Today's early close across markets likely means that the blow-off top multiple-expansion mania phase (because forward EPS estimates over the past couple - that means 2 to Janet Yellen fanatics - weeks have in fact declined) of 2014 may be coming to an end. However with already abysmal volumes literally grinding to an early halt at 1:15 pm Eastern today, and with a market as boring as this one, where any news is immediately interpreted as good, not matter how bad it actually is or how "revised" or "goal-seeked", we may see futures, which already are trading some 4 points above fair value, successfully levitate by another 20 points and hit Goldman's 2100 year end target - year-end for 2015 that is - one year ahead of time.
As the following snapshot from January 2009 shows, the 12 month, $25 contango back then was without precedent, and as a result there was an epic scramble by hedge funds, banks and various other speculators to store about 100 million barrels on tankers with the intention to sell later. Since the contango was so wide one could easily lease any number of VLCCs and still be profitable on the trade. In fact, a big reason for the renormalization of the crude curve back then was because so many funds jumped on this arb. Fast forward to today, because the "risk-free" contango trade is back.
With the wind down of the record 2014 trading slump now in its final days (although judging by volumes throughout the year one may have a difficult time noticing just when the holidays began and ended), the already entertaining zero-liquidity market moves are sure to provide further amusement today in the context of the US economic data bonanza on deck, which includes Durable Goods, GDP, Personal Income and Spending, Richmond Fed, UMich, and New Home Sales. Beat or miss, all of the above are guaranteed to send the S&P to higher recorder highs because in the multiple-expansion euphoria blow-off top phase nobody cares about such trivia as fundamentals or the economy, especially when Japan and Germany are about to monetize all of their gross issuance. Just remember to occasionally keep an eye on the preferred rigging correlation pairs: the USDJPY and the VIX, whose every illiquid jerk will be followed by Citadel & NYFed's algos tic for tic.
Kyle Bass' "nickel" trade is alive and well. A new report from the U.S. Mint reveals that it’s still not cost-effective to make pennies and nickels - Americans lost $105 million in 2013 due to their production.
And it's not only a higher gold price we are looking for...
The current illusion of recovery is a result mainly of windfalls to the financial asset owning upper strata, the explosion of transfer payments funded with borrowed public money and another supply-side bubble - this time in the energy sector and its suppliers and infrastructure. But that’s not real growth or wealth. Indeed, the desultory truth about the latter is better revealed by the fact that the American economy is not even maintaining its 20th century level of breadwinner jobs. And the real state of affairs is further testified to by the lamentable trend in real median household incomes. That figure - not distorted by the bubble at the top of the income ladder - is still lower than it was two decades ago. So much for the Keynesian rap. Yet that’s about all that underpins the latest Wall Street rip.
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.
Deflation and the attendant risks caused by a sudden revelation about hidden debts will remain the chief concern for investors and policy makers in 2015
After drifting unchanged for much of the overnight session, US futures exploded higher shortly after the previously noted SNB's NIRP announcement, which took place at 2 am eastern, which made it explicit that yet another banks will herd the bouncing dead cats right into new all time stock market highs, and following the European open, were carried even higher as the global "risk-on" momentum ignition algos woke up, spiking all recently depressed assets higher, including energy as Brent rose almost 3% despite Saudi Arabia’s oil minister Ali al-Naimi once again saying "it is difficult if not impossible" for OPEC and his kingdom to reduce output.
"Back in the halcyon days of summer, it seemed nothing could go wrong; but now, ...the uncertainties presently being generated have the potential to undermine two crucial kinds of trust – that one must have in the merits of one’s own exposure and that equally critical faith in the reliability of one’s counterparties. If it does, the third great bull run of the 20-year age of Irrational Exuberance could well reach its culmination, after a rally of almost exactly the same magnitude as and of similar duration to the one which ushered it in, all those years ago."
Crude Continues Slide, Ruble Stabilizes, US Futures Rebound As Global Stocks Slump: All Eyes On YellenSubmitted by Tyler Durden on 12/17/2014 06:50 -0500
Previewing today's market: near record low liquidity, with chance of ridiculous volatility in the Ruble, energy and equity markets. While no doubt today's main event will be the "considerable" FOMC announcement and the Fed's downward-revised economic projections followed by Yellen's press conference, what traders will be most excited by is that, finally, Jim Bullard will no longer be bound by the blackout period surround FOMC decisions, and as such can hint of QE4 again at his leisure during key market inflection (i.e., selling) points.
If the world's fifth largest trader of commodities has chosen to outright not trade gold, and thus not generate value for its shareholders over risks and fears that another, or two, or three, or a countless number of other prior "owners" may come knocking one day and demanding delivery of gold whose origin could not be documented by its trading intermediaries, and whose ownership link Gunvor is unable to trace, then just what on earth is really going on with the world's physical gold inventory (here's looking at you, Chinese gold-backed Commodity Funding Deals), and just what is the catalyst that will unleash what is essentially the infamous US mortgage robosigning scandal onto the gold arena, at which point owners of gold realize the gold they thought they owned, even if held safely in a deposit box deep in a gold vault in a safe offshore location, in reality "belongs" to someone else?
For those wondering if the CBR's intervention in the Russian FX market with its shocking emergency rate hike to 17% overnight calmed things, the answer is yes... for about two minutes. The USDRUB indeed tumbled nearly 10% to 59 and then promptly blew right back out, the Ruble crashing in panic selling and seemingly without any CBR market interventions, and at last check was freefalling through 72 74 76, and sending the Russian stock market plummeting by over 15%.
After the worst week for stocks in years, and following a significantly oversold condition, it will hardly come as a surprise that the mean reversion algos (if only to the upside), as well as the markets themselves (derivative trading on the NYSE Euronext decided to break early this morning just to give some more comfort that excessive selling would not be tolerated) are doing all they can to ramp equities around the globe, and futures in the US as high as possible on as little as possible volume. And sure enough, having traded with a modestly bullish bias overnight and rising back over 2000, the E-Mini has seen the now traditional low volume spike in the last few minutes, pushing it up over 15 points with the expectation being that the generic algo ramp in USDJPY ahead of the US open should allow futures to begin today's regular session solidly in the green, even if it is unclear if the modest rebound in the dollar and crude will sustain, or - like on every day in the past week - roll over quickly after the open. Also, we hope someone at Liberty 33 tells the 10Y that futures are soaring: at 2.13% the 10Y is pricing in nothing but bad economic news as far as the eye can see.