Will history view yesterday significant for often times it is the seemingly insignificant event is the one that changes perceptions.

The German government auctioned 30 year bonds with a coupon of 0.00% at negative yield of 11 basis points.  Germany had planned on offering $2 billion in bonds but only $914 million were bought thus the Bundesbank said the auction “technically failed” the first such failure for any G-7 central bank auction since WWII.

Tuesday the world’s largest pension fund fund—Japan’ Government Pension Investment Fund—announced during the last three months it lost monies in the fund because of declines in all three major asset classes that was thought was almost impossible to occur…fixed incomes, equities and foreign exchange, partially the result of negative yields and valuations that “just do not make sense.”

After the failed German government bond auction and the announcement from Japan an “unnamed” senior ECB official stated “Getting rich off of the greater fool’s theory has been a wonderful strategy but will this strategy may now meet a violent and untimely death.”

FRB Chair Powell speaks tomorrow at Jackson Hole.  The market is anticipating that FOMC will lower rates by 0.75% by year end.  Will the Chairman dispel this notion given that the data is accelerating and the “headwinds” has yet to hamper the “robust” domestic economy?

As written the other day, the FRB Chair is potentially in a lose-lose position.

Many are arguing that technology is the panacea, the fail safe investment medium.  Ninety percent of equity volume is the result of algorithmic trading according to the SEC.  Ninety nine percent of Treasury trading is the result of technology.   I will argue if this is indeed the case why the great distortion in the markets?

AQR, the pioneer of factor and algorithmic trading, has struggled in recent years, partially the result of the massive influx of competitors utilizing similar parameters.  What is this suggesting?

It is often written the most obvious conclusions are those that are ignored.

The Minutes from the recent FOMC meeting were released, Minutes that largely met expectations.  The release did little to change the market outlook of three additional cuts by the end of this year even though comments were upbeat stating the labor market was “strong,” economic activity was “robust,” incoming data have been largely positive, and the economy has been resilient in the face of ongoing global developments.  So as expected, the concern is all about future risks, not so much past data.

Commenting about market action, equities rose as Target exceeded profit and revenues expectations offering further evidence that the economy is not about to fall into the abyss.  Is this perception the opposite of that of fed funds futures?  Treasuries were essentially unchanged.

Last night the foreign markets were down.   London was down 0.60%, Paris down 0.35%  and Frankfurt down 0.03%.  China was up 0.11%,  Japan up 0.05%  and Hang Sang down 0.84%.

The Dow should open nervously lower.  The new word is “optionality” which essentially means there is no set course and everything is dependent upon the data.  This is the inverse of the last 12 years of spoon fed Federal Reserve policy, perhaps shattering the illusions of the central babk being both omniscience and omnipotent.  The 10-year is unchanged at 1.60%.


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