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Five Things You Need to Know: The Mysterious Case of the Absent Bids


What you need to know (and what it means).


Minyanville's Five Things You Need to Know to stay ahead of the pack on Wall Street:

At approximately 5:15 a.m. Eastern Standard Time the telephone rang. On the other end of the line was the narrator of a tale of dire importance, a gentleman detailing a most unusual mystery - The Case of the Absent Bids. We turn now to four clues.

1. A Tulip Discarded in Old Bombay

Our mystery begins near the Suez Canal, in the capital city of Maharashtra. Formerly known as Bombay, somewhere in the streets of the city of Mumbai, a tulip lies in an alley, trampled and discolored.

  • Overnight the Mumbai National Stock Exchange's Sensitive Index (SENSEX) at one point was halted for one hour after a 10% plunge.
  • The Index fell a record 1,111.71 points, triggering an automatic one-hour delay before trading was resumed.
  • The SENSEX closed down 456.84, or 4.2%.
  • The last time trading was halted on the Indian exchanges was May 17, 2004 following elections that brought the Congress party to power with communist allies.
  • Indian police are reportedly watching for brokers and investors who might attempt suicide.
  • In the 1990s, a stock market meltdown led to several bankrupt brokers and small investors committing suicide across India, some of them drowning in rivers or throwing themselves from skyscrapers.

2. Commodities - In for a Penny, Out for a Pound

Commodities, the raw materials of the world in which we live. Also, the tools of modern speculation. In for a penny, out for a pound, they say in London (we are told); the anglicized version of the American aphorism - buy low, sell high.

  • Stock certificates are worth less today than Friday virtually everywhere; but those are mere paper assets, known to bend to and fro, like fields of tulips in the wind. Hard assets are worth less as well, however, and this is where our mystery picks up pace.
  • Spot gold slid nearly $20 in early trading this morning, before recapturing about half that loss.
  • Copper is 2% lower, and down more than 17% since hitting an all-time high of $8,800 a ton.
  • The Reuters-Jefferies CRB Index fell 6.4% last week alone; its largest decline since 1980.
  • Is it a bubble, fueled by speculative excess, as Morgan Stanley's Stephen Roach suggested last week?
  • Is it simply an early whiplash in a long-term secular bull market, as Jim Rogers suggested?
  • Is demand worldwide still poised to outpace supply, helped in part by growth in China and India?
  • Questions, questions, so many questions, with our answer still to come... still more clues below.

3. The Bonds of Love

There is no greater comfort than the security of a government bond in the face of rising volatility and the unwinding of speculative excess.

  • Despite concerns over inflation, government bonds are big winners across the globe.
  • Japanese government bond prices rallied with the yield on the benchmark 10-year issue hitting a two-month low.
  • In the UK, gilt yields were lower in line across the board.
  • In Australia the Commonwealth Government April 2015 bond was lower to 5.690 percent from 5.725 percent.
  • Meanwhile, the dollar is higher and Fed funds futures show the market pricing in about a 64 percent chance the Fed will push the Fed funds rate to 5.25 percent at its next meeting on June 29.
  • So yields are lower while they are expected to go higher?
  • Remember the Fed doesn't control interest rates, the Fed only controls the Fed funds rate; very different matters.
  • What we find interesting about this clue is not the "flight to quality" - a generally meaningless descriptive phrase that simply tells us what has already happened, not what will happen - but instead dissonance created by the common global chord: lower bond yields in the face of global inflation fears.
  • Now why might that happen? For answers we turn to clue number four.

4. Malaysia Gives Us Reason for Pause

Malaysia's central bank unexpectedly left its benchmark interest rate unchanged today. This gives us pause.

  • After three increases since November, ostensibly to keep inflation in check, Bank
    Negara Malaysia kept the overnight policy rate at 3.5 percent.
  • The 3.5% rate is the highest since the introduction of the benchmark rate in 2004.
  • Meanwhile, inflation in Malaysia is near a seven-year high.
  • Malaysian consumer prices rose 4.6 percent in April after gaining 4.8 percent in March, the highest since January 1999.
  • Why stop now?
  • "Bank Negara is pausing to take stock of the situation,'' Wong Keng Siong, an economist at DBS Group Holdings Ltd. in Singapore told Bloomberg.
  • Admittedly, Malaysia is a small ripple in the great sea of global financial markets.
  • But sometimes a small clue can lead us to a more important deduction, which we are only too happy to spell out below:

5. It's elementary, my dear Watson

Our Mystery of the Absent Bids is really no mystery at all. The missing bids have gone the way of liquidity. And as goes liquidity, so goes the bids.

  • When we talk about the concept of liquidity, what do we mean?
  • Central banks across the world "control liquidity" most frequently through the setting of short-term interest rates.
  • Lower short-term rates make it less expensive to borrow money, and the more money available for borrowing, the more money available for speculation.
  • Raising short-term rates makes money more expensive and curbs speculation.
  • What we know is that Japan, having ended its battle with deflation, is withdrawing liquidity from its markets.
  • But that's not all.
  • So is Iceland.
  • So is China.
  • So is the Bank of England.
  • This is no less than a first attempt at a global curb in liquidity.
  • All of which leads us back to the streets of Mumbai and our discarded and discolored tulip lying in an alley.
  • Of all the worlds' stock markets, India's is perhaps the most leveraged to foreign inflows.
  • India has drawn record foreign fund inflows since 2004.
  • So our tulip in Mumbai leads to the copper mines of Chile.
  • Our Chilean copper mines run directly back to the streets of Mumbai and Guangzhou, China and eventually to the halls of global price data crunchers employed by the world's central bankers.
  • And government bond markets are now fighting the world's central bankers for one thing... liquidity.
  • Finally, why, you might have asked yourself, should Minyanville be following a deductive path in Five Things today? What makes this day, May 22, so special?
  • A very Happy Birthday to Sir Arthur Conan Doyle, creator of Sherlock Holmes, the world's greatest detective, who on this day in 1859 was born in Scotland.


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The information on this website reflects an analysis of market conditions by Minyanville contributors and should not be interpreted as or deemed to be a recommendation to any investor or category of investors to purchase, sell or hold any security. Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Minyanville contributors will not respond to requests for individual and specific investment advice.

The views expressed on this website are solely those of the writers whose articles appear on this site and do not necessarily reflect the views of the Fund or of any other person except where expressly indicated.

Copyright 2006 Minyanville Publishing and Multimedia, LLC. All Rights Reserved.
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The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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