Dow Tanks 724 Points on China Tariff Announcement, VIX Spikes To 23.34 (Trump Wants Quid Pro Quo)

The US plans to impose tariffs on up to $60bn in Chinese goods and limit the country’s investment in the US in retaliation for years of alleged intellectual property theft (such as my book which is sold in China, yet I have never received a penny in royalties). But it is more about inequality in tariffs where China has higher tariffs on US imports than the US has on Chinese imports.

As Dr. Hannibal Lecter once uttered, “Quid pro quo.”


Financials and Industrials led the way down.


The VIX spiked to 23.34.


The media ignores the fact that Fed rate increases coupled with balance sheet decay has helped make the equities markets more fragile.


30-year Treasury Auction Strong With $13 Billion Sold To Public (None Bought By The Fed)

Today’s US Treasury 30-year bond auction was strong. $13 billion were sold to the public  and none purchased by The Fed for the first time since the December 12, 2017 auction.


So far, so good. Despite massive Federal spending and projected budget deficits, Treasury auctions are going well.

The 10-year T-Note Volatility index (TYVIX) has declined to around 4.


Fed Boogie: Cboe Equity Put/Call Ratio Nearing Pre-meltdown Levels

The Cboe Equity Put/Call Ratio is nearing pre-meltdown levels. Since the index measures the volume of equity puts versus calls, it will rise on an increase in bearish bets and fall when demand is greater for bullish ones. The ratio peaked this year at .88 on Feb. 9 following the market’s 10 percent drop to start that month.


The CBOE S&P500 Volatility Index (or VIX) is almost back to pre-meltdown levels too,


The 10-year T-Note volatility index is actually below the February meltdown level, but above the January and early February levels.


The market is stabilizing as The Fed engages in The Fed Boogie.


Interest rates: Get up, get up.


Treasury 3-year High Yield Zooms To Highest Since 2007 on Fed Unwinding

Today’s 3-year Treasury auction brought a high yield of 2.280%, the highest since 2007.


As The Fed keeps to their balance sheet unwinding (via letting notes and bonds mature), the  3-year note high yield keeps rising (rapidly).


Now, the KC Fed’s Esther George (a non-voting FOMC member) wants to speed-up The Fed’s unwind of its balance sheet.

Federal Reserve Bank of Kansas City President Esther George warned Thursday the languid pace of the central bank’s balance sheet shrinkage effort may be causing negative effects on financial markets, in remarks that again called for continued rate increases.

“Asset prices may have become distorted relative to the economic fundamentals” due to the now completed central bank bond buying effort that took place during and after the financial crisis, Ms. George said in the text of a speech to be presented in Lincoln, Neb.

Ya think, Esther?


UPDATE! The 10-year auction showed a slight in increase in the bid-t0-cover ratio, but a nice spike in the 10-year high yield rate to 2.88%.


Double Whammy! 10-year Treasury Bid-to-cover Ratio Lowest Since ’09 As Treasury Borrowing Increases And Fed Tightens

Based on the number of bids that investors submitted versus the amount sold, average demand for 10-year notes has fallen to the lowest since October 2009. (Bid-to-cover  compares the volume of securities that dealers enter bids for to the volume offered for sale).


Treasury supply is further exacerbating what should be a natural move away from the market as interest rates climb.

The yield on benchmark 10-year Treasuries has already risen around half a percentage point this year and was at 2.89 percent as of 7:30 a.m. Thursday in New York.

The government’s financing needs have already started to grow. As a result of the Trump administration’s tax cuts (not to mention the staggering budget deficits under The Bush and Obama Administrations), the deficit is set to widen and reach almost $1 trillion next fiscal year. The shortfall is on top of the almost $21 trillion of debt the U.S. already owes, more than any other country. (Roughly 70 percent of that total is in the form of Treasuries.)


Excluding short-term bills, the U.S. government plans to borrow $62 billion at debt auctions this week by offering Treasuries due in 3, 10 and 30 years. The total is about $6 billion more than auctions of the same maturities in January. The first batch of enlarged sales last month were “noticeably worse” by most measures, Simons said.
Economists have questioned the value of Trump’s debt-financed tax cuts this far into the post-crisis economic cycle, in part because the stimulus is a departure from prevailing theory and the norm in recent decades. Borrowing has tended to decrease when the Fed is raising rates, and vice versa.

And with Fed officials projecting three rate increases this year, the opposite is poised to happen in 2018.


This “double whammy” of Fed tightening and Treasury increased borrowing is not likely to go away anytime soon as Treasury issuance increases and The Fed continues to normalize monetary policy.

The next 10-year auction is today at 1pm. Let’s see if Whammy is still pitching.