Archive - Apr 2012

Not adding up.... but let's figure it out. 

Earlier, we heard Santorum bidding a fond adieu to the public world, most likely forever, and now it is the turn of the president. Only he won't be resigning, but instead he will once again make the argument why the rich have to pay more in taxes, and why the The Crony Capitalist Cramdown, pardon the Buffet Rule, should be enacted for everyone and why Congress must pass it. We can only wish that the president dedicated as much time and energy to getting America a budget (it still does not have one) as he does to delineating various class distinctions. Today's challenge, should anyone chose to accept it: take a shot every time the TOTUS says "fair" and any variation thereof.

What fools these Muppets be.--William Squidspeare, Midsummer Night's Scream

With ninety minutes left in the trading day, NYSE volume run-rate is its highest of the year for a non-OPEX day. S&P futures are also showing heavy volume - around 60% above average for the time of day.

According to various media reports, still officially unconfirmed, Rick Santorum will end his presidential campaign. Such as this one from CNN: "Republican presidential candidate Rick Santorum will announce he will suspend his campaign on Tuesday at an event in Gettysburg, Pennsylvania, a senior adviser to the campaign tells CNN." The live webcast to the Santorum address can be watched below after the jump.

One of the most-watched stress indicators from the European crisis (pre-LTRO) is starting to flash orange warning lights again. The 3-month EUR-USD basis swap (or how to get USD funding when no-one else will help) has just deteriorated its most over the past 5 days since mid-December. Having never realized more normalized levels from early last year, the rapid acceleration in this funding instrument's use last year and now this year is perhaps why bank stocks are under such incredible pressure as insolvency meets illiquidity head on once again.

It seems the short-end of the volatility term structure is snapping shut on a few nickel-in-front-of-a-steamroller gatherers...

As of earlier today, Sino Forest is official bankrupt, courtesy of ISDA's determinations committee which found just that, despite Sino's attempt to scapegoat Muddy Waters in an idiotic attempt at redirection. So is Muddy Waters sitting on its laurels, having been vindicated? No: the company just released the following analysis this time focusing on "The Fraud School', our old friend RINO as well as new entrant to the alleged fraudcap space: FSIN.

Butler on Blythe

UPDATE: Added S&P 500 in Gold reversion post LTRO2/Bank Stress Test

Are investors rotating from the 'safety' of Apple to the new 'safety' of Gold and Silver? Because the next time there is a wholesale margin call, which courtesy of soaring margin debt will likely be today, speculators will have to sell the one asset that is outperforming everything. You guessed it...

Imagine the world economy as an armada of ships passing through a narrow and dangerous strait leading to the sea of prosperity. Navigating the channel is treacherous for to err too far to one side and your ship plunges off the waterfall of deflation but too close to the other and it burns in the hellfire of inflation. The global fleet is tethered by chains of trade and investment so if one ship veers perilously off course it pulls the others with it. Our only salvation is to hoist our economic sails and harness the winds of innovation and productivity. It is said that de-leveraging is a perilous journey and beneath these dark waters are many a sunken economy of lore. Print too little money and we cascade off the waterfall like the Great Depression of the 1930s... print too much and we burn like the Weimar Republic Germany in the 1920s... fail to harness the trade winds and we sink like Japan in the 1990s. On cold nights when the moon is full you can watch these ghost ships making their journey back to hell... they appear to warn us that our resolution to avoid one fate may damn us to the other.

AAPL is down well over 2% from its $600bn market cap peak this morning and breaking closing VWAPs one-by-one as it drops. Rumors of liquidations across funds in US and Europe will mean margin calls force funds to sell the one performing asset that is the functional equivalent of Gold in 2011: Apple.

Five down days in a row (first time in 5 months) for the S&P 500 (cash) and it has broken its 50DMA for the first time since 12/20/11. Notably the equal-weight S&P 500 broke the 50DMA yesterday and is now down 4.4% (versus -3.5% for the cap-weighted S&P 500) from its highs on 4/2. At what point do levered liquidations (VIX nearing 20% at one-month highs) cause the S&P 500 index dog to wag its AAPL tail as opposed to the other way around as it remains the outperformer relative to European equity and US and Europe's credit markets.

I know, I know: the stock market will never go down because Ben Bernanke and the other central bankers won't let it. It's funny how the "Bernanke/European Central Bank Put" is ranked alongside gravity as a rule of Nature until markets roll over; then talk shifts from purring adulation of central bankers' godlike powers to panicky calls for another flood of liquidity/free money to "save" the market from the harsh reality of global recession. The crash test dummies know better: they've been called up for a humongous crash. The basic mechanism that is being overlooked is Liquidity Resistance. This is akin to insulin resistance, where insulin becomes less effective at lowering blood sugars. The amount of insulin required to maintain normal blood sugar levels increases as resistance rises until even massive doses of insulin no longer have the desired effect and the system crashes.