Archive - Dec 11, 2014 - Story

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In the last 3 days, the broad Greek stock market has cratered a stunning 20%. This is the biggest 3-day drop since 1987 and all on the back of the 'possibility' that an anti-EU party takes over. Did we just get a glimpse of the ugly reality hiding behind the veil of status-quo-maintaining central-bank-sponsored manipulation?

The so-called economic recovery that America has experienced in recent years is "unfair" and "distorted" according to Elliott Management's Paul Singer. Speaking at The DealBook Conference in New York, Singer warned that the recent 'great' jobs data is "part of the distrortion" that he has so vociferously ascribed (having previously noted that he "does not think the current optimism is warranted.") But when asked if the Fed should be blamed for income inequality in America, Singer exclaimed "Yes, they are the enablers."

One of our old rules of trading is that whenever a major asset class, index, or other benchmark has a sudden, rapid move in price, something blows up. Sky high. That’s because people get used to regimes. They get used to a certain state of affairs with a lack of volatility. They become complacent. Maybe they stop hedging. Maybe they allow themselves to have unbounded downside risk. Maybe they start gambling. So what's going to blow up?

BREAKING: White House budget office held conference call with agencies Thursday to prepare for shutdown if funding lapses by midnight.

— Damian Paletta (@damianpaletta) December 11, 2014

Confused at how such awesome retail sales headlines can lead to the kind of weakness we are seeing in stocks now that Lending Club's IPO has started trading? Wondering why bonds are now lower in yield on the day in the face of 'proof' that the US consumer is back? Wonder no more, as STA Wealth Management's Lance Roberts points out, November's seasonal adjustment for retail sales was - drum roll please - the 3rd largest on record... so maybe, just maybe, the 'market' is seeing through that pure riggedness, wondering about the huge surge in continuing claims, and agog at the blowout in credit spreads and collapse in crude...

Having predicted oil prices below $80 in 2014 at the beginning of the year, Saxobank's Steen Jakobsen has a leg or two to stand on when he warns of a "massive correction" in energy stocks andthe drop in prices will rapidly become a headwind for the US economy, adding that "it will subtract 0.5% from GDP, bare minimum." He further notes that due to the strategic importance of the oil industry to America, he suspects the government will attempt (a likely highly unpopular) bailout of the Shale sector. However, as Raul Ilargi Meijer notes, there is a problem for any bailout (aside from public angst), in that bailing out US oil also means bailing out Russian, Libyan, Venezuelan oil...And that would be hard to defend in today’s American political climate, helping Putin and Maduro get back on their feet.

Even though the economy may not have normalized fully, it is also clearly no longer in crisis, and yet, as Bloomberg Brief's Carl Riccadonna notes, monetary policy remains calibrated at a crisis stance. There are numerous reasons for this as we have expounded vociferously but the make-up of the Federal Reserve's voting members next year bends notably to the dovish side... no matter how much they want to get off ZIRP and achieve some breathing room into the next crisis. As Bloomberg's "Fed Spectrometer" shows, from Hawkish Fischer (non-voting) to Dovish Yellen (voting) and uber-dovish Kocherlakota (non-voting) this handy guide will clear up any confusion when the FedSpeak begins again...

While none of the following analysis suggests that a market crash is imminent, it does imply that we are very late in the current market and economic cycle. A market melt up into 2015 would certainly be exciting, but should be used to sell overly priced assets to what will probably be a dwindling supply of "greater fools."

Update: As you were - VOTE ON FEDERAL SPENDING BILL POSTPONED, STILL PLANNED FOR THIS AFTERNOON

As is widely known by now, in a largely token vote, since it has the blessing of the White House, in a few moments the House will vote on H.R. 83, the bill containing $1.1 trillion in appropriations to fund the government through 2015, aka the "Cromnibus". As noted previously, among the provisions in the bill is Citi-directed watering down of Dodd-Frank by way of a Swap "push-out" provision, which as we explained over the weekend, would put taxpayers on the hook for derivative losses as it "would allow financial institutions to trade certain financial derivatives from subsidiaries that are insured by the Federal Deposit Insurance Corp. — potentially putting taxpayers on the hook for losses caused by the risky contracts." Those wishing to follow who votes for and against the Spending Bill may do so on C-Span after the jump.

"Over the next five years investors now expect inflation to average just below 1.3%. This level of expected inflation has always previously been associated with a decline in US equity prices. There have been no exceptions until today." Russell Napier

Golf-clap, Janet... you really screwed this one up...

CIA Director John Brennan is due to make a rare public statement and answer press questions with regard the Senate Intelligence Committee's report on the CIA's use of torture.

Once again, following a strong 10 Year auction, today's 30 Year reopening of CUSIP RJ9 was an absolute stunner, and with the When Issued trading at 2.875%, the high yield was a very much scorching 2.848%, stopping through nearly 3 bps through the WI, and the lowest 30 Year auction yield since November 2012. The reason for this impressive surge in last minute interest: a record low takedown by Dealers who got just 25.9% of the auction as they were pushed out by the other two bidding groups. Sure enough, there was an absolute scramble by Indirects (49.8%) and Directs (24.3%) both of which received, logically, a record high takedown for a 30 Year.  And finally with the Bid to Cover soaring to 2.762, this was the highest since January of 2013.