Essential Charts and Market Update
Yesterday we saw a real short capitulation move. It took the market almost 50 days to fall from 1290 to 1090, and only 18 days to go from 1090 to 1290. That is a cruel squeeze, with many “smart” shorts getting absolutely killed yesterday. The vol collapse according to us is wrong. The moves up have been way too strong, for people to be selling vol in panic. Many short gamma players got hurt more during the past session, than on the way down. Market is driven by greed and fear, and all moves are magnified by HFT Algos, making it impossible for big players to trade risk efficiently. Below are our chart expectations and levels to look out for.
08/11 comparison. Yes the market was pushed above the 200 day moving average yesterday, but we want to see more stability before giving this signal the appropriate attention. Note how we actually never closed above the 200 day in 08, but the similarities are still there. The situation is not identical, but there are similarities, and the coming days will be crucial in deciding if this was the shake out of shorts marking the short term top.
What caused the Crisis-Taylor
Good reading by John Taylor during this non action US Trading session.
How should the introductory economics text change in response the financial crisis, the recession and the very slow recovery?
The answer to the question depends a lot on what you think caused the crisis. If you think that it shows our economic theory—especially our macroeconomic theory—was wrong, and thereby gave the wrong policy prescriptions, then you have to think about massive changes. If you think the crisis shows that our economics was basically correct and that policy deviated from the recommendation of the theory, then you want to revise the text differently, and show with example after example how this happened. It is a unique teaching moment.
Language Arbitrage
“Customers” that accepted ISDA documentation when buying credit default protection on Greece are now discovering that ISDA defends the position that a 50% discount on Greek debt is “voluntary” and therefore not a credit event for credit default swap payment purposes according to its documents. This makes the ISDA “standard” credit default swap (CDS) ineffective as a hedge for the widened spreads (reduced price) of Greek debt, and it makes it ineffective as a protection against default using reasonable standards of impairment to define default. ISDA can defend ambiguous definitions so that payment on the credit default swap is virtually impossible. (Tavakoli)
Further Credit reading Greek CDS.
Spain Pain
Spain hitting new record levels. Almost 5 million people without jobs. Chart that needs to explanation. Espana, everything under the Sun, and mind you, winter is approaching.
Full article for out Spanish readers, here.
Cracks Beginning to Appear?
Guest Post by Macro Story.
In two previous posts (Europe Behind The Scenes Part 1 and Part 2 found here) I discussed that behind the scenes financial markets and thus the global economy was experiencing stress. On the surface the iceberg may not be much of a concern but below it is often formidable.
A few developments this evening point towards the first real stresses beyond the control of the current EFSF “plan” including the plan itself.
“Grecian Vortex”
From the Telegraph.
“Portugal appears to have entered a Grecian vortex and monetary trends have deteriorated sharply in Spain, with a decline of 8.4pc,” said Simon Ward, from Henderson Global Investors. Mr Ward said the ECB must cut interest rates “immediately” and launch a full-scale blitz of quantitative easing of up to 10pc of eurozone GDP.
Full article here.
Remember Spain and Italy?-they still have some minor problems
Spain reporting unemployment rate of 21.5 %, a 15 year highs. When unemployment gets to those levels, things become unmanageable.
Italy has neither changed, despite the furious market bounce we have seen over the past days. Just a reminder chart below. Wonder what haircuts China would be willing to bail out in Italy?
News That Matters
Ft.com
Cognetas is risking a clash with its investors after the European mid-market private equity group proposed a more generous performance fee for its ailing second fund, the FT reports. At least one large investor is already rebelling against a plan to link the management’s performance fee to gains on the portfolio’s depressed net asset value at the end of June, http://ftalphaville.ft.com/thecut/2011/10/28/714861/cognetas-angers-investors-with-fee-plan/
Samsung Electronics surpassed Apple as the world’s top smartphone maker in the third quarter, Reuters reports, as the company announceda record profit from handset sales in the third quarter on Friday, with more than 40 per cent shipment growth. Samsung, http://ftalphaville.ft.com/thecut/2011/10/28/714736/samsung-take-smartphone-crown-in-q3/
Companies round the world rushed to sell bonds on Thursday after a eurozone deal to tackle the region’s sovereign debt crisis sparked a rally, writes the FT. In the US, IBM, BP and Verizon were among the issuers that sold more than $12bn of debt in what was one of the busiest days for investment-grade issuance this year, http://ftalphaville.ft.com/thecut/2011/10/28/714731/market-bouyancy-prompts-rush-of-debt-issuance/
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