August 19. A hard rain’s a-gonna fall

–Tuesday again featured new lows in copper, though oil staged a modest bounce.  US yields bounced as well, with tens erasing Monday’s rally and ending up at Friday’s close of 219.6, up 4.8 on the day.  Volume was sparse. Though oil was up, both RBOB gas and natgas closed lower on the day.  Late comments by Gundlach… says copper and commodity price drops reflect global economic weakness, and ‘China should be a huge concern, it is the second biggest economy in the world.’
–Today’s US news includes CPI, expected +0.2 both headline and core, and FOMC minutes from July in the afternoon.  Though the minutes could read somewhat bearishly, the month of July featured hard sell offs in oil and emerging mkt currencies and increased spreads on junk.  These factors are almost certain to factor prominently in the discussion.
–In terms of China, the news just keeps getting worse.  There’s a piece on ZeroHedge today (link below) that a spate of defaults looms in wealth mgmt products (WMPs).  In terms of size, it seems as though the gov’t can easily backstop any problems.  However, it has a familiar echo to the start of the US crisis, where early signs included problems in SIVs (Structured Investment Vehicles).  From an article almost exactly 8 years ago (8/12/2007) in the Financial Times:   “In a corner of the market few people knew existed, regulators are scrambling to understand what is happening in structured investment vehicles (SIVs), a breed of often huge, mainly bank-run, programmes de­signed to profit from the difference between short-term borrowing rates and longer-term returns from structured product investments.”
–While the financial problems are challenging, a friend of mine who has spent a lot of time in China is a lot more concerned about the possibility of “serious civil unrest”.  He notes that there have been other factory explosions and industrial accidents aside from Tianjin that have never made the news.  Also, the reason Tianjin is so scary is because of sodium cyanide at the factory and the problems caused by its reaction with water (rain).  From the Center for Disease Control website,  “Sodium cyanide releases hydrogen cyanide gas, a highly toxic chemical asphyxiant that interferes with the body’s ability to use oxygen. Exposure to sodium cyanide can be rapidly fatal.”   Want to take your mind off the market?  Skim this:

http://www.cdc.gov/niosh/ershdb/emergencyresponsecard_29750036.html

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I’m a-goin’ back out ’fore the rain starts a-fallin’
I’ll walk to the depths of the deepest black forest
Where the people are many and their hands are all empty
Where the pellets of poison are flooding their waters
Where the home in the valley meets the damp dirty prison
Where the executioner’s face is always well hidden
Where hunger is ugly, where souls are forgotten
Where black is the color, where none is the number
And I’ll tell it and think it and speak it and breathe it
And reflect it from the mountain so all souls can see it
Then I’ll stand on the ocean until I start sinkin’
But I’ll know my song well before I start singin’
And it’s a hard, it’s a hard, it’s a hard, it’s a hard
It’s a hard rain’s a-gonna fall

–Bob Dylan

other links:

http://www.ft.com/intl/cms/s/0/8eebf016-48fd-11dc-b326-0000779fd2ac.html#axzz3jFidpnFk

http://www.zerohedge.com/news/2015-08-18/8-trillion-black-swan-chinas-shadow-banking-system-about-collapse

 

Posted on August 19, 2015 at 5:25 am by alexmanzara · Permalink
In: Eurodollar Options

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