Russell 2000

Busy day for our friends from Goldman who are now turning quite bearish it appears following the two GDP cuts earlier.

Dumping yet another liquidity cold shower in the aftermath of today's less than dovish Humphrey Hawkins speech by Bernanke (and sending precious metals even lower, albeit briefly), is the Fed's resumption of even more purely optical liquidity extractions, however symbolic, in the form of reverse repos, after the NY Fed just completed the first such operation since the dark days of summer 2011. As a reminder, the last time the Fed did these was back in August 2011 which cemented the market's plunge as it gave the market the impression that at least superficially no more money was coming in (intuitively it makes no sense to have Reverse Repos running at the same time as incremental liquidity), even as the reliquification baton was quietly being passed to the ECB. Today, reverse repos resume, as the Fed pays Primary Dealers an annualized rate of 0.17% in exchange for lending out $100 million in Treasurys. Will this continue? It depends entirely on what the economy, pardon, the Russell 2000 does. After all, that is the third and only mandate of the Fed that matter. And if the market considers this an indicator that QE3 really is delayed indefinitely, the FRBNY will mostly likely be forced to reassess.

We kissed Nasdaq 3000 this morning.  Doom and Gloom abounds.  The macro picture is still dire with lots of bad news - some of which you can only get on ZeroHedge!  Consider the crazy news that Wyoming was looking to buy an aircraft carrier.  Is this not Peak Doom?  It is a sign.

Want to get into the head of a hedge fund manager, and see how they view the market: why just buy Apple of course, however good luck explaining to your LPs why you deserve 2 and 20 for "active asset management" aka just following the herd into the biggest hedge fund hotel in history (for at least 216 hedge funds it may be a tough sell). So for everyone else, Goldman's David Kostin (who still has a 1250 year end S&P target - the definitive indicator to sell everything will be when he too gives up) has compiled the data in all the just released 13Fs and has summarized the results as follows...

The phenomenon of market and confidence reflexivity is quite well known to the US, where not one but two indices, the UMichigan and Conference Board, provide upward boosts to the market when the market is going up, which in turn boosts confidence even more, and so on in a closed loop well used by agents of the central planning bureaus, especially during economic slides, when the "economy" is nothing but the Russell 2000. Europe is no stranger to this, and early this morning despite Germany's recent economic data coming out nothing short of atrocious, Germany announced its business managers are quite confident, and more so than expected whatever that means, after the IFO Business Survey printed at 109.6 on expectations of 108.3 - the highest reading since July 2011. As a reminder, 9 days ago "The German Industrial Output Slides More Than Greek, Despite Favorable ZEW" - in other words, the propaganda machine is out in full force, desperate to break the linkage between Europe's recessionary economy, and the market which has soared over the past 4 months for one reason only - trillions in central bank liquidity. Alas, the bill has now come in in the form of record Brent in British pounds, fresh all time highs in energy prices, and WTI which if Goldman is right, will hit $120 this summer and send Obama's reelection chances down the toilet. Anyway, here is Goldman with a note on the German confidence index which briefly sent the EURUSD up 80 pips to a high of 1.3340, showing just how volatile the fulcrum security now is with 148K net shorts, since retracing most of the gains as apparently not even the market is that stupid to believe the confidence is more important than hard data following the EU's announcement that the Eurozone will officially see a GDP decline of -0.3% in 2012 vs previous expectations of +0.5% rise.

Yesterday, when charting the global multi-trillion central bank stealth reliquification (aka the primary driver for the market to surge 20% in the past several months, and since "the market, or Russell 2000 is the economy" just as the ChairSatan, to result in what naive commentators define as an economic bounce), we said "As a reminder, when gold was at $1900 last summer, central banks had pumped about $2 trillion less into the markets. We expect the market to grasp this discrepancy shortly." With gold about $30 bucks higher, the market is finally starting to "grasp it", and is now back to $1755, as silver passes $34. 

Yesterday, it was Thomas Stolper who capitulated on his latest incursion into the field of 0.000 batting, when he closed his long EURUSD reco (only for the EUR to jump today of course). We can hardly wait for him to announce he is again long the EURUSD for the clearest EUR short signal possible. That said, it still left outstanding the Goldman Russell 2000 recommendation noted here previously. Sure enough, in the aftermath of yesterday's return of risk with a vengeance, Goldman is taking steps to make sure it locks in at least some profits on its RUT 2000 target of 860 by hiking the stop to 810 from 765. The reason? "What has clearly changed in the past week -- and the catalyst for this "leash tightening" -- is that European sovereign risks have reemerged, with continued near-term support for Greece now much more uncertain than we or the markets had previously assumed. With the amplification of these hard-to-assess risks emanating from Europe, and data continuing to support our main thesis, we think that protecting the gains at this point with relatively tight stop is prudent" But why if Europe is suddenly fixed, on the completely meaningless news that the ECB is funding Eurozone central banks with magic money on their Greek bond losses, even as the actual debt notional is not changing at all. At this point, we doubt we are the only one who no longer care.

Ladies and gentlemen: we bring you.... 9 our of 9. That would be the number of times (at least since we have started counting) that Goldman FX maven Thomas Stolper has capitulated on his calls. IN A ROW.

• BOJ Adds to Monetary Easing After Contraction (Bloomberg)
• EU to punish Spain for deficits, inaction (Reuters)
• Obama, China's Xi to tread cautiously in White House talks (Reuters)
• Global suicide 2020: We can’t feed 10 billion (MarketWatch)
• Greece rushes to meet lender demands (Reuters)
• Obama Budget Sets Up Election-Year Tax Fight (Reuters)
• Foreign Outcry Over ‘Volcker Rule’ Plans (FT)
• Moody’s Shifts Outlook for UK and France (FT)
• France to Push On With Trading Tax (FT)

Busy day for headline chasers (which these days is everyone) with the ISM-leading Chicago PMI taking center stage at 9:45 am. At some point the economy will have to start 'confirming' the Bernanke Bear case or else one may get the impression that the Chairman was merely posturing with providing a perpetual LSAP open backstop to the Russell 2000. Also, the Case Shiller index which will report the 7th consecutive home price drop will likely not get a whole lot of attention.

As we commented last week when Goldman propped a Long Russell 2000 position, their recent track-record in perfectly wrong-footing their clients is statistically outstanding as a contrarian indicator. Following on the heels of Stolper's record-breaking run of wrong calls in EURUSD, the Goldman strategy team has very magnanimously had 1.6% of client moneys donated to their bonus fund since they managed one of the better top-ticks we have seen in months. And with collapsing trading volumes pointing to another plunge in quarterly bank earnings, Goldman's "Investing and Lending" group desperately needs any alpha it can get its hands on.

It is one thing for Tom Stolper to release precious tidbits about what is not going to happen in the future on a weekday - for those we are very grateful. But doing so on god's (or is that Goldman's) day is truly a first. In a note just blasted out, it would appear there is no rest for the Stolper, and according to the world's most admired FX strategist (remember: batting 0.000 is just as useful as batting 1.000), "Dollar downside forces on the rise" and that Goldman is positioned "short the USD again"... Just as Goldman was positioned long the Russell 2000 literally the minute the market topped on Thursday (no joke - check it). And to think it was only three weeks ago that the same strategist saw downside risks for the EURUSD to 1.20...

In this week's chartology from Goldman's David Kostin there is the usual plethora of useful data, but two slides deserve a very special mention because with 39% of the S&P already reporting Q4 data, the implication is quite dire. If Kostin is correct, then the corporate margin juggernaut, which recently hit an all time high in Q3 of 2011, and which has for all intents and purposes been the one offset to deteriorating economic conditions, recurring Fed stimuli to the economy aside, has officially peaked and is now rolling over. This has huge implications for virtually everything, as it means that after 3 years of layoffs, corporate America has finally cut through all the fat and is now officially chopping into muscle with every additional layoff. It also means that going forward no matter how many workers are laid off, the corporate margin rate wil not increase. Furthermore, if Bernanke or Draghi officially launch another inflationary easing episode which more than anything exports inflation to China, which in turn reexports it back to America in the form of rising COGS, margins will compress even more. In other words, the US economy, which sadly has been "defined" as the Russell 2000 and/or the DJIA, is tipping over. And with companies posting a near record low positive earnings surprise ratio, we are once again amazed how yet another Goldman team may have well called the absolute peak in the market with its long Russell call from two days ago.

Below we present the indexed return of ES (or stocks) and of gold over the past 24 hours since the Bernanke announcement of virtually infinite ZIRP, and the latent threat of QE3 any time the Russell 2000 has a downtick. It is unnecessary to point out just when Bernanke made it all too clear that the Fed has nothing left up its sleeve, expect to directly compete with the ECB over "whose (balance sheet) is bigger," as it is quite obvious. What is not so obvious, is that for all intents and purposes, Bernanke may have unwillingly, become a gold bug's best friend, as gold (and implicitly silver) has benefited substantially more that general risk. Much more. So for the sake of all gold bugs out there, could the Fed perhaps add a few more FOMC statements and press conferences? At this rate gold should be at well over $2000 by the June 20 FOMC meeting. And yet it is not smooth sailing: the time has come to watch out again for potential CME margin hikes (or rumors thereof) in gold at any given moment. After all, any increase in the price of protection against central planning stupidity is "irrational" and must be promptly punished by the keepers of the trillions in "stable derivative markets", who are too busy to police the MF Globals of the world and instead have a mandate of killing any PM price breakout.

Even as Goldman's economists have been bashing the Fed for not proceeding with a full blown LSAP QE, and have been warning repeatedly that the economy is due for a significant leg lower, here is Goldman once again doing all it can to trade (i.e. dump) its own inventory first and foremost, with a just released trade reco which in our opinion marks a market top far better than any squiggle on a DeMark chart. From Goldman: "We are recommending long positions in the Russell 2000 with a target of 860 (c+8%) and a stop of 765 (c-3%), marked relative to today’s open." As a reminder, for every client who is buying from Goldman, Goldman is selling. That is all.