Just like yesterday, shortly before 3 pm the market started selling off, amid substantially higher volume and notably larger block size, indicating that while the melt up during the day was due to the now traditional liquidity-rebate HFT crew (funded ironically in large part by the same Chinese IPOs that pay NYSE bills then promptly spontaneously combust a few months later), the selling was primarily by real money. And while the catalyst for the selloff most certainly was not the FOMC decision, many are wondering just what is it about the close of trading that is forcing a market correction (ignore the Dow: it was materially higher only due to IBM which is majorly skewing the index) at about the time when the ETF rebal trade traditionally pushed stocks higher. According to some, the recent surge in SPY shorts may have something to do with it, due to the distribution of rebalancing estimates ahead of time by brokers. If ETFs are indeed creating a feedback loop that now leads to selling instead of buying, very soon we may see a very unique battle between the two main market momentum vehciles: the HFTs which their upward bias, and ETFs, which may now be a downward pressure vehicle. That particular duel may end up being far more interesting than the endless polemic of whether or not fighting the Fed is worth it. Today, the market closed green by a whisper. Yesterday it was not as successful. Tomorrow may prove to be a very informative tie-breaker.
In his December letter to investors, Niels Jensen from Absolute Return Partners has issued his twelve key risk factors for the global economy for 2012. "In the following I list a number of risk factors which I believe investors should give serious consideration, but I do not for one second pretend for that list to be exhaustive. Neither should you read anything into the order of which those risk factors are listed. If you want my assessment of how to rank the various factors, you need to take a look at the risk scatter chart at the end of the letter." As always, an entertaining read, and as Jensen is a rather indicative example of the smart money, readers can determine for themselves what it is that keeps the hedge fund community up at night (aside from worries that the Feds will bust their door in any minute).
Jan Hatzius, whose recent conversion to an economic bull forced all the Wall Street sell side lemmings to follow suit (just like they did in August when he downgraded the GDP only to start pushing Bill Dudley's buttons for QE2 and ultimately getting it), disclosed earlier that QE 2.1, or an extension to QE2's $600 billion (excluding the $300 billion from QE Lite), is all but certain. After all Jan's calls for QE Lite in January 2010 are precisely what happened. It was also Jan who first demanded QE2 in September, and got that too. Which means that as we expected, the total amount of debt to be monetized this year (between QE lite, QE2 and QE2.1) will be about $1.6 trillion, or more than the entire budget deficit. Now what bond investors are wondering is what happens when the Fed starts unwinding: by now everyone knows how POMO works - buying USTs in the open market. Well, at some point in the next 2 years the Fed, which by then will have about $4 trillion in Treasury securities (assuming all MBS have been prepaid) will have to start selling this paper. Couple that with the $1.5 trillion in debt issuance by the Treasury, and soon America will be faced with the brick wall of such a supply deluge in paper that there will be no way to sell it without hiking rates into double digit figures. This, much more than any unfounded speculation of capital flows from equities to bonds, is what is starting to awake the US bond vigilantes.
Headlines from the FTSE: Market talk that the US justice dept. is going after BP (BP/ LN). And the WSJ chimes in that the US justice dept. is expected to join civil lawsuits resulting from Gulf of Mexico oil spill.
Goldman sees the silver lining in an economy padded by $2.4 trillion ($3.2 trillion pro forma) in monetary stimuli and now over $2 trillion in various fiscal injections (of which the tax extension has yet to pass). Of course, in keeping with the tradition of seeing what one wants to see, Goldman percevies this reports as a "modest upgrade" despite the notably bearish extension on housing weakness from merely "Housing Starts", to the entire "Housing Sector", as Zero Hedge noted previously.
Most notable in this relatively unchanged statement is the change in language on housing weakness from one of "housing starts" (as of November 3) to "housing sector" which is substantially broader...
The ES futures curve is now at inverted term levels that have been unseen for months. For all who claim that by next summer the economy will be coasting well on its way to 3.5% growth or whatever imaginary number the crowd of lemming sell-side analysts pulls out of their pocket in their imitation of Goldman's upgrade, there sure is no actual conviction in this call. The differential between the Dec and the June ES contracts is a notable 10 points: December is at 1,246 while June is at 1,236. This is reminiscent of the curve last December, when those who bet that the market would be substantially lower half a year forward ended up being right on the money. For those who still believe in logic, a compression trade where one sells the Dec and buys the Jun contract may make sense, although with the only variable these days being what side of the bed Brian Sack wakes up on, we would be very cautious. As a reminder, the last time the VIX curve had a normal contango curve structure, was back in 2008, when the Bernanke Put was still being digested.
Just Reuters headlines for now stating that following up yesterday's announcement by a Virginia Judge who finds sections of the healthcare ruling unconstitutional, that the Justice department (where Eric Holder was just taken out of the fridge precisely for this occasion) would appeal the decision to a higher, presumably far more captured, and more corrupt court.
It was less than 24 hours ago that we presented the latest 2011 outlook from Deutsche Bank's highly credible Fixed Income group, which had one of the bleakest economic outlooks for 2011, and we quote: "there are so many headwinds to work through, that recovery
is not consistent with premature monetary tightening by either the Fed
or the markets. Fiscal stimulus buys time in 2011 but little else.
Ironically the stronger growth looks, the more likely fiscal tightening
will come into play sooner keeping the recovery on a backfoot. However, in our view, at best this buys some time for recovery. The deficit is huge and meaningful fiscal tightening is not far behind. Even if we dodge the Ricardian bullet of equivalence in 2011, there is at least 1 if not 2 percent of fiscal tightening slated for 2012. If underlying economic growth remains in the 2-3 percent range, there is a sharp slowing implied for 2012." Yet this very rational view does not prevent that other DBer, Binky Chadha, who completely refuses to even cross check memos from other groups in the firm, and who in making even Joe LaVorgna sound credible, comes out with a report which can only be classified as going uberfull retard: "The strategic and tactical cases for US equities should come together to generate strong market returns in 2011 The S&P 500 YE 2011 target remains unchanged at 1550.We estimate $96 in EPS and a fair value multiple of 16.4x. These may look ambitious, but viewed against a Q4 2010 annualized $91.5 our estimate looks modest; a 16.5 multiple was the average in the 1930s. 25% price appreciation would not be atypical for a post-midterm election year, historically the strongest in the election cycle." All we can say is that when clowns take over the insane asylum, the end result is so much better than a hostile take over by lunatics: at least the consequences are so infinitely funnier. To all who believe that EPS can remain at projected levels once margins collapse across the board courtesy of an explosion in input costs should this prediction be even partially correct, all we can suggest is to buy every Cramer stock recommendation without question.
JP Morgan Denies It Holds More Than 90% Of The Copper Market... No Statement On Whether It Holds 89%Submitted by Tyler Durden on 12/14/2010 - 13:34
As we reported last weekend, in addition to the now indirect admission from JP Morgan (and to all those who are expecting an official 8K from the firm which opens it up to market manipulation litigation, we can only hope they manage to grow out of their childish naivete soon) that it did in fact have a major silver short position, it has been recently speculated that JPM's monopolistic tentacles have reached out to the copper market, of which JPM is now rumored to control 50% to 80%. Today, we get an official non-admission admission from JP Morgan that it does not in fact own over 90% of the silver market. Well, that's not really useful, as that "admission" says nothing about owning up to a whopping 89.9% of the copper market: a stake which would make JPM the biggest one-man cartel in the history of the industrial metal. Per Reuters: "U.S. investment bank
JPMorgan said it does not hold more than 90 percent of copper stock
warrants in London Metal Exchange warehouses, but declined on Tuesday to
comment on whether it had a smaller position." It also appears that per the LME the position is now no longer "only" 50-80 but has grown to 90%: "A single holder, recently controlling 50-80
percent of copper stocks and cash contracts in London Metal Exchange
warehouses, appears to have raised the position to above 90 percent,
latest data from the world's biggest metals market showed." And for those who wonder why one entity controlling the entire market is not good here is the explanation: "some say it is one of the reasons why copper hit a record high of $9,267.50 a tone on Tuesday." Oddly enough, JP Morgan did comment on the firm's holdings in copper, which it so far has refused to do vis-a-vis its silver position: "A spokesman for JPMorgan, asked by Reuters to
comment on the market talk, said the company did not hold more than 90
percent but declined to comment further." And this is the environment in which the CFTC still obstinately refuses to impose position limits lest it derail the massive profit scheme that one-time or recurring monopoly holdings represent for the big banks.
A number of readers have asked me to comment on WikiLeaks and the release of "secret" diplomatic/government cables and documents. (How "secret" were they if up to 3 million people had access to them?) I am going to connect a number of issues here by identifying the core contexts of the WikiLeaks controversy. That every nation requires diplomacy and a diplomatic corps is not in question, nor is the need for confidentiality in pursuing diplomacy. The need for Armed Forces to defend the nation against aggression is also not in question. What is in question is whether the American Empire is acting in the best interests of the U.S. and its citizenry. - Charles Hugh Smith
Not much to say here: QE3 is in the works, as once the equity rally fizzles, mortgages are at 5.5%, and Americans realize that home prices just dropped by 15%, there will be a lot of very confused stares.
The man who has become an embarrassment to clowns everywhere was out on Friday literally screaming his usual schtick. That said, the good thing about clowns is they don't give you advice that will make you broke. Unlike Jim Cramer. In his December 10th segment, Cramer says: "I would be willing to risk a small amount of money December $44 call options, they expire on Friday." Oops. Total loss on that small amount of money. And what is even funnier: "Best buy gives us a window into what people are buying for the holidays, so we hear what products are selling." Er, none? As always, trademark Jim Cramer entertainment that will leave you broke.
Yet another confirmation that there is nothing left in this market for sensible stock pickers, courtesy of Lehman's head of quant strategy, Matt Rothman: "In summary, the lower the quality of the company the more they are helped by an easy monetary regime. In these situations, true fundamental investors who focus on such banalities as valuations, free cash flow generation, the repeatability of earnings and the return on shareholder equity find themselves struggling to generate returns." What is sad is that Fed's tinkering with the stock market has now eliminated even that old-time staple trade: the Flight to Safety. Why be worried when the Chairman will not let anything fail? "Bluntly, if you had laid out for us the headlines at the beginning of the month, given them to us in full detail, and asked us to predict how our Quantitative Factors would have performed, well, we would have been wrong. Embarrassingly wrong.... There was simply no flight to quality among investors...Aside from the Euro/Dollar trade, there wasn’t much of a quality trade really anywhere in the market." And with QE3 planning already in process, this inverse flight to safety trend, where increased risk means an even faster scramble for the shittiest assets imaginable, will only get more pronounced. Welcome to the true new normal.