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"Some Falling Knives Are Not Meant To Be Caught"

Yesterday afternoon saw the world and his asset-gathering mum surging to business media TV to calm their commission-paying customers that all-is-well, the worst is over, BTFD, and "see, stocks have made a bottom" as equities surged marginal-call-squeeze-driven into the close. However, they forgot that Europe would open again... As Bloomberg's Richard Breslow notes, "not all falling knives are meant to be caught" noting that the drip, drip of troubling news overcame the desire to pick an extreme and wait for verbal intervention. There is lots of commentary about overbought bonds and oversold stocks but with five different Fed speakers set to jawbone today, we suspect confusion will be the order of the day.

 

 

Via Bloomberg's Richard Breslow,

Depending on when you got up, things were bubbling along nicely, then suddenly everything went bump, and another nasty selloff hit equity prices; if 1,000 cuts can slow you down, imagine 1,000 stabs, the drip, drip of troubling news overcame the desire to pick an extreme and wait for verbal intervention, Bloomberg’s Richard Breslow writes.

 

One of the reasons we are in this position was highlighted by RBI’s Rajan: Central banks should focus on the short end, allow the long end to take care of itself; one thing we’ve done is try to manage the long-end; has unintended consequences which are now playing out because no one can figure how we get 10Y below 2% back to some normal level, anyone who got stopped out in Treasuries yesterday knows they are overbought, that is part of the problem

 

FED: Five different policy makers speaking today, will likely leave us with the conclusion that they are as confused as we are; may think they are calming the markets, but the only ones pacified are the computers searching out catch phrases

 

OVERBOUGHT BONDS: Lots of commentary how bonds are overbought, technicals at extreme levels, signal tactical shorts, strategic shorts; everyone knows they are overbought, no need to point that out when people have been crucified; if UST futures are going to collapse, missing first two points is not going to kill you and may save your life if they don’t go down anytime soon, definition of a strong trend is staying over bought/sold for a long period

 

Advising people to sell here ignores reality that they’ve sold many times, as I stare out at the pelting rain, I wonder how much powder is staying dry

 

When calculating how much risk you are taking, vol is one of the crucial components, with increased vol, market is having very difficult time re-evaluating its risk tolerance levels and strategy to deal with it

 

Sticking with what seemed to work for previous five years; this is a very difficult adjustment process and has a lot to do with fact that we are incredibly computer oriented, these markets aren’t going to be normal until this decays out of the time series

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With liquidity non-existent, we suspect deja vu all over again today.