Dow Slumps Most In 3 Weeks On Heaviest Volume In Over 2 Years; Erases All Fed Gains
Trannies didn't move much today but the Dow tumbled notably - its biggest drop in over 3 weeks - and erased all of the post-FOMC gains. The S&P and NASDAQ also fell but remain up from the FOMC. Only Healthcare, Discretionary, and Builders remain positive post-Fed as Financials and the rest have given all their gains back - on the heaviest volume quad-witching day of the year. While arguing whether today's equity weakness was Bullard/George chatter reigniting Taper fears, bonds acted in their old normal way - and rallied modestly as stocks dumped ( with yields down 2-3bps). Gold and Silver were slammed lower on the day (ending unch and -2% on the week). The USD lost 1.35% on the week with JPY unch and EUR +1.7%. AAPL tumbled into the close on the rebalancing.
Gold has retraced around 70% of the FOMC move...
and stocks have lost a lot (with the Dow now red)...
and sectors showed notable weakness on the day...
Treasuries are holding gains to a better extent than stocks and bonds for now...
Volume was the highest in over 2 years...
The last few days have been very interesting in hedging land... traders grabbed protection into the FOMC statement - were caught and covered and once yesterday cleaered itself out, we suspect - looking at the charts - that investors unwound their underlying risk (recued equity exposure) and unwound their protection (the blue region below)... once that flow had left, the weakness was the same in both vol and cash... notice they tried to ramp stocks into the close by slamming VIX again... FAIL!!!
Charts: Bloomberg
http://www.zerohedge.com/news/2013-09-20/david-stockman-warns-calamity-janet-yellen-has-no-clue
( Video at the link.... )
David Stockman Warns "'Calamity Janet' Yellen Has No Clue"
In the following 100-second clip, David Stockman explains succinctly to Bloomberg TV how America is "stumbling into the endgame." Having explained in the past, Bernanke's born-again jobs scam, Stockman is anxious as we transition from "Bubbles-Ben" to "Calamity Janet" because she has "no clue how to wean Wall Street from its pathetic addiction to easy money."
140 Years Ago Today, The Great Panic Of 1873 Led To The First Market Closure
- Art Cashin
- Bond
- Deficit Spending
- Don't Panic
- Lehman
- New York Stock Exchange
- Sovereign Debt
- Volatility
With enough real and electronic ink spilled over the past two weeks to describe every nuance of the Lehman crisis (as if anyone can ever forget those vivid days) that nearly 3 months worth of Treasury issuance could be monetized, we decided to go further back, some 140 years back in fact, to this day in 1873 which just happens to be day the first Great market Panic gripped the US, and resulted in the first ever shutdown of the New York Stock Exchange. Granted, these days the NYSE or N-ICE as it is currently known, and the NASDARK shut down on a daily basis courtesy of a billion collocated vacuum tubes and the rigged casino formerly known as the stock market, on a virtually daily basis. But back then, when the general population was still largely clueless just how broken and corrupt the ideal of market efficiency would become when commingled with political and corporate interests, it was quite a shock.
Here is Art Cashin with the full details.
On this day in 1873, the New York Stock Exchange set a record, although it was one they would be ambivalent about for the next 140 years, Founded in 1792, the Exchange had survived early volatility (1794), a challenge from competitors (1802), a merger and a new name (1825), a punishing diet (records indicate that, circa 1810, lunch was a double jigger of dark rum and a wedge of dried codfish.....please note....we no longer serve codfish).
But on Saturday, September 20, 1873, for the first time in its history, the NYSE closed in response to a panic. (The word circuit breaker had not been invented yet....er.....neither had circuits.)
A week or more before, one of the most renowned firms in American finance and especially U.S. Treasury auctions came under a cloud of suspicion. The firm was Jay Cooke & Company. And, on most continents it was seen as a key player. After all, its aggressive style had made it the key underwriter for the billions of Treasury bonds issued during and after the Civil War. (Contemporary competitors had shied back fearing that deficit spending had gotten out of control.)
Anyway, the concern about in this key brokerage firm only confused the market at first. But as this day approached, there were hints that the problems would spread to other brokers. On the 18th, liquidation of equities showed up at the "first call."
For most of its first century of existence the NYSE was a “call market”. The chairman, or other senior officer, would call out the name of one of the listed issues. Brokers who had an interest in that “issue” would arise from their “seats” and begin to bargain with any other brokers arisen from their “seats”. When transactions ended in that issue (assuming they were not all buyers), brokers returned to their “seats” and the chairman called the next issue on the roll. When the last issue was called, the session officially ended. There were two sessions each day.
If that sounds silly to you, you may not have noted the vocal handful of critics praising electronic “single priced auctions”. That’s the old call market without the “seats” and frock coats, but with plugs, servers and batteries. The more things change…..but let’s get back to our story…..
So, here they were. Rumors surfaced that, perhaps some other brokers were involved and the first call on the 18th turned soft. The second call turned soggy. Prices were down and with no on-going after market; all you could do (as the banks did) is await the next call.
The morning call on the 19th was messy and the afternoon call was just a disaster. Outside, in a heavy rain, crowds gathered on Wall Street to withdraw securities and money from brokers. By the morning of the 20th anyone who was in the phone book (if there had been one at the time) was rumored to have been impacted by the problem.
So, naturally the morning call on Saturday the 20th was a disaster. So much so that the Exchange opted to close until the crisis calmed (skipping the P.M. call).
Close they did and for a lot more than one "call." But, but perhaps because banks and investors naturally needed some means of evaluating holdings, they reopened about ten days later. However, the rumors would not go away and liquidations and defaults continued. The history books call it the Panic of 1873.
And, it put the American economy in a tailspin for years. (Nearly 10,000 businesses failed.)
To celebrate, don't panic, just go to a Pub called Cookie's and bond with someone you treasure. Tell everyone within earshot that rumors don't affect markets anymore. (Hint -Try whispering - You'll get more people to listen.)
The Anniversary of the Panic of 1873 and the fact that it was triggered by the failure of one firm, followed by a “domino effect” collapse, is not lost on traders. The chaos that followed the fall of Lehman left many deep scars that have not fully healed. And, the spectacle of European banks and governments playing “hot potato” with shaky sovereign debt, remains a cautionary memory.
There was no panic on Wall Street yesterday as the market paused to consolidate some of the recent rally.
http://www.zerohedge.com/news/2013-09-20/bullard-sees-no-asset-bubble-because-all-previous-bubbles-were-no-secret
( So , Fed heads were lying before when they said there weren't bubbles - as these things were so darn obvious now ! When things get serious , folks lie... )
Bullard Sees No Asset Bubble... Because All Previous Bubbles Were "No Secret"
In what is unbelievable hypocrisy and re-writing of history based on 20/20 hindsight, Bullard, in responding to a question on asset bubbles, explained that while all Fed members are "concerned about asset bubbles," they do not see one now. His reasoning is so cognitively dissonant as to be almost comedic:
- *BULLARD SAYS TECH BUBBLE, HOUSING BUBBLE WERE BOTH `NO SECRET'
- "Bubbles Of The Past Were Gigantic And Obvious... Not Now"
So there it is - because the St. Louis Monday-Morning-Quarterbacker can now so clearly see the previous epic bubbles (which the Fed did not see and merely pumped even higher) were obvious and one is not obvious now(unless you actually take a minute or two to consider forward earnings growth and margin expectations in light of lower deficits, unemployment, and global growth; high-yield credit spreads; primary issuance levels; and the fact that corporate leverage is at record highs).
http://www.zerohedge.com/news/2013-09-20/bullard-admits-tapering-tightening-or-stock-dead-long-live-flow-redux
( Ponzi schemes also are flow schemes... they work right up until the money stops coming in , ask Bernie Madoff , and then they don't work at all ! ) )
Bullard Admits Tapering Is Tightening, Or "Stock" Is Dead, Long Live The "Flow" - Redux
It would appear, as uncomfortable as it may be for the mainstream, that the Fed's Bullard has been reading Zero Hedge and realizes the error of his (and his academic friends') ways. In his speech today he noted: "Many of my friends in academia and in financial markets argue that changes in the pace of purchases should not have an important effect in financial markets (and hence would have no eventual effect on the real economy either). However, the empirical evidence from these two episodes provides striking confirmation that changes in the expected pace of purchases act just like conventional monetary policy." In other words,as we said when QE3 was announced, "it's the flow not the stock that matters" and implicitly - as Bullard confirms - tapering asset purchases has the same effect as hiking rates.
As we explained 15 months ago: "The Stock Is Dead, Long Live The Flow" in which we predicted QEternity three months before it was formally announced:
One way of visualizing what this means is to think of a shark which has to be constantly in motion in order to survive. Well, the allegory of Jaws can be applied to liquidity addicted capital markets. Translated simply, it means that it is irrelevant if the Fed's balance sheet is $1 million, $1 trillion or $1,000 quadrillion. A primacy of flow over stock means that UNLESS THE FED IS ACTIVELY ENGAGING IN MONETIZATION AT EVERY GIVEN MOMENT, THE IMPACT FROM EASING DIMINISHES PROGRESSIVELY, ULTIMATELY APPROACHING ZERO AND SUBSEQUENTLY BECOMING NEGATIVE!
All caps aside, what this means is simple: if it is indeed flow that matters (and it is), then Fed intervention can never stop, period. If the stock of a central banks' assets is irrelevant, the Fed can have $1 on the left side of the balance sheet or $1 quadrillion: it does not matter - if the marketexpects the Fed to stop buying assets tomorrow, then the crash is as good as here. That has precisely been the biggest flaw with the Fed-accepted stock model, per which Bernanke can buy up a few trillion in MBS and the stock market will be flat as a frozen lake. Alas, this is increasingly becoming obvious is not the case. Hence flow....For monetary theory purists this is equivalent to Martin Luther walking up to the front door of the Marriner Eccles building and nailing his 95 theses: we have now entered the era of the monetary reformation, which incidentally as more and more classical economists follow suit, will throw all of Keynesian and neo-classical economics into a tailspin where virtually every core assumption will have to be reevaluated.
The key phrase from Bullard's conclusion is:
“Financial market reaction to the June and September FOMC meetings provides sharp evidence that changes in the expected pace of asset purchases have conventional monetary policy effects.Using the pace of purchases asthe policy instrument is just aseffective as normal monetarypolicy actions would be in normaltimes”
Or - in other words:
Tapering Is Tightening
Bullard's Full Speech below:
Market Unhappy After Bullard Suggests Possible Octaper
Submitted by Tyler Durden on 09/20/2013 - 08:25
It seems just as a plethora of Fed heads had to walk back Bernanke's last press conference hawkishness, that the uber-dovishness interpreted by the market from Wednesday's FOMC is now being tapered back. Speaking on Bloomberg TV, Fed's Bullard warns an October Taper is on the cards:
- *BULLARD SAYS ECONOMY ISN'T THAT FRAGILE
- *BULLARD SAYS $10 BILLION TAPER VERSUS NO TAPER NOT `BIG THING'
- *BULLARD SAYS NO TAPER, SMALL TAPER WAS A `BORDERLINE' CALL
- *BULLARD SAYS `SMALL TAPER' POSSIBLE BY FOMC IN OCTOBER
The market (bonds, stocks, and gold) reacted accordingly and is unwinding the exuberance in a hurry. The question now, of course, is what key data is due out that will shift them off the fence. For traders, clearly good news is now very bad news - especially over the next month.
Guessing Game Resumes: Bank Of America Keeps December First Taper Target
Submitted by Tyler Durden on 09/20/2013 - 08:42
With Septeper an epic disappointment, some terms being casually thrown now include Octaper and Dectaper. But while the first is quite improbable, despite Bullard's attempt at a trial balloon floated on BBG TV moments ago, the prevailing consensus has now shifted to December. Which incidentally is when Bank of America, which was the only big/TBTF bank to correctly forecast a Snotaper announcement, has marked its calendar in expecting the first $10 billion reduction in the monthly $85 billion flow injection by the Fed. To wit: "In line with our out-of-consensus call, the Fed surprised most market participants and did not taper at their September meeting. Moreover, the FOMC statement, updated projections, and tone of Chairman Bernanke’s press conference all were dovish, as we had anticipated. Thus, our base case remains for a December taper. We now expect a modest-sized reduction of $10 bn, split evenly between MBS and Treasuries, followed by a gradual, data-dependent wind-down of purchases likely to end in October 2014. We also now expect the first rate hike in late 2015 at the earliest (previously we had looked for the first hike that summer), putting the target funds rate at 50 bp at the end of 2015 and 1.50% at the end of 2016.""Don't Taper Me, Bro" - Caterpillar Global Sales Drop At Fastest Pace Since March
Submitted by Tyler Durden on 09/20/2013 - 09:26
There was a time when the only geographic region that made up for contracting global Caterpillar sales was Latin America, which was the only silver lining amongst an otherwise dreary year-over-yearsales performance landscape. As of August, that is no longer the case, with LatAm sales for the heavy industrial equipment maker plunging from a positive 11% to -3%. This was the first Y/Y drop in LatAm sales for Cat since September of 2012, and joins virtually every other global region in posting a drop in year over year sales. It also dragged total world sales down to -10% on a year over year basis, down from -9% and -8% in July and June, and is the lowest sales "growth" since March. Just three more percentage points and Cat will have the biggest annual drop in global sales since 2010. The only good news in the report: North American sales cautiously peaked out from negative territory where they were hiding since December, and posted a measly +1% growth in August, even as every other world region was substantially in the red. The implications of this report are of course great for stocks: bad CAT, bad end demand, bad global economy, no taper, Turbo QE. Because bad news has never been gooder for theBTFATH chasers.
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