Something Is Cooking
By now it has made the rounds that both Super Mario and Thomas Jordan, chairman of the "Zimbabwe of the Alps" (h/t Jim Grant) suddenly have found out they are either too busy with urgent work or have prior engagements that keep them from appearing at Jackson Hole.
This is potentially quite significant, as whenever these guys postpone long awaited public appearances at important meetings, they are hatching out something big, which they then spring on us mere mortals at the earliest opportunity. The Jackson Hole pow-wow certainly qualifies as an important meeting, as all the CB bigwigs tend to go there, accompanied by a gaggle of academic apologists for central monetary planning who give them new ideas. Everybody gets to hold a speech or present a paper, and we can be fairly sure that the informal gatherings are inter alia used to talk about policy coordination.
So it is definitely meaningful when a number of the more prominent CB chiefs are too busy to put in an appearance. The only ECB governing council member planning to show up is actually BuBa chief Jens Weidmann of all people, presumably because he would only get in the way of whatever Draghi is cooking up.
In a recent interview in German news magazine Der Spiegel, Weidmann continued to strongly argue against any type of sovereign bond buying by the central bank, so he obviously would have nothing to contribute to whatever the ECB is setting into motion (we already know more or less what the plan is after all). On September 6, he will be outvoted again, and his German colleague Jörg Asmussen will be one of those voting against Weidmann (we plan to soon write about Mr. Asmussen in more detail).
Credit Markets and "Risk" Assets in Pregnant Pause
In anticipation of Heli-Ben's Jackson Hole speech and the upcoming ECB and FOMC rate setting meetings, markets have gone into a kind of pregnant catatonia. This usually means that big moves are imminent.
For stock market bulls there are a few obvious problems: speculators hold the largest net long position in stock index futures in 16 months and there is a plethora of technical divergences in evidence (the latter has been the case for some time, but that does not detract from the importance of this observation – on the contrary, a lot of potential energy has now built up).
Of course growing doubts about technical dubiousness could yet give way to short term enthusiasm in the event of the Helicopter pilot intimating the imminence of a sizable money drop. However, we lean toward expecting him to resort merely to rehashing the usual platitudes about how he stands ready to drown us in more money from thin air as occasion demands.
Which as it were is what he has been doing since practically forever, so he might as well refrain from mentioning it over and over again. Lately there seems to be a bit of a consensus emerging that he will actually disappoint on that score, but we"re not sure what to make of that. Obviously it is quite a tricky juncture.
5 year CDS on Portugal, Italy, Greece and Spain – CDS on Spain and Italy have caught a bid, but there is not yet a lot of oomph behind it.
Our proprietary unweighted index of 5 year CDS on the senior debt of eight major European banks [BBVA (NYSE:BBVA), Banca Monte dei Paschi di Siena (OTCPK:BMDPY), Societe Generale (OTCPK:SCGLF), BNP Paribas (OTC:BNOBF), Deutsche Bank (NYSE:DB), UBS (NYSE:UBS), Intesa Sanpaolo (OTCPK:IITOF)and Unicredito (OTC:UNCIF)] – (white line), compared to 5 year CDS on the senior debt of Goldman Sachs (NYSE:GS) (orange), Morgan Stanley (NYSE:MS) (red), Citi (NYSE:C) (green) and Credit Suisse (NYSE:CS) (yellow) – a smallish rebound in this group as well.
The Russel 2000-SPX ratio – small caps are still lagging badly.
The NYA-SPX ratio – the broader market is lagging even more.
SPX daily – the pregnant pause.
The dollar value of the commercial hedger stock index position (inverse scale) plus a stochastic oscillator – this is the biggest net short position since early 2011.
Nomura's nine-component leading index for China (CLI, white line), the Hang Seng Index (orange line) and the Shanghai Composite (yellow line), a very long term version of the chart we have shown in the last chart update.
Addendum: An Interesting Chart Analog
Market Anthropology is following an interesting chart analog – an overlay of the 2007 market action with the current market. It is downright eerie at first glance, but it is well known that patterns in the stock market often repeat – note that this does not necessarily mean the analogy will persist. There are a number of other interesting charts there as well.