POMO

Another event-free day in which the only major economic data point was the release of UK CPI, which joined the rest of the world in telegraphing price deflation, despite bubbles in the real estate and stock markets, printing 2.0% Y/Y on expectations of a 2.3% increase, the lowest since November 2009 and giving Mark Carney carte blanche to print as soon as he arrives on deck. In an amusing twist of European deja-vuness, last night Japan's economy minister who made waves over the weekend when he said that the Yen has dropped low enough to where people's lives may be getting complicated (i.e., inflation), refuted everything he said as having been lost in translation, and the result was a prompt move higher in the USDJPY, quickly filling the entire Sunday night gap. That said, and as has been made very clear in recent years, data is irrelevant, and the only thing that matters, at least so far in 2013, is whether it is Tuesday: the day that has seen 18 out of 18 consecutive rises in the DJIA so far in 2013, and whether there is a POMO scheduled. We are happy to answer yes to both, so sit back, and wait for the no-volume levitation to wash over ever. The US docket is empty except for Dudley and Bullard speaking, but more importantly, the fate of Jamie Dimon may be determined today when the vote on the Chairman/CEO title is due, while Tim Cook will testify in D.C. on the company's tax strategy and overseas profits.

A quiet day unfolding with just Chicago Fed permadove on the wires today at 1pm, following some early pre-Japan market fireworks in the USDJPY and the silver complex, where a cascade of USDJPY margin calls, sent silver to its lowest in years as someone got carted out feet first following a forced liquidation. This however did not stop the Friday ramp higher in the USDJPY from sending the Nikkei225, in a delayed response, to a level surpassing the Dow Jones Industrial Average for the first time in years. Quiet, however, may be just how the traders at 72 Cummings Point Road like it just in case they can hear the paddy wagons approach, following news that things between the government and SAC Capital are turning from bad to worse and that Stevie Cohen, responsible for up to 10-15% of daily NYSE volume, may be testifying before a grand jury soon. The news itself sent S&P futures briefly lower when it hit last night, showing just how influential the CT hedge fund is for overall market liquidity in a world in which the bulk of market "volume" is algos collecting liquidity rebates and churning liquid stocks back and forth to one another.

Aside from light volume there’s no argument with the tape. It’s quite positive but much overbought. Earnings news is beginning to wane leaving less for bulls to respond to. Many previous reliable technical indicators are succumbing to all the money printing. Looking at those markets where QE is not taking place perhaps reveals the real market conditions.

Succinctly summarizing the positive and negative news, data, and market events of the week...

It is only logical that when one of the smarter people in finance warns that he "sees bubbles everywhere" that he should be roundly ignored by those who have no choice but to dance. Because Bernanke and company are still playing the music with the volume on Max, and if not for POMO there is always FOMO. However, if there is any doubt why this "rally is the most hated ever", here are some insights from the Bond King from an interview with Bloomberg TV earlier today: "We see bubbles everywhere, and that is not to be dramatic and not to suggest they will pop immediately. I just suggested in the bond market with a bubble in treasuries and bubble in narrow credit spreads and high-yield prices, that perhaps there is a significant distortion there. Having said that, it suggests that as long as the FED and Bank of Japan and other Central Banks keep writing checks and do not withdraw, then the bubble can be supported as in blowing bubbles. They are blowing bubbles. When that stops there will be repercussions. It doesn't mean something like 2008 but the potential end of the bull markets everywhere. Not just in the bond market but in the stock market as well and a developing one in the house market as well."

It's just getting plain stupid out there. Just as stocks were exploding into the green (perhaps on expectations of an epic Philly Fed miss), the Philly Fed did not disappoint, printing at -5.2, down from 1.3, and crushing expectations of an increase to +2.0, the biggest miss since February and confirming that the Empire Fed index plunge was not a fluke. Virtually every components in the Philly Fed was red except for Inventories (up to 4.1 from -22.2 in March) and Prices Paid (up to 6.9 from 3.1 in March). Among the plungers, the key New Orders tumbled from -1.0 to -7.9, Shipments crashed from 9.1 to -8.5, Average Workweek slide from -2.1 to -12.4, and the Number of Employees imploded from -6.8 to -8.7, the lowest print since September 2009. And if all of this doesn't send the Stalingrad & Poor 500 to new historic highs, we don't know what will. All one can do now is just laugh at this "market."

Despite (or in fact 'due to' in this alice-through-the-looking-glass market) terrible data overnight in Europe and weak data this morning in the US, equities went from strength to strength thanks to a pre-European POMO vertical liftathon that pulled equities 1% higher on nothing (nothing at all). This faded but was helped into the close by a JPY-driven spurt to hold above 1650 in the S&P 500 at another all-time high (intraday) and close. Behind the scenes it was a mess though. Treasuries rallied (after recoupling with stocks) and did not play in the final hour frolicking. VIX ended the day higher (and notably divergent). High-yield credit closed weaker and credit markets are significantly divergent now as releveraging begins to bite. The USD pushed on to new highs intraday (highest since July 2010) which we are sure will help earnings. While the market has done its best to pressure the oil markets lower, today saw WTI gush higher back over $94 once again. The big story is in gold and silver which were jerked lower at around the US open (ending the day down 3.8% and 5.6% respectively on the week). As a reminder for those calling for the death of gold - AAPL is down over 8% in the last 3 days (the death of AAPL?).

Thanks to POMO (and the simple explanation of what everyone already knows from David Tepper), the 18th Tuesday in a row has closed with a bright green shade across the screen. Trannies gained 2% but the 25 point gain off overnight lows for the S&P 500 is the most impressive... with gains sustained by more short covering. As predicted first thing today, when we said the S&P 500 EPS multiple will increase by at least 0.15x on the back of POMO, we were not surprised to see the closing print result in precisely this amount of multiple expansion:

Today's POMO: $2.75 - $3.50 billion. Should be enough to expand S&P multiples by 0.15-25x

— zerohedge (@zerohedge) May 14, 2013

A QE-unwind theme was modestly evident in other asset-classes: Treasuries (snapping higher after EU Close); Oil, gold, and silver all down; and credit spreads notably rolled over. But of course, equities don't care; why would they?

The market is beyond overstretched. We have not had a 5% correction in six months. Stocks have gone almost straight up for 89 days (we haven’t had a 3+day correction in that long).  This is an all time record. The last time stocks rallied without a 3+ day correction was in the buildup to the Crash of 1987.

It's Tuesday. It's a big POMO day. And sure enough, equities are in full-tilt melt-up mode. In the face of a stronger USD, rallying bond market, higher VIX, and widening credit spreads, the S&P 500 has smahed through yet another set of stops, squeezed shorts wherever you can see, and made new all-time highs. Mardi Gras indeed... though one wonders what happens when Europe closes and POMO is over. Will USDJPY 102 mark the 'top' in stocks today?

Treasuries underperformed but only modestly (ending the day 2-3bps higher in yield) but worth noting that the 10Y and 30Y and 29-30bps higher in yield post NFP. The S&P 500 made new all-time intraday highs (after ramping aggressively from the European close) but shorts seemed to know something and were heavy sellers from that point (with the 'most shorted' names actually closing down on the day). The Dow closed down 0.17% as there was no POMO to save us (despite a decent 330 ramp effort that dragged SPX into the green - just). It is elsewhere that cracks are appearing. VIX remains relatively bid to equity exuberance (as hedges remain) and the underperformance of credit is rather dramatic (typical underperformance has been reversed rapidly with in 2-3 days this year - not this time). A modestly stronger USD on the day (led by AUD weakness - not helping the carry traders) was not a factor for commodities where gold, silver, and oil (QE-sensitive) dropped 1% on the day. But then again, why worry, tomorrow is Turnaround Tuesday after all...

Despite the aura of control, Fed officials (and casual observers) may sense things spinning out of control. Of course, hyper-fragility is exactly the effect that all the Fed’s own actions would predictably lead to. When you divorce truth from reality, strange things are bound to happen. There is one thing that we know for sure in this strange period when bankers have tried to manage reality in the absence of truth: that advanced industrial-technological economies designed to run on $20-a-barrel oil can’t run on $100-a-barrel oil, and that is why the US economy was subject to financialization in the first place - to offset declining productive activity by an attempt to get something for nothing. The world is about to find out that you really can’t get something for nothing. It will be a harsh lesson.

The words "Shit Heel" come to mind.

While POMO and its unstopppable force of liquification will lift the nominal price of each and every stock to the point of no return, it seems VIX, Treasury, and JPY-carry traders are not quite as convinced that today is the day to be backing up the truck...

By now everyone knows that POMO is the daily physical manifestation of the Fed's love for the "1%", and the trillions in underfunded pension and stock-linked entitlements, taking place (almost) every day in the hours between 10:15am and 11:00 am Eastern, when the NY Fed's trading desk injects between $1 and $6 billion in the stock market. What many may not know is that while POMO was the name of the game since 2009 (just think where the S&P would be if the "market" was only open on Thursday, during the 45 minute duration of POMO, and between 3:30 pm and 4:15 pm), it may have finally met its homophonous match, courtesy of Citigroup. So step aside POMO. Presenting.... FOMO, or Fear Of Missing Out.