23 September 2014
SP 500 and NDX Futures Daily Charts - Air Continues To Come Out of Post-Alibaba Markets
The air continued to come out of the point men on the recent stock market bubble as the SP 500 led the markets lower today.
As you may recall, in the 1990's Robert Rubin established that one could pump up the market most efficiently by buying the SP futures, and in a sense forcing all the index followers and funds to buy stocks to keep up with that trend. It has been used any number of times, and I suspect is still in the back pocket of the Exchange Stabilization Fund, aka 'The Plunge Protection Team,' as a tool for 'saving the markets.'
As Rubin's dictum went, it was cheaper to pump up stocks in a falling market, rather than coming in after the fact and repairing the post bubble damage with a genuinely productive effort, or even a bail out.
The market makers have certainly learned that lesson and they have pumped up the US equities, at least selectively. One can see this in the first chart tonight, which shows the ratio of the SP 500 to the Russell 2000. This has been a fairly selective rally, and as you know I suggested we would see the market makers, who all have a keen interest in the success of Alibaba IPO, smoothing the way for it.
Alas, I think that the leveraged buy of the VIX I had put on for this post-Baba world worked, but I took it off a bit too quickly as VIX climbed a bit more today. Well, I am not comfortable with these triple play derivatives which are generally designed to lose money, and ten percent is ten percent.
So what next? Now the air starts coming out, and Alibaba starts moving back down towards its original IPO price point of $68. The actual price doesn't matter all that much. It is not clear after looking over the structure just what the hell the holder of the stock actually owns if anything, except for a piece of a shell corporation in the Cayman Islands. It is like a modern derivative, a betting vehicle, more a state of mind that a productive piece of anything when push comes to shove. It has all the substance of a punchboard or hoop and bottle in a carny game.
I thought it was telling that the US got the IPO business because Hong Kong was too fastidious to allow an IPO on their exchange with such an odd ownership structure. Scams 'R Us - With subsidiaries in London and Frankfurt.
None of this, and I mean absolutely none of this, is doing the public or the economy of the United States or anywhere else any good, except perhaps for small segments of Manhattan and the City of London. It is merely a vehicle for diverting even more of the central banks' stimulus directly into the pockets of the one percent.
And the world will reap yet another bubble, blood and tears.
Have a pleasant evening.
Posted by Jesse at 4:23 PM