The collision of global markets and social mood

Tuesday, February 23, 2016

Tuesday -- Blackrock To The Fed: We're Bigger Than You

S&P E-mini Futures:
Flat and rather listless pre-market.

Gone are the ominous headlines for the moment. No more words like "ugly" and "grim." Yet several developments could be setting the stage for some epic moves that could scare the life out of people.

Recall the saying "break it out to break it down." Insiders force the market higher by gunning futures at key areas (often with the Fed's own firepower fueling the buys), only to sell into the breakout and simultaneously flip heavily short.

If there is a rally brewing to new all-time highs, it is becoming increasingly clear that it will be aided and abetted by the full strength of the dream machine (bullish analysts, portfolio managers, pundits, press releases, media, etc.) along with the trading machines (algos, buybacks, and outright aggressive trading) to get the market as high as possible, before, in Livermore's words, "it is sold to the public on the way down."

First, Blackrock's balance sheet is bigger than the Fed's. So whether this is an actual warning to bond traders (you're about to get screwed), or a veiled warning to the Fed (don't screw us or we'll screw you worse), it is clear that Blackrock is telegraphing massive dislocation at some point.

Think forced selling.

Catalyst? A freaked out, wrong-sided bond market many many time larger than the Fed that essentially forces it to raise rates.

Rising rates for the right reasons? No. Rates have been going down -- and bond prices have been rising -- since 1981, right along with increasing stocks prices. If rates rise materially, it's over.

For now, though, it could be a bit of disinformation ahead of a Fed ready to walk back its planned interest rate hikes. Six months out, however? That's when things could get interesting.

Next there is Kuroda at the BOJ. I truly feel this guy has gone nuts.

From Bloomberg: “It’s not that the monetary base alone will pull up inflation or inflation expectations promptly,” Kuroda said in parliament on Tuesday. “We aim to raise prices through an increase in inflation expectations and a tighter gap in supply and demand under QQE,” he said, referring to qualitative and quantitative easing measures.

Kuroda's stimulus efforts, including massively expanding the monetary base, have failed. Nothing has ignited inflation since 1989.

Now that the BOJ has reached the limit of its bond buying, Kuroda somehow thinks that targeting negative interest rates will force people to lend & spend.

But as the WSJ noted, it's forcing people into cash.

Hoarding cash and stuffing it into safes at record levels does what to money velocity? Exactly.

It's destroys it.

So while journalists are typing hyper-i-n-f-l-a-t-i-o-n, you can wrap your head around a new & different word.

Hyperdeflation. And then put Global in front of it.

A touch of Risk Off creeping in. JPY & CHF bid. USD firm.

Down again, yet on continued lighter volume than recent rally.

WTI crude can't seem to convert strong up days into a definitive breakout, thus lending to the increasing conviction that price is mired in a fourth wave consolidation before yet more lows in some sort of final fifth wave.

NG edging closer and closer to its recent all-time lows and needs to rip higher or risk trubs.

Gold continues to build a bullish triangle and is higher along with silver and platinum. Copper and palladium still bucking the trend.

S&P Outlook:
Getting back to break it out to break it down, it does not appear the market is ready to break either way yet.

Yesterday it was back to normal. It spent all day trying for 1947.20 and missed by 50 ticks. Pathetic action, yet it's been that way for most of the time since 2009.

IG CDX improved yesterday, according to Fil Zucchi, "almost 2X that of SPX/SPY."

Still appears to be an air pocket up to around the 1900 level, and if it gets there, the 2000 round number should be a layup. Then I'd look for more aggressive shorts.

There is some pressure to the downside this morning, but it does not seem to be forceful. The full moon was yesterday, so a minor trend change is possible, maybe a test of a volume shelf at the 1915 area. But just not seeing the wave structure for doom yet.

Plenty of room below for a corrective retracement if needed. Will review the wave structure then. Noting a gap at 1864.78 as well.

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