WEDNESDAY 3/12/14; 10-Year Note Auction

Australia consumer sentiment drops and sends the Aussie dollar down for four consecutive days. Aussie bonds advance as traders seek perceived safety. Japan consumer confidence drops. The dollar/yen is under 103 so the stronger yen creates weakness in Japan. NIKK pukes -2.6 falling under 15K. The Shanghai and Hang Seng Indexes finish lower. China’s shadow banking debt may be between 200% and 300% of GDP. China likely does not have the money for such a huge bailout. There is no way of knowing since China hides all the numbers. Dollar/yuan 6.1444. China continues taking steps to allow interest rates to float more freely.

The Chinese steel mills are sold off and oil refiners are hit. Copper continues dropping down to 2.91. WTIC crude oil drops under 99. Brent oil loses 108. The drop in commodities places the deflationary scenario firmly front and center on the global economic table.

Turkey violence increases after a 15-year old boy dies that was comatose after being struck in the head with a tear gas canister. Protestors take to the streets to grieve and turn their anger towards PM Erdogan. The Turkey anti-government protestors use young Berkin Elvan’s death as a rallying cry. Signs are displayed calling Erdogan a killer and referring to his government as corrupt and fascist. The government uses water cannons against the crowds and police block Taksim Square in Istanbul to prevent the protestors from taking over the center of the city. Interim Ukraine President Yatsenyek meets with President Obama today to receive $1 billion in loan guarantees. The Russian Ruble is 36.5151continuing to weaken similar to the 1998 financial crisis.

Unicredit reports a record loss and drops -1%. Banco Popolare -1%. Italian banks are selling off on weak results. Spain reports a tiny tick higher of +0.1% in CPI but this will not alleviate deflationary fears. The euro is 1.385 and will not move lower which creates concern for European manufacturers and exporters. European major indexes all begin the day on the negative side down from -0.5% to -1.5%. UK IPO Poundland begins trading and catapults +20% higher. IPO Pets at Home is not so lucky dropping -2% on its debut. Tod’s net profit drops so it is beaten -4%. Ferragamo beats on earnings but the results are lackluster overall.

At 4:30 AM, US futures are flat. Europe is selling off following Asia weakness. Dollar/yen is 102.95 so the 103 pivot will be important today. The 10-year yield is 2.76%. Gold is 1358 as China concerns increase. BA receives a $4.4 billion order for 737 airplanes from SpiceJet. The State of Texas tells investors to avoid bitcoin. Pimco’s Gross is selling Treasuries expecting higher yields moving forward due to the Fed tapering while another bond king, Jeffrey Gundlach, says Treasuries will rise moving forward (yields lower). One will emerge as the true bond king over the coming months.

Malaysia conducts a press conference concerning the missing Flight 370 airplane......




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The VIX drops under the 200-day MA helping equities to recover. The dollar/yen pushes higher over 102.80 so the major indexes rally off the bottom back to the flat line. Consumer discretionary, XLY, remains weak as well as financials, XLF, both dropping -0.3%. TRAN recovers off the lows and prints on the plus side. AIG loses -1.5% after a downgrade by DB. GS upgrades Rite Aid with a target of 8. RAD pops +6% to 6.82. MLP’s continue to fall out of bed. ATLS is down -1% and down -17% in less than one month. A US court orders the flamboyant ex-GS vice president Fabrice Tourre, the Fabulous Fab, to pay $825 million in fines for defrauding investors with subprime mortgage products.

The 10-Year Treasury Note Auction yields 2.73% and is well received. Traders are seeking the perceived safety of notes and bonds over the last three days (yields moving lower). HLF is halted from trading. The FTC announces an investigation into Herbalife. NUS is also halted and then plummets -15% intraday when reopened; down -3% on the day. Traders grow anxious as the market makers cannot decide on an opening price for Hebalife. HLF opens for trading and collapses to 55 down -11% on the day. Both HLF and NUS are selling off on very strong volume.

The broad indexes stumble sideways in the afternoon. The VIX continues fighting at the 200-day MA at 14.70 and will send equities in the opposite direction depending on which way it pivots. The VIX prints below 14.70 during the afternoon which sends equities higher. The dollar/yen is 102.75 preventing equities from selling off to any great extent. The SPX gains less than a point flat on the day. The Dow loses 11 points flat on the day. The Nasdaq and RUT small caps both gain +0.4%. VIX 14.47. XLF and XLY end negative.

Earnings results dictate the following moves; WSM +7%, KKD +2.4%, ZGNX -22% and EXPR -12%. HLF finishes the day down -7.4%. TSN CEO Donnie Smith says beef and pork prices will continue higher. Meat demand remains high in the US which helps producers and stores pass on the higher cost to the consumer. As prices rise, folks will buy more chicken instead of beef.

Warning signs are showing that the high-yield bond market is overextended but bullish traders shout down naysayers and say the party will continue. FINRA places a hold on legal cases and arbitration hearings concerning failed Puerto Rico closed-end bond fund investments. FINRA simply does not have the man power to handle the volume of cases. The missing Flight 370 mystery continues. Satellite images show potential plane wreckage in the ocean so perhaps the mystery will be solved over the coming hours and the families can receive closure.