It was all about Coneheads on Wednesday.
See, here’s the thing: Gary Cohn is seriously considering whether it’s a good idea to stand around and play music on the deck of the Titanic rather than fighting for one of the few remaining life boats.
And the reason Cohn-head isn’t so sure he wants to go down with this ship is because it turns out the Captain is himself a Conehead.
But not the good, Beldar kind:
Rather, this kind:
And who can blame Gary, right? I mean no one wants to end up being a defendant at the 21st century version of the Nuremberg trials.
So on the heels of the coordinated condemnation Trump received on Wednesday from corporate America, and considering the backlash on the Hill, it wasn’t exactly a stretch to think that Cohn would beat a hasty retreat from a White House that is quite clearly engulfed in flames like a cross at a Klan rally.
With reports already circulating that Cohn was “disgusted” by Trump’s Tuesday presser, the market fell hook, line, and sinker for a rumor that hit early in the session suggesting Cohn was preparing to resign. That “rumor” (which we would suggest is not in fact a “rumor”), was quickly debunked by Axios and then by the White House itself, but the damage was done.
Stocks fell throughout the session and the VIX rose steadily:
Worst day for the Dow in 3 months:
The dollar held up ok – all things considered – but yields fell as the market continues to price out reflation:
As Bloomberg notes, “the prospect of Cohn’s departure forced investors to consider possible consequences for Trump’s economic agenda and who might take his place as front-runner to lead the Fed once Chair Yellen’s term expires February 3.”
Bank stocks were hit especially hard for obvious reasons and the pain comes a day after the Fed minutes weighed on the space:
Financials have gone nowhere fast since the initial “Trump bump”:
Speaking of Trump trades, the Russell 2000 is now nearly flat YTD:
Gold chopped around on the Cohn headline, but it’s better to pan out on this one – the angst in markets is readily apparent as we’ve skipped from one crisis (nuclear war) to another (Trump train wreck) in the space of two weeks:
Recall what former trader Richard Breslow said earlier on Thursday:
Watch gold prices. They are trying to make new highs and are overly resilient which, in fact, does mean something. As the oldest of the financial assets it’s learned that a week is a long time in politics. And the mess usually gets worse before we come to a neat or Pence-ive solution
We now know VIX ETP rebalancing supercharged last week’s vol. spike and we also know that the inflows into short VIX products (people betting on a quick return to the low vol. regime) almost immediately took the vega-to-buy on a five vol. spike back to roughly $100 million, which is where it sat heading into last week’s turmoil:
So the “doom loop” is still firmly entrenched.
Side note: tech “breadth” has never been worse:
The euro was interesting, giving back all of its gains from Wednesday (accumulated on the back of Trump disbanding his “councils” and committees and cautious comments from the July Fed minutes on inflation) before the ECB minutes. Once the minutes hit the common currency briefly hit a day low before reversing again as traders struggled to square the circle:
For their part, JPMorgan raised their EURUSD forecast to 1.20 in 4Q (vs 1.16) and 1.25 in 3Q 2018 citing Trump’s falling approval rating and various fuck-ups, “which in turn preserve the risk of a complicated debt ceiling debate once Congress returns from summer recess.”
European shares got a brief lift from the ECB minutes (think: Draghi flagging FX strength as a concern), but ultimately closed lower after taking their cues from the Cohn rumors as well:
Ultimately folks, the bottom line is this: you need to start thinking about what a President Mike Pence might mean for markets, because that’s where this is headed.
Just minutes before the close, we learned that Bob Corker has become the first GOP Senator to question Trump’s competence.
The writing is on the wall.
It’s just a matter of when.