of the open and never looked back – yesterday's "Fed Cat Bounce" gave way to Really Red Thursday…

• Biotechs -6% worst day since Aug 11
• Nasdaq -3.2% worst day since Nov 11
• Russell 2000 -3.1% worst day in 12 months
• S&P "Growth" -2.5% worst day in 10 months
• Financials -2.2% worst day in 10 weeks
• Social Media ETF -4% worst day in 11 months
• VIX +17% biggest rise in 3 months
• Nikkei knackered… Hits 14,000 – down 14.25% from highs to six month lows

Nasdaq and Russell are -6.5% from recent highs and the S&P is -3.5% from its highs…

 

The question is – why did the Fed feel the need to act more dovish? That's why growth is getting slayed and beware the head fakes.

Fed Cat Bounce failed… And an UGLY CLOSE

 

As the post-FOMC meeting losses are mounting…

 

And the "growth" stocks have been monkey-hammered since Tarullo said they were in a bubble…

 

"Investors" (and Hitler) are shocked and stunned that High-Beta works both ways…

 

Away from stocks, Bonds rallied (with 10Y breaking the crucial 2.64% level)

 

Commodities rallied

 

The USD sold off

 

We leave it to Bob Pisani to sum it all up:

"the bears have the upper hand but people still think it will turn around"

But then again, there was this cherry from some "floor trader":

"it's painful if you own 'em, but you owned 'em a lot lower so you're not really in that much pain"

Tell that to Social Media stockholders…

 

Charts: Bloomberg

Bonus Chart: GMACandy Crash

 

Bonus Bonus Chart: Nikkei knackered… Hits 14,000 – down 14.25% from highs to six month lows

 

Bonus Bonus Bonus Chart: The Nikkei is at its cheapest to The Dow in 15 months…

 

* * *

Finally, something else of note. Earlier today Nanex believes it may have found another new, if not necessarily rogue, algo operating in the market. According to the analytics firm, multiple orders for 750 eMini contracts appeared on 2 price levels (at least 3, and as many as 8 separate orders of 750 contracts on each price level). This appears to have been to induce the market slightly higher (lower) when the large orders were to buy (sell).

 

Another occurrence about 20 minutes later.

The Flash Crash in May 2010 was created by HFTs, and according to some, the quote stuffing bottleneck may have been intentional. How long until someone spoofs HFTs and forces them to be the reason for the next flash crash, in the process redirecting public fury from the Marriner Eccles central planners and into nameless, faceless vacuum tubes?

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With mere weeks to go until millions descend on the Carnivalic streets of Rio for The World Cup, it seems the term “to get a brazilian” has a new meaning. As this poor woman discovered, while being interviewed live on Brazilian TV, while complaining in the clip about the lack of police presence near the station, a would-be mugger approaches her from behind and rips off what appears to be a gold necklace. Welcome to the safe streets of Brazil, world…

 

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One of the phrases which we have done our best to bury over the last few years has been the absolutely idiotic statement “money on the sidelines” (and right behind it “more sellers|buyers than buyers|sellers”). Sadly a group of persistent, if clueless bobble-headed automatons still insist on using it. So be it. Today, however, we will focus on yet another absolutely idiotic phrase: “a stock picker’s market.” Leaving aside the linguistic stupidity of this expert “assessment” (because nothing says fundamental equity analysis like picking non-stocks), the mere facts flat out refute any suggestion that there is any material, or frankly, any dispersion, i.e., the proverbial stockpickeryness. But don’t take our word. Here is Goldman’s.

From David Kostin:

On the stock selection environment: Contrary to the belief of many market participants, stock return dispersion has been extremely low during the  past one and three months, ranking in the 1st percentile versus the past 30 years. Dispersion has been unusually low in Consumer Discretionary and Info Tech. Stock picking is always challenging. Low dispersion means it has been more difficult than usual. Only 42% of core mutual funds is beating benchmarks.

 

 

So dear clueless pundits: please stop using such idiotic phrases when you have no idea what you are talking about.

Or, on second though, please keep on doing it. That way you make it very easy for the rest of us to weed out who is even more clueless than most when it comes to market punditry.

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Someone was in a hurry – paging Waddell & Reed? The volume surge occurred right as VIX broke 16 and the Biotech Index (-6.25% today) has hit bear market territory

 

 

 

 

Charts: Bloomberg

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“I think it’s very likely that we’re seeing, in the next 12 months, an ’87-type of crash,” warns a somewhat excited sounding Marc Faber, adding that he thinks “it will be worse.”

 

The pain is just getting started as Faber notes that “the market is slowly waking up to the fact that the Federal Reserve is a clueless organization.” Internet and Biotech sectors (growth stocks) are “highly vulnerable because they’re in cuckoo land in terms of valuations,” and fully expects the selling to spread as The Fed “have no idea what they’re doing. And so the confidence level of investors is diminishing,” and that means we will see a major decline.

 

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It was less than a month ago that we reported on the surprise resignation of Canada’s finance minister which while officially attributed to a wish to begin “another chapter” in his life, we said “there is rife speculation that it was indeed his health that was the reason for this unexpected resignation.” Sadly, today it was proven that it was indeed Flaherty’s health that had forced this surprising decision, following news that the former finance minister has passed away.

#Breaking news: Jim Flaherty, former Finance Minister, has died. Story to come http://ift.tt/1gcvbha

— The Globe and Mail (@globeandmail) April 10, 2014

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Last night’s devastating trade data from China had the bad-news-is-good-news crowd chomping at the bit over the next massive stimulus that ‘surely China will unleash…because they’ve got so much in reserves’. However, as we have explained previously, Chinese premier Li Keqiang destroyed those expectations last night when he ruled out major stimulus to fight short-term dips in growth. Unlike his ‘desperate for a short-term fix’ colleagues in the west, Li stated more thoughtfully (and perhaps more knowingly given his country’s pending credit bubble crash), “we will instead focus more on medium- to long-term healthy development.”

 

As Reuters reports, even as big falls in imports and exports data reinforced forecasts that the world’s second-largest economy has slowed notably at the start of 2014, Chinese Premier Li Keqiang ruled out major stimulus to fight short-term dips in growth.

Li stressed on Thursday that job creation was the government’ policy priority, telling an investment forum on the southern island of Hainan that it did not matter if growth came in a little below the official target of 7.5 percent.

 

“We will not take, in response to momentary fluctuations in economic growth, short-term and forceful stimulus measures,” Li said in a speech.

 

“We will instead focus more on medium- to long-term healthy development.”

 

His comments are among the clearest yet on the government’s plans for the economy, which has rattled global investors this year with a surprisingly lackluster performance.

Of course hope spring eternal among the stimulate-or-die, band-aids forever strategist crowd…

The almost unabated run of disappointing data this year has fuelled investor speculation the government would loosen fiscal or monetary policy more dramatically to shore up activity.

 

This kind of collapse in data would be a huge buying signal for Western stocks…

 

But authorities so far have resisted broad stimulus measures. On Wednesday, the top economic planning agency said the government had less room to underpin growth because it did not want to inflate local debt risks. And now Premier Li’s more blunt words should make it clear that global investors riding the wave of moar free money to China’s shores should look elsewhere.

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For all the sudden fury at HFT in the aftermath of the Michael Lewis 60 Minutes interview which merely served to underscore Goldman’s dramatic U-turn on all things market structure-y, the reality is that, as we have explained over the years, high frequency strategies are not all bad and not all are the latency arbitrage, momentum ignition, liquidity detection-type predators and parasites we have repeatedly shone the spotlight on years before anyone else paid attention.

Indeed, as Blackrock points out in its just released paper “US Equity Market Structure: An Investor Perspective” there are more constructive HFT strategies, mostly dealing with pure play liquidity-providing rebate collection, and there are the “less constructive” ones – or all those that in one way or another end up hurting someone else, be it the retail or institutional investor.

And just as there is a scale of “usefulness” of HFT strats, so there is a gradient of strategy profitability to HFT operators.

In the chart below we have shown Blackrock’s original chart, to which we added the shaded box indicating the shift from least profitable strategies, those that also happen to be the most constructive if least rewarding, to the most profitable ones, obviously the ones that are “least constructive.”

The problem then becomes readily apparent: without any gates to prevent HFT (ab)users from positioning themselves anywhere they wish in the constructiveness/profitabilty spectrum, it goes without saying that everyone will immediately flock to the most profitable, and hence, least constructive and most predatory, HFT strategies.

It also means that while in theory HFTs can and should provide liquidity, they rarely if ever do as most of them are far more focused on such high IRR activities as latency arbitrage, flash orders, momentum ignition, liquidity detection and headline trading – none of which validate the main claim of HFT proponents: that they provide liquidity.

It is this conflict that has to be addressed by the clueless, coopted and complicit regulator that is the SEC if there can be any hope that the retail investor will ever regain some sense of fairness about what right now, is certainly an “abnormally” rigged market (as opposed to the normally rigged, which as all insiders know, it is most of the time).

The HFT problem in a nutshell below.

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