Mixed signals in today’s market go beyond what we discussed yesterday, which were economic reports, and can often be drilled down to volume and volatility. This can be a mixed bag at times but rarely can a “triple lindy” happen: no volume, no volatility, and an ever-rising market.

Some times the market can experience low volume and because of this, volatility can often increase due to the lack of “size” to stop the moves. Consider the 1/2-day holiday trade where we witness a one-way move on no volume. It’s immediately chalked up as a rare holiday event but is understandable because of the lack of orders.

On the flip side, it is possible to see very high volume trades that go nowhere. Admittedly, this doesn’t happen often but is usually coupled with an extremely low volatility market – as if the market has no worries in the world and thus the size in the order book grows to 3, 4, 5 times larger than normal. What’s certainly more normal is to see this large volume drive the market in one direction for quite a while.

What’s odd, or “mixed signals” if you like, is when all of this happens on the same day or worse: day, after day, after day.

As you have surely read or heard on television this week is that the S&P500 has made continuously new record highs. What’s odd, however, is the total silence from most pundits on the utter complacency in the market. Said another way – there is no volume, with less-than-no-volatility and yet, the markets march on to new record highs on a daily basis.

During the S&Ps recent tiny 4% correction, volume increased in the futures to about a daily average of 1.7 million trades. The volatility certainly increased as well, which was is normal. To be sure, this is not a mixed signal.

During the slow grind to all-time highs, however, volume decreased with each daily record close. Moreover, volatility also decreased. So putting all three together would have been looked at as an overvalued level; however, in the world of global central planning this is not the case. Indeed, the mixed signals continue.

But it’s not just me who says this; Art Cashin said the following about this extended odd situation.

“Unfortunately, history gives us a kind of muted picture of it, that if you have high volume, you get follow-through very easily.

If you have low volume and you go into September, we’ve only had big carry-through a few times,”

This is very true Art, but the difference makers now are the FOMC, BOE, ECB, BOJ, and the PBOC. “Free markets” are simply not allowed.


Everyone’s happy, everyone’s confident. There’s collective euphoria!

The market closed higher yet again on Tuesday and futures were higher overnight. This all came after the Conference Board reported that consumer confidence reached a fresh seven-year high this month as Americans are increasingly optimistic about the economy in general and the job market in particular. The group’s confidence index rose from a downwardly revised 90.3 in July to a new recovery high of 92.4 this month as the present situation component jumped 6.7 points to 94.6. The expectations component dipped 1.0 point to 90.9.

Hmmm…this is very interesting considering the realities of the job market. And not just in the short term, but over a much longer time frame.

In the new NBER paper on this topic by Daron Acemoglu, David Autor, David Dorn, Gordon H. Hanson, and Brendan Price, we see the evidence for this proposition piling up:

Even before the Great Recession, U.S. employment growth was unimpressive. Between 2000 and 2007, the economy gave back the considerable gains in employment rates it had achieved during the 1990s, with major contractions in manufacturing employment being a prime contributor to the slump. The U.S. employment “sag” of the 2000s is widely recognized but poorly understood. In this paper, we explore the contribution of the swift rise of import competition from China to sluggish U.S. employment growth. We find that the increase in U.S. imports from China, which accelerated after 2000, was a major force behind recent reductions in U.S. manufacturing employment and that, through input-output linkages and other general equilibrium effects, it appears to have significantly suppressed overall U.S. job growth. We apply industry-level and local labor market-level approaches to estimate the size of (a) employment losses in directly exposed manufacturing industries, (b) employment effects in indirectly exposed upstream and downstream industries inside and outside manufacturing, and (c) the net effects of conventional labor reallocation, which should raise employment in non-exposed sectors, and Keynesian multipliers, which should reduce employment in non-exposed sectors. Our central estimates suggest net job losses of 2.0 to 2.4 million stemming from the rise in import competition from China over the period 1999 to 2011. The estimated employment effects are larger in magnitude at the local labor market level, consistent with local general equilibrium effects that amplify the impact of import competition.

These are some very mixed signals.


Cynicism is the new black as it’s quite in fashion now to be a naysayer. Unfortunately, in the financial milieu, cynicism is often warranted. From central banks to big banks to regulators, their words and promises are hollow while their dealings are often dubious.

That is why it’s so rare when somebody actually does their job correctly, and the work of one slightly obscure regulatory chief has garnered so much press. Benjamin Lawsky leads the Department of Financial Services (DFS), which unlike the Treasury and Justice Departments, has no power to conduct criminal investigations or file criminal investigations. But that doesn’t mean Lawsky hasn’t left his mark.

In addition to spearheading the BNP Paribas investigation, Lawsky has opened up a probe into non-bank servicers Ocwen, Nationstar, and four others based on hundreds of complaints from New York consumers.

According to Naked capitalism, this comes after Ocwen agreed to a $2+ billion settlement with the CFPB for foreclosure and loan modification abuses and charging inflated fees. Lawsky escalated his probe of Ocwen in April to include possible self-dealing on property auctions and in August added forced-placed insurance to the list.

On August 12, Ocwen held off issuing its 10-Q filing, stating that its 2013 and first quarter 2014 financials “can no longer be relied upon as being in compliance with [GAAP].”

Presumably, Lawsky’s investigation triggered the auditor concern- so what would that be? I don’t think force placed insurance would be an accounting issue. Bad fees on affiliated services? Ocwen has a complicated off shore structure and a bunch of split off affiliates. Many other non- bank servicers were moving to similar structures.

Earning restatements could trigger Ocwen’s advancing facilities, which would be a disaster for the company. What would happen to the deals Ocwen services if Ocwen defaults? There may be no other buyers for the servicing!The other non bank servicers will likely be facing the same issues. The big banks failed badly at this type of servicing and were forced to sell the stuff. Who’s left?

Lawsky’s instincts were correct – these servicers had grown too fast, in big part due to the foreclosure settlement. It is really important to note that this Ocwen issue and the potential problems that follow are a direct result of the Admin and regulators refusing to properly address the issue three years ago (as we all noted at the time).

Servicing hasn’t been fixed. So mortgages won’t really recover until servicing’s real failures are finally addressed.

In other words, Lawsky is pulling the band-aid back on a huge wound and is exposing the gangrene underneath. This has the potential to force large-scale changes that the industry and the Administration have labored mightily to avoid, presumably in the hope that they could kick the can down the road far enough so that they would not be blamed when the inevitable failure occurred.

Even this hardened cynic applauds someone who tries to get it right. Keep dgging Mr. Lawsky!


The stock market had a party on Monday. Unfortunately, most of the guests decided not to show up.

On the the lowest S&P futures (non-holiday) trading volume of the year, the index topped 2,000 for it’s first time on Monday 16 years after it first cleared 1,000.

That 4% market correction was quick and virtually painless. Not missing a beat after the market briefly tested 1900, the dip buyers came roaring back – gunning for the 2000 marker on the S&P 500, confident that longs were not selling and that shorts had long ago been obliterated.

When the algos finally did print the magic 2000 number, it represented a 200% gain from the March 2009 lows. Just goes to show, that the only party guests you need are Janet and a few of her banskter cronnies.

Remember, this party has been catered by the the greatest flood of monetary expansion ever conceived, with the Bartender Ben Bernanke leading the charge. Bernanke doubled the Fed’s balance sheet from $850 billion (built-up over 94 years) to $1.8 trillion during the seven weeks after the Lehman event; and then by the thirteen week mark in early December 2008 he had nearly tripled it to the $2.3 trillion. In a historical heartbeat, the balance sheet of the Fed soared to $4.5 trillion, eviscerating the last remnants of honest price discovery on Wall Street as it rambled upward.

And so it continues. Streamers, champagne, and fun all around but wow, there is going to be one heck of a hangover once the party stops.


The market waited all week for the Fed Chair, Janet Yellen, to make her speech at the conference of central planners in Jackson Hole Wyoming. The market was expecting to hear of more QE-fairies in the not too distant future; however, it wasn’t to be.

Wall Street came to the conclusion that Yellen was too ambivalent on the future. The following are some gathered comments.

Goldman (Jan Hatzius):

•We think the tone from Chair Yellen’s Jackson Hole speech was broadly balanced, perhaps slightly more so than in past speeches.

•She noted both the more rapid-than-expected pace of recent labor market improvement, as well the still-significant level of labor underutilization.

•She continued to emphasize the “dashboard” approach to assessing the state of the labor market, while at the same time stressing uncertainties in determining exactly how much slack remains in labor markets and how price and wage developments should be interpreted.

And the rest of the sell-side, via Bloomberg:

Barclays (Michael Gapen)

•Don’t see Yellen core views as having changed but rather see shift in tone as “normal evolution” as Fed is closer to achieving dual mandate

•Discussion on wages signals Fed not looking for 3-4% wage growth as precondition to raise rates

•Maintain view first rate hike to come in June 2015

Scotiabank (Guy Haselmann)

•Yellen’s speech “was very balanced,” seemed more ambiguous about how much slack there is in U.S. economy

•“She had more confidence about the amount of slack in the economy before, and today she admitted that it is difficult to gauge. So the speech was a bit less dovish than expectations”

Deutsche Bank (Alan Ruskin)

•Very balanced nature of Yellen speech a disappointment to those who expected her to live up to dovish reputation

•Surprised by more hawkish tone on wages; seemed reluctant to use soft real wages as gauge of labor market slack

•“This was not a speech from a policy maker who was making a strong argument to ‘wait and see the whites of the eyes of inflation’ before reacting”



While at the J-Hole symposium, leading global central planners will be explaining why they believe the economy is great, yet at the same time it is so bad that there is still a need for ZIRP and NIRP.

It’s highly unlikely, however, that the central planning nannies will admit that the charts both above and below from Bloomberg are worrisome.


Janet Yellen’s Janet Yellen’s 10am ET speech will not be the only one that may cause fireworks; Super-Mario Drahgi will also be speaking at 12pm ET.


Most of you have probably taken both economics and political science at some point in your schooling. Well anything you learned, toss that out the window. A quick reminder of how geopolitics really governs the markets: on Friday, the market plunged 0.005% over fears Ukraine and Russia may be about to go at it all out after a fake report Ukraine shelled a Russian military convoy.

On Monday, the same “market” soared just under 1% as the news that had caused the “crash” was refuted. The major averages rebounded with some conviction, as we had strong extension to the upside. That has been the dominant rinse, repeat theme for the past month and will continue to be well after Yellen’s Friday speech at Jackson Hole (although one does wonder why she is not speaking on Wednesday when the symposium begins). Not surprisingly, with only modest re-escalation news overnight (that Russia is preparing further retaliatory sanctions against the West), which is simply “pent up de-escalation” in the eyes of the algos, the futures were up overnight.

While there is economic data early, we should be back to geopolitical watch mode again today as we build up towards Jackson Hole this Friday.

They don’t teach this stuff in school!


It may be Friday but there’s a whole to consider as we head into today’s trading session and the weekend. Here is the bulletin headline summary from Bloomberg and RanSquawk:

Further reduction of war-related premiums amid reports that Ukrainian border guards were allowed to check Russian humanitarian cargoes supported flows into EU stocks this morning.
Bunds remained supported by the prospect of further policy easing by the ECB following a raft of less than impressive macroeconomic data over the past few days.
UK Q2 prelim GDP Q/Q 0.8% vs. Exp.0.8% (Prev. 0.8%), Y/Y 3.2% vs. Exp. 3.1% (Prev. 3.1%)
Treasuries yields fall overnight; 5Y and 7Y now down 5bps and 6bps, respectively, WTD to their lowest levels since end of May as soft economic data and conflicts spark FTQ flows.
Bonds trounced stocks worldwide over the past month as investors sought safety amid unrest in Ukraine and the Middle East and uneven economic growth; now money managers are starting to say debt is too expensive
Borrowing costs from Ireland to Italy fell to all-time lows today and Germany’s 10-year yields dropped below 1 percent yesterday for the first time on record as data showed Europe’s largest economy shrank more in the second quarter than analysts forecast
Even as Russia proposed a cease-fire for humanitarian aid deliveries to southeastern Ukraine,, journalists at news outlets including Novoye Vremya and Hromadske TV reported seeing armored personnel vehicles crossing into Ukraine
Iraqi Prime Minister Nouri al-Maliki said he has agreed to leave office and clear the way for his designated successor to take over
Obama said that danger from radicals in Iraq still requires U.S. involvement even after the siege that trapped members of a religious minority on a mountain has been broken
Israel and Gaza Strip militants entered the second day of a truce amid disclosures of the U.S. slowing down arms shipments to its Israeli ally during the monthlong conflict
Obama, speaking from Martha’s Vineyard where he is vacationing, made a plea for calm in Ferguson, Missouri and promised a full and independent investigation of the fatal shooting of a teenager by police
Images of police in camouflage brandishing assault rifles and training laser sights on unarmed protesters in Missouri stirred criticism of military tactics inU.S. law enforcement
The Bank of Japan may cut its growth forecast for this fiscal year for a fourth time, as exports fail to bolster an economy weakened by April’s sales-tax increase
Sovereign yields higher. Euro Stoxx Banks +0.9%. Asian and European equities higher, U.S. stock futures gain. WTI crude and gold little changed, copper falls
Focus will be on the latest US Empire Manufacturing Survey, PPI report, TICs and U. Michigan prelim survey.
Trading was abysmal on Thursday. Let’s hope this confluence of forces spurs some action!


Revel, the already bankrupt Atlantic City casino, announced yesterday that it would shut down after failing to find a qualified buyer during a court-supervised auction process. Its failure comes a little more than two years since the resort opened in a bid to reinvigorate the long-declining gambling industry in Atlantic City.

In June, Revel filed for bankruptcy protection after failing to negotiate a sale to Hard Rock International. Hope remained that another buyer would emerge and close on a deal. But by Monday, with no qualified bid having emerged, the resort’s owners decided to fold.

For those wanting to visit this iconic destination, they may want to go sooner rather than later. The city started the year with 12 casinos, but Revel will be the second of four to shut its doors. In addition, both The Showboat and The Trump Plaza will close in the next few weeks.

Hmm, somehow the great American recovery seems to have missed the eastern seaboard. But I am guessing the Department of Labor will  find a seasonal adjustment to absorb the 3,100 jobs that were just lost.

What is also interesting about Revel is that the decision to shut down comes more than four years after Morgan Stanley, the original backer of the resort, walked away from what was even then a costly folly. The bank announced in April 2010 that it would sell its majority stake in the project – after taking a write-down of roughly $1 billion. Banks have had at best a spotty record of moving into the gambling industry. Deutsche Bank struggled for years with the Cosmopolitan resort in Las Vegas, only finally exiting its investment by selling the site to the Blackstone Group this spring.

It’s ironic that the big banks foray into financing the gambling industry has failed so miserably. Since their own “gambling” is backed by the house of all houses (central banks), they should probably stick to playing the game they seemingly always win.


Given all that is happening in the world, from Russia/Ukraine to Israel/Gaza to a possible Ebola pandemic, you would think that there would be some, any fear in the market.

But alas, the VIX, the Chicago Board Option Exchange’s measure of volatility or fear in the market, hovers below 15. The chart below illustrates just how low this is in a historical context.


Well with Monday’s “relief rally” – yes, I heard that multiple times from the talking heads – the VIX remained lower, even with a late day pullback in the S&P.

But stocks were mostly higher and of course the reason was more of the same. Stanley Fischer gave one of his first major speeches today in Sweeden since becoming the number two man at the Fed. While his stance has been debated, it seemed pretty clear that he’s in lock step with Janet and company.

“With few exceptions, growth in the advanced economies has underperformed expectations of growth as economies exited from recession,” said Fischer in his speech titled “The Great Recession: Moving Ahead.” “Year after year we have had to explain from mid-year on why the global growth rate has been lower than predicted as little as two quarters back. Indeed, research done by my colleagues at the Federal Reserve comparing previous cases of severe recessions suggests that, even conditional on the depth and duration of the Great Recession and its association with a banking and financial crisis, the recoveries in the advanced economies have been well below average.”

Fischer went on to articulate his worries about the tightening labor supply

“The considerable slowdown in the growth rate of labor supply observed over the past decade is a source of concern for the prospects of U.S. output growth,” he said. “There has been a steady decrease in the labor force participation rate since 2000. Although this reduction in labor supply largely reflects demographic factors — such as the aging of the population — participation has fallen more than many observers expected and the interpretation of these movements remains subject to considerable uncertainity.”

The doves are in control and neither political unrest nor war nor famine will keep them from flying this market higher.