Every now and then it is healthy to reconsider what ones thought were in the past. What did one think about the markets, why, what was the strategy etc? With SPX reaching some rather “extreme” levels very fast, we feel our short term targets have been reached. Before proceeding, consider what you said, only two months ago. Below post from June on why the TOP was in. Back then it felt “wrong”, today it feels very right. Time to reconsider where the future is….and don’t forget who stuffed the market at the very TOP.

From 1st of June,

So we have a RISK OFFFF day today. After the wax on wax off market for the past weeks, we think the top is in. After trying to rally yesterday, everything reversed big time today. The set up is perfect. Like we wrote earlier this week, sentiment indicators are suggesting the top is in http://www.thetrader.se/2011/05/30/sentiment-indicators-suggesting-the-top-is-in/.

We have had people puke vol, and today they are chasing it. They still don’t want to understand Taleb’s words of wisdom, “don’t buy vol when you have to, buy when you can”.http://www.thetrader.se/2011/05/31/volatility/

As we laid out earlier this week, the market had reached important resistance levels, and failed to go above these levels. Instead we are getting big reversal wih decent volume on the down move. http://www.thetrader.se/2011/05/31/spx-and-dax-the-greek-winner-charts/

The speculator longs puked out their Euros at lows, and even went short, watched it go up, as suddenly Germany was Greece’s friends, and all was happy again, just to see it top out again. Specs have caught the currency moves totally wrong, and all moves have been going against the crowd. http://www.thetrader.se/2011/05/31/currency-moves/

We got the risk commodities pushing higher, just to get people to rush in again. With Silver reversing today, expect new big moves washing out these new longs.

Early this week, NYSE announced it’s margins. We are now at very high margin levels, meaning people are now more than fully invested. That capital on the sideline, is not there. It is looking for the exit.

All in all, it is a very nice set up, for a Flash Crash, just to clean out the system.

Only a few weeks ago, people were buying anything in order to achieve returns. Now the tide has turned, and some are now willing to pay the banks to hold their cash. It is interesting times out there. WSJ reports,

BNY Mellon said that it will charge 0.13% plus an additional fee if the one-month Treasury yield dips below zero on depositors that have accounts with an average monthly balance of $50 million “per client relationship,” according to a letter reviewed by The Wall Street Journal. The charges will take effect on accounts held on Aug. 8, and will be charged in the subsequent billing cycle.

“In the past month, we have seen a growing level of deposits on our balance sheet from clients seeking a safe-haven in light of the global interest rate and credit environment,” the bank said Thursday in an emailed statement. “We have notified certain clients with extraordinarily high deposit levels that we will begin implementing a 13 basis point fee on the excess deposits. Clients who maintain routine deposit levels will not be affected.”

Full article, click here.

Yes, the Panic is in. Many Markets have already experienced a Crash. Eurozone burning, the US having it’s problems, Fukushima leaking again, and the World feels like there is no tomorrow. Selling aggressively into the already unfolded Panic, is probably a bit too late. Majority of markets are trading well below 200 day averages, and the strong support levels. Despite that, Nasdaq is on support levels, the Dax showing similar pattern as earlier this year. Maybe the brave and stupid are to buy this, but the other side is discounting a total collapse of the system. Some charts below, Spx, NDX and the Dax.

With the Market in total panic, and the Algo Maniacs in charge, please refresh our posts from two weeks ago. With a total lack of liquidity, nobody is able to hedge, nor price risk in a normal fashion. The end product left, is the HFT Algos dominating all trades, while the Market implodes. Welcome to the Star Wars of Trading. Below GM Trades during last year’s Flash Crash, everybody forgot about as Ben was buying SPX futures.

Please also check out the post about Market Resonance. It seems we are in the middle of it….

Guest Post from Macro Story,

Using the Treasury TIPS (Treasury Inflation Protected Securities) one can determine inflation expectation simply by subtracting the treasury yield for the same maturity. As an example.

10 Year TIPS currently yields 0.29% (inflation adjusted yield)

10 Year Treasury currently yields 2.66% (non inflation adjusted yield)

The difference of the two is the inflation expectation over 10 years in this example 2.37%

Who cares and what does this have to do with QE3? The Fed has made it very clear a deflationary environment scares the hell out of them.  Any threat of deflation and the Fed will flood the market with liquidity in an attempt to cause inflation. Sure there are benefits in their eyes of higher stock prices but to simply think if the SPX hits a certain level QE3 will be enacted is naive group think.

Below is a chart of inflation expectations over the past few years.

Notice the trend going into the announcement of QE2. Clearly inflation expectations across the entire treasury curve were moving below the Fed’s target of 1-2%.

QE2 was successful in rising inflation expectations as indicated by the sharp move higher once the program commenced.

Today look where inflation expectations stand, well above the levels of last summer. Should the economy soften further, demand will fall and so will the threat of inflation so QE3 is still quite possible but as of today I would not expect an announcement at Jackson Hole this month other than a reference that if inflation expectations fall that the Fed will begin another program.

From Gold Core,

Gold has surged nearly 4% in Japanese yen this morning as the BOJ entered currency markets overnight selling yen thereby depreciating their currency against the dollar and other fiat currencies.

Gold is higher against all currencies and is trading at USD 1,663.50, EUR 1,168.20, GBP 1,018.30, CHF 1,291.00 per ounce and 133,000.00 JPY per ounce. Gold’s London AM fix was USD 1664.25/oz, EUR 1170.61/oz, GBP 1,018.20/oz. Gold reached new record nominal highs in majors yesterday and remains close to these record highs today.

Cross Currency Rates

Japan has followed Switzerland in attempting to stem the rise of their currencies by selling 1 trillion yen in markets, pledging to inject 10 trillion yen ($126 billion) into the economy and the BOJ increased their asset buying programme to 15 trillion yen.

This has led to weakness in the yen but the sharp falls seen in currency markets may also be due to concerns about Japan’s economy and currency in the aftermath of the natural disasters and manmade nuclear disaster. Should the US and global economy enter recession, export led Japan is now very vulnerable.

The Japanese yen is no longer a safe haven and this will clearly be seen in the coming months. It can also be seen in the yen’s gradual decline against gold since 2000 (see chart). This gradual decline appears to on the verge of speeding up.

Gold in Japanese Yen – 2 Days (Tick)

Yesterday Switzerland unexpectedly cut official interest rates by 50 basis points to a target range of 0-0.25 per cent and announced money market measures such as purchasing outstanding SNB bills.

Brazil’s Finance Minister Mantega said last November that his nation’s currency, the real, was trading at a reasonable level and announced a “temporary truce” to a global currency war.

Gold in Japanese Yen – 30 Days (Tick)

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Markets trading rather nervously again. Both the Dax and the Stoxx are testing/breaching intraday support levels. One of our biggest risk measures, the Swedish OMX, is turning into red, after having underperformed the broader market. Another day of greed and fear, with great volatility and no liquidity. Below, Dax, Stoxx and OMX.

From Sprott Asset Management;

We still don’t know if a financial collapse can be averted in Europe because investors and depositors are not all naïve to reality. The financial malfunction is ongoing and will not be prevented through these continual perverse financial machinations. If Eurozone depositors move their capital – more bailouts will be required, thereby increasing the sovereign debt levels and exacerbating the seemingly hopeless situation that much more.

As the questionnaire above suggests, we believe a growing number of European depositors are transferring their money out of EU banks, and many of them are reinvesting their capital into gold and silver for safety. It does not surprise us to see gold hitting all-time highs in euros and dollars. It’s worthwhile to acknowledge that those investors in Iceland and Ireland who had the foresight to convert their cash to gold before their countries’ respective bank runs have all fared extremely well in both nominal and real terms. We believe that gold and silver are the ultimate alternative for a chequing account in a vulnerable banking jurisdiction, and whether the ECB prints more euros or eventually defaults, both outcomes will continue to support a robust demand for precious metals as an alternative currency.

Full report, click here.

JAPAN MOF: NO COMMENT ON FOREX INTERVENTION