All posts by admin46x

Equities End At Low-Of-Day In Catch-Down To Risk

Europe started to bleed after the Spain bailout debacle but from the open, US markets fell. They plunged on the ISM miss, bounced to VWAP in their wonderfully efficient way, and then spent the rest of the day shaking off the idiocy of last week’s window-dressing. S&P 500 futures (ES) fell from 1424 highs to close at the day’s lows around 1407 (still around 10 points rich to short-term Treasuries). When the ISM hit we saw Gold rally and Stocks dump to recouple the two assets for the day but overall it was stocks that were harder hit than other risk assets today – though evidently they were also major outperformers last week, so this is catch down as opposed to over-pessimism for now. Stocks were weak today in the face of a weaker USD (correlations breaking down) and a relatively unchanged Treasury market. Gold, Copper, and Oil all closed clustered together just in the green with Silver outperforming and VIX jumped 0.75 vols to 16.6% (highest in two weeks). High-yield credit had quite a day…


S&P was unable to get back to VWAP in three pushes late on – suggesting significantly more selling pressure than normal…


Dow Transports suffered the most today…


And while Gold and stocks recoupled after ISM (black oval), as the afternoon progressed stocks slid to the lows of the day, leaving the rest of risk behind…


Materials were the hardest hit – despite stronger than expected PMIs from Asia (which clearly investors have priced in or do not believe)…


And finally, HYG lost ground early on its dividend but into the close saw a huge ramp up to VWAP on significant volume – which looked like some kind of arb catch up to stocks…?


a world of volume went through in HYG in those last few minutes… which we can;t help but notice dragged the stock up to Friday’s closing VWAP…which suggests a lot of professional sellers as block size picked up notably (though it is so technically noisy in this stock)…


Charts: Bloomberg

Futures Test Friday Highs As Avalanche Of PMIs Begins With China Beat

Good is ‘good’ it seems once again – though we do remember just a few short weeks ago when the world and his pet rabbit were hanging on every word from the Chinese leaders and their next epic embarkation on the stimulus highway. Not necessary now though; as HSBC’s China Manufacturing PMI confirms Friday’s NBS version that China is ‘expanding’ once again (though marginally). The highest print for the HSBC number in 14 months – makes perfect sense given the way the world is behaving with world trade collapsing and the mercantilist nation’s key customer (that would be the USA) seeing spending slowing. Nevertheless, it’s enough to run to late Friday highs in S&P 500 futures and flush out those nascent stops.  We just hope this ‘expansionary’ print is not a false hope as it was in October 2011… An evening full of PMIs has begun (see below)…



And S&P 500 futures knocked off that late-day spike high…


PMI Tracker – So Far 3 losers and 4 winners… (we will update as the evening progresses)

Goldman's Top Ten Market Themes For 2013

Whether you trust the squid and their thought process or believe in ‘better the devil you know’, Goldman’s top thinkers – from Garzarelli to Himmelberg and from Stolper to Hatzius and Wilson – lay out the top ten global macro themes from their economic outlook that will dominate markets in 2013. Agree or disagree, one thing is for sure – these ten ‘themes’ will impact us all one way or another and for each theme, Goldman discusses the wider implications for markets, and the potential issues and options for investing around them. Aside from the ten key themes, they provide succinct macro outlooks for rates (steeper curves and seniorty shifts), FX (moderate USD weakness amid broad stability), equities (accelerating growth and risk reduction underpin a solid 2013), and credit (‘search for yield’ has less to find).

Strawman – or investing bible – there is a little here every bull, bear, and arbitrageur…


Goldman’s Top Ten Key Themes (and our annotated summary):

1. Global growth: A ‘hump’ to get over, then a clear road ahead – The biggest challenge from a markets perspective is that we see risks to growth concentrated early in the year, with Q1 likely to show a step-down in growth globally. Fiscal restraint plays a major role in that story: we expect a big increase early in 2013, but a significant fading on both sides of the Atlantic thereafter.

2. More unconventional easing in the G4 – The danger of positioning for a weaker JPY is that a convincing shift may require the BoJ to ‘out-ease’ a committed Fed, which we do not expect.

3. Termites eat away at the foundations of the ‘search for yield’ – Even though we expect the search for yield to continue, the risk-reward is falling.

4. Housing stabilisation and private-sector healing in the US – While we see continued healing in the household sector and ongoing gains in both housing starts (20% growth in 2013) and home prices (2%-3% growth in 2013), this may now already be priced in by markets.

5. Euro area a smaller driver of global risk, but still a source of tails – The best opportunities to take directional exposure to Europe have come either when the market believes that the system is close to collapse (as it did again in May) or when there is confidence that the key risks have been resolved. Neither is true right now.

6. Continued divergence between core and periphery in the Euro area – The divergence in growth between the Euro area core (Germany in particular) and the periphery (Spain in particular) is set to continue. Periphery weakness is already well-known, but the potential for German overheating is a more distinctive theme.

7. EM growth pick-up revisits capacity constraints – if EM equities outperform DM in an absolute sense, the outperformance is unlikely to be enough given the higher risk or variance in outcomes.

8. EM differentiation continues – The ‘orthodoxy’ of the central bank reaction function to inflation is also likely to vary, and so the risk in some places is that even with building inflationary pressure, policy does not necessarily tighten.

9. Commodity constraint to loosen in the medium term – we expect oil markets to return to a more structurally stable position, where the ability to bring on new supply in the $80-90/bbl range is rapidly increasing.

10. Stable China growth, but not like the old days – iron ore demand is likely to remain soft as core building demand falls, and that copper will receive a boost from the completion of new buildings in the next 6-9 months, but is likely to peak thereafter.



GS_Top 10 Themes

Guest Post: Reality Has Consequences

Originally posted at Monty Pelerin’s World blog,

The world no longer makes sense to most people over forty years of age. Much of what we thought was true is now denied. What to us is obviously false (or at least always was) is now accepted as being true. Here are examples from Frick at Bias Breakdown that show obvious contradictions between popular belief and what we hold as reality:

If every Arab in the Middle East laid down his weapon, there would be peace in the Middle East. If every Israeli laid down his (or her) weapon, Israel would be annihilated.


Likewise, if government stopped all spending, the deficit problem would be solved. If government confiscated the gross annual income of every individual in the country making over $66,193, the deficit would destroy our country.


In a sane world, politicians would cut every last dollar of government spending they could in order to bring financial order back to an entitlement-happy society. After government’s debilitating spending habits were slashed or restructured, only then would the conversation shift to taxes and revenue to make up the gap.


Of course, this isn’t a sane world. It’s the world in which it’s Israel’s fault for every ill in Palestine and Republicans are evil and stupid for wanting to cut spending.

Fantasies like these might are satisfying to many, but they are ultimately destructive. Truth cannot be changed by repeating falsehoods. Nor can it be altered by more people believing untruths. But, when these fantasizers overwhelm society with their false beliefs, society will no longer function. Society cannot invent its own truth based on convenience, prejudice or popularity. Truth, not manufactured myth, is key to survival. Societies which deviate from it, don’t survive.

As Ayn Rand stated:

You can avoid reality, but you cannot avoid the consequences of avoiding reality.

The avoidance of reality has overtaken our society. The consequences of doing so have been building for decades and will soon overwhelm us. On our current path, much of what we knew and cared about will be destroyed.