Archive - Sep 17, 2012

Volumes are dreadful this morning in cash and futures. S&P 500 e-mini futures (ES) have seen a ridiculously low 5pt range since the open last night but in the last 2 hours, the ES has traded in a 1 point range between 1456 and 1457! Meanwhile Dow Transports are deteriorating again...

People often ask me why the West doesn’t attempt a Libya-style intervention in Syria. After all, things are going so well in Libya. Oil production is up. But oil production is merely a mirage, as is security in Libya, which was doomed from the day one PG (post-Gaddafi) because of the way it was “liberated”. Anyone who thinks that Libya will be a secure oil frontier after the formation of a new government next summer is mistaken. On Wednesday, US envoy to Libya Christopher Stevens was killed along with three other American diplomats in a rocket attack on the US consulate in Benghazi. The anti-Islamic movie is a red herring in all of this. “This is a cut and dry example of the backfire of the US intervention strategy,” Bagley said. “Let’s hope it isn’t attempted in Syria.” The post-Gaddafi Libya is not real. It’s a dangerous fabrication of materials stuck together by the glue of dubious alliances with jihadists who are cut loose with their weapons once the immediate goal (Gaddafi’s demise) was achieved. Forget about the oil for now.

What Really Happened With Occupy?

Update: Looks like quite a few people have shared their thoughts in the past 30 minutes. Compare before and after.

On Friday, the San Francisco Fed, best known for such cutting edge research as "Why Is Unemployment Duration So Long?" (turns out it was Bernanke's fault), "US Household Deleveraging" which concluded incorrectly that "Going forward, it seems probable that many U.S. households will reduce their debt" (turns out completely wrong as consumer debt is now at a new all time record), and "This Time It Really Is Different" (turns out it wasn't), asked a simple question on its FacePlant page: "What effect do you think QE3 will have on the U.S. economy?" The people have now responded in a fashion that leaves little to the imagination. Actually, one thing is left to the imagination, namely whether the name of the one person responding that the $85 billion in monthly flow in perpetuity associated with QE3 is "not big enough" begins with Paul and ends with Krugman. Aside from that, in typical SF Fed fashion, no surprises at all.

Back in 2010, everyone's favorite truthsayer in Europe - MEP Nigel Farage - opined on who exactly was Herman Van Rompuy - the new EU President. Claiming HvR's charisma approached that of a damp rag, we noted at the time that this was indeed slanderous to all the hard-working damp-rags out there. Well, given the EU's need for cash - by any route possible - it seems they have chosen to start building a mountain of fines. As AP reports, the EU parliament fined Nigel EUR2980 for his self-expression.

Does everyone who call @euhvr a "damp rag" get a $4,000 fine?

— zerohedge (@zerohedge) September 17, 2012

Given Germany's EUR 190bn ESM contribution, we assume that Nigel has 63 million more insults before Europe is fixed.

Having had the last 2 weeks propped up by Ben and Jerry, oops, Mario, who delivered the f(l)avours that had been expected throughout the summer, markets will be in need for some concrete impulses to push further.

Spanish bond auction on Thu rather on the mighty side.

Mostly bored today, though...

Every European stock index closed red today - that is something we have not seen in a few weeks. The drops were not dramatic - and in fact IBEX rallied from open to close after an ugly start to the day. Spanish and Portuguese bond markets sold off notably (in the front- and back-ends of the curve) and given its place as fulcrum security we suspect the slight underperformance in European credit markets relative to stocks indicates the Draghi-induced reflex buying is starting to fade. Swiss 2Y was stable; European VIX rose modestly; and EURUSD which saw some violent swings into the US day-session open is ending its day fractionally lower. All-in-all, given recent strength and momentum, sovereigns have definitely stalled and equities will need a catalyst now (Spanish bailout?).

The European 'Union' continues to be the most amusingly misdefined oxymoron in existence. Today's Exhibit A confirming just that: Spiegel's interview with Bavarian finance minister Markus Söder which can be summarized in the following 4 words: Everyone Wants Our Money.

These are the issues to consider going forward. Our view is that it is quite possible the Fed has played its hand too strongly and thereby damaged its future efforts to maintain market stability via intervention. Given that stocks were already decoupled from the underlying economic realities, this has made the market highly vulnerable to a sharp correction.

These are the issues to consider going forward. Our view is that it is quite possible the Fed has played its hand too strongly and thereby damaged its future efforts to maintain market stability via intervention. Given that stocks were already decoupled from the underlying economic realities, this has made the market highly vulnerable to a sharp correction.

The reach for yield must be carefully balanced against the inane ignorance of 'if it sounds too good to be true, then it is!' and it appears that there are plenty of sucker-draining entrepreneurial asset managers out there willing to create whatever the market will bear. To wit, the WSJ reports on the growing size of the Master Limited Partnership (MLP) market; for years a haven for 'safer' income with upside potential this asset-class has been seized upon as "private-equity firms, eager to offload assets, are turning mountains of sand, gas stations and coal mines into a special type of security that offers investors annual yields as high as 19% for years to come." Seven of the last ten MLP IPOs have offered yields above 10% (sound reasonable?) and with the sector's market cap having risen from $65bn in 2005 to over $350bn now it seems like the thundering herd is willing to sell it to the blundering herd. Critically though, as WSJ notes, these new MLPs carry much more risk than their predecessors - as the promise of such high returns may be too good to be true. Indeed - though we assume that the Fed will be buying MLPs too by the time these go pear-shaped.

The unleashing of QE3--unlimited money-printing in support of the financial Status Quo-- is proof the Fed has failed, failed, failed. If anything the Fed has done in the past four years had actually had a positive consequence in the real economy, Bernanke would have identifed that policy and expanded it in a measured response. Instead he went all-in, emptying the Fed's toolbox in one big dump: unlimited money-printing, unlimited propping of the mortgage market, unlimited support of low Treasury rates and three more years of zero-interest rate policy (ZIRP). Here is the translation of the Fed Chairman's public comments: whatever. Did you see any of his testimony? It was painfully obvious that either 1) he was sky-high on Ibogaine or 2) he was just going through the motions, duly enunciating PR "cover" that he finds tiresome to repeat and impossible to say with any sincerity or conviction. His body language and delivery said: "You think I believe this canned shuck and jive? Get real, chumps."

We warned that the shine was coming off Draghi's rally late last week but since mid-morning on Friday, Spain's 10Y spread has risen a very notable 36bps and the 10Y yield has just broken back above 6% for the first time in over two weeks. However, the seemingly impregnable short-dated market has started to crack. Spain's 2Y has also broken back above 3% - up over 50bps in the last 3 days! It seems the reality of the cash position, as we described in detail last night, is perhaps starting to outweigh the unlimited-but-capped open-ended-but-conditional support that the ECB supposedly has.

Nothing has changed, it has only gotten worse...

Having trouble keeping track of how many countries have now officially rebelled against Pax Americana in the past week? Here is your handy one-stop resource to keep you abreast of all the latest in the embassy storming fad.