Monthly Archives: August 2015

Rough Week?

Last week 362 of the S&P 500 stocks hit their downside WEEKLY targets. 5 hit the upside weekly target and 3 tagged both. The winners were: Cameron Intnl., Diamond Offshore, Zimmer Holdings, Interdigital, and AgraResources.

The new weeklies are massive and we are going to be in these patterns for a while. The dailies are littered with securities with new patterns from upside tags on Friday. Happy Hunting

Classical Monday

30 minute atr
240 minute atr
daily atr
daily pivots
weekly pivots
monthly pivots
upside retracements
downside retracements
regression channels
support and resistance
On the economic calendar:-
09:45 Chicago PMI (Consensus 54.7 v Prior 54.9)
10:30 Dallas Fed Manufacturing Survey (Consensus -2.5 v Prior -4.6)
11:00 4 Week Bill Announcement

11:30 3 Month Bill Auction
6 Month Bill Auction
15:00 Farm Prices

Merc Stories Chptr 2

The year was 1986 and about a dozen of us from the T-Bill pit had morphed over to the "new" Eurodollar pit. The Exchange had been broadcasting over the PA system and had issued buttons (The floor had a long tradition of handing out buttons for promotion) with the tag line "15 Minutes Please." The call was for members in other pits to devout 15 minutes of their time to the liquidity of this new Eurodollar product.

I came over from my position in the T-Bills spreads. I arb-ed Bills for a rapidly growing debt house named Drexel Burnham. #GIK, they'd become infamous soon. Another switcher was a young lady named Edie M. She was a bright North Sider who got a seat and bid along and offered along in 25 lots. Everyone traded 25's back then and the minimum tick was a whopping basis point, so $625.00 a tick. (I hated 25s and we tended to do round figures fwiw) Well, Edie was engaged to a young marketing guy who landed a position in the White Sox front office. The rest, as they say, is history.

So Edie arranged to have a Merc Night at Old Comiskey Park. Several hundred 20-somethings and 30+ ers grouped up for a night of baseball and camaraderie. After a few hours of tailgating, we all gathered in the outfield picnic area for more beer and food. Around the top of the second inning the mob moved to its section.

A young trader named Tony E., who roomed in college with a promising Golfer named Freddy Couples and star-eyed communications major named James Nance, hand signaled the beer vendor for roughly 48 Old Style tall boys. Some one on the end of the aisle called for 3 (or so) and Tony waved in the rest shouting "Balance!" like he was tidying up odd lot TED Spreads. A veteran trader, Doug S. and I bid up hundred dollar bills with the peanut vendor for his entire stock. Apprehensive at first, he relinquished the salty snacks under our 1 demand that we got to wear the strap. His only squeamish request was we not throw the bags. Sure buddy, we won't throw 'em. What transpired next was 2/3 Animal House food fight and 1/3 Elf snowball fight.

Traders were buying up snacks and hurling them at each other faster than vendors could supply them. Security descended on our section in double digit numbers. Edie tried and quickly aborted an effort to restore decorum. Doug and I were escorted out early on. A steady flow of traders and runners followed us into the parking lot. By the bottom of the 3rd the Merc Section was barely populated.

We all rotated up to Lincoln Park and the Four Farthings for the 4 a.m. last call. By 7 the next morning, we were all back in the Money Pits shouting at each other. They tried another Merc Night but it was heavily guarded and less attended. But we left our mark in the storied history of Old Comiskey back when what would become the biggest futures product of all time was in its infancy.

2 Views

Here's how Mark Dow and I discuss our differing views on Fed policy from a shared POV.

Here's the base question: Does the Fed look to raise rates because labor is tighter and the data is better OR for financial stability insurance?

Both Mark and I come down on the latter as the primary focus. Stan Fischer alluded to the Fed's take in a subtle dig: "We don't see evidence of it but we keep getting told it's there, so we watch for it." In other words, end users are more concerned about system stability than fed officials. GUILTY !

From a policy execution standpoint, Mark would argue that adjusting the funding corridor will "pass along" borrowing cost enough to blow the froth off spec asset appreciation while balance sheet "stealth twisting" will continue to support long end rates and the economy. Hard to find a flaw.

My view is focused on walking back the balance sheet thus ensuring that rate hikes - when used - are effective and signal an exit from QE and a return to rates targeting. (2 Sidebars- First, the Fed is opting for the former path and has stated so. Second, my disdain for rates targeting is well documented and a big reason I was a QE advocate early on) Fischer leaked an important idea in his chat with Steve Liesman: He pointed out that other CBs - the BOE in his comment - have higher funding pegs and remain in QE regimes AND highly accommodating.

This is the disingenuous core of the Fed's vocal ploy. Coupled with heavy assurance of "Just one, then a long pause," the Fed sees the rate corridor hike as optical even if practitioners, like Mark and me, see it as systemic. Rate Normalization is a euphemism for "this won't hurt a bit." Moving on rates prior to the balance sheet wreaks of "we aren't really snugging so keep on keepin' on."

A central bank only has 3 settings, easy-neutral-tight. Our stance has been the Fed is not/has not been as easy as most believe. Recent aggressive re-pricing enforces our view. That spec prices can find themselves so dislodged from the underlying truth is the seed bed of the above discussion. Is a central bank designed to harness human action? This is not about bubble popping. Are the blunt tools of monetary policy effective for the nuanced and inside baseball issues we are discussing? My answer is an obvious no.

I liken the long bond to Chauncey Gardener as depicted by Peter sellers in the movie version of Jerzy Kosinski's Being There. Director Hal Ashby added the closing scene where Chance appears to walk on water. The reason was to highlight a question, does he not fall because he is god, or because he doesn't understand gravity? Are long bonds here because they are supposed to be or because the Fed is propping them up. The only way to know is for the Fed to get out of the way.

Echo Chamber

Bullard: "Market volatility won't change our outlook."

Loretta Mester: "We are at full employment."

Kocherlakota: "We are well below our inflation target."

Kramer: "Lets see what's in Jerry's fridge."

The Fed is holding its annual August economics confab. Jackson Hole is covered by financial media like a great source of inside information but the historic reality is quite weak. Greenspan took the opportunity to confirm a policy move, once. The real Jack Hole stunner turned out to be a credit super cycle criticism by the IMF that took two more years to pan out.

https://www.imf.org/external/np/speeches/2005/082705.htm

So, the quote-fest in the mountains fills the available bandwidth with an avalanche of bon mots on the obvious. Our criticism remains aimed at the Fed mission of "openness". We believe there is a direct link between Openness and Reduced Efficacy when implementing monetary policy. A difficult to find St Louis Fed white paper confirmed our inclination with a simple rule: "Surprise and do more than expected."

We have suggested a new direction for Fed policy: ZIP it don't ZIRP it. Yesterday, Twitter began a campaign to trend #Justgoforit on raising the funds rate. I'd suggest #STFU. Janet can keep her press conferences after meetings and that's it. The Vice-chair, since madame Chair didn't even make the journey, should climb the highest peak and shout, "We're going back in our cave."

Imagine Stan Fischer announcing the Funds corridor moving up in an hour. How would things be different? What if he confirmed that no change would take place, yet? I guess things would jump around and fall and rise and hey wait a minute...that's already happening. The Fed doesn't know what to do. Thus, peeps that tell you what the Fed is going to do are making shit up.

The important decision for policy makers is not the level of wholesale funding but the calibration of accommodation or restriction. These are mutually exclusive events, no matter how many psuedo-wonks quote you the Fed Funds Futures Strip. Blurring the line between a quantitative and a rates targeting regime is the primary reason for all the jawboning. Can it. Remember "Fed Time"? #GIK The Fed can let you know what they are doing by the actions they take between 11:30 and 11:45 ET.

 

Classical Friday

30 minute atr

240 minute atr

daily atr

daily pivots

weekly pivots

monthly pivots

upside retracements

downside retracements

regression channels

support and resistance

On the economic calendar:-

08:30 Personal Income (Consensus 0.4% v Prior 0.4%)
Consumer Spending (Consensus 0.4% v Prior 0.2%)
10:00 Consumer Sentiment (Consensus 93.3 v Prior 92.9)
13:00 Baker-Hughes Rig Count

Merc Stories

I met a lot of characters on the Merc floor but Harry the Hat was one of my favorites. His badge was HAT. His younger brother was DRBY and both were my filling brokers and remain my friends today. Harry came to mind this week as 2 20-something employees of mine admitted they had never seen Risky Business.

The Hat was chauffeured around in a mauve limo because the state of Illinois and he had come to an understanding that it would be best if he didn't drive in Chicago for awhile. The reason was Harry had driven into lake Michigan on a bet. The story circulated around the North Shore and was heard by a young Chicago writer named Paul Brickman. Brickman adapted the Harry the Hat incident into the now famous (except to depraved millenials) Porche in Lake Michigan scene and the iconic, "Who's the U-Boat commander?" line.

There was nothing like coming of age at the Merc. More Merc Stories to follow.

Classical Thursday

30 minute atr
240 minute atr
daily atr
daily pivots
weekly pivots
monthly pivots
upside retracements
downside retracements
regression channels
support and resistance
On the economic calendar:-
08:30 GDP (Consensus 3.2% v Prior 2.3%)
          Jobless Claims (Consensus 270 K v Prior 277 K)
          Corporate Profits
09:45 Bloomberg Consumer Comfort Index
10:00 Pending Home Sales (Consensus 1.0% v Prior -1.8%)
10:30 EIA Natural Gas Report
11:00 Kansas City Fed Manufacturing Index
          3 Month Bill Announcement
          6 Month Bill Announcement
13:00 7 Year Note Auction
16:30 Fed Balance Sheet
          Money Supply

 

Wed

"I think it moved, Jerry!" George Costanza, freaking out.

The SP future is sloshing around its second nesting up day after SUnday/Monday's air drop. The big take away we are getting is, this is the way things are now. A long range-y sideways period and the market came out - this time down -in a violent fashion.

We suggested the Biz News stations do a "Man on the Street" segment and find some of the alleged crazed sellers. The universal question I've received in the last 48 hours has been, "Do you think I should sell, Kevin?" After a friendly reminder that they never asked if I thought they should buy, I suggest not.

The electronic, algorithmic, liquidity cartel that has emerged from the publicly traded exchanges nurtures repricing -up and down - of this character. Mix in an exotic time zone or two and the 23 hour a day Capitalism Casino is populated by bleary eyed addicts, conspiratorial junkies and angry middle aged suburbanites. Wealthy liquidity cartel members remain that way by abstaining from interaction. This is the monster we've built.

The trick is to recognize that the elasticity between market prices and economic reality is stretched by the new system plumbing. Drop a QE central bank regime on top and the connection is nearly lost. The market moved, get over it. It didn't even really trade, it REPRICED. This is the way things are.

Classical Wednesday

30 minute atr
240 minute atr
daily atr
daily pivots
weekly pivots
monthly pivots
upside retracements
longer term upside retracements
downside retracements
longer term downside retracements
regression channels
support and resistance
On the economic calendar:-
07:00 MBA Mortgage Applications
08:30 Durable Goods Orders (Consensus -0.4% v Prior 3.4%)
10:30 EIA Petroleum Report
11:30 2 Year FRN Note Auction
`3:00 5 Year Note Auction
Speaking today:-
10:00 William Dudley (New York Fed)