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August 2024 DDD

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None of this looks good does it ? Post 12 from Ducati was stark.

We all "know" how leveraged and over blown our financial systems are. But we have studiously ignored it while the party was humming and the drinks flowing.

Now ?
 
basilio said:
None of this looks good does it ? Post 12 from Ducati was stark.

We all "know" how leveraged and over blown our financial systems are. But we have studiously ignored it while the party was humming and the drinks flowing.

Now ?
Click to expand...
well i haven't been ignoring , i have been watching , and learning and trying to find ways to avoid most of the contagion when it all goes sour

now is the time i hope i have it mostly correct ( or don't need it yet because of another K-shaped recovery )
 
ducati916 said:
Someone has blown up. They will be big.
Click to expand...
ducati916 said:
Buffett on banks:


jog on
duc
Click to expand...
I'm thinking Buffett knows, or at least strongly suspects, a lot more than he's saying publicly in terms of detail.

Buffett unloaded Bank of America stock over 9 straight trading sessions.

Now I don't know the detail of how he normally does things but that sounds like a much less orderly and more panicked exit than I associate him with.
 
From JC:

There's been relentless selling overnight across stock markets around the world. Japanese Yen, US Treasury Bonds and VIX are way up. Cryptos are getting crushed.

We'll be discussing all the action LIVE this morning @ 830AM ET on The Morning Show. Click here to join us for today's show.
 
3 Things to keep in mind during times likes this:

1) For long-term investors, this is what you want. Many of us have long-term accounts, retirement stuff, kids college funds, etc. This sort of market action is great for those types of accounts and strategies. And if you're a young investor, just getting going in this business, nothing could be better. Pay attention and take notes (you'll thank me later).

2) For more tactical portfolios, this sort of volatility provides new opportunities, that certainly did not exist in the low volatility regime that we've been in for so long. This is not the time to implement low volatility strategies. This is a time to benefit from the high volatility.

3) When **** hits the fan, just get smaller. Markets are moving fast, so you can get away with much much smaller position sizing in order to accomplish the same goals you had with a VIX at 10, just a month ago.

The rule of thumb for me is you take the VIX and divide it by 16. That gives you the expected % move for the market that day - particularly the S&P500.

So with a VIX at 50, for example, the market is pricing in AT LEAST a 3% daily move for the market.

In other words, during a market environment like this, a 1000 point daily move in the Dow would be a slow day.

So where's support?

Here's how I'm looking at the S&P500 right now. Those former cycle highs from late 2021 - early 2022 stand out to me near 4800:
​
You can learn more about these Fibonacci levels here.

Also, keep in mind that these are "potential" levels of support. We consider them levels of interest.

Just because I think there could be support there, doesn't mean the market cares what I think.

But these are certainly important levels that we will be watching today and for the rest of the week.

Over at the Nasdaq, we're looking at that 400 level that was former resistance in late 2021 - early 2022, and turned into support again earlier this year:
​
Small-caps this morning are getting rocked.

Just like 400 has been a key level for us in the Nasdaq100, that 200 level in the Russell2000 has been the equivalent location that we've been focused on this year.

That 200 in $IWM is also where all that resistance has been coming in the past couple of years. It was support earlier in 2024 as well:
​
Keep in mind, sentiment is extreme, and an unwind is absolutely necessary.

That's what this is.

We discussed this in greater detail here.

This is what our Sentiment Composite chart looks like:
​
 

There's a lot happening in the market right now.

Stocks are moving. Forex and Fixed Income markets are flying.

The VIX is above 50.


The Yen Trade: https://www.ft.com/content/60542de9-ba25-4fa1-b624-36eb0b561c44



Off the lows



VIX blew out today.

Emergency rate cuts of 75bps are being called for, yada, yada.



The fundamentals are terrible, horrible.

However that is not necessarily currently important. What is important are:

(i) margin calls...have they started yet? How far to go?
(ii) how many short, will short covering help stabilise a short term/longer term bottom?
(iii) passive fund flows...do they continue?
(iv) selling pressure from abroad, foreign buyers hold significant US assets, what's going on in Japan is obviously important
(v) sentiment, Buffett selling will be a signal for many, his record speaks for itself
(vi) technicals...remain bad, at the moment it's stepping in front of a falling knife


Then we have the war news etc. The economic news, bad and worsening.

While the market is down, its not down a whole lot. This is BTD territory. If BTD does not happen, then we are unlikely to get much of a bounce.

Looks like we had a bit of BTD from the Open...



Fading now.

If the selloff accelerates into the close, we may start to see some panic tomorrow. This definitely was not panic selling. Still very orderly. I have $0.10 spreads on $200 stocks. That is very orderly. When the spread goes to dollars, that's when things are getting spicy. When there is no bid...that is panic.

Without a doubt the Fed will be telling the market makers (banks) to stand firm and weather the initial storm. It just depends whether the storm intensifies.

Much depends on Japan



You would think a pause...looks like technical support.

The only problem is that this problem is now 30yrs in the making. While we may get a technical reprieve here, this problem is really deep rooted and is far from over.

The Fed (remember I highlighted this) set up swap lines for Japan selling UST, which solved that problem in the UST market. That was also Japan defending its currency v USD.

This has now spilled over into the equity markets.

jog on
duc
 
absolutely ,

i started in a novice in 2011 and although the slide was longer , there will be lessons and experience to be had

the best one will be learning to focus among the noise and distractions ( hopefully you will pick good targets )
 
Druckenmiller:



Full: https://money.usnews.com/investing/articles/stanley-druckenmiller-portfolio-top-holdings-in-2024



Sounds as if a Hedge Fund got caught leaning the wrong way.

Is it over or is it just the continued heightened vol?



Unfortunately MOVE is close of day pricing. Will probably drop back at today's close. The takeaway however is that stock volatility moves hand-in-hand with bond market vol.

VIX way down



Dead cat bounce or have the BTD players reversed the market and the bull is back?

So the Treasury announced its QRA



Annualised that's a $4.7 Trillion deficit.

Liquidity (should) be an issue.



But its not. Even though the buybacks currently are small, it has to date kept a lid on UST Repo volatility.






Also compare yesterday's MOVE to this (older) chart.

MOVE has blown through the 'cap' that was placed there via Fed buybacks. While MOVE may settle today, does 1 day or so cause further issues in the Bond market? More Fed liquidity required?


So today: dead cat bounce or resumption of the bull market?

I'm leaning towards dead cat bounce. There has been a hint that a or several Hedge Funds got in trouble with the Yen carry trade. While I'm sure the Fed is busy bailing them out, the financial world is so inter-connected now there will be issues elsewhere. I guess we just wait and see.

The Fed is propping up markets wherever you look. With unemployment now becoming a factor, deficits will blow out far more. $4.7 Trillion becomes $8 Trillion before you blink.

As the Fed/Treasury will never allow a hard default, it will be default via inflation. As the deficit grows the rate of inflation required to manage it grows. Stagflation is not a great look for stocks. The real pain will be in bonds however.

jog on
duc
 
Hedge Funds:

Traditionally, hedge funds haven’t been major players in the power market, which is more volatile and less liquid than commodities like oil and copper. But now, they’re doing everything they can to lure the best power traders on Wall Street.
  • According to Sarah Kiernan, head of Americas Commodities Sales in Goldman Sachs Global Banking & Markets, this story involves data centers, which provide power for training large language models for AI technology.
  • The International Energy Agency (IEA) projects AI’s energy usage will rise 10-fold in the next two years, which means more demand for data centers.
  • Data centers currently consume 1-2% of power worldwide, but Goldman analysts estimate the percentage could increase to 3-4% by 2030, and power traders are already trying to take advantage of the opportunity.
  • McKinsey data shows global trading volumes for electricity futures grew by 35% between 2019 and 2023, and it's currently forecast to increase by $111.34 billion, at a compound annual growth rate (CAGR) of 6.56% through 2027.
  • Hedge funds are hiring power traders and analysts, and buying companies to enable them capitalize on big swings in electricity prices.
  • Millennium Management hired Anthony Dewell, the star energy trader at Goldman Sachs. Ken Griffin’s Citadel is buying Energy Grid Corp., a company that trades power products, while Balyasny Asset Management has hired Joe Constantinou, a former power trader with Bank of America.
  • The spark spread is another indicator of what’s likely coming in the power market.
  • This metric reflects the difference between the wholesale market price of electricity and the cost of production, and Goldman analysts report that it has increased by roughly 50% this year, and nearly doubled since January 2022.


BoJ to the rescue, probably under duress from Yellen, Powell, et al.



Of course your index doesn't fall 12% everyday.

But, what I imagine the Bank of Japan was thinking over the last 3 months as they read western financial media tell them how screwed they were because of the weak JPY...

Weak JPY was never really the BOJ's problem...it was always the Fed's problem... now everyone sees how.

Things to watch for: https://www.barrons.com/livecoverag...=TCR&utm_medium=email_action&utm_source=email

Chit chat about vol.: https://www.carsongroup.com/insight...=TCR&utm_medium=email_action&utm_source=email

Might be of interest to the systems chaps: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4867401

In the same vein: https://www.wsj.com/tech/ai/ai-fina...56bezctg4pv&reflink=desktopwebshare_permalink







Bubbles: https://www.wealthmanagement.com/equities/are-stock-market-bubbles-forecastable






Trading rules: https://mrzepczynski.blogspot.com/2024/08/marty-zweigs-rules-still-useful.html

As I sit here:



Is the bounce starting to resemble the dead cat variety?

A weekly chart that takes some of the noise out:




Has the BoJ ever been successful in managing the Yen? LOL. Remember the Yen was moving long before the BoJ made its surprise rate hike, now squashed.

The question is: the bounce, shorts covering taking profits? Or new BTD players? If BTD how sticky are they?

Oil News:

Hedge funds and other money managers turned bearish on commodity futures for the first time since 2016 as fears of economic slowdown dent investors’ trust that there is a bright future for raw materials over the next months.

- After eight years of consecutive bullishness, the net short held by money managers across a basket of 20 raw materials amounted to 58,600 contracts in the week ended July 30.

- Confirming that weakening Chinese demand plays an important role in the overall market pessimism, hedge funds’ positioning in NY heating oil futures has been bearish for the past 9 weeks and the ICE gasoil futures are on the brink of breaking into bearish territory.

- Market positioning reflects generally lower commodity prices as the Bloomberg Commodity Index, tracking selected energy, crop, and metals futures, is down 4% so far this year, having already dropped 13% in 2023.

Market Movers

- The world’s largest oil producer Saudi Aramco (TADAWUL:2222) pledged to pay out a record $124 billion in dividends this year, despite a 3.4% year-over-year drop in net profits to $29 billion.

- California-based solar developer SunPower has filed for bankruptcy, creating a huge headache for French oil major TotalEnergies (NYSE:TTE) which owned some 65% of SunPower.

- Canada’s pipeline major TC Energy (NYSE:TRP) sold a minority stake in its Canadian natural gas pipelines NGTL and Foothills to Indigenous communities for $725 million as part of its divestment program.

Tuesday, August 06, 2024

So far, every single day in August has seen a day-over-day decrease in oil prices, with Monday’s stock selloff seeing ICE Brent drop to an 8-month low of $76.30 per barrel. Yet beyond the panic and confusion, some semblance of recovery might be on the horizon for crude, with Libyan production disruptions and Middle Eastern tensions potentially adding some bullish momentum.

Aramco Turbocharges H2 Demand Expectations. Amin Nasser, the chief executive of Saudi national oil firm Saudi Aramco, said this week he expected oil demand of 1.6-2 million b/d in the second half of this year, saying that fundamentals don’t support the current weakness in prices.

Libya’s Production Threatened by Protests Again. Libya’s largest producing asset, the 300,000 b/d capacity Sharara field, has been almost completely shut down over the weekend amidst public protests that are believed to be linked to the Eastern government’s Libyan National Army.

Texas Gas Market Continues to Weigh on Chevron. Chevron reported that the average price for its US gas production in Q2 stood at $0.76 per mmBtu, the lowest since 2020 and half of what it used to be a year ago, as negative Waha prices (averaging -$0.58 per mmBtu) hamper profitability in the Permian.

Japan Signs Up for More LNG From the Emirates. Japan’s leading gas company Osaka Gas (TYO:9532) signed a Heads of Agreement with the UAE state oil firm ADNOC for the delivery of up to 0.8mtpa of LNG starting from the late 2020s, to be sourced from the new Ruwais LNG project.

Citgo Auction Sees Icahn vs Koch. The auction of US oil refiner Citgo Petroleum seems to have two front-runners as a consortium led by Koch Industries offered $9 billion in combined cash and claims against Venezuela, pitting it against Carl Icahn-controlled CVR Energy that offered an all-cash bid of $8 billion.

Indonesia Sets Ambitious Upstream Goals. Indonesia’s government seeks to boost natural declines from legacy oil and gas fields by at least 100,000 b/d by 2028 through enhanced oil recovery, reactivating old wells as well as new developments, seeing output slump to 580,000 b/d lately.

French Major Gets Rid of Pakistani Exposure. French energy giant TotalEnergies (NYSE:TTE) has agreed to sell its 50% stake in Pakistan’s oil marketing company PARCO to global commodities trader Gunvor, allowing the latter to tap into PARCO’s more than 800 service stations and logistical chains.

US Government to Invest $2.2 Billion in Power Grids. The Biden administration vowed to invest $2.2 billion to revamp the US’ power grid and to protect it against the growing disruptions caused by extreme weather events, providing funding for 8 pilot projects across 18 states.

P66 Goes to Court in Trade Secret Case. The case of California retailer Proper fuels demanding $1 billion in damages from US refiner Phillips 66 for alleged trade secret theft is going for jury trial in August, alleging that the refiner used information gained in a pre-acquisition due diligence process for its renewables business.

Brazilian Giant Finds Gas in Colombia. Brazil’s state-owned oil firm Petrobras (NYSEBR) confirmed its Uchuva-2 exploration well in Colombia’s deepwater offshore zone found natural gas, extending the range of hydrocarbon-rich deposits it found with the Uchuva-1 well drilled two years ago.

Chinese Tech Giant Stockpile Chips. According to Reuters, Chinese tech majors Huawei and Baidu have been stockpiling high bandwidth memory (HBM) semiconductors from Samsung Electronics, accounting for a third of the Korean firm’s demand in 2024, in anticipation of potential US curbs on exports to China.

Glencore Faces Another Bribery Case Penalty. Mining giant Glencore (LON:GLEN) has been fined $152 million by the Swiss attorney general’s office for “not taking sufficient measures” to prevent bribery of Congolese officials, taking the bribery-related payouts of the firm to a whopping $1.7 billion.

Gold Hits Record High Before Selloff Slump. The price of gold surpassed $2,500 per ounce for the first time in history last Friday following the publishing of the US nonfarm payroll data, hitting $2,522/oz in early trading hours, and then collapsing to $2,390/oz during Monday's market panic.

jog on
duc
 
All US Market indexes in the red when i looked, down 1% for russell...dead cat bounce?
On small movements like this, a last minute manipulation can still happen but not very positive for the end of week
 
qldfrog said:
All US Market indexes in the red when i looked, down 1% for russell...dead cat bounce?
On small movements like this, a last minute manipulation can still happen but not very positive for the end of week
Click to expand...
yes they swapped from green to red during the trading session ( and not by a little )
 
Worth a read: https://www.riskhedge.com/outplacem...ntent=RH144OP562&utm_medium=ED&utm_source=rcm

NYT thinks it's a blip and BTD: https://www.nytimes.com/2024/08/07/opinion/why-financial-markets-are-like-toddlers.html

Opposite view: https://www.msnbc.com/opinion/msnbc...l-reserve-interest-rates-inflation-rcna165210




HELOCs are still low, but growing. Stressed consumers? These will be financed at the much higher rates. Will this push delinquent loans higher down the road?



So Yellen has been issuing far more debt at the short end for exactly this reason:



Short duration is essentially CASH.

Cash provides liquidity to the UST market which is almost always suffering pangs of illiquidity.



Yields bouncing higher. But after such a move lower, hardly surprising.





Which simply means the Fed's vaunted QT is BS. Short end issuance from the Treasury is essentially cash which adds back liquidity. There is little to no demand for longer duration as informed participants are either at war with the US, China/Russia or looking elsewhere BRICS (gold) or bankrupt themselves, Europe.

Tax receipts are an issue. Tax receipts depend upon a high and ever higher stock market. If it falls, deficits rise, pushing debt expansion even faster than it already is.

Unemployment moves higher...deficits and debt expansion explode.

Which takes us back to the Yen Carry Trade. Zero cost money, Yen, has been used to buy higher yielding assets. Usually these are bonds (longer duration) but in ZIRP and NIRP this was actually stocks.

So apparently, a hedge fund blew up on the fast appreciation of the Yen. All over? Who knows. Central Banks will have rescued it or them for sure, having learned from Lehman.

Confidence is a funny thing. One second it's there. Then it's not.



Looking good atm.

jog on
duc
 
I believe the real test will be friday (US):
Will the money buy on Friday, keeping in the market over the weekend..a test if confidence..or just sell todays gain.
In 2024, the weekend is when the wars start,or are scale up, and the US/israel has upped the pressure all week, evacuating westerners from middle east, diverting flight paths.now ready.
Obviously in 2024, it could be in the news as an iran,houtsi, is trigger.
I would not trade and keep position over any of the coming weekends. Trading speaking, not investment.
i hope it is ok to hijack your thread mr @ducati916 ?
 
Oil News:

Friday, August 9th, 2024

Recovering from Monday’s giant stock selloff, oil prices are set for a much-needed weekly gain after four straight week-over-week losses as ICE Brent flirts with the $80 per barrel mark again. Fears of an impending economic recession were alleviated by stronger US jobs data and with markets closely following Iran’s retaliation vis-a-vis Israel, geopolitics have added some bullish impetus, too.

Intensity of Red Sea Attacks Turns Up a Notch. Attesting to tensions running high across the Middle East, the Greek-owned Delta Blue tanker carrying Iraqi oil to Greece’s Corinth port has been attacked four times over the past 24 hours, surviving two grenade attacks, one missile strike and a maritime drone ramming attempt.

EIA Downgrades 2024 US Natural Gas Outlook. The US Energy Information Administration lowered its forecast for US natural gas production this year, with the year-over-year decline now expected to be around 0.5 BCf per day to 103.3 Bcf/day, due to shut-in output triggered by record low prices.

Saudi Aramco Buys Back Its Refinery. Saudi Aramco (TADAWUL:2222) signed an agreement to acquire an additional 22.5% stake in the country’s Petro Rabigh refinery from Japan’s Sumitomo for $702 million, becoming the largest shareholder of the 400,000 b/d capacity asset with an equity stake of 60%.

TMX Tolls Decision No Sooner Than 2025. Whilst Canadian shippers are expecting a swift resolution on TMX pipeline tariffs, the oral hearing on the issue is scheduled to start May next year with the final argument to take place in the summer, as incremental exports out of Westridge remain capped at 350,000 b/d.

Libya Announces Full Closure of Key Field. Libya’s state-owned oil firm NOC declared force majeure on crude exports from the 300,000 b/d Sharara field in western Libya, following what seems to be a military-orchestrated takeover by the son of Khalifa Haftar, the head of the Benghazi government.

Occidental Closes CrownRock Acquisition. US oil major Occidental Petroleum (NYSE:OXY) has closed its $12 billion acquisition of CrownRock without the involvement of Ecopetrol (NYSE:EC) after allegedly Colombia’s President Gustavo Petro rejected the deal for a 30% farm-in.

Oil Majors Quit Suriname Offshore Block. International oil majors ExxonMobil (NYSE:XOM) and Equinor (NYSE:EQNR) have transferred their stakes in the deepwater Block 59 in Suriname to Hess Corp (NYSE:HES) in a ‘nonfinancial transaction’, with the Norwegian NOC quitting Suriname altogether.

Glencore Flirts with the Idea of Delisting. After a majority of investors supported Glencore’s (LON:GLEN) coal strategy, rumors started circulating about the Swiss-based trader potentially seeking a relisting to the US, but CEO Gary Nagle played it down by saying the major is ‘comfortable’ in London.

US SPR Replenishments Extend into 2025. With WTI prices trending around $76-77 per barrel, the US Department of Energy announced a tender to buy 3.5 million barrels of oil for the Strategic Petroleum Reserve, to be delivered in January 2025 into the Bayou Choctaw and Bryan Mound storage sites.

Sudan Civil War Triggers Investors’ Exodus. Following 14 years of operations in South Sudan, Malaysia’s national oil firm Petronas is leaving the country after its planned $1.25 billion asset sale to Savannah Energy fell through, leaving the war-torn country in dire need of new investors.

India’s Largest Refiner Clinches Venezuela Exemption. According to Reuters, India’s largest refiner Reliance Industries was exempted from the US’ Venezuela sanctions on the premise that uses naphtha supplies as partial payment to PDVSA, to be used by the Venezuelan firm as a much-needed diluent.

European Gas Prices Soar on Russia Risks. Europe’s benchmark TTF gas futures contract surpassed the €40 per MWh ($14 per mmBtu) threshold on Thursday for the first time since December 2023, after reports emerged that Ukrainian forces might have seized Gazprom’s Sudzha gas transit station.

Cargill Eyes Corporate Restructuring. Confronted with four-year lows for commodity crop prices and processing margins, the largest privately held US firm Cargill will undergo several structural changes after missing earnings goals, with operations expected to be streamlined into three units instead of five.


So some thoughts from Mr FFF



So let's look at this:

JPMorgan Says Carry Trade Unraveling Is Only Half Complete

The recent unwinding in carry trades has more room to run as the yen remains one of the most undervalued currencies, according to JPMorgan Chase & Co.
www.bloomberg.com









So we have seen that TOO STRONG a USD drives a sell-off in all assets.

Now what we have seen is that due to market positioning, a TOO WEAK USD causes all assets to sell-off.

This is all tied into the mind numbing debt levels.

We truly have the Goldilocks economy, can't be too hot or too cold, needs to be just right.

Next:



So Central Banks have to 'manage' the USD very closely. Why?

Because:



The "CARRY TRADE" is $25 Trillion big. LOL.

The WORLD is net long $25 Trillion in US assets and short the USD.

Odds on something going wrong?

Last



Well it increasingly all depends on the USD.

Basically you can ignore all your charts save the USD.



It has to REMAIN in a range of 103-105.

Anything outside of that range and markets f*cking meltdown.



So we know that the US has to manage the debt somehow: outright default, or of course inflation. We have just seen that inflation is now actually a really major problem as inflation is a significantly weaker USD, which can't happen.

A slow unwind still necessitates selling $25 Trillion in US assets. Who exactly is going to buy this?

The debt is growing at $1 Trillion every +/- 100 days. Which means more liquidity to fund ever faster growing deficits, which is a weaker USD. Can't have that.

Lower interest rates; oh dear, weaker USD.

Can't lower rates, higher for even longer stocks (smaller ones) are getting crushed. Consumer, getting crushed. What happens to USD if rate cuts can't happen?

Historically, when faced with this level of debt, the USD has always been devalued: FDR did it, Nixon did it. This time possibly (somehow) an outright default? It would have to be hidden. Something like a Medicare default.

Alternatively, they could revalue their 8000 tonnes of gold. Every $4000 = $1 Trillion. $40,000oz = $10 Trillion. Takes the debt back down to $25 Trillion overfuc*ing night.

Outrageous?

Central Banks around the world have been buying gold like its going out of fashion. The US can no longer act unilaterally. They are no longer #1. China has them by the balls. China holds (probably to estimates) 30,000 tonnes of gold. He who holds the gold makes the rules.

One thing is for sure, technicals, quant, systems are not going to save your arse...only an understanding of the macro will get you to a place of relative safety.

Declines will come seemingly out of nowhere and be increasingly violent.

This time it is actually different.


jog on
duc
 
So let's start off with the topic de jour, the YEN:

From the Desk of Ian Culley @IanCulley

Let everyone grumble over the Japanese yen.

I get it. The yen was cast as the villain decades ago, and something or someone must take the blame for the VIX hitting 65 earlier this week.

While I prefer to point my finger at the preceding low-volatility environment, the November election, and potential rate cuts, the yen certainly played a part.

But the real question isn’t who, what, when, where, or why.

Instead, every investor wants to know…Was that it?

Is the selloff over?

I think the worst is behind us.

Here’s why…



Check out the USD/JPY chart with a 200-day simple moving average in bright blue (with the percentage above or below the long-term average in the lower pane):



In many ways the yen carry trade is a play on interest rates.

Notice the USD/JPY rocketed higher as the current hiking cycle began, rising with the widening spread between the Japan and US overnight rates. Powell’s war on inflation and Japan’s Yield Curve Control policies formed a perfect storm for a dollar-yen rally.

But by October 2022, the forex pair reached a thirty-year high – 15 percent above the 200-day moving average.

Talk about a face ripper!

The crumbling currency forced the Japan Ministry of Finance’s (MOF) hand to buy yen in the open market.

The MOF intervention – and this is the key – spooked the market.

Fear spurred a ferocious unwind, driving the USD/JPY well below its long-term average – to levels not seen since 2018, the 2020 COVID selloff, and Monday.

Elevated risks are jolting markets from their low-volatility rally – a potential economic slowdown, the November presidential election, rate cuts, war…pick your poison.

On the bright side, price tends to mean-revert after reaching extreme levels. We’re witnessing such a bounce in the USD/JPY and risk assets as we enter the back half of the week.

I doubt stocks will carve out a V-bottom correction, but the major averages may be near the low.

Let’s use 2018 as an analog; Powell turned dovish, investors unwound their yen carry trade, and markets rallied following the first rate cut. How the market reacted following the initial volatility shock and the eventual policy shift may prove salient.

The S&P 500 bottomed in early February, while the USD/JPY reached a cyclical low six weeks later.



The talking heads may be right – the yen unwind might not be over yet. But more downside for the dollar-yen doesn’t necessarily equate to fresh lows or a twenty percent correction for the indexes.

I doubt we’ll see the VIX at 65 soon, but volatility is likely here to stay. The difference in bar size between the 2017 and 2018 rallies tells the story.

No one likes a selloff. Everyone knows bull market parties are more fun.

As small caps join the party, we should expect a lively stock market rally.

Take solace in that the worst is likely over, and the next leg high for stocks is just around the corner.

–Ian

Option Expiry:


DJIA Down 13 of Last 17 August Monthly Option Expiration Weeks​


Mid-August has historically better performing than the beginning and the end of the month. This strength is punctuated with a cluster of bullish days this next week beginning on August 15 and ending on August 21. Four out of five days are bullish. In the annual Stock Trader’s Almanac, a bullish day is defined as a trading day in which the S&P 500 has risen greater than or equal to 60% of the time over the last 21 years.
Unfortunately, this bullish cluster has not always resulted in full-week gains during August’s monthly option expiration nor does this daily bullish streak guarantee market gains on each day. S&P 500 has declined on August monthly option expiration day nine times in the last fourteen years. Full-week performance has been mixed over the longer-term but has been notably weaker since 2010. The week after monthly options expiration has been bullish with average gains ranging from 0.32% by DJIA to 0.66% by NASDAQ.





For next week:



LOL. This chap is heading for a blow-up. Definitely confusing luck for skill.


Another problem:



This isn't history yet.

It 'may' become history, but we are still in it atm.

A more rational analysis:




"Normally" when VIX spikes, there is a run to safety, vis-a-vis 10yr bond yields fall.

Not this time.

Why?



Because Hedge Funds are neck deep in the 'basis trade' which is the trade that (in part) blew up LTCM.



So when the run to safety started and UST were being bought, Hedge Funds were selling. Lucky for them that there were buyers. But the fall in yield is far less pronounced than it has been in the past.

Again, could be early days.

Often, and this is just my experience, when a trade blows up, you hang on hoping for a bounce to reduce the loss. If you have the capital, maybe you martingale the trade. Either way, you are still looking for an exit from the trade.

Last Monday was fast.

We had had a bad day on Friday, echoes of 1987 and then Monday hit. By Friday we were back to the previous Friday.

My point: those that could manage to hang on, hung on. But what is their confidence level currently? We see from the sentiment chart just how fickle confidence is.

Is it over?

I have no idea, but then I'm not under any stress.

However, the firm I trade for had a number of the SPX traders almost blowing up. By all accounts, they just hung on, but a selling day on Tuesday would have had them carried out on their shields. I have no idea if they are 100% closed out or still managing the position. Either way, there is still plenty of risk in the market.

Sure Central Banks are busy bailing out blown up Hedge Funds, so you would hope the worst is over as far as systemic risk is concerned.

We'll see.

jog on
duc
 



Lots of insider selling.

Nothing particularly exciting in earnings this week.

Just the CPI number. Probably needs to hit on the nose. Can't be too hot or too cold now.



Full: https://www.ft.com/content/60542de9-ba25-4fa1-b624-36eb0b561c44



Data is a bit old now, but rather implies Hedge Fund launches don't do well in bear markets.

Buffett is sitting on record amounts of cash. Why? Probably because he has seen this movie before. Valuations are horrible. That of course does not mean that valuations cannot go higher, but prudent investors realise it's time to take some profits in anticipation of trouble ahead.

Futures will start trading in a few hours, which may hint at the market mood.

Currently crypto is down and the Yen is up. Keeping an eye on the Yen today as Asian markets open would be a good idea.

jog on
duc
 
if the Japanese stock market drops ( and keep in mind the BoJ has a large interests in Japanese stocks via ETFs) the temptation might be to grab some exposure , ( but i will probably resist the urge )

but golly gee , will the BoJ keep supporting the market by buying more ETFs or protect the yen by reducing ETFs and buying yen/Japanese bonds

certainly an area to keep an eye on
 
So meh open to the week.



No-one wants UST. Currently being dumped on primary dealers.

Why the Yen matters:



Today FX hedged 10yr UST yields are more negative than they have been for the last 15yrs. Japanese investors (Pension Funds etc) are UNHEDGED for USD falling lower (or Yen moving higher) that if Yellen weakens the USD (as she wants desperately to do) to lower the impact of the debt on GDP (inflate it away) then Japanese investors will HAVE to SELL more UST, exacerbating the issues in the UST market.

The financial markets are now so inter-linked that there is no escape from a global meltdown if one were to occur. We are back to 2008, 1929 as far as global risk goes. This UST shite is everywhere (except Russia who had all of their UST stolen). This has now driven so many more countries into the BRICS alliance, which very quickly reduced the ability of the US Treasury to float (sell) UST, whose chickens are fast returning to roost via failing auctions. A 30yr also failed last week.

With unemployment moving higher, deficits will move higher (fuc*ing explode) and the US Treasury will be unable to sell anywhere near enough paper to cover them.

Enter the Fed. The buyer of last resort. Which is out and out money printing. Even brain dead Joe Sixpack can recognise that.

That chart: Sectoral alphas after rate cuts: I'm not sure I agree with it, but I'll think on it. Anyone else feel free to chime in.

jog on
duc
 
I am stunned looking at the EU positive view by 2/3 of EU population.
After Ukraine, gas debacle, 20y of immigration and safety nightmare, and their complete relative economic collapse they are still hopeful ? Propaganda works.
 
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