Business

Despite the reversal (lower) in stocks, bond prices are tumbling (yields surging) this morning, seemingly catalyzed by yet another sudden surge in crude oil prices. Algos appear to have read comments on shale production coming back as bullish - well if they are producing more, there must be more demand right? At the same time - starting around 530ET, stocks are bonds began to both sell off, unwinding the post-Fed "QE Trade" bounce.

Crude is rallying as bonds dump...

After January's hopeful spike to 6 month highs, Chicago Fed's National Activity Index plunged back into contraction (at -0.29) near 2 year lows.

A shockingly large 58 of the 85 individual indiators within the index made negative contributions to the overall index which printed notably below the lowest economist's expectations.

The news is out.. and it's disappointing..

One month ago, as we pounded the table on the biggest threat to the fundamental case for oil, namely that even a modest rebound in oil prices could unleash another round of production by the "marginal", US shale oil producers, we warned that a rebound in the price of oil as modest as $40 per barrel, could be sufficient to get drillers to resume production.

The rally of the last month has many scratching their heads.

That is, until you realize:

1)   Most of it was driven by “short-covering.”

2)   The primary buyers of stocks today are corporations buying back their stock to juice EPS, not actual investors.

3)   Actual investors have been selling the farm.

Central Banking manipulation only works as long as a reasonable number of investors continue to “drink the Kool Aid.”

Unfortunately we are now well past that point.