It looked real ugly this morning toward noon. From what I could tell there was enough decent news to push stocks higher pre-open and then the flood gates of selling opened, hitting the momentum stocks particularly hard. The on again/off again saga of the Russians camping out in the Ukraine is putting the market into a tizzy. A near term weak market gets downright ugly when the liquidity dries up after countries start shooting at each other.
Well, maybe not the next internet craze, and no this is not the title of the next Michael Lewis book. The craze has already come and gone. I like looking at new products and this KWEB (KraneShares CSI China Internet Trust) is interesting in that it has flown under the radar for a while. No options trade on it, (hint: CBOE list them!) but the product moves around pretty good.
The stock market looks like it has had enough of tepid job reports. There were big hopes of 275k plus jobs, but all of those hopes were dashed today. The happy number was private payrolls are back up to the pre 2008 crash highs. I guess that means government payrolls are not, but somehow we are spending a whole lot more money than we were back then. Either way stocks were a bit grumpy about it.
I am of the belief that politics will trump economics when it comes to the stock market. What I mean is, one politician can do more to destroy (or help, but rarely) an economy with the stroke of a pen than all the good earnings reports combined. Lately, that politician has been V. Putin since the Russians loss at the Olympics. He has been all sorts of grumpy and decided to take over a small piece of the Ukraine to make himself happy.
There is little doubt that stocks are a different beast at the start of 2014. As we look at the VIX tank this morning, the index is getting to the magic number of 16%. That is a 1% move per day for the big SPX index. For 2013 the 360 day average realized volatility, take a guess, was 11.6%. The 10 day HV right now is almost 20%. Stocks have been smoking, mostly in the down direction.
The ISM report was not great today. On the brightside, bad news is bad news again. Should stocks be at an all-time high with weak economic numbers? The answer is probably not. The steady exit from the emerging markets is continuing apace with investors leaving at a good clip. As far as I can tell, Argentina and Turkey are suffering real issues, but the rest of the EM world is just kind of moving along. It does not matter when money wants to hit the exit, they just jump.
Argentina devalued the peso today along with China providing less than stellar manufacturing data. It all added up to a mad dash for Treasuries and other safe havens like the Euro. What a difference a year makes. It was not too long ago that the run to above 3% in T-bills was a sure thing. At least, over the last few weeks coming into 2014 that is not the case.
The big surprise for me is the lack of interest in volatility into the NFP on Friday. VIX notched its 5th straight decline going into a big number which is something I don’t remember happening in the QE period since the first talk of taper began. VIX could easily pop back up tomorrow but for now I would not trade it.
We are at the end of the year and with all of the big gains in stocks the laggards really stand out. I don’t know where gold is going the next few months but this year it has taken it on the chin. Just as it looked like it would rally into the end of the year, the tax loss selling picked up a head of steam forcing gold to price right on the year lows.