Quad Witching Cliff-faller

Tyler Durden's picture


It may not be apparent immediately, but in the aftermath of last night's epic collapse in fiscal cliff negotiations, which incidentally was perfectly obvious to anyone with half a brain and who experienced last summer's debt ceiling fiasco, which sadly excludes all paid political and financial - including sellside - commentators, all of whom expected a prompt resolution to this polarized issue as recently as a week ago, there is major behind the scenes panic.

Because while banks would write profuse, long-winded essays to explain the logic and rationality of the "deal", now that they are all faced with adjusting their narrative the best they can come up with are two sentence fragments such as this one from Citi's Steven Englander "Problem is that it is the right wing of the Republican Party that wouldn’t give Boehner their support, making it less likely that he could win broad support among Republicans for a compromise with the White House. Also he will have to spend next couple of days negotiating with both his own party and the Democrats without knowing how much he can deliver." The answer: nothing at all. In fact as Scott Rigell said “I’m not sure the people who have been up here 20 or 30 years really understand what the next iteration of this process is”.  He is speaking for pretty much everyone else who has now been made a total fool by the Black Swan that is Congress.

Furthermore, now that the leadership of the GOP is in limbo, following the not so silent conservative coup within the GOP, one can not only forget a deal being cut in 2012, but most likely there will be no deal at all until the hard deadline - that of the debt ceiling some time in March, which will be breached next week, but which the Treasury can extend for three months as a result of plundering the G-fund all over again. The implication, as we showed yesterday, is that a 3 month delay assures a US recession, and a ~20% or so minimum correction in the stock market, which has been priced for absolute perfection for months, and which will once again have to be used by Wall Street as a means to get a consensus out of DC. Just as we predicted over a month ago.

Reality finally penetrating through the market's thick skull of complacency has meant a decline virtually around the globe in all asset classes: Asian equities have been volatile but are trading weaker led by a 0.85% drop in the Hang Seng while 10yr UST yields have rallied 4bps to 1.756% as we go to print. Gold continues to underperform and is down to $1642/oz (-0.3%) overnight and is poised to finish lower for four straight sessions in its longest losing streak in more than 2 months.

The point is, however, that stock will be much, much lower by the time it all ends, unless of course, as we also jokingly (but now appears far more probable), Congress simply punts to Bernanke who has no choice but to do QE5 in the next few weeks to avoid what would now be a 5% market crash (where everyone is levered to the gills).

Finally while we may have avoided the Mayan apocalypse, we do have a quad witching and a NASDAQ rebalance to look forward to. Enjoy!

Some other overnight news via BBG:

  • Britain’s GDP rose 0.9% Q/q, down from previous estimate of 1%, while the deficit excluding bank support was GBP17.5b vs. GBP16.3b
  • U.K. banks, under pressure from the Bank of England to increase capital, may do exactly what the central bank doesn’t want them to do: Cut lending
  • UK current account -GBP12.8 billion vs -GBP14 billion exp.
  • The proposal by a Bank of Japan board member to scrap interest paid on lenders’ deposits raises the prospect of a flood of cash into a bond market where yields are near a nine-year low
  • Italian consumer confidence rose from 84.9 to 85.7, higher than consensus 85.1. No really.
  • Sweden sees 2013 GDP growth of 1.1%, versus 2.7% previously
  • Norwegian unemployment rises to 2.4%, above expectations of 2.3%

Busy day with lots of US events, all of which are completely irrelevant to the GETCO algos who are now merely looking for their next opportunity to flash crash futures:

  • 8:30am: Chicago Fed Nat Activity Index, Nov. (prior -0.56)
  • 8:30am: Personal Income, Nov., est. 0.3% (prior 0.0%)
  • Personal Spending, Nov., est. 0.4% (prior -0.2%)
  • PCE Deflator M/m, Nov., est. -0.1% (prior 0.1%)
  • PCE Deflator Y/y, Nov., est. 1.5% (prior 1.7%)
  • PCE Core M/m, Nov., est. 0.1% (prior 0.1%)
  • PCE Core Y/y, Nov., est. 1.6% (prior 1.6%)
  • 8:30am: Durable Goods Orders, Nov., est. 0.3% (prior 0.0%, revised 0.5%)
  • Durable Goods Ex-Transportation, Nov., est. -0.2% (prior 1.5%, revised 1.8%)
  • Capital Goods Orders Non-Defense, Ex-Aircraft, Nov., est. 0.0% (prior 1.7%, revised 2.9%)
  • Capital Goods Shipments Non-Defense, Ex-Aircraft, Nov., est. 0.8% (prior -0.4%, revised -0.1%)
  • 9:55am: U. of Michigan Confidence, Dec. final, est. 75.0 (prior 74.5)
  • 11:00am: Kansas City Fed Manufacturing Activity, Dec. est. -5 (prior -6)

And a more expansive recap from DB's Jim Reid

So you're all still there? Haven't you something more interesting to do in the last few hours of civilisation? To be fair the same could be said of us. But stoically we all carry on. However judging by the thousands of out of office messages I got yesterday many people have now left to prepare for Xmas/the apocalypse (delete as appropriate).

To be fair when I woke up this morning to find that overnight S&P futures had at one point slumped 50 points I thought that doomsday was starting. Yes we've seen a stunning development overnight to the fiscal cliff story with a chaotic delay to the scheduled House vote on the GOP’s ‘Plan B’ fiscal bill. Before we detail this, this will be my last contribution to the EMR this year but Anthony and Colin will keep publishing over the Xmas period to keep us up to date with the latest fiscal cliff developments. We would normally have paused by now but US politicians have kept us honest up until the bitter end and look like keeping the guys busy next week. So happy holidays to everyone from me and many thanks for reading in 2012 and for the support and interaction. Also thanks to Colin and Anthony for their invaluable contribution to this document. It couldn't be done without them.

Assuming the end is not nigh, see you all in the second week of 2013, as on Boxing Day I'll be off to slide down mountains in the name of fun for 12 days. So back to the dramatic overnight news. After a quick huddle in Boehner’s office, the House Speaker eventually scrapped the vote conceding that he didn’t have enough support from his Republican caucus to pass the bill. In a brief statement afterwards, Boehner said that “now it is up to the President to work with Senator Reid on legislation to avert the fiscal cliff”. Perhaps indicative of the current state of talks, Republican congressman Scott Rigell said that “I’m not sure the people who have been up here 20 or 30 years really understand what the next iteration of this process is”. In a press release, the White House said that Obama was still “hopeful” for a deal.

So cliff clock continues to tick and a deal before the Christmas break is now looking increasingly unlikely. Indeed the Senate will meet briefly today but will not reconvene until next Thursday (27 December). Similarly the House will also not meet again until after Christmas and the hope is that there will be bipartisan agreement then to avoid the fiscal cliff.

However if the Republicans weren't prepared to support a bill raising taxes for million-dollar annual earners, is compromise now getting much less likely? Are we heading over the cliff in a dramatic fashion? Or is this more a failure of leadership from Boehner? I have never known such a big story to break when no-one is really watching due to the holiday season. Even in the darkest days of the financial crises there did seem to be a 'bad news' amnesty as we approached Xmas. This uncertainty is pressurising markets overnight. As we said at the top S&P futures plunged nearly 50points to reach a low of 1392 after the negative headlines before recovering to 1423 as we type although there were also chatter of ‘fat fingers’ behind the dive in stocks. Asian equities have been volatile but are trading weaker led by a 0.85% drop in the Hang Seng while 10yr UST yields have rallied 4bps to 1.756% as we go to print. Gold continues to underperform and is down to $1642/oz (-0.3%) overnight and is poised to finish lower for four straight sessions in its longest losing streak in more than 2 months.

In the currency space, the JPY (+0.4%) continues to rally against the USD following yesterday’s BoJ meeting. The Nikkei reported overnight that the BoJ "appears certain to embrace an inflation target" with the question now being the target rate, the time frame and accountability (Nikkei). Cliff concerns are also lifting market volatility into year end with the VIX up 13.5% in the last 2 days.

Fiscal cliff aside, yesterday’s US dataflow made for more encouraging reading. The final Q3 GDP was revised up 0.4 ppt to 3.1% due to a combination of stronger personal consumption (1.6% vs. 1.4% previous), net exports (-$395B vs. -$403B) and government (3.9% vs. 3.5%). Inventories ($60.3bn vs. $61.3bn) were only revised slightly lower. The Philly Fed's manufacturing index recovered in December (8.1 vs -3.0 expected and -10.7  previous) driven by new orders and shipments. Existing home sales topped expectations in November (5.04 million vs. 4.90m expected), resulting in a 5.9% increase in sales volumes for the month.

Finally, jobless claims increased to 361k vs. 344k the previous week, settling broadly at the average that was recorded prior to Hurricane Sandy.

Away from the US news flows remain fairly quiet. In Spain, Catalan President Artur Mas said he would work with the Catalan Republican Left, or the ERC party to push for a referendum on independence from Spain in 2014 (Reuters). In Italy, the Italian senate approved the 2013 budget law and the bill now heads to the Chamber of Deputies where it is due to be passed either today or Saturday. PM Monti is reportedly scheduled to address the Italian public over the weekend but is also set to speak at the Conference of Ambassadors in Rome later today.

Looking at the day ahead, the market’s reaction to the latest fiscal cliff drama will likely be the main focus on what is likely going to be a thin volume day for trading. In terms of data, France’s business confidence and German/Italian/UK consumer confidence surveys are scheduled in Europe. In the US, November’s durable goods orders and personal spending are the data points of note.


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Fri, 12/21/2012 - 08:05 | 3086161 MillionDollarBoner_
MillionDollarBoner_'s picture

OT - did the world end at 1100hrs, then?

I might have missed it - had to go for a wee !:O)

Fri, 12/21/2012 - 08:12 | 3086168 NewThor
NewThor's picture

Baktun 14 The Morningbell of Forgiveness

We live

I did an awesome SAVE EARTH dance with my horse 

and we won.

Here is the proof.


Now can I get hugs and kisses from the Zerohedge ladies,



Fri, 12/21/2012 - 08:28 | 3086186 EnglishMajor
EnglishMajor's picture

It's the end of the world as we know it...



Fri, 12/21/2012 - 08:32 | 3086192 Frastric
Frastric's picture

That must explain the after-market flash crash, for a few moments the algos really DID believe the world was ending!

Fri, 12/21/2012 - 11:09 | 3086677 GeezerGeek
GeezerGeek's picture

Considering the profligate spending that continues unabated in Washington, DC, Americans may someday come to wish that the world had ended today. At least then the end would be quick, rather than the protracted horror facing us.

Fri, 12/21/2012 - 12:18 | 3087042 Manthong
Manthong's picture

“Haven't you something more interesting to do in the last few hours of civilisation?”


Bottle of Mad Dog – check.

Half a pack of Luckies -  check.

Ten dollar Crack Ho – check.

Depleted EBT card - check.

Splash of Brut’ – check.

I’m ready.. bring it.

Fri, 12/21/2012 - 08:33 | 3086193 JPM Hater001
JPM Hater001's picture

Let's review the rules"

Everytime we pass below 13000 take a hit

Everytime we pass above 13000 take a shot.

Fiscal cliffs are grand times for a party.

Fri, 12/21/2012 - 08:54 | 3086222 malikai
malikai's picture

Fuck that. Last time I did that shit I woke up in a hay pile in Tijuana with my pants around my ankles.


Fri, 12/21/2012 - 09:03 | 3086242 Melin
Melin's picture


Fri, 12/21/2012 - 15:37 | 3087898 NewThor
NewThor's picture

I think I love you.


Too soon?

Fri, 12/21/2012 - 10:32 | 3086518 deejo
deejo's picture

Any fellow zerohedger who listens to radiohead in the snow with a horse is a friend of mine.

Fri, 12/21/2012 - 08:40 | 3086196 Acet
Acet's picture

Actually the Universe was indeed destroyed, instantly. Nothing was left with the exception of an entire race of super-advanced sentients who lived two galaxies away and managed to escaped the collapse.

For a million years those super-advanced sentients toiled to restore the Universe (it's mind-numbly boring living in the place of eternal grey which is what's left after a Universe disappears).

Then they succeeded and the Universe was instantly reconstructed exactly as it was at the moment of its destruction. Because every single atom was restored to the place and state it was in at the end of the Universe (Heisenberg was wrong!), our bodies, our brains, our memories and all our clocks and measurement instruments are as they were so we can't tell the difference.

Still, maybe there was miniscule errors in the restauration of our Universe and tiny differences were introduced - if I was you I would keep an eye out for things like the direction the water rotates in your sink or maybe a gut feeling that your cat might be vastly more intelligent than you give him credit and he's actually secretly smiling to himself at the silly human antics as he watches the discussions about the fiscal cliff on the TV ...

Fri, 12/21/2012 - 08:53 | 3086225 edb5s
edb5s's picture

This reads like a passage from The Hitchhiker's Guide to the Galaxy.

Fri, 12/21/2012 - 09:26 | 3086297 Acet
Acet's picture

My only excuse is that it's Friday and I'm flying off for Christmas Vacations this weekend ...


Fri, 12/21/2012 - 11:13 | 3086685 GeezerGeek
GeezerGeek's picture

Hmmm...I thought that, for however brief a moment, I felt my waveforms collapsing. Thinking it was the Scotch, I poured another and the feeling went away.

Fri, 12/21/2012 - 11:58 | 3086938 Zap Powerz
Zap Powerz's picture

Wise choice.  When in doubt, pour another drink.

Fri, 12/21/2012 - 09:06 | 3086249 Burr's 2nd Shot
Burr's 2nd Shot's picture

Technically, I think today is the last day on the calendar. Tomorrow is undefined.

Fri, 12/21/2012 - 08:08 | 3086162 GetZeeGold
GetZeeGold's picture



Pack a parachute sports.


This must be just like living in paradise.


Fri, 12/21/2012 - 08:08 | 3086164 tallen
tallen's picture

Today is such an appropriate day for a stock market crash. I can't wait to tune into Jim Cramer later with some Mince pies and mulled wine and laugh at him pumping the markets like mad. Merry Christmas Zerohedgers! Santa has come early.

Fri, 12/21/2012 - 08:09 | 3086165 Mark Wilson
Mark Wilson's picture

Buying opportunity! :)

Fri, 12/21/2012 - 08:10 | 3086166 DavidC
DavidC's picture

"...S&P futures plunged nearly 50points to reach a low of 1392 after the negative headlines before recovering to 1423 as we type although there were also chatter of ‘fat fingers’ behind the dive in stocks".

Bollocks. It was HFTs/algos - I was watching it as it occurred. It wasn't just S & P, it was across the board.


Fri, 12/21/2012 - 08:24 | 3086182 fonzannoon
fonzannoon's picture

Don't let it get to you David. Just watch in awe. Or watch in anger if you must. Just make sure to watch.

Don't forget to watch Jim pimp 6 stocks in 60 seconds followed by a bunch of Jackals yapping at each other in between Etrade commercials.

Fri, 12/21/2012 - 09:38 | 3086344 DavidC
DavidC's picture

I'm not complaining - I'm short the Dow!

But I've been watching all this intraday since 2007 and that was not a fat finger episode.


Fri, 12/21/2012 - 09:42 | 3086356 disabledvet
disabledvet's picture

One man's fat finger is another man's...

Fri, 12/21/2012 - 08:22 | 3086167 Element
Element's picture

After the Rain


Enjoy the time off Tyler, you earned it.

Fri, 12/21/2012 - 09:29 | 3086307 PeeramidIdeologies
PeeramidIdeologies's picture

Yep. Top notch efforts all around here. ZH owns it.

Fri, 12/21/2012 - 08:17 | 3086170 ArkansasAngie
ArkansasAngie's picture

Republicans can't get elected if they raise taxes

Democrats can't get elected if they don't raise taxes.

Simple ... throw the bums out.  All of them.

Fri, 12/21/2012 - 08:29 | 3086181 GetZeeGold
GetZeeGold's picture



I'm good with all of them....commence Operation Burn Bitchez.


I realize that may seem harsh....but I would point out that it would save us a hell of a lot money.

Fri, 12/21/2012 - 08:31 | 3086190 StychoKiller
StychoKiller's picture

Here's a plan:

1. Scrap baseline budgeting.

2. De-fund ALL non-Constitutional spending.

3. Forbid fractional-reserve lending.

4. Abolish the Fed.

5. Start minting Au/Ag coinage, pronto!

Fri, 12/21/2012 - 08:38 | 3086198 youngman
youngman's picture

This is after the crash......the reset....probably the civil war....

Fri, 12/21/2012 - 12:01 | 3086957 Zap Powerz
Zap Powerz's picture


I have an even better, more plausible idea.

Build a time machine, go back in time to 1912 and assassinate everyone involved in the creation of the FR.

Ok, so Im kidding.  The point being, both of us have good ideas, but unfortunately, they are not even remotely possible.  I like your idea, dont get me wrong, but it will never ever ever happen in the current political environment.

Fri, 12/21/2012 - 08:17 | 3086171 orangegeek
orangegeek's picture

SP500 weekly puts things into perspective.




And there's more downside likely on its way in January - Q4 results are going to suck.

Fri, 12/21/2012 - 08:20 | 3086173 Frastric
Frastric's picture

Wise man says; he who sticks his jaw out gets knocked out senseless....

Fri, 12/21/2012 - 08:21 | 3086176 working class dog
working class dog's picture

GOP members need to take a hike, flush them down the toilet and bring in a fresh perspective, wake up GOP the latinos are coming, and the 95% of US population will not stand for a tax increase, that is why you lost the election. Bonehead really thinks that there bullshit cover story of "We dont want to raise taxes" is sitting ok with the 95%. NO it is not, assholes would raise taxes on 95% of the US population if they cant continue the free lunch. And Ben Bernanke fuck you too! ENd the free lunch ponzi system, give the money control back to US treasury and hand mops and buckets to the LIBOR rigging scum and let them clean toilets at the train station.

Fri, 12/21/2012 - 08:30 | 3086187 j0nx
j0nx's picture

They lost the election because they keep running RINOs as candidates and the conservative base stays home. They lost because they are not conservative enough, not because they are too conservative. The party needs an enema alright and has for years. An enema of all the RINO polyps that have infected the otherwise healthy tract.

Fri, 12/21/2012 - 09:45 | 3086364 disabledvet
disabledvet's picture

The Raucous Caucus speaks. I find it funny that anything Washington DC does matters. We could be witnessing the birth of a third Party actually...

Fri, 12/21/2012 - 11:25 | 3086728 GeezerGeek
GeezerGeek's picture

What the country needs is a true second party, not simply a third party. For decades the Republicans were no more than 'me too!" adherents to the big government Democrats. Some slipped through the controls of the RINO establishment, and we ended up with Reagan and later Gingrich and his revolution. Such aberations were suppressed by the RINO establishment, giving us such illustrious presidential candidates as Bush 1, Dole, Bush 2, McCain and Romney. Gingrich, not always conservative, was driven out and followed by those vanilla-pudding moderates Hastert and Boehner.

We need a true anti-Progressive party to balance the Dems, not "more of the same but cheaper" bozos.

Fri, 12/21/2012 - 10:08 | 3086433 Freddie
Freddie's picture

They ran RINOs and the Dems had all night voting in many many cities.  The whole election was rigged.

The next step with the 100% help of ALL of TV and Hollywood is to disarm the population.  If you watch their crap - you support it.

Fri, 12/21/2012 - 08:23 | 3086179 tradewithdave
tradewithdave's picture

Volcker claims central banks have "lost their effectiveness" and weighs in in an "old fashioned gold standard" in this video.



Fri, 12/21/2012 - 08:24 | 3086180 freedogger
freedogger's picture

Can we please have a Reindeer in headlights? After all, it tis the season!

Fri, 12/21/2012 - 08:35 | 3086195 StychoKiller
StychoKiller's picture

Ask, and ye shall receive...

Fri, 12/21/2012 - 10:05 | 3086418 Jumbotron
Jumbotron's picture

Ask, and ye shall receive...


I don't know what it is.....but that photo never fails to scare me.

Fri, 12/21/2012 - 08:25 | 3086183 Frastric
Frastric's picture

Even better the markets still haven't figured out that we have the debt ceiling 'crisis' #2 coming early 2013 and even MORE 'austerity' and those dreaded tax hikes and spending cuts.

Fri, 12/21/2012 - 08:46 | 3086217 Quinvarius
Quinvarius's picture

I am confident congress will keep their money supply pipe wide open.  They might tax a little more.  They might trim a tiny snippet of spending.  But they cannot stop.  As long as Obama remains a hard core socialist, trying to wage a war against any honky with a job, the trajectory is not going to change.  Spending and deficits will continue to blow out. 

Fri, 12/21/2012 - 10:13 | 3086454 Freddie
Freddie's picture

Cue Taratino, the Weinsteins Miramax and racists Jamie Foxx and Samuel L Jackson in Kill Whitey.   Filled with murder, gore, sadism,race baiting and misery.

We know exactly how these people really think.  They want to disarm you too.

Fri, 12/21/2012 - 08:26 | 3086185 j0nx
j0nx's picture

The words leadership, Obama, Boner, Pelosi and Reid should never be mentioned in the same sentence. EVER.

Fri, 12/21/2012 - 08:38 | 3086189 Samsonov
Samsonov's picture

As I watch the president, various congressmen, and reporters on tv, I am continually struck by the frivolousness of their manner.  It's perfectly obvious that none of them believe the fiscal cliff is anything more than an academic mental exercise with no connection to reality.  Are they right to think that, or are they too stupid to see?  We'll know soon enough, because if they don't believe it's serious, they won't do anything about it.

Loosely related, the price of gasoline briefly dipped below $3 yesterday, which I never thought I'd see.  Demand must be way down.

Fri, 12/21/2012 - 08:40 | 3086203 Quinvarius
Quinvarius's picture

I am thankful for the clown selling gold futures so hard that I sold a lot of stock yesterday to load up on it.  Peter Schiff is about to be right again. 

Fri, 12/21/2012 - 08:50 | 3086221 GetZeeGold
GetZeeGold's picture



Please sirs......may we have more?

Fri, 12/21/2012 - 09:10 | 3086250 Quinvarius
Quinvarius's picture

Maybe.  But Gartman sold.  That is 30% of my timing decision making process when I decide to buy.  Then we are at the 200 DMA.  Once the king muppet stops are taken out, and you are at the 200 DMA, you cannot do much more in the timing area IMO.  I take a longer term approach than must though. 

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