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5 Things To Ponder: Rising Risk

There are things going on with the financial markets currently that seem just a bit "out of balance." For example, asset prices are rising against a backdrop of global weakness, deflationary pressures and rising valuations. More importantly, there is a rising divergence between sentiment and hard data. While weather can't be blamed yet, it will likely be the main "excuse" in the months ahead as early record snowfall is already impacting economic production. However, it isn't just the manufacturing data that seems "out of whack."



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Stocks Close At Recordest Highs As All Central Banks Go All In

Despite the knee-trembling awesomeness of a double-whammy promise of liquidity, US equity markets ended the week on a decidedly down note. The realization that Draghi's all talk (no impact on US stocks) and PBOC's move is not a liquidity surge and has limited impact on the economy left stocks tumbling once the opening OPEX levels had printed. The USD rose notably on the day after EUR plunged under 1.24 on Draghi (USD +0.9% on the week). Despite USD strength, gold rose 1% (as did Silver) on the week, rising for the 3rd week in a row for the first time in 4 months (and the 3rd Friday surge in a row). Oil rose 1% on the week, breaking an 8-week losing streak but Copper prices fell around 0.3% on the week, having given back the kneejerk gains post-PBOC today. Treasury yields dropped after kneejerking higher on PBOC. 30Y at 3.01% had its 2nd lowest weekly close since May 2013. VIX melted down into the close to 13.01. Late-day buying panic lifts stocks off their lows leaving Dow & S&P at all-time recordest highs of all-time ever in history (as small caps closed red).



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The Broken Market Chronicles: For The Third Year In A Row, The "Most Shorted Names" Generate The Highest Return

For the 3rd year in a row, the best performing, highest-alpha strategy is to go short the most hated names and just sit back and collect those performance fees, because when nothing makes sense, the worst shall be the first.



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"Me, The People"

Democracy ruled...



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HFT War Stories: The Algo That Couldn't Count

This is the first installment in a series of HFT War Stories, submitted anonymously by high frequency and algorithmic traders highlighting the perils of their profession. Today we look at a $2 Billion near miss that never made the news. The public only hears about these types of SNAFUs if they blow up a firm. Hundreds more go unnoticed by anyone but the traders who lived through them.



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The Levered Canary In The Coalmine: High Yield Is Flashing A "Sell Signal", Says Barclays

The growing divergence between equity and credit markets this year have seldom been far from our pages (especially how, over many cycles, credit has led and stocks followed at trend turns), and now it appears Barclays also recognizes this fact. As they note, in 2007, as hints of the financial crisis were unveiled, spreads in the high yield market increased sharply. Meanwhile, the equity market climbed to a new record high. Had equity investors heeded the warning being sent from high yield, significant losses may have been avoided... and currently high yield sell signals suggest equity investors should position defensively!



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Bullard Does It Again, Says Market "Misread" His QE4 Comment

Here we go again. By now everyone, including 2 year old E-trade babies and Atari algos know, that the only reason the market soared from the October 15 bottom, a move which we showed was entirely due to multiple expansion and thus nothing to do with earnings and everything to do with faith in even more free central-planning liquidity (something the PBOC was all too happy to provide overnight), was James Bullard's casual "QE4" hint on Bloomberg TV. And now that the market is at ridiculous all time highs and trading above 19x GAAP PE, far above the level when in September the IMF, the G-20, the BIS and even the Fed all warned of assets bubbles, here is Bullard once again, with a fresh mea culpa and a new attempt to jawbone stocks, only this time back down, because as Dow Jones reports, "Bullard Says Markets Misread Him In October Bond-Buying Dustup."



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US Equities Give Back All PBOC Rate-Cut Gains

As we already noted, Draghi's comments had no impact whatsoever on US equities overnight but when the PBOC rate-cut news hit, AUD surged and so did US equity futures... all the way into the US Open (and OPEX pins). From that moment, the selling began and as Goldman noted, the rate cut was only "slightly useful," which was later confirmed by the PBOC mouthpiece Xinhua saying "this is not a signal of a big liquidity ease." Stocks have retraced all their gains...



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Russia Can Survive An Oil Price War

Russia finds itself in familiar territory after a controversial half-year, highlighted by the bloody and still unresolved situation in Ukraine. Nonetheless, the prospect of further sanctions looms low and Russia’s stores of oil and gas remain high. Shortsighted? Maybe, but Russia has proven before – the 2008 financial crisis for example– that it can ride its resource rents through a prolonged economic slump. Higher oil price volatility and sanctions separate the current downturn from that of 2008, but Russia’s economic fundamentals remain the same – bolstered by low government debt and a large amount of foreign reserves.



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The NYPD Does It Again



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The Average Hedge Fund Is Down -1% YTD, And The Redemption Requests Are Now Flooding In

A year ago, when we reported that "Hedge Funds Underperform The S&P For The 5th Year In A Row", we thought there is no way this underperformance can continue: after all who in their right mind could possibly anticipate that a "risk-free" centrally-planned world could last for 6 years (well, maybe the USSR). Back then we explained this now chronic, "new abnormal", regime as follows: "hedge funds are "hedge" funds and appear to have done a great job managing performance over time... but in the new normal world in which we live, where downside risk is irrelevant (until it runs you over), all that matters is return (not risk-reward)." And yes, as the chart below shows we were wrong: because as of this moment the average hedge fund is not only underperforming the market for a record, 6th year in a row but as Goldman pointed out last night, the return of the entire hedge fund universe as of NOvember 19 is... negative 1%.



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Why Banks Should Not Be Allowed To Manipulate Metals Markets In 4 Simple Points

As Day 2 of Carl Levin's Senate hearing on the fact that banks did indeed corner and rig the physical commodity markets - with the erosion of the line separating banking from commercial activities leading to the detriment of consumers and the financial system - we thought the world needed a 'dummy's guide' to why the biggest banks should not be allowed to do this... or in legalese, here are the four most negative effects of allowing FHCs to engage in Complementary Commodity Activities.



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Did The Tech Bubble Just Quietly Pop?

While some might scoff at the idea of there even being a bubble in hi-tech start-ups, it appears the massive wall of money that has been thrown at dot-com 2.0 names - all money-losing, social, mobile, cloud name-droppers - has dried up. As The TechCrunch Bubble Index shows, the last 90 days have seen startup-funding announcements collapse over 40% to their lowest level in almost 3 years...



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Have Central Banks Entered An Undeclared War?

The monetary tectonic plates are shifting, and predicting the next global financial earthquake is relatively easy.



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