Art Cashin says panic in stocks has people selling whatever they can.

May 12 (King World News) – Art Cashin, Head of Floor Operations at UBS:  Overnight, global markets are stable to very marginally higher. In fact, by my early scan, only India seems to be trading nervously. There are several factors in this. Number one, the cryptocurrency looks to have become more stable. There is speculation that today’s important CPI will not be particularly harmful. The prior month had seen 8.50%. The conventional wisdom for today is that it comes in at 8%, none of which should be a magical milestone for either stocks or bonds, but it will be focused on very carefully as well as tomorrow’s inflation data. 

Jim Paulsen has a nice piece, in which he points to the beginning of an apparent separation between the influence of very short term yields and yields on the ten-year and that may be why the link between bonds and equities has become a good deal more elastic. No longer on straight tick by tick basis. We have a ten year auction today so traders will watch to see how that trades and how the demand looks. 

The rest of the calendar away from the inflation data will be crude inventories. By my look, only one Fed speaker and I think that is Bostic from Atlanta. 

So, we will continue to watch the crypto markets and the futures. The fact that they held relatively steady even though they broke marginally below the previous day’s lows maybe contributing to some of the “buy the dip” tempering this morning. Keep an eye on the lows. If markets turn weaker that would be Dow 31880; S&P 3955 and Nasdaq 11580. We will continue to watch those cocktail napkin levels. 

Otherwise, geopolitics looks like it has been quiet since Putin’s failure to make waves on Victory Day, and we will watch how elastic the relationship between bond yields and the stock market becomes. While we had a decent pop in the futures this morning, the bulls will have to circle the wagons and make sure that things hold. 

I don’t think the 8:30 data will necessarily be a gamechanger. It will need reinforcement from tomorrow’s data. 

Lastly, on a non-immediate market concern, there is emerging criticism on the China/Covid lockdown policy, including that it may not be very effective. There are new Covid outbreaks in South Africa and others coming and warnings that even we here in the U.S. might see another major outbreak as we move into the fall. 

In my mind that raises a key question – what the heck happened to “herd immunity”? You recall that was when the number of vaccinations and antibodies from previous bouts of Covid would combine to give the herd a kind of generalized immunity as the virus would find fewer and fewer easily available hosts. That was supposed to come up and basically end the virus as a serious threat. The Covid situation has not been science’s finest hour. 

So, stick to the new drill. Stay near the newsticker. Keep your seatbelt fastened and stay safe. 


Late Morning Summary Circa 11:55 a.m.
Before we get to this morning’s action, I think it is best to review the personality change we have seen in the market.  Regular readers will recall as recently as last week, the equity markets were slavishly following each move in the ten-year yield, virtually tick by tick.  They followed with little question and in some cases even ignoring relative news.  That changed on Monday when the stablecoin situation began to unfold and, we saw the rather aggressive selling.  It certainly looked like a liquidity squeeze.  We remarked on that at the time.  You can see people were selling whatever they could and the old Wall Street axiom – when you can’t sell what you want to, sell whatever you can, including your grandmother’s necklace.

We didn’t realize instantly on Monday that it was the cryptocurrencies that were behind it.  That has become evident and apparently that selling was an anxiety about potential Long Term Capital Management type squeeze developing.  What happened as that began, the market then looked at the ten-year as part a flight to safety and the yield came down markedly.  So, that kind of disengaged it from following the yield on the ten-year since the frightened money was pouring into the flight to safety and, that has continued.  I am not sure that the fear of a liquidity event out of cryptocurrencies will be resolved in one day.  Obviously, in that kind of circumstance, the cards are face down.  So, we may need some further development or a day or two to see if the “crisis” has changed and we are headed back to normal and, we will do that by following things like the action in Bitcoin and other cryptocurrencies.

So, perversely, the longer we go without a liquidity surprise coming out of cryptocurrencies, the more relaxed markets will slowly become.  Perversely, that will then allow them to benefit to some slight degree from the lower yields that were produced on the flight to safety.  It is a bit of an inflection trade off and will resolve over time.

Okay, now back to today’s action.

Further to what we just said, the midmorning comments by Yellen and others that the stablecoin situation did not appear to present systemic risks “as yet”, helped allay some of the markets fears and, allowed us to turn around.  I don’t think a single statement will resolve the issue and it will take a little time for the markets to be fully reassured. 

Nevertheless, it will remain an issue and we will continue to watch the VIX.  Again, on selloffs, it has got to move above 36 maybe as high as 40.

So, for now, we will expect the swings as they follow Bitcoin and its activity.

Stay alert and stay safe.

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