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Monday, March 17, 2008


ready for a ride

9.06am (chicago time) -- markets have been open for half an hour, and nyse volume through 10am is running 38% higher than friday's high-volume session. the VIX opened up at 35.60.

9.10am -- dollar trashing is all the rage, and indeed carry trade unwinding is provoking a panic in the dollar/yen. the pair has backed off a little from the overnight 95.71 to 96.97, but this is still amazing action.

9.13am -- the s&p reached down to 1262.72 this morning, but is trying to hold the january low of 1270. currently 1272.90.

9.21am -- jeff miller with what i hope is an important observation -- there are no bulls. ticker sense demonstrates very high bearish sentiment among bloggers anecdotally, and quantifiable edges notes that it is a mass phenomena as measured by the michigan sentiment index. bill luby elaborates on how rare these conditions really are. problem is that every sentiment measure can always get more dour still.

9.28am -- as suspected last night, lehman is under terrible pressure. i have to agree with interfluidity, though -- the fed has basically said that no primary dealer will fail in this episode. that may not prevent a run on lehman, but it probably will save the franchise for another day.

9.32am -- market surging up now @ s&p 1278 and rising. could the fed's massive backstop have drawn a line under the equity market?

9.50am -- excellent from yves smith. i read bookstaber and am compelled to agree -- in systems as complex as markets, unintended consequences dominate, particularly in times of crisis. on this view, what the fed is doing by expanding access to its funding is not necessarily relieving the deleveraging so much as pushing its horizon further down the chain. with the TSLF, to save commercial banks, their client investment banks were imperiled. now, to save investment banks, their client hedge funds are being imperiled.

9.56am -- but of course that does mean the investment banks are being saved -- and an important vote of confidence may be coming in from the market. my warily-held shares of UYG (bought friday) have climbed from a low of 24 back to $27.17 -- and the $BKX is flat at 77 after having been as low as $73.22.

10.03am -- more on dollar trashing from yves smith.

Bernanke has assumed that the US can create as much liquidity as it needs to in order to prevent deflation. But he's presupposed that America can act in isolation. Our huge current account deficit means there are limits to how far we can go with the printing press operation, and we seem to be breeching them now.

in effect, the fed is finding itself nearer where it was in 1931 -- faced with a growing probability of havign to raise policy rates in order to prevent some measure of capital flight from foreign investors.

10.48am -- equities back off and the s&p bounces off 1270 exactly -- for the moment. currently 1272.46.

11.08am -- but not for long. back to session lows at 1263. volume now running about 4% higher than friday.

12.43 pm -- new session lows saw the s&p bounce at 1256 -- very near the overnight futures low from martin luther king day of 1255.

1.14pm -- and from those lowest lows a rally, back to 1273 and rising in the last half hour. massive, massive volatility today! a 2% gap down, then a fill of that gap, a plunge to carve out lower lows and push any definition of a january retest, and now a pickup in volume and price pulling the s&p up twenty points. nyse volume now running 13% over friday.

1.48pm -- VXO is trading at 34.86, having been as high as 37.17 today. it's the highest level for the old-formulation volatility index since february/march 2003, one of two times (the other being the bottoming process in 2002) that it stayed elevated for more than a few days. but it can clearly reach quite a bit higher as panic ratchets up before a low is put in.

1.58pm -- there may be some reason for positivity headed into the close with rising bottoms in momentum underlying the indeces. indeed, on a daily scale, there are divergences now with both momentum and MACD. it may not mean much, but with sentiment SO negative it may not take much.

2.17pm -- a good reminder from felix salmon: in the event of broker bankruptcy, you don't own the securities in your brokerage account.

2.35pm -- more on the volatility indexes -- taking a look at the ratio of cash VIX to the futures both 3- and 6-months out, there's clearly an panic jolt underway on the same order of the lows in november and january.

2.40pm -- market is still climbing with the s&p now at 1286 within sight of breakeven on the day, which would be a major and improbable moral victory.

2.50pm -- volume in 11% over friday on the nyse.

2.52pm -- the two-year note yielding 1.37%, with the 90-day bill is yielding 0.99%.

3.06pm -- a pretty strong fade at the close sends the s&p to 1276.57, off 0.9% on the day. a rollercoaster day, likely to be followed by more strangeness tomorrow.


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