Draghi’s Bazooka Blows Up
Equities start the day lower as Draghi’s Bazooka blows up. Super Mario cut their deposit rate by 10 bps, kept the volume of monthly QE purchases the same, and extended the program by 6 months but I guess the market was expecting him to buy Dax futures because it puked almost immediately. You know it’s rare to see someone like Draghi or Yellen whip out some kind of stimulus and have the market sell off on the news. I guess we truly are at the point where people expect “extraordinary measures” to include stuff like “I’m gonna hand out money to anyone who asks for it” or “if your debt is CCC rated and trading for .50 on the dollar I’ll buy it”. Bunch of spoiled brats up in this piece, my God. Yellen spoke yesterday (and today) and all but affirmed that a hike is on deck. Does tomorrow’s NFP report matter at all? No. Here let me repeat that….No. It would have to be -500,000 followed by a press release from Tim Cook saying “Apple is laying off half of Silicon Valley” and THEN they might consider changing their minds. It’s done. Done. Accept it. If the Fed doesn’t raise rates on Dec 16 I’ll eat a Ghost Pepper on Camera and post it as the final video. So why did the market fall 1% on Wednesday? Because it was up 1% on Tuesday. I kid you not this is the most schizophrenic market I’ve seen since 2011 (remember that whole “Italy is going bust” thing?). No one knows how to embrace this rate hike, heck I bet 50% of us have never even SEEN a rate hike, so expect whippy price action until Dec 31. Crazy my friends, as crazy as this (honestly, what did they expect to happen there? Come on hipsters, go kayak in a fountain or something).
After the open we could best describe price action with this picture. Nothing but wailing and gnashing of teeth over the ECB’s failure to provide a nuclear explosion of stimulus. I don’t know, I guess I’m tired of seeing markets rise and fall based on esoteric feelings around Central Bankers. I can’t wait to move on from this era if that ever happens. Let’s do a quick macro summary of the day: 1) bonds destroyed (10yr yield largest single day move since 2013) 2) credit wider 3) dollar destroyed 4) stocks blasted 5) oil higher and 6) a rate hike all but accepted (have you ever seen a chart of the wu-xia shadow fed funds rate? Well now you have, and it’s positive for the first time since the crisis). Just your typical day in December when most people want to shop on AMZN and find addresses for that one person your wife won’t stop bugging you about for that stupid Christmas card that you don’t care about wait where was I going here? The intraday chart of the S&P looked like cranberry sales and by lunch we were looking at a down 1% tape. Winners were AVGO, KR, BRCM, NEM, DG, and GMCR. Losers SWN, URBN, PVH, VRTX, and CHK. Remember when that Mclendon guy borrowed a bunch of money against CHK shares and bought art and gave onsite Botox treatments to Chesapeake employees? We might need to put “if CEO goes insanely levered against his own stock to buy random stuff it might be time to worry” in the trader handbook.
The rest of the day was the same…down and to the right. We managed to close off the lows but not by much. 2,049, down 1.4%. You know what? I find it hard to believe that Draghi could crush the US stock market for 1.5% but I guess that’s what we’re going with. Actually let’s spin this wheel to see why the market was down today. “Someone had the number”?? Good enough. Maybe too many people are lined up for this Santa Claus rally and the market wants to punish them for being early? Yes? Is that possible? 2,055 is flat on the year, maybe it wants to hang around here until Yellen has her day. I still think we close around 2,100 because that’s where we’ve been drawn to all year. Did we see a policy mistake today? The first from any major central bank? Possible, but it would take forever and a day to find out so let’s not jump to that conclusion yet. We’re down 50 S&P points in two sessions, I’m betting tomorrow will be higher.
Final Score: Dow -142bps, S&P500 -144bps, Nasdaq -167bps, Rus2k -177bps
- Succinct Summation of the Day’s Events: Apparently everyone is mad at some poor Italian who is doing his best to keep the Euro Zone from crumbling.
- 5 Main takeaways from Draghi’s announcement
- The 25 Worst Mistakes in Human History. How is Star Wars Episode 1 not on here? Or Paul McCartney’s stupid Christmas song?
- Credit still worries me: Standard & Poor’s “distress ratio” for bonds, which started rising a year ago, reached 20.1% by the end of November, up from 19.1% in October. It was its worst level since September 2009. This is what the end of the Great Credit Bubble looks like. It is unraveling at the bottom. The unraveling will spread from there, as it always does when the credit cycle ends. Investors who’d been desperately chasing yield, thinking the Fed had abolished all risks, dove into risky bonds with ludicrously low yields. Now they’re getting bloodied even though the fed funds rate is still at zero!
- I don’t normally get fashion but this one I do!
- Dear wife: found my stocking!
- Honestly….what are these guys doing? Like I get that a home needs wood for winter but this much?
- CS is beared up: "We reduce our weighting in equities to a small overweight, our most bearish strategic stance on the asset class in seven years," Credit Suisse analysts, led by Andrew Garthwaite, said in their 2016 global equity strategy outlook published today.
- I never was a bond guy….*cries* One former bank-trading executive recalled fondly the exhilaration—and the money—that coursed through Wall Street’s bond desks in the years before the financial crisis. For more than 20 years, beginning in the mid-1980s—when many of today’s senior Wall Street executives began their careers—the debt-trading desks churned out one new financial product after another. “It was,” he said, “the next best thing to getting paid to be an athlete.”
- Ok readers, what’s the worst recipe on here? I say #10
We’ll end tonight with a guy falling off a really high rock. While climbing it….
Have a good night.