What The Hell Is Going On With Stocks? Explanations Vary…
If there was one overwhelming theme pervading my inbox on Wednesday afternoon it was this: "I'm glad I'm not the only one."
Apparently, not a whole lot of people have a rock solid, clean take on yesterday's move in stocks which saw e-minis bounce some 2.7% off the post-CPI knee-jerk lows by the end of the session. We suggested equity investors are "going the wrong way!" (Planes, Trains And Automobiles reference), but then again "how do we know where they're going?", right?
Well, one thing we d
Full retard is the only explanation.
got that right
I’m not a quant or a wonk. I’m the “dumb money” that you talk about from time to time. Even I can see the manipulation of the market by the big institutions. Just look for big buys of UVXY, followed shortly thereafter by a steady decline in the SP500 until some unknown target is reached at which UVXY is dumped quickly, followed by a reversal in SP500 fortunes. That’s just one example. I’m sure that VXX, as well as the short-VIX instruments, even the now-dead XIV, showed similar manipulations. Our financial institutions are burning this country to the ground.
The Cboe does not like that assertion.
https://www.marketwatch.com/story/how-wall-streets-fear-gauge-is-being-rigged-according-to-one-whistleblower-2018-02-13
“This letter is replete with inaccurate statements, misconceptions and factual errors, including a fundamental misunderstanding of the relationship between the VIX Index, VIX futures and volatility exchange traded products, among other things,” a Cboe spokeswoman said in a statement.”
Hmmmm. I notice that CBOE doesn’t assert any controverting evidence.
I was remiss, though, in failing to also mention the outrageous compensation levels of the executives of our large corporations. In the corporation that pays my pension, executives rake off about 25% of the total profit of the corporation. And that doesn’t address the windfall to shareholders resulting from buybacks. The CEO drew a breathtaking $37M in compensation last year. The next-level staff drew somewhere between $7M to $10M in compensation. These are decidedly not the people that cause a precipitous rise in inflation that everyone fears.
I should have said “$7M to $10M each” to be more clear.
Don’t really care what the CBOE says on the subject:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2972979
Pretty hard to dispute this article
yep they are
Stocks traded up because the CPI print was another month of low, unimpressive inflation. Only in the world of wall street strategists, unable to look more than a year behind or ahead, was this CPI a major beat. Sometimes historical context matters more than bullshit wall street estimates (startling revelation, right?). And the historical context over 30 years for CPI shows this months print to be low, even a deceleration from prior months, in an economy that remains stuck in the mud.
“…. Only in the world of wall street strategists, unable to look more than a year behind or ahead, was this CPI a major beat.”
I see…. https://heisenbergreport.com/wp-content/uploads/2018/02/big.png
Rudy, that was a 3-standard deviation beat in the post-crisis context. it was unequivocal.
Yeah, this was the first time this cycle we’ve seen classic late-cycle inflationary behavior. It’s significant.
The PPI has the CPI’s back
“The Producer Price Index for final demand increased 0.4 percent in January, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices were unchanged in December and moved up 0.4 percent in November. (See table A.) On an unadjusted basis, the final demand index rose 2.7 percent for the 12 months ended in January.
In January, the rise in the index for final demand is attributable to a 0.3-percent increase in prices for final demand services and a 0.7-percent advance in the index for final demand goods.
The index for final demand less foods, energy, and trade services rose 0.4 percent in January, the largest advance since increasing 0.5 percent in April 2017. For the 12 months ended in January, prices for final demand less foods, energy, and trade services moved up 2.5 percent, the largest rise since 12-month percent change data were available in August 2014.”
So why can’t both assertions be true. It was a statistically-relevant deviation but on a grand scale relatively insignificant in comparison to overall income/capital distribution of the fruits of this economy. If GDP is 70% consumerism, but consumerism is throttled back by income/capital inequality, then tepid growth by the measures that we use is inevitable.
Sorry, perhaps my “dumb money” brain just cant comprehend the subtleties.
No, no it wasn’t “unequivocal,” Heisy.
1) You’re looking at month-over-month changes to SA core CPI. This is absurd, I’m sorry to say (cause I love you man!). MoM changes indicate very short term price movements. The average of the MoM changes will be extremely low, with a very tight standard deviation. So a “3-standard deviation” event, while sounding “significant,” simply isn’t. If you had bothered to actually graph the MoM changes in excel, you would see that January’s movement is unremarkable at best (but yes, it is a high standard deviation event!…which means nothing considering the data being used).
2) Was there a 3-standard deviation event in the year-over-year change in core CPI? You know, the figure that might actually indicate that something major was afoot?
Nope, I graphed it, calc’ed the stdev.p and average. Average y-o-y change in Non-SA Core CPI going back to 2000 is 1.99%, standard deviation is 0.46%. You know what January 2018’s y-o-y increase in Non-SA core CPI was? 1.82%, below the average since 2000, and so technically a -0.4x standard deviation event.
Funny how data can be manipulated to say whatever you want. Wish I could embed the charts here so I could show you guys how silly your argument is.
Wow, this may really boil down to whether you buy into the Fed’s seasonal adjustments. Do you know what adjustments they make? Cause I don’t.
If you chart SA MoM Core CPI, then the move looks big, but only because MoM moves back to 2005 have been microscopic. In 2005 and before, January’s move would have been completely normal. Meanwhile, if you look at “non-seasonally adjusted” core CPI, then January’s MoM and YoY moves are unremarkable.
So basically this is a meaningful event only if you put on the ‘ole blinders and focus on MoM SA core CPI only, and choose to completely ignore YoY SA core CPI, MoM Non-SA core CPI, and YoY Non-SA core CPI (along with every other measure published by the Fed).
Now maybe you guys can understand why you’re making a “mountain out of a molehill.”
As Heisy would say….Nothing further.
SA core CPI over the last six months is 2.57%. If core PCE numbers follow suit, the Fed will not be falling short of their dots.
I agree with a lot of what you said. MoM, seasonal adjustments, etc. But you don’t seem to account for the fact Fed will be reactive to MoM changes. Then throw in QT, yields, and fiscal stimulus. It’s very apparent that this whole thing is balanced on a blade’s edge, and one big upbeat could catalyze a significant short/medium term reaction. That’s all that matters at the end of the day; forward looking expectations vs actuals. Dismissing the MoM change as insignificant is extremely reckless.
On a Y/Y basis for non-seasonally adjusted CPI (including food and energy), taking into account only post-GFC data, it’s an 0.46%-SD event. On a M/M basis using the same data, it’s a 1.32-SD event.
Ok, Rudy. Our recommendation would be to wait on a job offer from one of the bulge brackets. It should be coming any day now. Just keep checking the mail.
lol, been there, done that. There’s a reason they don’t manage money, and I do.
Great article H, as usual.
Having a rock solid, clean take on these kinds of moves is probably going to get even tougher as volatility picks up. It’s like trying to call the play-by-play on an avalanche…
incidentally, Rudy is definitely right about one thing: there should be a way to embed charts in these comment streams.
will try and fix that because that would definitely be a value add.