Stocks End Green; AAPL Volume Obscene; Treasury/FX Volatility Unseen

Equities closed the day-session near the highs of the day as OPEX shenanigans were evident everywhere. Early and ugly macro data was swept under the proverbial carpet (as it is transitory Sandy effects?), the ubiquitous European-close trend reversal started us higher, and then platitudes from D.C., and a late-day Fed-Head jawbone did the rest on a day when AAPL saw its largest volume in 8 months and pinned between 520 and 530 VWAPs. Risk assets did not follow the path of most exuberance that stocks did on the day (surprise). Credit tracked with stocks today in general but remains an underperformer on the week. Oil was the week's big beta winner with the USD (despite underlying dispersion in EUR and JPY) and Treasuries rather dull. Gold sagged but by the close today the S&P 500 had recoupled with the barbarous relic on a beta basis. VIX compressed (exciting some that are incapable of comprehending a term structure) as put overlays were unwound into OPEX (and given the VWAP/volume moves it would seem AAPL saw hedges taken down and exposure reduced). Red week as stocks continue to catch down to bond's new normal.

The FHA's Fatal Scattergram Flaw

Judging by the media rancor, the fact that the FHA has run out of capital is a stunning shock since besides, housing is in recovery right? Well, there is one simple reason why the FHA is FUBAR and is only going to get worse (cue Geithner Bailout). As the only player left, the FHA has simply been the sole source of mortgage provision to the worst of the worst. The following chart from Chicago Booth's Amir Sufi shows the diabolic-distribution of poor-performing zip codes that the FHA has lent into - even during the crisis.

Are 'Equity' Vigilantes Keeping The Press Honest On The Fiscal Cliff?

In the past it has been the bond market whose vigilantes had rampaged across the fields to keep policymakers honest - but something has changed with the Fed's boot on the bond market. As BofAML notes, when the Fed was too soft on inflation or the fiscal deficit was out of control, interest rates spiked higher. In our view, this has changed and today the stock market is the disciplining force for Washington. We have argued this perspective for a while - that nothing will be done until we get a stock market crash - but the press will continue to make molehills out of mountains it seems as BofAML adds, the most obvious lesson of the last week is that when Washington approaches a policy impasse, the financial press tends to signal a resolution of the crisis many times before it happens. Don’t believe it. After elections there is always conciliatory talk: no one wants to be seen as a sore loser or a gloating winner. The risk remains huge and the four hurdles to a grand bargain seem to be getting larger - no matter what the press wants us to think - investors should look past reassuring rhetoric and focus on the underlying reality.

Capitalism At Work: Twinkies Soar On Ebay

The invisible hand at work once again as fat-fingered demand dominates union-stifled supply... $8,000 for a single Twinkie... and other offers... It seems, once again, that there are more than a few greater fools who still have no idea just how the bankruptcy process works... will Twinkies be rebranded Bimbettes?

Today's "Fiscal Cliff Compromise" Moment Brought To You By The Congressional Short Squeeze Inception Team

Once again the market falls for the politicians' snake oil (as we explained before). Unconvinced? This is what none other than "Fiscal Cliff compromise is imminent" photo op participant Nancy Pelosi said moments later to the WSJ:

Ms. Pelosi said. "I was focusing on how we send a message of confidence to consumers, to the markets in the short run, too."

And there you have it from the horse's mouth: absolutely nothing of actual substance in today's presser which was completely hollow of anything remotely resembling an actual compromise, but merely the same type of  Euro-propaganda we have grown to loath and despise for the past 3 years, where a flashing red headline was supposed to generate a short squeeze. It succeeded. There is one open question: did Nancy Pelosi's multi-millionaire investor husband Paul Pelosi know ahead of time what the announcement would say, and did he buy any securities in hopes of a "short run" gain?

Guest Post: Europe In the Grip of Anti-Austerity Protests

As if we needed more proof that the course implemented by the eurocracy becomes increasingly untenable politically, millions decided to strike in several European countries this week. The demonstrations have, as they are wont to do these days, turned violent in a number places. The protests were most intense in Spain, where unemployment is at over 25% and desperation over the collapse of the bubble economy is growing by the day. This is what happens when after decades of socialism, the money to pay for the freebies finally runs out. What the protesters don't seem to get: the status quo ante cannot be recreated by decree. There is no magic wand for anyone to wave. The protesters have every right to be enraged, but they are raging against something that cannot be changed at the flick of a switch – the wealth is gone.

 

Minor Glitch Emerges In Spanish "Bad Bank" Deployment: No Investor Interest

Two weeks ago, when Spain unveiled the specifics of the SAREB, also known as the Spanish Bad Bank initiative, which is simply the haphazardly put together chaotic plan to shift toxic assets from Spain's already insolvent banking sector to a bank that is even more insolvent than all others as it is fulled to the brim with "assets" such as land which has already been discounted by 80%, and backed with Spanish government guarantees, which are largely worthless as the entire country has been on the verge of demanding a bailout for 4 months now, we summarized it simply as follows: "it is ugly - far uglier than many had expected. And while the Spanish government expects private interest to take some of this massively discounted 'crap' off their hands, we have three words: 'deleveraging' and 'no bid!" We were right, although one wouldn't get that impression if one reads the official party line. Here is how Reuters summarized the government's party line: "Spain's bad bank is generating a lot of interest amongst international investors, an economy ministry source said. The bad bank would be possible with only domestic participation but non-resident investors gave the vehicle credibility, the source said." That's a lie. Here is the truth.

Chart Of The Day: The World's Scariest Divergence

We like to keep our charts just simple enough that a PhD in Economics can understand them; and so we present what must be the scariest chart in the world for much of the developing (and for that matter developed) world. Demand for food is rising inexorably (as is the demand for fuel) but at the same time supply is falling rapidly as the availability of arable land per capita plunges. Perhaps this (along with central bank liquidity spillovers) explains the 'paradigm' shift in staple prices. Food for thought? (pun intended)

Israel Re-escalates: Mobilizes 75,000

Update: Israel CDS 162/170, +8 bps

Earlier today, air raid sirens went off in Tel Aviv, and even Jerusalem was supposedly in danger of a missile attack: hardly the deescalation Israel was hoping to see. Sure enough, the ball is in Bibi's court and he wastes not time:

  • NETANYAHU CONVENING MINISTERS TO APPROVE RESERVES CALL-UP; TV
  • ISRAEL PLANNING TO CALL UP 75,000 RESERVISTS, CHANNEL TWO SAYS

Next: flip flops and other various closed-toed shoes on the ground.

Guest Post: Start Your Own Financial Media Channel with This Template

You've probably noticed the cookie-cutter format of most financial media "news": a few key "buzz words" (fiscal cliff, Bush tax cuts, etc.) are inserted into conventional contexts, and this is passed off as either "reporting" or "commentary" depending on the number of pundits sourced. Correspondent Frank M. kindly passed along a template that is "officially deny its existence" secret within the mainstream media. With this template, you could launch your own financial media channel, ready to compete with the big boys. Heck, you could hire some cheap overseas labor to make a few Skype calls to "the usual suspects," for-hire academics, hedge fund gurus, etc. and actually attribute the fluff to a real person.

Risk Ramp On Boehner Banality

Great timing. The ubiquitous post-European close trend-reversal was extended by some 'nothing' comments from Boehner that every media outlet is inferring means everything's fixed and compromise is close.  Boehner says talks with Obama were constructive. Outlined a framework with Obama; Will accept revenue if spending cuts.  It's not - what did we expect him to say?AAPL jumped up to VWAP and S&P 500 futures coincidentally reached overnight highs/stops. Now let's see if anyone really believes...

150 Seconds Of "You Can't Handle The European Truth" From Kyle Bass

"A popular revolt will happen" is how Kyle Bass sums up the endgame from kicking the can in Europe. Dismissing the headline-making 'But, Blackrock is buying European bonds', Bass reminds Bloomberg's Stephanie Ruhle that very few ever get the crises correct and that the herd will keep buying things until it blows apart. With massively over-leveraged banks and a Greek dependency, Bass notes that investing in Europe now is like picking up a dime in front of a bulldozer and expects Germany will eventualy leave the Euro (within 3-4 years) as the 'joint-and-several' liabilities will never happen. 150 well-spent seconds to summarise just what is going in Europe, as he concludes with Milton Friedman's quote on Europe: "when they hit a bump in the road, it will tear them apart at the core."

 

2 Dead, 2 Missing As Another Oil Platform Burning In Gulf Of Mexico

Mere hours after BP settles, the US Coast Guard confirms there is an offshore (shallow water) platform burning in the Gulf of Mexico in the area of West Delta Block 32 (near West Cote Blanche Bay). Local TV says that two people are dead and two people are missing after an explosion at the platform. More to come...

UPDATE:Gulf rig fire was result of rig explosion at oil/gas platform "West Delta 32"owned by Black Elk Oil, ac. to Coast Guard

 

Anonymous Hacks Greek Finance Ministry, Finds "123456" Is Password For 37% Of All User Accounts

While we have yet to go through the thousands of files that hacker collective Anonymous has just released as a result of its hack of the Greek Finance Ministry, an exploit it described as follows: "We gained full access to the Greek Ministry of Finance. Those funky IBM servers don't look so safe now, do they... We have new guns in our arsenal. A sweet 0day SAP exploit is in our hands and oh boy we're gonna sploit the hell out of it. Respectz to izl the dog for that perl candy," what we find even more amusing, if not surprising, is that of the 136 username accounts Anonymous hacked, the password of precisely 50 of them, or some 37% of all workers, is .... 123456 (full list here).

Gold & Silver Plunge Deja Deja Deja Vu

Whether it is leveraged AAPL traders forced to sell winning collateral to meet margin calls, correlation-driven algos running stops down and up, or simply the whims of worried custodians managing risk for their clients' holdings; one thing is sure - someone (or more than one) has been a size seller of precious metals in the US-day-session-open to Europe-close period for four days in a row now...

Meanwhile In Argentina...

Dear Buenos Aires: we have three words of advice - "hide yo' catamarans" (before Paul Singer comes and collects them all once you default again in what the market now deems is inevitable to occur in the next few weeks). 5Y CDS on Argentina just reverse-Baumgartnered to over 3000bps (49/53% upfront) and short-dated CDS imply a 60% probability of default (assuming a 25% recovery).

Here Is Why The ECB Should Be Freaking Out

Given the deterioration left, right, and center in Europe's core and peripheral economies, some question the sustained 'strength' of EURUSD. An under-the-table peg around 1.27 is the conspiracy chatter but we fall back to a tried-and-true recipe for comprehending what the market is thinking - the central banks are in charge and the EURUSD exchange rate merely reflects (as a main trend) the relationship between those two balance sheets (as monetary policy escalates downwards and they battle each other to 'defend' their own currencies' demise). To wit, given the current ratio of the Fed and ECB balance sheets, we would expect EURUSD to be trading around 1.21. The current EURUSD rate implies a balance-sheet ratio of 1.08x - which therefore means the market expects the ECB to expand its balance sheet by EUR740bn; this just happens to be the sum-total of Spanish sovereign debt (according to Bloomberg - while our estimate is considerably higher). So it seems, the market knows that once the ECB starts, it will not be able to stop and will end up taking the entire Spanish debt load onto its books. Spain can perhaps deal with its existing debt in this way - but this appears to us merely incremental sustainability - and like in the US where the Fed is monetizing all long-dated Gross issuance, so the ECB will have no choice but to do the same with Spain in 2013 and 2014 - Treaty or no Treaty!!.