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S&P 500 Breaks 50DMA For First Time In 4 Months

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.



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Guest Post: Calling All Crash Test Dummies: Big Crash Ahead

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.



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Carnage Ala Milanese: Italian Stock Bloodbath

UPDATE: *ITALY'S FTSE MIB INDEX SLIDES 5% and Spanish 10Y at 6%

Italian bank shares are down over 8.5% in the last two trading days as all the majors (Intesa SanPaolo, Unicredit, Banco Popolare -7.14%, UBI Banca, Banca Pop Milano -6.3%) are still HALTED. As 10Y BTP spreads break above 400bps for the first time in over two months, it seems the marginal buyer of last resort has left the building and with little if any performing collateral left, credit spreads (and LTRO Stigma most notably) is breaking to close to record wides. We wonder how long those nasty speculators will be blamed for an attack and the short-selling ban will re-materialize (since it was so successful last time).



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Exhibit A: The Market Has Become A Centrally-Planned, Liquidity-Addicted, Temperamental Abortion

We will have much more to say about the impact of central planning on price (lack of) discovery and general market manipulation shortly, courtesy of the just released latest must read report by our friends over at Artemis Capital Management, we wanted to show our readers Exhibit A of what everyone has intuitively known for years, yet been unable to put it to paper. Until today. Below is Exhibit A that courtesy of global, relentless central-planning, the market is now nothing more than a liquidity-addicted abortion, whose future discounting capabilities have been utterly destroyed, which no longer reflects  any economic fundamentals, and which is merely a fake construct in the Eye of the Benholder. It also throws temper tantrums in the form of VIX surges any time the promise of liquid heroin is taken away.



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Muppets Skewered: 10 Year Treasury At 1.999%

10Y Treasuries just broke below 2% yields for the first time in a month. Was it just 3 weeks ago that Goldman suggested selling bonds and buying stocks?



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Apple: 36% Of S&P500 Q1 Earnings

As AAPL crosses $600bn market cap, we thought it worth a reminder (as we noted last week) of the outsize impact Apple-as-Market is having on top-down views of US corporate performance.



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Chinese Crude Imports Remain At All Time High For Third Month In A Row

Overnight Chinese trade data came in modestly disappointing, with imports rising just 5.3% on expectations of 9% increase. However one area where imports certainly did not decline, is commodities, and especially crude. As the chart below shows, Chinese crude imports in March were virtually unchanged from February's all time high (and same as January), and while the bpd number was slightly lower due to fewer days in the month at 5.50, one thing is clear: every ounce of oil that the rest of the world does not want, China will rapaciously import and stockpile. Good luck to Saudi Arabia with perpetuating the lie that it can boost its production by 2.5 million bpd to offset Iran. And even if it can, we at least know who will be waving it all in.



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Behind 'The Iksil Trade' - IG9 Tranches Explained

There is a lot of talk about IG9 these days.  We think the JPMorgan 'Iksil' story has a lot more to do with tranches than with outright selling of the index. Noone knows what exactly is going on, but we think selling tranches without delta explains far more than just selling the index, given the size and leverage. Critically, in the end it is all speculation as what (if any) trade they have on but if our belief on this being a tranche exposure (for the thesis reasons we explain) then the explanation is far less scary.



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The Rain In Spain

It sounds good when said and credible and positive but the problem is that it is one more absurd illusion. Spain, this morning, says the next round of budget cuts are going to come from Education and Health benefits which is all very nice except they do not totally come under the purview of the Spanish Federal government. The way that Spain is currently constructed these expenditures are mostly under the control of the regional governments and so that these kinds of promises by the current administration in Spain are wisps of cultivated air floating from Madrid to Berlin. Even if the Federal government could get the cuts accomplished it will take them months and perhaps months and months so that the headlines of what Spain is going to do has all of the substance of the milky froth atop some cup of coffee in Valencia that resembles a cappuccino.



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Iran Escalates Again, Cuts Off Oil Shipments To Spain

Those hoping for a quick and painless resolution to the Iranian question may have just seen their hopes dashed, following the breaking news from Iranian Press TV, according to which not only is Iran not seeking to appease its Western counterparts, but is, in fact escalating. From Press TV: "Tehran has cut oil supply to Spain after stopping crude export to Greece as part of its countersanctions, unnamed sources confirmed on Tuesday. Tehran also mulls cutting oil supply to Germany and Italy." "Countersactions" - lovely: another Swiss watch plan by the insolvent developed world. Said otherwise, one can hardly threaten to do something to a country, which is already doing so voluntarily, in the process hurting Europe's already crippled economies even more by removing the cheapest source of energy for both. Which however begs the question: just how much more Iranian crude are China and India importing despite promises to the contrary, and open warnings from the US not to do so?



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LTRO Failure Full Frontal As Spain 10 Year Approaches 6% Again

US data this week is relatively sparse (as usual in a post payroll week) leaving little evidence over the next few days to progress the seasonality debate but after a long weekend of derisking in mind and now in reality, Europe is front-and-center once again. Spain (and less so Italy) has decompressed to its worst levels of the year (5.96% yield and 425bps spread on 10Y) has now lost all of the LTRO gains as the curves of these liquidity-fueled optical illusions of recovery bear-flatten (as front-running Sarkozy traders unwind into the sad reality - most specifically for Spain - that we described in glorious must read detail here). Divergence and decoupling remain sidelined also as Deutsche Banks' Jim Reid notes the 4-week rolling beat:miss ratio in the US macro data has fallen to 24%: 73% (3% in line) from a recent peak at a string 70%:30% on February 29th. His view is still that in a post crisis world, especially as severe as the one we've just been through, Western growth is going to continue to be well below trend for many years and with more regular cycles. With Spain teetering on the verge of a 6% yield once again, we are still off the record wides from late November but not by much as the vicious cycle of sovereign-stress-to-banking-stress-to-banking-stress re-emerges in style. The European situation is still incredibly political and while we'd expect much more intervention down the line, expect the discussions and rhetoric to be fairly tough. The ECB last week indicated that they felt the recent widening in Sovereign spreads was more due to sluggishness in the pace of reforms. They are therefore unlikely to intervene in a hurry. So if Europe does need further intervention it is likely to need to get far worse again first.



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Chart Of "The US Recovery": Third Time Is The Charm, Or Head And Shoulders Time?

The following chart from Bank of America captures the past three years of American "recovery" quite starkly: the US economy, as measured by the ISM  has so far not double but triple dipped, and the result would have been far more pronounced had the Fed not stepped in after each of the prior two local maxima and injected trillions into the economy. Following peaks in mid 2010 and early 2011, we are "there" again - how long until the Fed has to jump in? And would it have already done so if it wasn't an election year? Which brings us to our question: third time is the charm? Or head and shoulders?



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Bob Janjuah: S&P At 800, Dow/Gold Ratio Will Hit 1 Before Next Real Bull Cycle

Bob Janjuah, who has been quiet lately (recall his last piece in which he quite honestly told everyone that "Markets Are So Rigged By Policy Makers That I Have No Meaningful Insights To Offer"), is out with his latest, in which he gives us not only his long-term preview, "ultimately I still fear and expect the S&P500 – as the global risk-on/risk-off proxy – to trade at 800, and the Dow/Gold ratio to hit parity (currently at 8, down from an all-time high of 45 in late 1999) before we can begin the next multi-decade bull cycle", but also his checklist of 8 things to look forward to in the short-term centrally-planned future.



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Daily US Opening News And Market Re-Cap: April 10

UK and EU markets played catch up at the open this morning following Friday’s miss in the US non-farm payroll report. This coupled with on-going concerns over Spain has resulted in further aggressive widening in the 10yr government bond yield spreads in Europe with the Spanish 10yr yield edging ever closer to the 6% level. As a result the USD has strengthened in the FX market in a moderate flight to quality with EUR/USD trading back firmly below the 1.3100 and cable falling toward the 1.5800 mark. There was some unconfirmed market talk this morning about an imminent press conference from the SNB which raised a few eyebrows given the recent move in EUR/CHF below the well publicised floor at 1.2000, however, further colour suggested an announcement would be linked to the naming of Jordan as the full-time head of the central bank when they hold their regular weekly meeting this Wednesday. Elsewhere it’s worth noting that the BoJ refrained from any additional monetary easing overnight voting unanimously to keep rates on hold as widely expected. Meanwhile, over in China the latest trade balance data recorded a USD 5.35bln surplus in March as import growth eased back from a 13-month peak.



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Frontrunning: April 10

  • With a 2 Year delay, both FT and WSJ start covering the shadow banking system. For our ongoing coverage for the past 2.5 years see here.
  • Trouble in shipping turns ocean into scrapheap (Telegraph)
  • First-Quarter Home Prices Down 20.7% in Capital (China Daily)
  • Bernanke Says Banks Need Bigger Capital Buffer (Reuters)
  • Monti’s Overhaul Can’t Stop Pain From Spain: Euro Credit (Bloomberg)
  • Spain Confronts Crisis Threat as Rajoy Seeks Deficit Cuts (Bloomberg)
  • Japan’s Noda Announces Anti-Deflation Talks as BOJ Sets Policy (Bloomberg)
  • White House makes case for Buffett Rule (CNN)
  • Cameron to Make Historic Myanmar Trip (FT)
  • 'Time for Closer Ties' With India (China Daily)


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