26Aug2015 Market Close: Markets Skyrocketed To Close Higher, DOW Up Almost 4%, Nasdaq Up Over 4%, Volume Moderate, Expect Markets To Trade Sideways

Why This Time Could Be Different

Submitted by Lance Roberts via STA Wealth Management,

In yesterday’s post, I discussed the current correction within the context of previous “bull market” corrections. Specifically, the corrections in 1987, 1998, 2010 and 2011.

However, today, I want to look at the current correction in the context of previous starts to “bear markets” and subsequent recessions.

As I said previously, we never truly know for sure where we are within a given market cycle. This is why it is often fruitless to try and predict future outcomes as you will often be wrong more than right. However, by analyzing past market behavior we can often develop an understanding of what to expect so that appropriate, and timely, reactions can be made.

Currently, the “bulls” are “hopeful” that the worst is now behind us and that the meager rate of economic growth in the U.S. will be enough to sustain the bull market through at least the rest of this year. They could be right, particularly given support by the Federal Reserve of not hiking interest rates in September and potentially discussing more accommodative policy actions if needed. While it has certainly been beneficial over the last few years to give sway to the “bullish” view, it has historically been disastrous to become blinded by it.

As I will discuss today, from both a fundamental and technical perspective, there is mounting evidence that this correction may not be just a “bump in the bullish road,” but rather something more important. While I am not suggesting that we are about to enter into the next great “fin …

Monsanto drops pursuit of Swiss agribusiness rival Syngenta

(Reuters) – U.S. agribusiness leader Monsanto Co. on Wednesday abandoned pursuit of Swiss rival Syngenta AG , which had rejected a recently sweetened $47 billion offer.

Wall Street surges as rate hike expectations recede

(Reuters) – Wall Street rallied more than 3 percent on Wednesday afternoon as fears about China’s economy gave way to bargain hunters emboldened by expectations the U.S. Federal Reserve might not raise interest rates next month.

Presenting The Annotated Chinese Equity Bubble Timeline

To call the last three months a “rollercoaster” for Chinese equity investors would be to offer a hopelessly inadequate and comically understated assessment of what has truly been one of the most incredible examples of bubble blowing gone horribly awry in the history of speculative frenzies.

Make no mistake, the writing was on the wall all along and once it became apparent that around a third of the millions of new day traders China was minting on a weekly basis had an elementary school education or less, genuine concern turned to stunned amusement and the astonishment only grew once word got out that margin debt in China was quite literally off the charts.

In short, millions of semi-literate day traders had employed an unprecedented amount of leverage on the way to inflating a world-beating equity rally and would you believe it, not only did China not move quickly to curtail the frenzy, the PBoC actually began easing into a stock market rally for the first time in its history.

Now, as the ashes of the country’s scorched equity markets lay smoldering at the feet of the plunge protection national team which finally gave up on rescuing the market after CNY900 billion proved inadequate to arrest the slide, and on the heels of the PBoC’s latest effort to staunch the bleeding by resorting to yet more policy rate cuts, we bring you the full, annotated SHCOMP market and policy timeline courtesy of Bloomberg:

Ten automakers are sued over ‘deadly’ keyless ignitions

(Reuters) – Ten of the world’s biggest automakers were sued on Wednesday by U.S. consumers who claim they concealed the risks of carbon monoxide poisoning in more than 5 million vehicles equipped with keyless ignitions, leading to 13 deaths.

Bill Gross Asks The $64 Trillion Question: Is China Dumping Treasurys?

For months, we’ve been at pains to explain to anyone and everyone listening that China is dumping US paper at a record pace.

As we detailed on Tuesday evening, the new FX regime (i.e. the system in place since the dramatic August 11 yuan devaluation) is costing China dearly in terms of FX reserves.

The reason: the new, more “market-based” regime is ironically requiring more intervention than the previous system and this has led directly to the liquidation of more than $100 billion in USTs in the past two weeks alone (by SocGen’s math), which means that incredibly, Beijing has sold more US paper in the past two weeks than it had previously sold all year!

And as SocGen, and now Zero Hedge readers, are acutely aware, this will only continue, as a stable currency requires either “complete FX flexibility or zero FX flexibility” and because China is stuck somewhere in between, the UST firesale is set to continue unabated.

Now, the world has awoken, and indeed Bill Gross is out asking the $64 trillion question:

Gross: China selling long Treasuries ????

— Janus Capital (@JanusCapital) August 26, 2015

Global stock markets diverge, commodities fall as China jitters persist

NEW YORK (Reuters) – Wall Street advanced on Wednesday while European shares and commodities fell as investors balanced strong U.S. economic data and policy comments with fears about China’s slowing economy.

…And It’s Gone!

Damn It Janet!

Source: @NorthmanTrader

Virgina Killer Sent “Suicide Note” To ABC, Says Massacre Is “Race War” In Reaction To Charleston Shooting

In the aftermath of today’s latest tragic shooting of two Virginia reporters which was both caught live on tape the deceased cameraman’s tape, and in a video clip uploaded by the alleged shooter who has since also passed away, the question asked by everyone is why did what he did. We now have the answer.

According to ABC, a man claiming to be Bryce Williams called the news tation over the last few weeks, saying he wanted to pitch a story, and wanted to fax information. He never told ABC News what the story was. This morning, a fax was in the machine (time stamped 8:26 a.m.) almost two hours after the shooting.

A little after 10 a.m., he called again, and introduced himself as Bryce, but also said his legal name was Vester Lee Flanagan, and that he shot two people this morning. While on the phone, he said authorities are “after me,” and “all over the place.” He hung up. ABC News contacted the authorities immediately and provided them with the fax.

In the 23-page document faxed to ABC News, the writer says “MY NAME IS BRYCE WILLIAMS” and his legal name is Vester Lee Flanagan II” He writes what triggered today’s carnage was his reaction to the racism of the Charleston church shooting:

“Why did I do it? I put down a deposit for a gun on 6/19/15. The Church shooting in Charleston happened on 6/17/15…”

“What sent me over the top was the church shooting. And my hollow point bullets have the victims’ initials on them.”

Was Monday’s ETF Collapse Just A Warmup?

Back in March, Howard Marks offered the following rather straight-forward assessment of exchange traded funds: “The ETF can’t be more liquid than the underlying, and we know the underlying can become highly illiquid.”

That’s a warning that almost no one seemed to understand.

Well, that’s not entirely true.

Some ETF providers clearly understood because, as we noted with some alarm in May, Vanguard, Guggenheim, and others are quietly lining up billions in emergency liquidity that can be tapped in the event IG and HY bond fund flows suddenly become very non-diversifiable (aka unidirectional, aka everyone is getting the hell out in a hurry).

The problem, without subjecting readers to the entire backstory (which you can read here), is that thanks to lawmakers’ futile attempt to root out prop trading, dealers aren’t willing to hold any inventory anymore and so secondary market depth in corporate credit has collapsed, meaning the potential exists for large trades in the underlying to cause severe price distortions.

But while everyone focused squarely on corporate bonds funds and the potential for ETFs to exacerbate the problem by giving retail investors the illusion of liquidity when in fact, the underlying is extremely illiquid, not many people seemed to be aware that the very same thing could happen to equity ETFs should liquidity dry up in the underlying stocks.

Two points on this, i) Howard Marks’ assessment applies equally to equity …

Bill Gross’s Janus bond fund drops second consecutive day

NEW YORK (Reuters) – Bill Gross’s Janus Global Unconstrained Bond Fund suffered its second day of declines in its net asset value on Tuesday, wiping out gains for the year, according to fund-research firm Morningstar Inc on Wednesday.

China Stunner: Real GDP Is Now A Negative -1.1%, Evercore ISI Calculates

With Chinese data now an official farce even among Wall Street economists, tenured academics, and all others whose job obligation it is to accept and never question the lies they are fed, the biggest question over the past year has been just what is China’s real, and rapidly slowing, GDP – which alongside the Fed, is the primary catalyst of the global risk shakeout experienced in recent weeks.

One thing that everyone knows and can agree on, is that it is not the official 7% number, or whatever goalseeked fabrication the communist party tries to push to a world that has realized China can’t even manipulate its stock market higher, let alone its economy.

But what is it? Over the past few months we have shown various unpleasant estimates, the lowest of which was 1.6% back in April.

Today we got the worst one yet, courtesy of Evercore ISI, which using its own GDP equivalent index – the Synthetic Growth Index (SGI) – gets a vastly different result from the official one, namely Chinese growth of -1.1% annually. Or rather, contraction.

To wit, from Evercore:

Our proprietary Synthetic Growth Index (SG!) fell 1.1% mim in July, and was also down 1.1% y/y. No wonderglobal commodities are so weak. The most recent 18 months have been much weakerthan the 2011-13 period. Even if we adjust our SG I upward (for too-little representation of Services — lack of data), we believe actual economic growth in China is far below the official 7.0% yly. And, it is not improving, Most worrisome to us; the ‘equipment’ portion of Plant & Equipment spending is very weak, a bad sign for any company or country. Expect more monetary and fiscal steps to lift growth.

And here is why the world is in bi …

Market turmoil makes September rate hike ‘less compelling’: Fed’s Dudley

NEW YORK (Reuters) – An interest rate hike next month seems less appropriate given the threat posed to the U.S. economy by recent global market turmoil, an influential Federal Reserve official said on Wednesday.

Something Is Very Wrong At Mexico’s Largest Construction Company…

Let’s say, for argument’s sake, that you’re a big company in an emerging market and suddenly, a commodities crash for the ages and a “surprise” devaluation by the world’s engine for global growth and trade sends your country’s currency into a veritable tailspin.

If that were the case, just about the worst possible situation you could find yourself in would go something like this (adapted from Bloomberg): “Eighty-five percent of [your] backlog is denominated in the [home currency], which plunged to a record low this week [and] almost half of [your] debt is in foreign currencies, mostly dollars.”

Well, that’s precisely what the situation looks like for Mexico’s largest construction company Empresas ICA SAB which spooked bond investors earlier this month by selling a key 3% stake in an airport operator for $56 million in order to pay down debt.

That has sparked liquidity worries and as you can see from the following, investors are slightly concerned.

As Bloomberg notes, this is the “hardest hit …

July 2015 Coincident Indicator Trends Show Slowing Rate of Year-over-Year Growth

The year-over-year rate of growth of the US Coincident Index again declined marginally. A comparison of US Coincident Index, Aruoba-Diebold-Scotti business conditions index, Conference Board’s Coincident Index, ECRI’s USCI (U.S. Coincident Index), and Chicago Fed National Activity Index (CFNAI) coincident indicators follows. In general, most coincident indices are showing constant to declining rate of growth.

FX pegs under pressure in emerging markets as commodity prices fall

LONDON (Reuters) – Plunging commodity prices are testing the viability of emerging currencies’ long-standing pegs to the dollar, with some already abandoned as countries balk at the cost of clinging to fixed exchange rates.