The beginning of the year has traditionally been a time of optimism when we all look forward to the exciting things that are going to happen over the next 12 months. Unfortunately, there are a whole bunch of things about 2013 that we already know are going to stink. Taxes are going to go up, good paying jobs will continue to leave the country, small businesses will continue to be destroyed, the number of Americans living in poverty will continue to soar, our infrastructure will continue to decay, global food supplies will likely continue to dwindle and the U.S. national debt will continue to explode. Our politicians continue to pursue the same policies that got us into this mess, and yet they continue to expect things to magically turn around. But that is not the way that things work in the real world. Bad decisions lead to bad outcomes. Sticking our heads in the sand and pretending that everything will be “okay” somehow is not going to help anyone.
We would expect the ingredients of the speech to be a pinch of self-denigration mixed with 6 fluid ounces of 'millionaires-and-billionaires', and a quart of "it's the other guys' fault." This coming from the man who precisely a week ago announced he would propose a "scaled down" plan, which today turned out was a complete lie: some leadership. Nevertheless. it will be interesting to see how his 'new' plan, same as the 'old' plan, is different from the 'new new' plan-to-come as he pushes the Senate to propose a 'new new new' deal that will really be a 'skinny irrelevant' deal - no doubt heralded by all asunder as a 'grand new' deal. Though it appears we should have no fear as McConnell and Reid are working on it and McConnell is "hopeful and optimistic." Farce!
Adding to the confusion, for some, that is today's trading session, here comes the CME which in a post-closing announcement, proceeds to hike outright margins on a variety of petroleum and freight products, but more importantly just cut the margins on gold by 9%. Is it that time when the establishment is clearing the path for everyone to rotate out of equities (and/or bonds) into gold, just to set the trap and pull the trapdoor once everyone is once again left holding paper gold? We shall see, but following tonight's selloff, gold is now less than 5% less than stocks YTD. It may well be up to the last trading session of the year to determine who wins in 2012: rock or paper.
For the first time since May, the S&P 500 has fallen for 5 days in a row. VIX has very much heralded the fact that investors were not as bullish as media-types would like to believe - as we have vociferously noted - and today's jump in the VIX pushes it to six-month highs over 22.5%. The S&P 500 futures ended the day-session at the week's lows testing down just shy of last week's flash-crash lows. Meanwhile, while equities slumped catching down to Treasury yields, commodities were relatively flat as was the USD; it seems that the excess longs in equities relative to the rest are unwinding - a different picture than what was seen during last Summer's debt ceiling debate.
Looks like today everyone in Congress was short. Here's why:
OBAMA SAID NOT TO MAKE NEW OFFER IN FISCAL CLIFF TALKS
OBAMA OFFER DETAILED BY SOURCE FAMILIAR WITH WHITE HOUSE MTG
OBAMA SAID REITERATING PROPOSAL FROM LAST WEEK ON FISCAL CLIFF
So much for a deal, and so much for the invisible DJIA support at 13,000.
UPDATE: S&P says an impasse will not prompt an immediate downgrade - ramp-on (perfectly to VWAP and faded)
The Dow just breached 13,000 to the downside and S&P 500 futures are bleeding lower (catching down to a more anxious credit and Treasury market). Now well below VWAP, we worry that the plethora of headlines about to be unleashed on the investing world will create chaos in the markets (most likely futures first given liquidity). AAPL used the rampathon to get to Boxing Day's closing VWAP for a heavy dump. Will the meeting (which started at 1510ET) end after the day-session close allowing futures traders to play? who knows...
On December 26, 2012 at 11:02:59, the market suddenly exploded with activity (SPY dropped below 141.88 - a low set 12 days earlier on December 14). Approximately 3,800 March 2013 eMini futures contracts (S$P 500) were sold during that second. Nanex thought the sudden explosion in activity warranted a closer look. What they found was fascinating. It appears the entire market-wide move may have been carefully orchestrated. One thing for certain is that our regulators will never be able to see the big picture if their analysis tools (MIDAS) only looks at equity data. Analyzing price moves in futures and options is crucial to understanding market-wide moves in equities, and visa versa. The sad truth is that 'momentum ignition' events such as this occur all the time. See this page more details, including an animation that shows where and when these events have occurred since 2007.
In the spirit of the holidays and hope for a more prosperous 2013, we thought readers might appreciate a little humor to partially offset the relentless 'cliff' doom and gloom. So please, don’t take this too seriously. But if you happen to stumble across a ‘paperbug’ or two over the holidays, perhaps you could share some of the points made here. Humor sometimes helps people realize just how hopelessly misguided they are... Quantitative easing changes nothing. Remember, the PhDs are in charge of our economies and they know exactly how much our money should be worth. Those of us concerned that our money might lose purchasing power are just being paranoid. Choice is dangerous. Think Adam and Eve and you’ll get my point. Those arguing in favour of monetary freedom, of choice in money, of repealing legal tender laws, they’re just like that nasty snake Lillith in the Garden of Eden, the source of all trouble I tell you. ‘Tis the season to borrow and spend folks, as indeed it has been since 1971.
As we reported previously, today Iran decided to launch a rather impromptu "massive" naval drill dubbed the Velayat 91, which will take place in the Oman Sea, North of Indian Ocean, in the Persian Gulf and East of Strait of Hormuz, and will cover an area of one million square kilometers right in the sweet zone of the US 5th Naval Fleet's AOR, where in addition to other resources, both the Stennis aircraft carrier and Peleliu amphibious warfare ship group are located. As PressTV reports, "On the first day of the drills, ships and submarines, will go to their locations and get ready for the tactical stage of the maneuvers. Forces in shores will also get ready for the tactical phase of the drills. In addition our 23rd fleet will be deployed to the high seas to protect commercial ships and oil tankers and to counter piracy in Gulf of Aden." All this will be taking place within kilometers of both the busiest seaborne transit corridor of crude oil in the world, as well as the headquarters of the US 5th Navy in Bahrain. What could go wrong.
Sometimes, taking a break from the mainstream view of the world is healthy for our sheep-like tendencies to follow the herd. To wit, Robert Shiller can't understand the enthusiasm for the long-term recovery outlook of the housing market. With rentals rising and home-ownership dwindling, Shiller, in this Bloomberg TV clip, questions the positivity noting that the outlook is 'fuzzy' at best; and in fact in the short-term is negative as MoM things have deteriorated modestly (though seasonally). He note that the focus has been on multi-family residences and "if you are sitting in a suburban single-family house - what is your outlook? Highly uncertain - It's Risky!" And in one of the most prescient comments of recent weeks, Shiller admits something that many others should try: "[the outlook] could be up; but I don't see how anyone knows?" adding that another plausible outlook for the next five years is that "housing stays right where it is now," adding that Zillow's 1.3% annual real growth expectation could be too optimistic.
In a just aired Bloomberg TV interview, Senator Max Baucus provided the most succinct summation of the state of our nation now and for most of 2012, as well as the winningest trading strategy of the past year:
there is "a lot of hope and faith" in the 3pm White House Meeting.
UPDATE: An hour later, Volatility and stocks have converged down to HYG...
It seems that while the volatility, equity, and interest rate markets are moving in a risk-on direction (admittedly on dreadful volumes); that HY credit is not enojoying the uncertainty. HYG is now at lows of the day (after filling its gap from a few days ago). What is also more evident from the chart is equity (and vol)'s relatively high beta today to any and all headlines...though it is now anchored at VWAP.
We are happy to announce that starting today, and going forward every week, as part of a new feature dubbed, appropriately enough, FleeceBook, we will introduce our readers to one, previously largely unknown member of the ruling banker aristocracy: an individual who is as far from the glamor of the daily media headlines as possible: just the way they like it, and just the way the co-opted media will agree to have it. We hope that by the end of the series, these individuals - all of them perfectly law abiding citizens of their various jurisdictions, at least under conventional legal terms - will form a tapestry of what really happens behind the scenes, especially in a context such as that presented yesterday, where we found that no matter how guilty beyond a reasonable doubt a member of the political-financial elite is, hell would have to freeze before any legal action is taken (for reference, please see the very underrated movie The International). For our inaugural edition on FleeceBook, which will compile various public profiles already posted elsewhere, we present Benoît Gilson, Head of Foreign Exchange & Gold, which he describes as "a really special place to work because it is a link between the markets and the central banks." In other words if confused why gold is imploding on any/every given day, and/or why the EUR is soaring on news of a failed ECB sterilization, now you know who to thank.