Heisenberg Report

Market Gods Are Angry: Bulls Hit By Tax Cut Delay, Junk Bond Drama, Nikkei Jitters (Full Text Of Amended GOP Bill)

Well, if you’re in risk assets – or short vol. – you probably feel like the world is conspiring against you on Thursday.

And if that’s you well then on behalf of the bears and the long vol. crowd, allow us to ask you the following: “how’s it feel motherfucker?”

You’ve got three things working against you:

  1. a harrowing decline in the previously invincible Nikkei overnight which was mercifully bid back to basically flat by the close, but which nevertheless shook confidence
  2. an unfolding junk bond debacle which you can visualize any number of ways, the simplest of which is just to note that mom-and-pop high yield has fallen for seven consecutive sessions and is now below its 200-day MA
  3. and now trouble on the tax front

Obviously, the headline that’s moving things around intraday is the delay on the corporate tax cut.

Once WaPo reported the proposal (which would differ from the immediate cut called for in the House legislation and is certainly not what Donald Trump prefers), things went to pieces. Sen. Bill Cassidy confirmed that the Committee’s legislation proposal includes a one-year delay although GOP Sen. Roger Wicker would counter that the corporate rate cut could still take effect immediately. “I think that’s certainly a real possibility,” he claimed.

Whatever the case, this is shaping up to be a rough day. Here’s the reaction in USDJPY and ES:

Same risk-off sentiment in yields and the VIX (although some algo apparently made a mistake based on that initial spike lower in vol.):

The market gods are against you today, and it’s going to take a pretty notable reversal of sentiment this afternoon to turn things around.

Do note that the headlines on taxes are far from coherent. The messaging is mixed, the information conflicting. Here are a couple of the more bullish headlines:

And indeed that’s part and parcel of the problem. No one knows what’s going on and that kind of uncertainly has a tendency to be the straw that breaks the camel’s back on days when there are already issues.


Here’s the text of the amendment from Brady