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Congress Finds AG Holder In Contempt

In a day full of political news, here is the latest fixture to the soap opera to keep the electorate happy with water cooler talk.

House votes 255-67 to hold AG Eric Holder in criminal contempt of Congress for withholding documents in the Fast and Furious probe

Now, if only someone, somewhere can tell us the answer to the only question that matters in a world that just happens to have run out of money: who will pay for everything in this increasingly insane world, we would be very grateful. Or is everyone too distracted by meaningless flashing headlines, and ideological agenda to actually care?

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The Research In Downward Stock Motion Continues As RIMM Misses Everything

UPDATE: RIMM just opened at $7.5 from its $9 after-hours close before the halt - a mere 17% drop.

For any RIMM shareholders expecting a miraculous deus ex, somewhat like Europe's broker beggars who still are choosers, to come out of left field in today's earnings reports, there was nothing but epic disappointment.

  • Revenues came in at $2.81 billion on expectations of $3.1 billion, and down from $4.91 billion a year prior
  • EPS were $(0.37) on expectations of just a 7 cent miss.
  • The outlook is just as horrible, with RIMM announcing it expects a Q2 operating loss
  • It also see lower shipment volumes, and delayed the launch of Blackberry 10 to Q1 2013
  • Finally, the firm will cut 5,000 jobs

If the stock isn't moving much it is because it has been halted since pre announcement. It will reopen at 4:40pm, probably between 10 and 20% lower.

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Just A Very Visible Fat Finger?

Equities did it again - and no matter what narrative a mainstream media channel needs to comprehend the monkey-hammering that occurs every second in our 'market', it seems a fat-finger 50k block of S&P 500 e-mini futures (or around $3.3bn notional equivalent) was enough drive the nominal price index up 1% to close the day-session almost green (and rather notably right at yesterday's closing VWAP). All the highly correlated sectors of the equity market surged with them (led by Energy and leaving financials just in the red) and while Treasury yields did leak higher and EURUSD did rally, the moves were miniscule in comparison to someone's desire to own $3.3bn equivalent equity market risk into the close. Silver and Oil plunged early but recovered some into the close as stocks surged but tracked each other tick for tick for tick in general. Equities end the day modestly lower with VIX modestly higher as they saw average volume (thanks to the surge) but a drop in average trade size (algo tickler). Financials were saved by this as most recovered some of their losses with JPM limping up to close at Tuesday's closing VWAP. Credit and equity closed generally in line as IG/HY were very quiet and just being reracked along with stocks as opposed to seeing heavy flow.

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Stocks Don't Even Need A Rumor To Surge Now

Stocks just surged over 1% off their lows on absolutely no news whatsoever. The Merkel news was minutes ago (and how is that in any way positive) and the JPM news is old and irrelevant... This is simply ridiculous... they are on their own from a cross-asset perspective and just touched yesterday's closing VWAP which feels very algo-exit-driven...

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With Germany Down 2 Goals To Italy, Merkel Cancels Press Conference

No, we are not making this up:


In other news, Germany is down 0:2 to Italy right now.

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Howard Marks On Mistakes, Biases, And The Efficient Market Fallacy

"Mistakes are what superior investing is all about" is how Oaktree's Howard Marks begins his latest treatise, adding that for a trade to turn out to be a major success, the other side has to have been a big mistake. In any trade it is generally safe to say that one side has to be wrong (since win/win transactions are far less common than win/lose) leaving the buyer and seller unequally happy. Marks believes it is highly desirable to focus on the topic of investing mistakes. First, it serves as a reminder that the potential for error is ever-present, and thus of the importance of mistake minimization as a key goal. Second, if one side of every transaction is wrong, we have to ponder why we should think it’s not us. Third, then, it causes us to consider how to minimize the probability of being the one making the mistake. From the real-world 'issues' with the efficient market hypothesis, to behavioral sources of investment error, Marks concludes: "In the end, superior investing is all about mistakes... and about being the person who profits from them, not the one who commits them."

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Stephanopoulos: "You Reject That It’s A Tax Increase? " Obama: "I Absolutely Reject That Notion"

STEPHANOPOULOS:  [The individual mandate] is still a tax increase.

OBAMA:  No.  That’s not true, George.  The — for us to say that you’ve got to take a responsibility to get health insurance is absolutely not a tax increase.  What it’s saying is, is that we’re not going to have other people carrying your burdens for you anymore than the fact that right now everybody in America, just about, has to get auto insurance. Nobody considers that a tax increase. People say to themselves, that is a fair way to make sure that if you hit my car, that I’m not covering all the costs.

STEPHANOPOULOS:  But it may be fair, it may be good public policy…

OBAMA:  No, but — but, George, you — you can’t just make up that language and decide that that’s called a tax increase.  Any…

* * *

Nobody, except for the Supreme Court that is...

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Guest Post: Forget Broccoli

Americans are either celebrating or damning the Supreme Court’s 5-4 ruling that the individual mandate is constitutional. It is puzzling that the individual mandate to purchase healthcare might be deemed unconstitutional when the collective mandate to collect taxes to purchase next-to-everything (including both healthcare and broccoli) has been considered constitutional for the best part of a century. If America wants to overturn current legal norms America needs to elect different politicians. But with a greater and greater welfare-bound population, it seems inevitable that more and more Americans will vote themselves greater and greater quantities of free stuff. What’s stopping Congress from mandating that patriotic Americans with any spare cash dump it into government securities (or even flagging equities)? One day, Atlas may shrug. Until that day, Congress just acquired a powerful new funding tool.

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How Much Further For JPM?

While no-one knows exactly what the 'whale' trade was (we suspect a senior tranche trade tail-risk hedge whose risk-management hedging went pear-shaped), how much was done ($150bn notional seems consensus), and what the losses are likely to be (approximately $4bn is easy to see given the moves in IG9 10Y alone; though $9bn seems a stretch - albeit the kitchen-sink nature and perhaps inclusion of the losses from the long-book that this was supposed to be hedging - and the other positions that were used to hedge - may push it up to $6bn plus); we prefer to fall back to what has been a tested and true arbiter of JPM's underlying value (ex equity exuberance) - the CDS market. Given the current moves in prices, CDS appear to be looking for another 5-10% downside here before JPM's equity price is back in line with the credit market (of course this could also mean CDS needs to tighten aggressively or both). In the meantime, this message was brought to you by the acronyms DVA, LLP, and DV01; the number '9'; and the word 'book-value'.

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Finland's Proposal: Cash For Collateral

The strawmen are coming thick and fast from the EU Summit as they break for an evening snack. Between banking union 'plans' by year-end and ESM credit seniority exemptions for Spain, the Finnish Minister for European Union Affairs, Alexander Stubb, just suggested that EU rescue funds (ESM/EFSF) could potentially partly guarantee Italy's and Spain's bonds if the two countries provide collateral. Such 'covered bonds' reduced his country's borrowing costs during an economic crisis in the 1990s, and now "could be a solution which would bring down the interest rates of Spain and Italy." As Bloomberg notes, the proposal was "a halfway house" between no help at all for weaker eurozone members and full debt mutualization, and a response to those "trying to say that governments such as Finland, Germany and the Netherlands keep on (only) saying no." Unfortunately, as we are all too well aware, despite this being a "constructive proposal from the Finnish government", there is no quality collateral (and certainly trusting earmarks on tax revenue is unlikely to spur demand) leaving the only government asset worth thinking about - Gold - which leads us back to Germany's uber-solution the whole time. "At the end of the day, EU Summits are always some kind of compromise" Stubb added, by which we assume the periphery compromises its sovereignty (and gold) and the Core compromises its taxpayers.

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Despite Third Consecutive Record Low Yield, Today's 7 Year Auction Prices Surprisingly Weak

Concluding this week's series of very weak Treasury auctions is today's $29 billion auction of 7 year paper which despite pricing at a third consecutive record low yield (as more and more are frontrunning the Fed's implicit desire to buy up every US Treasury above 3 years in circulation) was actually merely the third consecutive auction to price with a tail. With the When Issued trading at 1.063%, the final high yield was 1.075%, sending off the first red light. Then the Bid To Cover dropped to the lowest since October at 2.64, which was not good either. Finally, the Primary Dealers once again were stuck holding more than half of the bag, or a take down of 51.48%, which was the highest since January, leaving just 42% to the Indirects and a very low 6.49% to the Direct bidders - the lowest since February 2011, and one can see why many are scratching their heads at the seeming strength of the secondary US bond market and the increasingly weak primary one.

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Santelli And The November Obamacare 'Referendum'

In a brief clip this morning, CNBC's Rick Santelli said a lot in a few words. His critical insight was that today's decision is about process and not preference and that the real decisions will be made in November when it becomes 'the people's choice'. He is a big believer in the 'pragmatic process' we should all enjoy and suggests today's SCOTUS decision (doing what they do best in comprehending the law) should be 'taken with respect' but notes the analogy to Europe: "You can try to have the mighty above tell the people below how they should live their lives, what they should get, and 'the government big enough to give you everything you want, and', in the words of Thomas Jefferson, 'big enough to take away everything you have.' But what are we left with really? We are left with an issue that should, by all indications be voted on by the American public. No matter how the Supreme Court decision worked out; no matter what the legislative process tells us; no matter how ugly this process was to get passed; in the end, I think it's more than appropriate that this will be, in my opinion, part of the referendum in November as to whether the public wants this or not."

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And Now, It's Obama's Turn

Moments ago, Mitt Romney took to the airwaves with a hastily prepared 3 minutes statement which was certainly quite a change from the speech that had been prepared last night. Now it is Obama's turn to expound the tremendous benefits of the recently adopted "Fairness Doctrine"... And the money tree.

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Mitt Romney Responds To SCOTUS Upholding Of Obamacare

While the president will will take to the podium in 30 minutes (so realistically 60) his challenger is up now. Watch live as he spins the largely unexpected SCOTUS decision on the Affordable Care Act.

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European Stocks Revert Back Down To Credit's Pessimism (As 2Y Swiss Drops To Record Lows)

Just as we noted yesterday, the ludicrous late-day ramp in European equity markets relative to the absolute nonchalance of credit (corporate, financial, and sovereign) markets, has now reverted totally as broadly speaking Europe ends the day in the red. Spain and Italy stock indices bounced a modest 0.5% on the day as the UK's FTSE and Germany's DAX suffered the most (down 1-1.5%) on Banking Lie-Bor drama and unemployment respectively. Corporate credit leaked a little wider on the day with the investment grade credits underperforming (dragged by weakness in financials). Financials were notably weak with Subordinated credit significantly underperforming Senior credit (bail-in anyone?). Sovereigns were weak overall (not just Spain, Italy, and Portugal this time) as Spain's 2s10s has now flattened to year's lows. Swiss 2Y rates dropped further - to record closing lows at -35.2bps (after being -39bps at their best/worst of the day - suggesting all is not well, and Bunds largely tracked Treasuries as the SCOTUS decision came on and pushed derisking across assets. EURUSD tested towards 1.2400 early on but is holding -35pips or so for now at 1.2430.

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