US markets closed higher after trading sideways at elevated levels all afternoon (SPY + 1.4%) on moderate volume. Investors obviously feel good about the up coming Fed rate decision in September, whatever it is. Indicators are bullish, primarily because of a reactionary movement to Friday's decline. (Predicted)
(Reuters) - U.S. stocks were heading for their strongest session since July on Monday after Federal Reserve Board Governor Lael Brainard stuck to her dovish stance on interest rates and urged caution about removing monetary stimulus too quickly.
CHICAGO (Reuters) - The Federal Reserve should avoid removing support for the U.S. economy too quickly, Fed Governor Lael Brainard said on Monday in comments that solidified the view the central bank would leave interest rates unchanged next week.
TOKYO/HONG KONG/LONDON (Reuters) - A sudden surge in government borrowing rates across the world has jarred global markets, reflecting mounting investor anxiety that central banks have run out of both tools and ideas to stimulate economies on their own.
WASHINGTON (Reuters) - The U.S. Commerce Department on Monday said it had made a preliminary finding that imports of stainless steel sheet and strip from China are being dumped in the U.S. market at below fair value.
ATLANTA (Reuters) - Current economic conditions warrant a "serious discussion" of whether to raise interest rates at next week's Fed meeting, Atlanta Federal Reserve Bank president Dennis Lockhart said on Monday in remarks that may raise the likelihood of Fed action.
NEW YORK (Reuters) - Bats Global Markets on Monday accused rival exchange operator Nasdaq Inc of attempting to boost revenues by proposing a new feed for industry data essential to U.S. stock market operations.
LONDON (Reuters) - OPEC raised its forecast of oil supplies from non-member countries in 2017 as new fields come online and U.S. shale drillers prove more resilient than expected to cheap crude, pointing to a larger surplus in the market next year.
SAN FRANCISCO (Reuters) - Samsung Electronics Co Ltd and LG Electronics were accused of agreeing to avoid poaching each other's U.S. employees, according to a U.S. civil lawsuit filed last week, in what has become a familiar allegation in Silicon Valley.
In "What Me Worry" we noted that the closely watched equity volatility index (VIX) was at a level of investor complacency rarely seen, not only in election years but over decades of market history. We also mentioned anxiety surrounding the upcoming election is palpable, and that equity valuations are at rarefied levels without supporting earnings and economic data. Given these factors we ended the article with the following:
"The market, courtesy of complacent investors, is offering very cheap insurance for an event that has the potential to induce extreme volatility via VIX options and futures. Even if the next eleven weeks leading to the election prove to be uneventful, the VIX at current levels, as shown earlier, has been a prudent place to own protection. We recommend you consider this opportunity as a protective measure".
Unfortunately, most professional investment managers are not adept and/or able to trade VIX futures, options or volatility in other forms to hedge their client's equity positions. More often than not, concerned managers will instead reduce perceived risk by selling a portion of their equity holdings and increasing cash positions and/or shifting portfolio allocations from equities to fixed income. It is in this vain that we discuss how the latter option, shifting money from equities to fixed income, has risks that were not as evident during the 2000 tech crash and the 2008 financial crisis.
Last Friday we warned that the massive ramp in PIK Toggle new issues so far in 2016 was eerily similar to a spike witnessed in 2007 which, in hindsight, was a solid indicator of the "beginning of the end" for the high-yield market. In 2007, the massive ramp in PIK Toggle new issues was driven by private equity firms rushing to take money off the table via massive, debt-funded dividend recaps. And now, 9 years later we see a similar spike in PIK Toggle issuance driven by a voracious "search for yield" by the world's largest pension funds and insurance companies.
But while the underlying cause of the two high-yield bubbles are different we fear the ultimate outcome will be the same. In fact, we're seeing the first signs that the 2016 edition of the high-yield, PIK Toggle bubble might be bursting with two new issues collapsing just 1 day after breaking for trading.
Luxembourg-based packaging company, Ardagh Group, issued 845mm of 6 5/8 PIK Toggle Notes of 2023 last week that crashed to below 96 in early trading today...
Meanwhile, German auto parts supplier, Schaeffler, issued 750mm of 3 3/4 PIK Toggle Notes of 2026 that dipped below 97 in early trading.
Back in July I wrote the following article titled "Just Keep On Dancing?" And In it I stated the following. To wit:
"If there was ever any doubt that the "markets" are nothing more than a HFT (high frequency trading) cesspool of central bank funded front-running; today is that day when all doubt has been erased.
Whether or not one accepts that fact is a choice they have to make for themselves. Only you can decide how long you want to "dance," as there seems to still be music playing in the casino ballroom."
Since then the "markets" have (reminiscent of 2015) made headlines of "new lifetime highs" screamed by financial pundits everywhere extolling the virtue of today's stock markets. Yes, every tick or move higher was praised as coming directly from the "earnings beats" produced by today's balance sheet engineers.
Who needs fundamentals (you know, like more sales and such) when you can state before the earnings season you're going to sell a gazillion dollars worth of product. Then, by the time you need to show those numbers, you have reduced it from "a gazillion" to about a dozen, where you'll now proclaim you sold 13 "beating" your now stated, although lowered, target. Yet, it still offers up the headline "beat" for the next in rotation fund managers to proclaim across their willingly and reflexively repeating media outlets.
Econintersect wants your comments,
data and opinion on the articles posted. As the internet is a
"war zone" of trolls, hackers and spammers - Econintersect must balance its
defences against ease of commenting. We have joined with Livefyre
to manage our comment streams.
To comment, using Livefyre just click the "Sign In" button at the top-left corner of
the comment box below. You can create a commenting account using your
favorite social network such as Twitter, Facebook, Google+, LinkedIn or
Open ID - or open a Livefyre account using your email address.
You can also comment using Facebook directly using he comment block below.
Econintersect Live Market
Print this page or create a PDF file of this page
The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.
Take a look at what is going on inside of Econintersect.com