Friday, February 12, 2016

Was Time Warner reading my blog?

Suddenly at 8:57 last night - bang! No internet, no TV, no phone.  That'll teach me to tell people how to avoid their silly rental fees. *

Later I found out that it wasn't just me, but for a moment I was ready to slip over to the side with people wearing tinfoil hats.

Speaking of crazy conspiracies...have you noticed 2.5% jump in stocks since yesterday afternoon?  This might be one of the world's greatest coincidences of all-time, but yesterday as the S&P 500 slipped right down to that critical 1812 number that was about to cause sell orders to flood the market when a strange oil headline crossed about the prospect of OPEC meeting to cut production.  This headline single-handedly saved the stock market as oil stocks spiked dragging everything else along for the ride.

Today we had a variety of headlines that seemed to indicate that the Fed was not seriously considering negative interest rates at this time (but Japan said that just one week before going to a Negative Interest Rate Policy).  This should have taken some wind out the market if they were hoping for more free candy from the Fed, but the computers that read the headlines missed the context and only picked up on the words Fed & Negative Interest Rates.  This sparked some more panic buying in the morning which beget more buying and the week was saved.

Now we have to deal with the fact that
* the oil headline that saved the market has been ignored by the only parties that really matter - Russia & Saudi Arabia (who appear to be ready to go to war in Syria against one another so I'm thinking they aren't in a real cooperative mood)

* the statement issued to the WSJ was sent around midnight in the middle east which seems a bit odd

* and even the WSJ questioned the validity of the production cuts, but no matter, the active traders had their best week in years and you get to sleep better this weekend as the stock market avoided collapsing for another week.


PS - don't buy any of the nonsense headlines that today's rally was sparked by strong US retail sales. They were wildly over-inflated by seasonal adjustments and if you believed those numbers you'd be selling stocks today because it would bolster the Fed case for raising rates further.

* A special note for Time Warner customers: They are starting the campaign to add a set-top box rental to your account.  If you currently just run the cable wire into the back of your TV, that will no longer work as of June 2016 and you'll need to get a device (like a $40 Roku) or rent a set-top box for $3/month from your friendly neighborhood cable behemoth. For someone like myself with 4 televisions in the house that is $12+/mth forever and I wonder if they'd ever raise the price of the rental? :)  I'm buying an HD antennae and if that provides an adequate signal I'll probably cut the TWC cord for good.

Thursday, February 11, 2016

Not trying to cause a panic, but it's time to FREAK OUT!

Just kidding, relax and take a deep breath.

Global markets are under severe pressure and the, sorry Technical market analysts are running the show right now.  If you remember last week I said the number that everyone on Wall St. was worried about was 1812.  This represents the low of the S&P 500 way, way back in Jan 2016 (yeah, three weeks ago) and it seems like the programs want to retest that number (futures are bouncing around but were 1814 last I checked).

A significant break below that level and I don't know what the machines will unleash but it may not be pretty.

So what's driving this latest move?  I'd guess it's some pretty vague "sentiment" like

* Concerns about Central Banks having few policy tools left


* Fed Chairwoman Yellen's comments yesterday which almost asked the market to crash.

Okay, so that's probably a bit extreme, but in a nutshell this is what the head of the Federal Reserve said -- if markets were to continue to swoon, the Fed could consider reversing its plan to tighten.  This is code for "if Wall Street wants more free gov't cheese in the form of lower rates or direct intervention, stocks need to go lower first".

The market and global economy are acting very much like they did in 2013 when I first saw signs of weakness.  What I did not expect was that the Fed would come to the rescue once again as soon as equity prices dipped.  The major investment houses are about to call the Fed's bluff again - will the Fed come to the rescue for the umpteenth time and more importantly, will it even matter to the markets?

Today might be a wild day as the Fed Chair Yellen will be speaking throughout the day while the markets continue to gyrate.

** Update: This is how crazy the markets have become - in the past 30 minutes before the markets have even opened, buyers have flooded the market assuming that this dip will be sufficient to induce the Fed to act and the futures are well off the lows of the morning.  Good luck trying to figure out how this relates to the actual value of a company anymore.  The stock market is just game of 1's and 0's for the computers.

One final note that I thought I should mention.  When it comes to predicting the outlook for global trade and by default global economic growth would you rather listen to an economist who has never worked outside of a university (ie, most of the current Fed Reserve Bank heads) or someone who runs the world largest shipping company?  Hmm, I'll take the shipping CEO for $200 Alex.....

Well, the CEO of Maersk (you see their containers EVERYWHERE) told the Financial Times yesterday that "It is worse than 2008. Oil is as low as it was in 08-09 and freight rates are lower.  The external conditions are much worse...." so, that's something to keep in mind.


Wednesday, February 10, 2016

Everything is fixed. Go back to your regularly scheduled program.

For the second time in 2 weeks the market stared straight into the abyss and bounced.  The bounce began on Monday when a determined set of programs bought stocks in consistent enough intervals to drag in other programs that use plain vanilla if/then strategies.

Overnight stocks soared on ........ insert random idea here -
Trump victory?
Clinton loss?
The German government promising to save Deutsche Bank?

However, the most likely cause is the one the markets can't seem to live without - Fed Chair Janet Yellen is speaking today.  So, the expectation is that she will utter something even beyond what is taken for granted now, the prospect of negative interest rates or QE4, but perhaps preemptively taking the next Fed rate hike off the table.

At this point the Fed's credibility is the asset that is in the most danger so it will be interesting to see how the market reacts, but right now they want to make money on the buy side so it's a green day for everyone (except Solarcity - YIKES!).


Monday, February 08, 2016

Selling Vonn Miller Jerseys in Charlotte?

With China effectively shutdown for the next week as a result of the Lunar New Year celebrations most people expected a relatively calm week on Wall Street.  However, that calm was severely disrupted this morning - specifically at around 4:55am when someone stepped on the selling accelerator.

A specific sell order hit the market at just before 5am and while it was not particularly large it hit at a moment when the markets were quite "thin" (ie, few buyers and sellers in the market).

Imagine trying to sell Vonn Miller jerseys this morning in Charlotte to understand what it means to sell into a thin market.  You might have to lower your price quite a bit to complete a sale :)  This sell order took the markets lower just as European markets were preparing to open.

So, what is triggering this late round of worries?  Well, there are the usual suspects of slowing growth, concerns about the Central Banks becoming less effective, etc., but I think the greatest concern that I have seen lies in Germany.

Credit Default Swaps (CDS) are incredibly complicated instruments but for simplicity's sake let's just call them insurance.  They are insurance against a company becoming unable to fulfill its obligations.  During the 2008 crisis the CDS signals from Lehman, AIG and Bear Sterns were the most consistent warning signs that something was very, very wrong.  You can use these prices to help calculate the market's assumption that a company may default.

Well, Deutsche Bank (likely the largest bank you've never heard of) has seen their risk of default rise from about 5% to over 16% in the past couple of weeks.  Anything above 10% is disconcerting in my opinion and there doesn't seem to be much relief in sight.  Deutsche Bank also has about $55 trillion - yet trillion with a T - in counterparty exposure.  This simply means that what impacts Deutsche Bank impacts every major financial institution in the world.

I don't know how this will play out and I'm not ready to forecast that Deutsche Bank is the next Lehman Brothers, but this is the stuff behind the headlines that is actually moving the markets.  The lessons of 2008 have been completely ignored and the global banks are more concentrated today than in 2008 and they have assumed even more risk.

For the record my past employers included Lehman Brothers, AIG and..... yep, Deutsche Bank.  I'm going for the global financial crisis catalyst trifecta :)


PS - remember 1810-1815 on the S&P 500 (currently 1880).  If we were to close below those levels the computers will likely go haywire trying to find a new bottom and it could be significantly lower (note, I'm not a technical analyst and I think that technicians are more closely related to numerologists than analysts, but the markets are ruled by the charts right now).