Archive - May 20, 2010 - Story

As if uncontrollable economic contagion was not enough for the administration, Obama is now willing to add geopolitical risk to the current extremely precarious economic and financial situation. Over at Debkafile we read that the president has decided to "boost US military strength in the Mediterranean and Persian Gulf regions in the short term with an extra air and naval strike forces and 6,000 Marine and sea combatants." With just one aircraft carrier in proximity to Iran, the Nobel peace prize winner has decided to send a clear message that peace will no longer be tolerated, and has decided to increase the US aircraft carrier presence in the region by a 400-500% CAGR.

Oil prices dropped steeply again on Thursday, as the entire asset structure came under selling pressure again. Traders were also talking about the abundance of crude oil in Cushing, Oklahoma, and about the influence that could be having on Thursday afternoon’s une crude oil contract expiration. As it worked out, June crude was slightly weaker than deferred months, but the expiration occurred within fairly normal parameters – if the recent weakness can be considered normal.
Equities sold off sharply as well, yesterday, in what was being described as a general flight from risk. And, in a sign that the exodus from asset classes was planting even deeper roots, it spread into the precious metals, pulling down gold quotes along with those for platinum, palladium and silver.

Spreads ended the day notably wider (HY wider than 'flash-crash' close) with stocks managing to slightly underperform on a beta-adjusted basis as broad-based selling in single-names and indices made today feel a little more 'real' than recent swings. There are a few signals of regime change today that make us nervous even with potential clarity from Germany and FINREG due very soon. After some midday covering on EUR (eh hem intervention), the cloture vote triggered more selling and that weakness gathered pace and stocks and credit closed considerably weaker. ES_F closed at the lows of the day and while credit was weak, equity's beta-adjusted performance was notably worse than credit's on the day. HY, which traded over 690bps intraday (shy of the intraday wides of 706bps on 5/6), closed wider than the 'flash-crash' day's close taking it back to end NOV09 wides. IG was weak but remained inside of the 5/6 closing levels. HY-IG decompressed further and we hop those clients who followed us into this trade move those stops up to at least breakeven now (with a target of 600bps).

At this very instant, many of those in our Senate are in danger of being led off the plank by outgoing Chairman of the Senate Banking Committee Chris Dodd. With cloture passing, Senator Dodd now has one final chance to present a manager's amendment to make a weak bill stronger (or possibly even weaker.) Once again, this financial "reform" process has thankfully brought into the light of day that we have politicians who are brazen in their willingness to aid the same fraudsters who have brought a great nation to its knees. But as this week's primaries have clearly shown, there is no hesitation by the voters in throwing out the Establishment that got us into this mess and apparently has no plans to help us get out. Thankfully, once forced to vote, politicians can no longer merely pretend to working for the People as they do the bidding of the Banksters. So once you look beyond all of the well-documented behind-the-scenes work by Dodd to weaken financial reform, we also have his on-the-record votes on a few of the meaningful attempts at real reform:

The medium term trend, and I want to clear about this, remains down. I have argued for this for a while now, and risk appreciated so much from March 2009 until April in the case of US equities that the correction will run for a lot longer than this. I ultimately think we will see new lows in equities and I stand by my target of 380 for the S&P (I came up with that one in 2007, I looked stupid then, I still look stupid now, just a little less).

I wasn’t going to write this week so this will be extremely brief. The entire charade that has been propagated on humanity is coming completely unglued and there is absolutely no stopping it. I have only one request to those that are reading this. If you know of specific incidences of corruption or serious wrong-doing come forth and tell everyone now. This is your last chance. When this things breaks the 99% of people on this planet that have been unwilling victims of a very small group of elitist political and corporate players and others will be so completely destroyed they are going to go after people and in a very serious way. This must be done calmly and without violence but it must be done and it will be done. At that point the backstabbing and selling out by people that previously held alliances with one another will be so chaotic it is going to be tough to separate those did the most harm from those that were willfully ignorant. I fear that being willfully ignorant will not be a defense that will appease many so it is best to come out before that point is reached. For those that have read A Tale of Two Cities or just generally know your history remember what happened in the aftermath of the French Revolution. There was illogic and indiscriminate punishment applied in many cases. I hope this never happens and I will fight to prevent it all the way but the best thing one can do now is come clean if there is anything you need to come clean about. Bob Dylan said it best in the quote at the top. This is the chance. Do not let it pass you by because of fear or greed. Truth is all that matters. - Mike Krieger

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 20/05/10

Update: Futures now 7 handles lower. 46 point move in ES: that is almost a 5% move in the S&P for now.

The correction, soon to be crash, is here: the market had a bigger relative open to close move today than it did on May 6. We closed at the day's lows on massive volume, despite definitive central bank intervention, regardless whether it was the SNB, the ECB, or the Fed. The central planners have lost control of the market, and all thanks to the inevitable collapse of hyper capitalist Keynesianism coming out of the formerly most communist country in the world. A day of ironies. And it's not over. Futures are already down another 4 handles. The correction is coming, and it will be a bloodbath. The Fed can not push rates lower. It will print. It is inevitable. It is our destiny.

Another PIIG with massive GDP cuts coming to a Fed FX swap funded bailout trough near you. And speaking of Fed-funded FX swaps, here is the joke du jour courtesy of the NY Fed's Tarullo: "Federal Reserve swap actions not a bailout for anyone, and certainly not a bailout for Greece." What was that line from Macbeth... And yes, The Fed is definitely bailing out Europe with its FX swaps, and most certainly Greece. But at least Tarullo comforted those who have been brainwashed enough to listen to his ramblings that the Fed has no further action under consideration regarding the European bailout. Judging by our unimpressed response, the force is weak with that one.

Well, what are they gonna say: "We used US taxpayer money (thank you Ben Bernanke FX swaps) to prop up the European currency and kill the dollar." mmmk.

The move in the EUR has just hit ridiculous levels, with the nearly 300 pip intraday move comparable only to the EURCHF surge seen yesterday after quadruple SNB intervention. And frazzled US quants, having no clue what to do, decide to once again turn on the EUR signals pushing the market higher, with a 10% chance of a green close. Make no mistake - this is reciprocal liquidation, where morning margin calls in all other pairs were met by EURUSD covering of shorts,exacerbated massively by what is now almost certain ECB (not SNB) intervention. The negative here is that Germany will look at the Eur response and pitch its naked short ban to all other European countries, which will now gladly accept the proposal, myopically hoping for another 1-2 bp move in the EURUSD. We believe there may well be an announcement of a Europe-wide naked short covering ban this weekend, coupled with the imposition of a transaction tax.

It should come as no surprise that the short-term funding markets for European banks are getting increasingly problematic. Unfortunately for the ECB, which can intervene with a 6-12 hour time horizon to prop up the euro, there is nothing it can do to limit the bleed in Libor. Confirming this, Libor simply refuses to slow down its constant creep higher, causing increasing pain to all those who have sold the Ted spread and Libor-OIS, both of which are back to September 2009 levels. Yet while a surging Libor in itself is a troubling phenomenon, what is even scarier is looking at the offers provided by constituent banks to the Britsh Bankers Association, which compiles the data and provides an ex-outlier quartile adjusted Libor rate. The dispersion between the top and bottom bank in today's EUR LIBOR panel was a whopping 33% today, begging the question of just how healthy the upside panel outliers are.

The long-debated topic of whether the ECB intervenes on behalf of the euro can now be put to rest. 120 pip move in a minute is not a short cover. It is, and always has been, forced central bank intervention. Bernanke is so happy Trichet is doing his work for him for the time being. Be very wary of buying stocks on this intervention, as Central Bank involvement now at best leads to a 12 hour temporary "fix" to the market that Bernanke et al want to sustain.

Total panic in the market. PPT now out protecting the critical 1,070 level in ES. As the chart below shows, if the 1,070 level in ES is taken out, watch out for a repeat of the flash crash.

Unconfirmed: RBS back up now. No idea what caused the black out, but likely a liquidity run.