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08Feb2018 Market Close: Wall Street Swoons 1,033 Points As Sell-off Deepens, Economic Backdrop Too Bond-unfriendly, WTI Crude Dips Further Into The 60 Handle, VIX Higher

Written by Gary

US stocks waterfall in another wild trading session (SPY -3.8%) as the DOW plunges into correction territory. A rise in bond yields and higher inflation continues to unnerve investors.

Todays S&P 500 Chart

The Market in Perspective

Here are the headlines moving the markets.

Wall Street swoons again as sell-off deepens

NEW YORK (Reuters) - U.S. stocks tumbled anew on Thursday in another trading session with big swings, as investors remained on edge after several days of volatile trading.

U.S. jobless claims drop to near 45-year low

WASHINGTON (Reuters) - The number of Americans filing for unemployment benefits unexpectedly fell last week, dropping to its lowest level in nearly 45 years as the labor market tightened further, bolstering expectations of faster wage growth this year.

Twitter surprises with revenue turnaround, shares surge

(Reuters) - Twitter Inc on Thursday delivered its first quarterly profit and an unexpected return to revenue growth helped by expansion outside the United States, pushing shares in the social network to more than two-year highs.

Walmart makes push to sell online goods at $10 and up to capture elusive e-commerce profit

(Reuters) - Walmart Inc is asking vendors to supply it with more merchandise priced at $10 and up, as part of a major push to finally turn a profit at its online business, according to four people with knowledge of the matter.

U.S. senators ask consumer watchdog head for details on Equifax probe

WASHINGTON (Reuters) - A group of 31 U.S. senators said on Thursday they had written to the leadership of the Consumer Financial Protection Bureau (CFPB) demanding information on the consumer watchdog's stalled probe into credit reporting agency Equifax Inc's massive data breach.

Trump offshore oil drilling plan draws protest in California

SACRAMENTO, Calif. (Reuters) - Environmental activists in California on Thursday plan to protest a Trump Administration proposal to vastly increase offshore oil drilling in the United States.

Uber board got assurances on diligence ahead of self-driving deal: investor

SAN FRANCISCO (Reuters) - A key Uber investor testified on Thursday that the company's board received assurances that due diligence had turned up no problems with a self-driving car startup which Uber acquired, differing from testimony by Uber's former chief executive.

U.S. airlines cut involuntary passenger bumping to lowest rate on record

NEW YORK (Reuters) - U.S. airlines reduced the number of passengers involuntarily bumped from their seats on crowded planes to the lowest number on record in 2017, the U.S. Department of Transportation said on Thursday.

China's HNA to sell U.S. properties worth $4 billion: Bloomberg

(Reuters) - China's aviation-to-financial services conglomerate HNA Group Co [HNAIRC.UL] is putting up for sale commercial properties worth $4 billion in New York, Chicago, San Francisco and Minneapolis, in efforts to avert a liquidity crunch, Bloomberg reported.

Trump Bump... Or Trump Dump?

Responsible? Or, irresponsible?


What's Behind The Chaos In The Last Minutes Of Trading: Goldman Explains

Yesterday we presented a must-read, if somewhat misleading, Q&A from Goldman's head quant to the bank's clients explaining the trading dynamics of ETPs in general, and whether clients have to be worried about another imminent volatility spike and selloff in particular (in response to which Goldman said no, which in light of today's events may not have been the best advice).

And while we urge readers - especially those who are unfamiliar with the vol products and ETFs - to read the entire article, one particular section is critical, as it explains not only the bizarre marketwide meltups we have observed every day for years, but also why - on some days like Monday - the last minutes of trading are nothing short of total chaos.

Here is Goldman responding to "Why do issuers of VIX ETP have to trade near the 4:15 futures market close?"

The indices behind the VIX ETPs are based on one-day changes in VIX futures levels, measured by their 4:15 PM NY time prices. Every day, an ETP's NAV change is a weighted average of the one-day returns of two VIX futures, but those weights change every day. It is only at the close of each trading day that the next day's weights are fully known, because the total dollar amount of futures involved needs to be exactly the right leverage times the price of the product. This process becomes a feedback loop because each ETP's closing NAV is an input to the size of its position the next trading day. As we approach the close every day, an ETP issuer shifts its portfolio to the next day's position so it can correctly replicate the next day's return.

While this is hardly rocket science, it should be clear that any time you see the words "a process becomes a feedb ...

"Kill The Quants..." Before They Kill You

Authored by Doug Kass via,

* Friday was likely the day the short volatility trade died

* A massive regulatory overhaul is needed to counter the destabilizing influence of strategies and exchange traded products that have overwhelmed our markets

For years I have warned about the explosion in popularity (and listings) of ETFs (which now outnumber the number of publicly traded companies) and ETNs - in an oft repeated column entitled..."Kill The Quants Before They Kill Our Markets."

In pointing out the risks of the "new" versions of strategies purporting to be able to control risk (on the fly) — mine was a voice in the wilderness, ignored by the majority of market participants who were enjoying the bullish fruits and impact of these newfangled strategies.

Indeed it took a bit over six years for XIV (an inverse VIX product, its VIX spelled backwards!) to rise from $10 to $144 but only one day for the product's price to implode to $0. As blogger Quoth The Raven tweeted this morning: "Six years of picking up pennies in front of a bulldozer wiped away in one session."

Nomura's Charles McEl ...

Inflation Alert: The Velocity Of Money Has Finally Bottomed

Forget the Trump tax cuts, the Senate budget deal, the Fed's Quantitative Tightening and the collapse in foreign buying of US Treasuries: after years of dormancy, the biggest catalyst for a sharp inflationary spike has finally emerged, and it is none of the above. Behold: the velocity of money.

Over the past decade we have shown this chart on numerous occasions and usually in the context of failed Fed policy. After all, based on the fundamental MV = PQ equation, it is virtually impossible to generate inflation (P) as long as the velocity of money (V) is declining.

None other than the St. Louis Fed discussed this in a report back in 2014:

Based on this equation, holding the money velocity constant, if the money supply (M) increases at a faster rate than real economic output (Q), the price level (P) must increase to make up the difference. According to this view, inflation in the U.S. should have been about 31 percent per year between 2008 and 2013, when the money supply grew at an average pace of 33 percent per year and output grew at an average pace just below 2 percent. Why, then, has inflation remained persi ...

What Tech Giant SoftBank Wants With Boring Old Reinsurer

The idea of a Japanese tech company spending $10 billion on a stake in a reinsurer sounds crazy, but when you think about Softbank's pursuit of Swiss Re, it starts to make frighteningly good sense.

Stocks Changed, but Bonds Still Sound the Same

Trouble for stocks has often been a boon to bonds in recent years. But recent turmoil seems unlikely to have the same outcome. The economic backdrop is simply too bond-unfriendly.

No-Wynn Situation Looks a No-Win for Investors

For the moment, investors seem to be hoping things will soon go back to normal at Wynn Resorts following Steve Wynn's departure as chief executive. But many uncertainties remain.

While people freak out about the stock market, at least Mark Zuckerberg is happy

There's been a steady stream of studies criticizing the biggest social network on the planet.

FireEye earnings show first quarterly profit, stock jumps more than 12%

FireEye Inc. finished off 2017 by hitting all of its financial goals for the year and beating quarterly expectations, according to fourth-quarter results released Thursday that sent shares more than 12% higher in late trading.

The New York Post: Talk of Trump military parade is a conversation that needs to be stopped: SEAL Team Six hero

Former SEAL Robert O'Neill killed Osama bin Laden is a political conservative and opposes Trump military-parade pitch as Third World-style "bulls—t."

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