Learn From A Trading Guru! Watch Larry’s response to this week’s questions about risk capital and market profiles.


Click to Watch:


Well things are back to “normal” for the time being. Earnings disappointments, check. Bad economic news, check. Market rebound, check. Another Central Bank sticksave, check.

Yesterday it was IBM, today it is the other consumer-spending bellwether, Coke, to disappoint on earnings. But Coke didn’t just miss, it missed big, reporting $11.98 billion in sales, well below the estimated $12.12 billion. In addition, they had warnings about the future, guiding “below its long-term EPS growth target for 2014.”

Of course the shakiness of the consumer driven recovery in the US has helped to push stock index futures higher overnight.

From Zero Hedge:

Moments after Europe’s open, when once again the equity futures complex was threatening to break the upward trendline, after USDJPY took out stops and sliding below 106.3, pushing bonds both in Europe and the US to intraday highs, and the ES to session lows just above 1890, and then… here comes the ECB rumor cavalry, this time in the face of Reuters which blasted the tape with:


And because in this centrally-planned market no amount of GPIF or ECB doing what everyone knows they are doing headlines can not surprise the algos, ES has soared over 20 points from the overnight lows and is now solidly above the 200 DMA which was the clear intention of this latest sticksave.

Ironically, this happens even as the “pundits” interpret yesterday’s stronger than expected Chinese data as indicative of more China stimulus, not less! As Bloomberg summarized, “stronger-than-estimated economic data failed to convince analysts that China’s authorities will refrain from introducing more targeted measures.”

So first it was China reported better than expected goal seeked GDP “data” (if still the worst since 2009) which was evidence of more stimulus, not less, and then Reuters leaked today’s central bank “all green to buy stocks” headline.

To summarize: the S&P 500 is now almost 100 points higher from last Tuesday as the global central bank plunge protection team of first Williams and Bullard hinting at QE4, then ECB’s Coeure “ECB buying to start in a few days”, then China’s latest $30 billion “targeted stimulus”, then the Japanese GPIF hinting at a 25% stock rebalancing in the pension fund, and finally again the ECB, this time “buying of corporate bonds on secondary markets”, rolls on and manages to send stocks into overdrive. Even as absolutely nothing has been fixed, as Europe is still tumbling into a triple-drip recession, as Emerging Markets are being slammed by a global growth slowdown and the US corporate earnings picture is as bleak as it gets.

As hockey fans here in Chicago, we know the importance of a good goalie to win Stanley Cups. The Blackhawks have two in the past five years. Imagine if they had Central Bankers minding the net….can you say guaranteed championships?


Equities were not the only market that experienced high volatility last week; the bond market did as well. At one point, the 10-YR Note shocked the market by violently trading below the 2% water mark.

I believe that a great deal of that volatility was due to the sell-off in stocks, which was due to the ending of QE3 Treasury purchases, which may have sparked a short-covering rally due to one very short and very large fund. A short-covering rally in bonds forces the price higher but the yields lower, which created the sub 2% trade, albeit temporarily.

Along the same line, I read an interesting article about the Treasury market and some of its major players that you may find interesting.

Given the Fed will complete it’s “taper” shortly…the topic of who has bought, who owns, and who will buy US Treasury debt seems important.

The 1st slide shows the four classes of US Treasury buyers. (If you would like to see all of the charts, please go here It shows who purchased what since ’00 cross referencing the blended interest rates on the Treasury curve. As yields have collapsed and the alternative markets (stocks, RE, corporate or junk bonds) have improved or offered more attractive returns…only the Fed and Foreigners have continued to accumulate Treasury’s. I included the Fed’s $667 Billion in Operation Twist long bond purchases (paid for from selling all their short paper) to show the power and magnitude of the Fed’s purchases since 2011…

OK, let’s follow CBO assumptions that debt creation will continue at present levels or slightly higher til say, infinity. Who will buy the new and rollover debt? Since the yields are too low for most Public pensions or insurers or institutional buyers and without a major market downturn; they are not likely to step forward. The Intra-Gov purchases will be limited by slowing or negative Social Security surplus’ so no buyer there. And the Fed’s taper is nearly complete and the Fed will be looking to “normalize” their balance sheet by directly selling or slowing rolling off their holdings. This leaves only ”Foreigners” to maintain the Treasury bid for the vast majority of new issuance plus Fed’s “normalization”. But which “Foreigners” have been buying since ’11?

What is noteworthy about this list is that almost none of them have excess Foreign Exchange Reserves with which to purchase the US Treasury’s. And note below those running surplus’ are net sellers (UK is typically a false front for Chinese purchasing or selling).

What is noteworthy about this list is that almost none of them have excess Foreign Exchange Reserves with which to purchase the US Treasury’s. And note below those running surplus’ are net sellers (UK is typically a false front for Chinese purchasing or selling).

This would seem to imply America has 3 basic options to avoid an interest rate shock on it’s $17.8 Trillion in debt and continue it’s low interest rates supporting it’s housing market, stock buybacks, etc..

1- Belgium, the Cayman Islands, Luxembourg, Ireland, and the like nations continue to “buy” US Treasury’s with dollar reserves they don’t have?!? If nobody has questioned this one so far, maybe they never will???

2- The Fed backtracks on it’s taper and re-initiates the printing presses. Seems Fed has carte blanche to monetize as they see fit???

3- Markets collapse making Treasury’s once again the “safety” bid. This seems the likeliest scenario if neither of the two above options are employed.

Things are only getting curious and curious-er indeed!!!

Given the heightened vol in the bond market, it deserves more scrutiny.


Wednesday’s markets – all of them – were absolutely crazy, or cra-cra as the kids say. The energy markets were mad yesterday, while stocks and BONDS went ape-sh*t today.

As Rod Sterling may have said: There is a fifth dimension beyond that which is known to man. It is a dimension as vast as space and as timeless as infinity. It is the middle ground between light and shadow, between science and superstition, and it lies between the pit of man’s fears and the summit of his knowledge. This is the dimension of FALLING equity values. It is an area which we call… “The Cra-Cra Zone”.

Perhaps a series of headlines will give you a flavor of the volatility…

• CDC admits to a 3rd Ebola victim on US soil.

• European stocks collapse on German recession.

• Winter is coming and it’s going to be cold again. (Polar Vortex 2.0)

• Oil prices collapse as global growth falls.

• US 10-YR Yield collapses.

• NY Fed Manufacturing data plunges; biggest miss in more than 3 years.

• Greek stocks crash 9%! Is Greece fixed?

• Retail Sales were 3 times worse than expected.

• Remember…cold weather is coming. Screw Ebola, like the idiot economists we fear winter!

• Business Inventories less than expected.

• GDP forecasts revised lower.

• 10-YR Yield crashes to 1% handle!

• “In the first 15 minutes of trading the S&P 500 E-Minis traded below the S&P 500 cash index despite a fair basis, according to Bloomberg, of -6.72. This is unheard of and something I have never witnessed in my near fourteen year career on the Street. I can only conclude that many large institutions threw in the towel on the Open in wake of the dislocations in not only stocks but also treasuries.” – FBN’s Chief Market Strategist

• Don’t forget – winter is coming. Oooohhh, scary!

• Fed-Head regurgitates QE4 idea.


• …aaaand stocks rally into the close as Central Planning is there to coddle all of the petulant children on Fraud Street.

A friend asked me why the markets fell like a stone today and I answered: “Well Jim, it’s like this: The market ignores everything, until it can’t ignore it any longer – then it all crashes together.”

Larry Levin

Park the Prius and pull the SUV out of the garage.

Oil prices posted their biggest one-day drop in nearly two years Tuesday as a U.S.-led wave of crude has crashed into weak global demand, threatening the stability of some countries and providing an economic lifeline to others.

Tuesday’s slide of 4.5% by U.S. crude oil to $81.84 a barrel on the New York Mercantile Exchange left the price down 20% since the start of June. That was the lowest closing price since June 2012, and some analysts predict the price will fall as much as $10 a barrel lower.

So what does this mean for the tumbling stock market and today’s trade? From Zero Hedge:

For the fourth consecutive night, futures attempted to storm higher, and were halted in their tracks when the USDJPY failed to rebound from the recalibrated 107 tractor beam, following a statement by the BOJ’s former chief economist and executive director (until March 2013) who said that now is the time for the Bank of Japan to begin tapering. Needless to say, there could be no worse news to bailout and liquidity-addicted equities as the last thing a global rigged market can sustain now that QE is about to end in two weeks, is the BOJ also reducing its liquidity injections in the fungible world. This promptly took away spring in the ES’ overnight bounce.

But the nail in the coffin of the latest attempt by algos to bounce back was the news which hit two hours ago that a second Ebola case has been confirmed in Texas, and just as fears that the worst is over, had started to dissipate. Expect transports to continue their bipolar moves, and following yesterday’s jump – the best in one week – today will be profit taking day ahead of what is increasingly shaping up to be a big “one-time, non-recurring” fourth quarter EPS crash for airlines due to the great Ebola scare of Q4.

Looking at the day ahead, we have the Beige Book, Retail Sales, Empire state survey, and the monthly budget from the US. Other than Germany’s inflation data it should be a quiet day for European data flow. Draghi’s speech in Frankfurt this morning will also grab some attention. In terms of earnings Bank of America, American Express and eBay are probably the highlights.

Whatever happens, it will be a bumpy ride. Good thing the gas is chea


Often bizarre, always baffling and generally broken, the financial markets and the economy, the subject of these missives, have provided me with plenty of material.

Well, now the financial analysts and other mainstream players have also ditched the traditional jargon and are reaching for artistic and creative references.

From Bloomberg:

Ed Yardeni cited “The Wizard of Oz.” International Monetary Fund Managing Director Christine Lagarde went with both “Alice in Wonderland” and Harry Potter. Stephen King — the HSBC Holdings Plc chief economist, not the author — trolled the fantasy aisle.

Their message for investors: Even after the MSCI World Index’s lurch to its lowest since February, sentiment risks souring for a while longer. The reason is that just as global growth is weakening again, central bankers who sustained much of the expansion are running out of ammunition.

“Investors around the world are shocked, shocked that the monetary wizards may have run out of magic tricks to revive global economic growth,” said Yardeni, president and chief investment strategist at Yardeni Research Inc. in New York. “Even the wizards are admitting that their powers to do so are limited.”

To King, markets spent most of this year caught up in a fairy tale that policy makers were on top of things.

In the rosy scenario, the Federal Reserve would next year cool U.S. growth with tighter monetary policy and the European Central Bank would revive expansion with quantitative easing. Everyone would win.

“Like most fairy tales it can’t be true in reality,” King told a conference in Washington last week. “There’s something wrong with it.”

A case in point is the reliance of the ECB on the weaker euro to deliver an economic boost. That’s not likely to work because what matters is its trade-weighted value. On that basis, he calculates sterling and the yen both fell 20 percent when their authorities pursued easier monetary policy in recent years.

The problem for the ECB is that countries are now more resistant to their own exchange rates strengthening. Switzerland and the Czech Republic are capping their currencies against the euro; Sweden is unhappy with gains in the krona. The Bank of Japan would likely push back against any gain in the yen. Australia and New Zealand also have signaled disquiet with strength in their dollars.

To compensate for all that, the euro would have to fall to parity against the greenback.

“That’s way bigger than anything that anyone is currently forecasting,” says King, whose colleagues forecast the euro to fall to $1.19 by the end of 2015 from $1.27 today, which would amount to a 3 percent decline on a trade-weighted basis.

The upshot? Either the ECB’s stimulus efforts fall short or the dollar goes through the roof, preventing the Fed from raising interest rates and hitting dollar-reliant economies in Latin America and China.

Spinning a real-world warning from the film “The Big Lebowski,” Alberto Gallo of Royal Bank of Scotland Group Plc tells investors “you’re entering a world of pain

Okay, since we have Big Lebowski references being tossed around by European Bankers…Maybe things are actually getting better!


As the bond markets are closed today to honor the Spaniard that discovered America, the announcement was made by the Swedes to honor a Frenchman. How very international.

Jean Tirole has won the 2014 Nobel Prize for economics for his work that has shed light on how governments should regulate powerful companies that dominate markets, the Royal Swedish Academy of Sciences said on Monday.

Tirole’s research showed that market regulations should be carefully adapted to the conditions of specific industries, rather than general regulations such as price caps which can do more harm than good, the academy said.

Speaking of “regulated” industries… unless you were lost at sea attempting to re-enact Columbus’ voyage, you know that volatility has officially returned to the market. For a quick review, the market has rallied, sold off, rallied, and sold off, all in one week.

It was choppy waters, but in the end every rally failed, so the market ended the week on its lows. Even the October 8th rally of 274 points reversed direction the next day. It was a monster rally based on the FOMC minutes, which revealed member’s concern for global growth. Got that? The market rallied on bad news. In the mixed-up world of Wall Street, that meant interest rates would remain low. Unfortunately for the bulls, the next day the market fell by 334 points. That’s volatility!

We will see how this plays out for the week ahead, the banks are closed today so there may be calmer seas on Monday, but this turbulent voyage is far from over.

It doesn’t take a Nobel Prize in economics to recognize that these manipulated markets have a mind of their own and that the central banking nannies have a very specific agenda.


Nearly everyone reading this has experienced the ups and downs of a roller coaster. On the way up you hear the tracks beneath you make a clickity-clack sound as the the car is dragged up to its pinnacle, slows, then crests, and finally plunges at a very high rate of speed. This is exactly what is happening to the stock market these days and I believe makes a good analogy.

Wednesday was the day that we heard the roller coaster car being dragged up, clickity-clack clickity-clack, with its engine, the central planning Federal Reserve, working in over drive. But that wasn’t the only day; the following recent days were the same: 9-24, 9-26, early 9-30, late 10-02, 10-03, and lastly 10-08 as the FOMC promised more funny money from the priests of central planning.

That “WOOOOSH”sound you heard in-between those dates was the sound of your 401k dropping like a rock, excuse me, dropping like tourist on the Takbisha roller coaster at a 121° angle in Japan.

I often mention volume in these missives, or the frustrating lack of volume and volatility, that seem to go hand in hand. When volume is abysmal, the market floats higher on a cloud of hopium. Only when volume increases by a large margin does the market seem to fall, as all the rats want to simultaneously jump off the sinking ship.

A study was recently done by FBN on this exact subject and guess what? I was correct. The FBN study found that when the ES averages less than 2 million trades per day, it climbed 496 points; when volume averaged more than 2 million trades per day, it fell 355 points.


Wednesday was quite a day. Those of us who were up early enough in Chicago were treated to a pretty rare site – a “blood red moon.” Once the market was open, we saw another rare site, which was the stock market ripping about 270 points higher, after a roughly 270 point decline the day before. The reason for the rally, however, was not rare: the FOMC was promising more “stimulus” in its FOMC Minutes that were released at 2pm ET.

Below are a few bulletins that sparked the mega-rally.




Moments after the release of the minutes, John Hilsenrath of the Wall Street Journal penned a lengthy article on the subject, some of which follows.

Federal Reserve officials have become more concerned about weak growth overseas and the impact of a strengthening U.S. dollar on the domestic economy, according to minutes of the Fed’s September policy meeting released Wednesday.

Officials worried at the Sept. 16-17 policy meeting that disappointing growth in Europe, Japan and China could crimp U.S. exports. Meantime, the stronger currency, by reducing the cost of imported goods and services, could hold U.S. inflation below the Fed’s 2% objective. Fed staff also reduced its projection for medium-run growth in part because of these concerns.

The collective worry is added reason for the Fed to hold short-term interest rates near zero, even as the economy improves. (So the Fed does not care about economic growth as much as it cares about screwing you all with higher inflation, especially on imported goods. Therefore, ZIRP for much longer.)

These worries about global growth and the economic impacts of a strong dollar represent a new twist in the Fed’s running debate about when to raise short-term interest rates. Officials spent much of the summer discussing the timing and mechanics of rate increases. Many officials expect the first rate increase by mid-2015. An improving U.S. job market led some officials to press for earlier increases.

The minutes showed more clearly than before that concerns about global growth and the disinflationary impact of a strong currency are giving officials additional pause about moving quickly on rates.

“The appreciation of the dollar and weakening of foreign growth prospects,” in addition to low energy prices, will collectively “damp inflation pressures,” William Dudley, president of the Federal Reserve Bank of New York, said in a speech Tuesday at Rensselaer Polytechnic Institute. (And we can’t have lower inflation, right!?)

Mr. Dudley added that “the appreciation of the dollar is likely due in part to increasing confidence that growth prospects in the U.S. have improved,” and as such, is a positive vote in favor of the American economy. (So an appreciating dollar shows confidence by millions of individuals? Check. The oh-so-few on the FOMC know better than the millions? Check…and pathetic)

Expect more volatility! And if this mega-rally can hold through Friday’s close, the S&P is probably on its way to new all-time highs.


Are there no rabbits left to pull out of the hat? Have the buyers left the building?

Tuesday was jarring for bulls as the DJIA had it’s worst day in more than two months, settling at the lowest levels since mid-August. The S&P 500 is now sitting 3.8% lower than its peak reached just three weeks ago. What gives?

Is the collective “we” waking up to the reality that the failed central bank policies of the past won’t fix the current economic problems? Speaking of failures, the third quarter was NOT a good time to be in an actively managed mutual fund.

From Barrons:

The 8,112 diversified U.S. equity funds, with a collective $5.9 trillion in assets, lost 1.95% for the quarter, while Standard & Poor’s 500 index funds returned 0.99%.

This was the first loss for actively managed stock funds since the second quarter of 2012. But it was hardly the first time that active managers failed to beat the broad market; they trailed index funds in seven of the past 10 quarters.

Judging from the direction of fund flows, investors are worried that the bull is getting fatigued, which isn’t so surprising after a five-year run. According to data from Lipper, $12.9 billion flowed out of domestic equity funds in the quarter, while $25 billion flowed into money-market funds, even with interest rates near zero. The move into cash reversed the trend from the first six months of the year, when nearly $150 billion flowed out of money markets.

That’s an F for funds.