Archive - Dec 19, 2014 - Story

Never in the history of the S&P 500 e-mini futures contract has so many contracts been traded at the market open... Thank you Johnny-5...

As we have noted in the last two days, on the heels of Janet Yellen's mutterings, US equity markets have exploded higher even as the highly correlated and causative oil prices have done anything but rise. This 'fact' has not escaped BofA's Hans Mikkelsen's attention as he warns, "While stocks currently are getting a break from oil, it appears most likely that they reconnect when the decline in oil prices accelerates – especially if we see associated weakness in credit and EM." And sure enough, modestly at first, the two are starting to converge this morning...

Moments ago, as if to sway further speculation that Russia is indeed converting hard money earned from real resources for fiat paper, the Russian monetary authority made it quite clear, that at least in November, Russia not only did not sell any gold, but in fact bought another 600K ounces in the month of November.

Just because Russia has managed to stabilize its currency, that certainly does not mean the soaring dollar tantrum-cum-crude crash episode is anywhere near over, nor that stability has returned to the rest of the oil-exporting countries. Case in point, crude-exporting powerhouse Nigeria, where things are going from worse to #REF! Bid and ask prices for the naira were quoted from 162 to 190 per dollar with only 16 trades by 1 p.m. in Lagos [yesterday], compared with more than 170 by the same time yesterday, according to data compiled by Bloomberg. The naira fell 12 percent against the dollar this quarter, the worst among 24 African currencies tracked by Bloomberg after Malawi’s kwacha. Investors dropped Nigerian assets as the outlook for Africa’s biggest oil producer worsened with Brent crude prices almost halving since late June. “The banks can’t stop trading because of the circular,” the Deputy Central Bank of Nigeria Governor Sarah Alade said. “It is not supposed to close the market. We have told them we’ll continue intervening in the market, so there is no need to panic.”

While no one will be entirely surprised in today's consequence-less world, the "bombshell" news that Greek Independent MP Pavlos Haikalis claims he was offered EUR 2-3 million in order to vote for Greece's next President is no less shocking in its exposure. As AP reports, it is the second such claim from the Independent Greeks. Another of the party's lawmakers claimed last month that someone had approached her with the intention of bribing her. The government immediately jumped into defense mode and dismissed the claims as "badly acted theater" and called for any evidence to be made public. However, as KeepTalkingGreece reports, "sources" from the prosecutor’s office told media that Haikalis did indeed submitfootage, and according to latest information, told the briber’s name to the Greek Police. This can only bring Goldman's worst-case scenario - a Cyprus-style collapse - even closer for Greece.

"It’s hard to say what the right price is for a commodity like oil . . . and thus when the price is too high or too low. Was it too high at $100-plus, an unsustainable blip? History says no: it was there for 43 consecutive months through this past August. And if it wasn’t too high then, isn’t it laughably low today? The answer is that you just can’t say. Ditto for whether the response of the  price of oil to the changes in fundamentals has been appropriate, excessive or insufficient. And if you can’t be confident about what the right price is, then you can’t be definite about financial decisions regarding oil." - Howard Marks

• Icahn, Paulson Suffer Large Losses as Energy-Related Bets Sour (WSJ)
• Oil Investors Keep Betting Wrong on When Market Will Bottom (BBG)
• U.S. to sell final $1.25 billion shares of Ally Financial from bailout (Reuters)
• Ally Financial Gets Subpoena Related to Subprime Automotive Finance (WSJ)
• Russia's parliament rushes through bill boosting banking capital (Reuters)
• How a Memo Cost Big Banks $37 Billion (WSJ)
• ECB considers making weaker euro zone states bear more quantitative easing risk (Reuters)
• How the U.S. Could Retaliate Against North Korea (BBG)

Yesterday's epic market surge, the biggest Dow surge since December 2011 on the back of the most violent short squeeze in three years, highlighted just why being caught wrong side in an illiquid market can be terminal to one's asset management career (especially if on margin), and thus why hedge funds are so leery of dipping more than their toe in especially on the short side, resulting in a 6th consecutive year of underperformance relative to the confidence-boosting policy tool that is the S&P. And with today's session the last Friday before Christmas week, compounded by a quadruple witching option expiration, expect even less liquidity and even more violent moves as a few E-mini oddlots take out the entire stack on either the bid or ask side. Keep an eye on the USDJPY which, now that equities have decided to ignore both HY and energy prices, is the only driver for risk left: this means the usual pre-US open upward momentum ignition rigging will be rife to set a positive tone ahead of today's session.