BTFD/STFR Deja-Vu - check. Credit underperforming - check. USD higher - check. Treasury Yields lower - check. Ask an equity guy how today was and you'll likely get a shrug of the shoulders (unless he owns JPM or CHK); ask a credit guy (if you can pull him away from the bar) and you'll get a very different response. Investment grade credit markets were crushed today on the back of pressure on JPM's hedge and unwind expectations - this was across pretty much all the indices that are out there (with over 90 names in the IG9 index also in the on-the-run IG18 index - the numbers simply reflect the series or portfolio that is being referred to). This was the worst week in IG credit of the year and lifted spreads to 4-month wides and at the same time (until late in the day) high-yield and high-beta credit did not follow suit (very unusual and very indicative of the dramatic positioning in the IG indices that JPM has basically blown up). Treasury yields have now fallen for the 8th week in a row - the longest streak since 1998! Away from pure equity and credit, risk assets remained wildly unimpressed by the incredible 8 sigma rip-fest this morning in stocks as commodities all close lower from yesterday day-session closes - though bounced to end around their European open levels on the day (except for underperforming Copper). The USD leaked higher all day with a small interruption thanks to CAD strength on their jobs data this morning (AUD, EUR, and GBP all close at the week's lows). A horrible end to an ugly week as S&P 500 e-mini futures ended very close to their 50DMA on above average volume though low average trade size (which we suspect was dominated by algos in the rip this morning). The losses JPM faces from today's index shifts are already large and with risk managers everywhere asking their traders if they hold any of that 'trash', we suspect more selling and unwinds are to come; and while JPM got all the press, Morgan Stanley is now down year-to-date.
In the span of 30 minutes CHK managed to crush both longs and shorts in the name.
Just in case you were wondering if there was any fall-out from the JPM/Iksil debacle. The investment grade credit indices are getting Corzined here from IG9 10Y to the latest and greatest IG18 5Y. Equity markets will not stand idly by as the investment grade credit market violently jerks wider.
I have to hand it to the Central Planners. They are good. Really, really good. Of course, they are battling a crippled opponent considering so much of America consists of lobotomized sheeple, but nevertheless to be able to steal so much from many people with such blatant and simplistic methods and not be widely discovered is an act of devious brilliance. The reason I say this now is because ever since last fall TPTB have changed tactics and totally taken over the markets and with it shoved many people into what is best described as a trance. The people know something is very wrong. They know they are getting poorer; that life is getting harder, yet the television and the markets have cloaked a blanket of sedation upon their minds.
Dump-'em, Pump-'em, Dump-'em - The New Normal 'buy-and-hold' model is stable this week. Equity market continued to follow the same path day-in and day-out this week as the distance between the 50DMA and Monday's morning gap becomes smaller and smaller.
Below, ZH friend LongShortTrader submits his letter to the Green Mountain (GMCR) board of directors. In it, he expresses concern over various statements that former Chairman Robert Stiller, current CEO Larry Blanford, current CFO Frances Rathke, and others have made recently. Hey: if the Dan Loebs of the world can have a daily activist pulpit, who not others who, unlike the broader lemming herd, actually do their homework?
With the Greek tempest-in-a-teapot about to hit Whale-size, as Tsipras says he will not join the coalition and Venizelos says that Syriza's participation is a prerequisite (via Bloomberg), it seems now would be an opportune time to look forward (not backward at the GGB2s dropping below EUR17 for the first time ever!). As we were among the first to state that their would be a second (if not more) election in Greece, we look at the schedule of events in Europe over the next few weeks (including the payments due on the PSI holdout bonds), and discuss the scenarios and consequences of a Greek exit (for both Greece living without Euro support and the Euro-zone coping with a Lehman-event).
Former US Republican presidential candidate Michelle Bachmann receives the Sovereign Man dumbest person of the week award for obtaining… then almost immediately renouncing… Swiss citizenship. I’ll explain: Bachmann’s husband is a Swiss national; they’ve been married since 1978, and as a result, Bachmann eventually became qualified for Swiss citizenship as well. She recently received confirmation of her citizenship from the Swiss authorities, a fact that was reported in some mainstream media outlets. Bachmann was subsequently criticized by her political opponents for engaging in such ‘un-American’ activities.
It would seem, just as during the crisis in 2008/9, that now might be an opportune time to push for 'improvement' in how banks are regulated (and more importantly how the instruments they trade in colossal size are priced and marked-to-market). Rick Santelli believes now has never been a better time but as his guest Tim Backshall of Capital Context notes, regulation of the CDS market can be summed up in one sentence "Get Them On Exchange". Something we have been saying for years (and has been tried before) but with dealers holding all the keys (to market-making) and exchanges cowering for fear of losing clients, we remain less optimistic. Santelli and Backshall critically address the complicity of banks, regulators, analysts, and The Fed in giving 'banks the benefit of the doubt' with regard their use of the bottomless pit of capital they implicitly have but what is more important is for the hordes of sell-side analysts and buy-side sheeple to understand just what this JPM debacle exposes about bank risk (VaR is useless), bank transparency (mark-to-model or worse is widespread), and bank valuation (traditional Price/Book metrics have no merit anymore).
We can only guess at his reasons. Perhaps it is the cost of real estate in Palo Alto, the price of Starbucks in Silicon Valley, or the lack of Bugatti dealerships but Eduardo Saverin - co-founder of Facebook - just renounced his US citizenship. Via Bloomberg,
FACEBOOK CO-FOUNDER SAVERIN GIVES UP U.S. CITIZENSHIP PRE-IPO
Or maybe the always pioneering entrepreneurs from Facebook just gave us a preview of US tax policy, or rather the popular response to it, in 2013. Like!
Zero Hedge has a habit of trying to simplify that which is otherwise unnecessarily complex, convoluted and opaque. Today, we wish to explain the primary reason why Europe has still not be engulfed in fire and brimstone and collapsed straight to the 9th circle of overlevereged Hell(as). The reason, as we henceforth dub it, is Ponzi PatriotismTM.
The Kobayashi Maru test of Star Trek fame is a classic no-win situation. Star Fleet Academy students are given command in a no-win scenario: either ignore a distress call of a Federation ship inside the Klingon (enemy) zone or enter the zone on a doomed rescue mission and lose your own ship in a hopeless battle against vastly superior forces. Captain Kirk evaded the no-win choices by reprogramming the computers to enable him to win. I think the job market can be profitably viewed as a Kobayashi Maru test: the conventional either/or choice--do something you dislike for job security or go to grad/law school for an advanced degree--is a false choice.
When it comes to question of "who is right" in the market, the debate usually ends with credit (investment grade) or equity (and its high beta equivalents in the fixed income arena: high yield bonds). And since the question is rhetorical we will kill the suspense and cut straight to the answer: always, and without fail, credit. The chart below shows that once the manipulated ramp up in high beta risk equivalents such as the ES and HY is over (especially since IG is now losing its artificial JPM-induced bid, or technically offer, which is unwinding positions across all vintages and buying protection to close short positions), the way down to a credit-implied fair value of 1335 on the S&P will be fast and furious.
Either Dimon misled the public about the gravity of the festering trades during his company’s first-quarter earnings call last month. Or he didn’t know what was happening inside the bowels of his own company. History tells us the latter is the norm for Wall Street bosses, though it’s hard to say which is worse.