Mish's Global Economic Trend Analysis |
- El-Erian: "This Will Not Derail the Economy"; Contradictions and Friendly Disagreements; Six Points El-Erian Misses
- Chinese Stocks Extend Slide, Down Another 6%; S&P Futures +38 Points, Nasdaq Futures +71
- US Equity Indices in Review: Buy-the-Dip Fails
- Lessons in Gravity and Intervention; Do Something!
- VIX "Too Disjointed to Calculate a Value"; Panic Grips Emerging Markets; Biggest VIX Jump on Record
| Posted: 24 Aug 2015 10:59 PM PDT El-Erian: "Selloff Won't Derail the Economy" Mohamed El-Erian, former CEO of Pimco spoke with Bloomberg TV's Olivia Sterns and Alix Steel about the selloff in stocks and the implications for Fed policy. When asked whether we are looking at another 1998, El-Erian said: "I'm not a buyer that this is 1998. Nor am I am a buyer that that's 2008. And in 1998 you had a lot of fixed exchange rates. Now you have fewer of those. And 2008 was about the payments and settlement system. This is not about the payments and settlement system. This is an old-fashioned repricing of two things." He added: "I'm not a buyer that this is the crisis of all crises. Yes, this is a very unpleasant repricing, very unpleasant. And it's going to go quite deep, but it's not going to derail the economy in a major way." El-Erian said he believes a December rate hike is still possible: "I think December is still on the table, and for the following reason. The economy will benefit from lower commodity prices, particularly oil. And the economy will benefit from lower interest rates. And that's going to fuel some underlying strength that the economy does have. The big question is how much damage are we doing to the wealth effect, and to what extent will external demand collapse? We cannot answer that question yet. So I would think December is still a possibility, but September is unlikely to happen." El-Erian Video Contradictions Link if video does not play: El-Erian: This Is Not 1998 or 2008 This may not derail the economy, unless of course the stock market is the economy. But it's not really the economy traders are worried about, it's the stock market. Did you catch El-Erian outright contradiction?
If you do not know how much damage the selloff will do to the wealth effect or whether or not a selloff will collapse external demand, then statement number one is impossible to make. Six Points El-Erian Misses
I stick with my recession call. Perhaps we are even in one right now. Regardless, El-Erian sees mirages that simply do not exist. Mike "Mish" Shedlock |
| Chinese Stocks Extend Slide, Down Another 6%; S&P Futures +38 Points, Nasdaq Futures +71 Posted: 24 Aug 2015 07:23 PM PDT Following a day in which only 6 out of 500 S&P 500 stocks rose, a snap back of some sort was in order. As I type at 9:00PM central, S&P futures are up 38 points and Nasdaq futures are up 71. The Dow is +300 or so. The Nasdaq index has been particularly wild. In the first 10 minutes on Monday, the Nasdaq 100 index fell 410.04 points, 9.77%. By early afternoon, the Nasdaq was amazing in the green, but closed down 158.67 points, -3.78%. Nasdaq 100 10-Minute  Chinese Stocks Extend Slide Meanwhile, in China, the slide extends another day, at least for now. The Shanghai index is down another 6% to 3009. I added a red bar in the following chart this evening to show the decline. SSEC - Shanghai Stock Index  If US futures continue to rise, I suspect the other global equities will halt their slide, for now. I do not see any lasting value in US or Chinese stocks at these prices, even following these corrections. Mike "Mish" Shedlock |
| US Equity Indices in Review: Buy-the-Dip Fails Posted: 24 Aug 2015 02:34 PM PDT Today's action was not pretty, unless you were a bear. Here are a few charts to consider. Dow 10-Minute  click on any chart for sharper image In the first 10 minutes, the Dow fell 1,089 points. By 1:00, the Dow regained 990.88 points, but closed down 588.47 points, -3.57%. S&P 500 10-Minute  In the first 10 minutes, the S&P 500 fell 103.88 points. By early afternoon, the S&P 500 regained 87.08 points, but closed down 77.68 points, -3.94%. Russell 2000 10-Minute  In the first 30 minutes, the Russell 2000 small-cap index fell 50.86 points. By early afternoon, the Russell regained 42.65 points, but closed down 45.10 points, -3.90%. Nasdaq 100 10-Minute In the first 10 minutes, the Nasdaq 100 index fell 410.04 points. By early afternoon, the Nasdaq was amazing in the green, but closed down 158.67 points, -3.78%. Low vs. Close
Those who bought any dip last week were in for a rude awakening this morning. Mike "Mish" Shedlock |
| Lessons in Gravity and Intervention; Do Something! Posted: 24 Aug 2015 11:31 AM PDT Prop Up Failure After futile attempts to prop up its stock market bubble, China stood back and did what it should have done in the first place: Let gravity take over. The Financial Times reports Beijing Capitulates After Spending $200bn to Prop Up Equities. After spending about $200bn buying shares to prop up falling equity prices over the past seven weeks, Beijing capitulated to market forces on Monday by choosing not to intervene as the benchmark Shanghai Composite Index fell 8.5 per cent.Swiss Bank Lesson Please recall the Swiss National Bank effort to prevent the Swiss Franc from becoming too overvalued. The central bank pegged the Franc near the 1.20 Euro mark and pledged to defend the price at all costs. But when ECB president Mario Draghi unleashed a huge QE program, the peg became too costly to maintain. Here was the resultant move. Wild Swing  click on chart for sharper image 32% Move in 30 Minutes As the above chart shows, the Swiss Franc soared in value from 1.20-per-euro all the way to 0.82-per Euro but later stabilized in between. While maintaining the peg, the Swiss central bank accumulated of hundreds-of-billions of euros that plunged in price. Those in countries outside Switzerland with mortgages tied to Swiss Francs immediately saw the amount they needed to pay back soar in value. Many were carted out because they were foolish enough to believe central bank pledges. China Gravity Lesson When China pledged to support the stock market, prices stabilized for a while, and traders plowed back into margin. But today, Chinese central planners finally figured out they could not stop gravity. The ensuing plunge was not orderly to say the least. What Hath Central Bank Policy Wrought? The root of the problem in China is loosey-goosey central bank monetary policy that blew a massive property bubble followed by stock market bubble that had millions of high-schoolers opening up margin accounts to speculate. Global Gravity The same intervention problems exists in the US, Europe, and elsewhere. Central bank efforts to "stabilize" everything, led to the exact conditions I described earlier today in VIX "Too Disjointed to Calculate a Value"; Panic Grips Emerging Markets; Biggest VIX Jump on Record. Gravity has finally taken over. It should have long ago. Few See Bubbles Until They Pop I don't know when this will stabilize, nor does anyone else, but if stock fall to normal valuations, it's a long, long way down from here. Central bankers will not see themselves as the problem even though they are to blame for the Dotcom mania, the housing bubble, current equity/junk bond bubble, and the income inequality problem that Janet Yellen rails about. Most fail to see the current bubbles in US equities and junk bonds for one reason only: The US markets have not crashed .... yet. Do Something! If there is a genuine crash, as opposed to a slow drip in the stock market for years as happened in Japan, cries will accumulate for the Fed to "do something". Here's reality: The Fed "already did something". The Fed created this bubble. The only beneficiaries were those with first access to money: The banks, Wall Street, and the already wealthy. The middle class was brutally punished once again. Instead of protesting for higher wages at McDonald's people should instead protest Fed policies that steal from the middle class. Mike "Mish" Shedlock |
| VIX "Too Disjointed to Calculate a Value"; Panic Grips Emerging Markets; Biggest VIX Jump on Record Posted: 24 Aug 2015 09:16 AM PDT As the equity rout gathers steam across all markets, the volatility measure VIX Didn't Update for 30 Minutes. For a brief period this morning, anxiety got too high to measure in the U.S. options market.Panic Grips Emerging Markets Bloomberg reports Panic Grips Emerging-Market VIX in Biggest Jump on Record The rout in markets from China to South Africa triggered a record jump in a gauge of options prices on developing-nation stocks as investors purchased contracts to protect against future declines.Biggest VIX Jump on Record  click on chart for sharper image In three days the VIX jumped from 15 to today's high of 53.29 as options prices became too volatile to quote. Question of the Day Wasn't high frequency trading supposed to increase liquidity? I guess it does until it doesn't. When that happens, there are no bids for 30 minutes and the VIX becomes too disjointed for HFT algos to calculate a value. Mike "Mish" Shedlock |
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