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You Must be 48" To Ride This Ride

Tyler Durden's picture




 

Via Michael Naso of FBN Securities,

The crowds are slowly starting to fill up Times Square, and despite the imminent countdown to New Year’s, Washington still has not conjured up a resolution to avoid the fiscal cliff.  Over the prior two months I have leveraged game theory, Venn diagrams, option “greeks,” and basic investor psychology as tools to decipher the ultimate path of the crisis and subsequent market reaction.  Alas, regardless of all the analysis I and countless others have supplied; the short, intermediate, and long term prospects for stocks rest exclusively on headlines.  More poignantly, the fate of the U.S. economy, global equities, and net incomes for hundreds of millions now depend upon the decision making of a group so small, its numbers can be counted with one hand.

Throughout this process, I had argued that the debate would go into extra innings.  My contention with such late hour bargaining always has been the inflating of the risk premium corresponding to the event as the deadline approaches.  I have associated this overhang on shares as “theta,” a term that one typically defines as the change in value of a derivative as the time to expiration decreases.  As we progressed through last week, the downward forces on the market increased exemplifying this concept.  The Friday afternoon flush that extended aggressively beyond 4PM via the E-Minis fittingly provided the crescendo.  The parabolic acceleration of this model suggests that every material utterance from the major players in this debate going forward will affect the price action with an impact of tectonic proportions.

 

and sure enough...

 

For E-Mini traders, Christmas has arrived six days late, for the exaggerated movement in the tape will be driven by hedge funds using the security’s liquidity and anonymity to swing their portfolio beta around in a desperate effort to maximize 2012 profits.  For many, every dollar made or lost today fattens or thins their wallets respectively by 20 cents or more.  The S&P 500’s massive underperformance versus the Russell 2000 on Friday continues a pattern throughout the month.  The blue chips have swung around more wildly than the small caps because of the use of futures to protect a respectable year of returns.  This unusual divergence should hit extreme levels this afternoon.

I foresee three scenarios for today’s session:

  1. First, Congress and/or the President either announce some sort of compromise or, at a minimum, major progress in achieving a workable solution.  Such comments, regardless of the quality of the deal, would rocket up equities upon the printing of the headline which would offer a fitting coda to such a strong year for most of the major indices.  Some modest giveback near the Close would be inevitable as firms book their year happily with an assist from this late gift.  If an agreement can be cobbled together, I surmise that the raising of the debt ceiling would mark the biggest omission as the Republicans retreat and regain strength for this next fiscal battle.  Despite a potential rally in response to avoiding the cliff, this uncertainty would weigh on shares into the first few weeks of January as institutions have twelve months to construct a path to positive performance such that they will gladly sit these early days out after navigating the prior fortnight with the singular goal of hanging onto respectable annual returns.
  2. Next, the talks can collapse completely with Mr. Obama readying his own “Plan B” by proposing legislation already passed in the Senate which raises taxes on all earned income less than $250K.  One should expect stocks to get hammered immediately after such an update leaks to the various news outlets.  The weakness would not abate until later in the week, most likely after John Boehner is reelected Speaker on Thursday thereby allowing him to bargain more earnestly toward a bipartisan solution.  Ironically, the dislocation in equities would accelerate the debate as my game theory exercise predicts.  As with each of these scenarios, the flipping of the calendar only complicates matters such that no one will have the temerity to step in front of the avalanche of weakness until both sides indicate they have returned to the table with the anticipation of imminent progress.
  3. Finally, today’s session could also progress with little news beyond each party’s declaration that it will continue to try to avoid the worst case, yet the other side is to blame for the stalling of the negotiations.  Investors still would have hope that both the President and the House can find common ground ahead of the 6AM EST reopening of the futures on Wednesday morning such that shares likely would whip around directionless until late in the day when managers pare risk to a more comfortable level out of fear of taking a significant loss in the early portion of 2013.  With the average monthly NYSE closing TICK sitting in solidly overbought territory and intraday volatility projecting an environment far too skittish for value portfolios to step in front of the weakness, I suspect a troublesome tape into the Close that would continue until a passable bill bounces its way around Capitol Hill.  As a reminder, approximately 221% of all the losses in the S&P 500 since October, 2001 have arisen with the blue chip index’s average trading range over the prior week exceeding 12 handles as it does currently.

In the absence of a deal, asset allocators will succumb to the wave of the squaring of positions for year-end while the upcoming global PMIs, though important, pale in importance to the political news.

 

If we reach Friday without any guidance out of Washington, even the Jobs Report would have minimal significance after its immediate release.  Consequently, for those nimble enough, playing a game of chasing headlines should supply ample opportunities for the week.  Although exposed to the event risk of some sort of an agreement arriving at any moment, those more constrained by strategy or liquidity should engage in a more defensive posture until valuations become too attractive to ignore.  I envision such a prospect arriving sometime in mid-January.

Lastly, as I do every December 31, I offer some words uttered by Nenge Mboko, one of the most lovable characters among all Wall Street movies, to everyone who has endured my daily thoughts on the market’s machinations during the past twelve months.  “Merry New Year!”

 

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Mon, 12/31/2012 - 14:10 | 3109567 fourchan
fourchan's picture

vault the cliff.

Mon, 12/31/2012 - 14:19 | 3109599 CPL
CPL's picture

Uptick rule.

 

Can't start a short without ramping the market.  Same people that removed mark to market blessed us all with that retardation.

Mon, 12/31/2012 - 14:28 | 3109643 NotApplicable
NotApplicable's picture

Well, once the market itself has been removed, marks aren't worth much.

Mon, 12/31/2012 - 14:41 | 3109739 SilverRhino
SilverRhino's picture

Hmmm .... Times Square in completely disarmed NYC .... another target of opportunity for a mass shooting .... after all Obama & Feinstein need the outrage to get their ban passed! 

Wed, 01/02/2013 - 17:16 | 3116198 Jethro
Jethro's picture

They like their sheep closely sheared my friend....

Mon, 12/31/2012 - 18:01 | 3110715 ball-and-chain
ball-and-chain's picture

Too bad we could't actually grow the economy.

That's what happens when you ship all the jobs overseas.

The American people really got reemed.

What a shame.

http://www.angrysinner.blogspot.kr/2012/12/yesterday-i-hiked-ten-miles.html

Mon, 12/31/2012 - 14:11 | 3109568 km4
km4's picture

Michael Hudson: America’s Deceptive 2012 Fiscal Cliff, Part II – The Financial War Against the Economy at Large
http://po.st/7DajaM

 

Mon, 12/31/2012 - 14:11 | 3109569 ZippyBananaPants
ZippyBananaPants's picture

suggesting 'risk on' trade.  Who would have thought?

Mon, 12/31/2012 - 14:13 | 3109575 GMadScientist
GMadScientist's picture

Poor Bob Reich and Dick Morris never get to have any fun.

Why should "the market" care about this shit? This will affect Main St.

Mon, 12/31/2012 - 14:35 | 3109697 knowless
knowless's picture

he carried with him quite a significant affect, it effected all around him.

 

seriously though, it will be delayed slide, but quicker than normal, wouldn't mind immediate federal cuts, but there's no way they let that happen unless they wanna push endgame.  shit is way calmer here then other conspiracy/shtf sites... way less fema camp gun grab around.. almost odd. think i need to take a look around for a bit, see where everyone else is at..

Mon, 12/31/2012 - 14:15 | 3109577 Cognitive Dissonance
Cognitive Dissonance's picture

The market is back down to the "normal" of an hour ago.

<The algo's have been fed..........what's for dinner?>

Whoops, looks like I spoke too soon. There must be another rotting carcass hanging around for the algo's to (re)feast upon.

 

Mon, 12/31/2012 - 14:13 | 3109582 a growing concern
a growing concern's picture

Jump, you fuckers.

Mon, 12/31/2012 - 14:26 | 3109628 Spastica Rex
Spastica Rex's picture

That link doesn't go to "penis puppetry," does it?

Mon, 12/31/2012 - 14:23 | 3109591 Boilermaker
Boilermaker's picture

$450k for families and $400k for individuals as 'middle class'...that's $37,500 per month.  Classic.

LMFAO...yea, that's barely getting by.  In other words, the rich win again and Wall Street particularly gets a 360 alley-oop dunk!!

What a fucking joke.  Same old shit.

Now...LETS RAMP THE FUCK OUT OF EQUITIES!!!!

Mon, 12/31/2012 - 14:26 | 3109630 Salon
Salon's picture

I dont know about you, but spending 37500 a month is easy. The hard part is making it thru the last week before the next paycheck

Mon, 12/31/2012 - 14:27 | 3109641 Boilermaker
Boilermaker's picture

Payday loans!!!

I wasn't kidding.  That's barely enough to feed your kids!

Signed,

LaTrell Sprewell

Mon, 12/31/2012 - 14:27 | 3109639 ghostfaceinvestah
ghostfaceinvestah's picture

There should be no tax hikes for anyone.  The government has a spending problem, not a revenue problem.

Mon, 12/31/2012 - 14:29 | 3109645 Boilermaker
Boilermaker's picture

Fine, then don't categorize the end of the 'middle class' at $450k.  That's a fucking joke.

Mon, 12/31/2012 - 14:39 | 3109715 Bastiat
Bastiat's picture

No, the governement has a debt problem--to be fair, the accumulation of many years of spending problems facilitated by the Fed.  Nothing these clowns are doing now will have any material effect.

Mon, 12/31/2012 - 14:44 | 3109752 MachoMan
MachoMan's picture

Is that because 450k/year, in and of itself, is rich?  Or is it that the goalpost of what is rich has moved?

Further, before you tax, don't you have a duty to pose a threshhold analysis of whether the purported increased revenue is legitimate?  (this applies to people of all economic categories)

I'll also posit that your ire is directed at people ($450k/year) who literally have no political influence at the national level, in the slightest.  I too wish that I made that much money, but your post reeks of jealousy, a complete lack of humility, and an external locus of control. 

Mon, 12/31/2012 - 14:58 | 3109905 Boilermaker
Boilermaker's picture

I'm saying that $450k per annum isn't middle class by ANY definition and those that would try to shove it into that category are doing so to blurr the line in an effort to avoid higher taxation possibilities.

I hope that was clear enough.  Because $450k per annum is a fucking joke if any anyone is going to insinuate that there are any financial stresses upon any household (that aren't self induced).

Mon, 12/31/2012 - 15:41 | 3110091 MachoMan
MachoMan's picture

Right, but aren't you missing the entire point of the exercise?  That you shouldn't wish higher taxes upon your neighbor, because they'll be on your doorstep soon enough...

I'm also not sure that you can even accurately diagnose socioeconomic status at this point given the wealth gap...  if it's purely a relative measure, then $450k/yr is as broke dick as the door greeter at walmart...  it's not very simple to draw the line and I think you're playing a bit too much into class warfare...  the folks making $450k/year probably have little, if anything, to do with any ills you or anyone else have suffered.

The issue isn't what people are physically able to pay in tax, the issue is whether or not they should...  you need to recheck your presumptions.

Mon, 12/31/2012 - 15:57 | 3110142 Boilermaker
Boilermaker's picture

I have no 'ills'.  I'm a VP at an automotive parts supplier and comfortably into the six figures (with a '1' handle, though).  We aren't fucking poor.  We aren't filthy rich either.  But, I wouldn't compare myself to a family of 4 making $60,000 or less and try to say we 'in this together'.  We aren't. 

Frankly, I wouldn't even have a problem with a higher tax rate.  If and ONLY if, I had confidence they would actually do something VALUABLE with it!

To suggest that the mega-rich aren't loopholing their way out of a shitload of their tax liabilities is a crock of shit.  Same goes with mega-corporations.

And, yes, it is class warfare.  It always has been.  It always will be.  Because the upper upper crust always abuses the living fuck out of their power.  Always.

Mon, 12/31/2012 - 18:37 | 3110811 MachoMan
MachoMan's picture

First, if you accept that power always abuses its privilege, then I fail to see the practicality in your angst.

Second, I find that when people claim that they would not be bothered by higher taxes, there is always some impediment (however minimal) that seems to always prevent them from volunteering payments to the treasury...  I'll posit that you will NEVER volunteer a single cent to taxing authorities.  Further, I'll suggest that you not feel too bad about it either; you're in good company.

Third, it's kind of funny to see the socioeconomic status that people identify with (note: it's often different from their real socioeconomic status)....  While some people continue to identify with the middle class, that concept died a brutal cancer death some time ago.  As an anecdotal indicator, maybe the angst you're feeling is because there is a discrepancy between the way that you feel and your reality...  my suggestion is to change one or the other, you'll sleep better.

Mon, 12/31/2012 - 14:16 | 3109594 PUD
PUD's picture

NEVER A RED DAY AGAIN BY LAW! THERE, FIXED EVERYTHING ..WHERE'S MY FUCKING PONY?

Mon, 12/31/2012 - 14:18 | 3109597 Boilermaker
Boilermaker's picture

Bankers are in COMPLETE fucking control.  Believe it.

Mon, 12/31/2012 - 14:23 | 3109616 fonzannoon
fonzannoon's picture

Exactly. Now sit on your AMT dildo middle class and STFU.

Mon, 12/31/2012 - 14:27 | 3109634 Boilermaker
Boilermaker's picture

Yea, but 401k statements are up baby!!!

Signed,

Ignorant Dumbass

Mon, 12/31/2012 - 14:23 | 3109614 CPL
CPL's picture

Skittle shitting unicorns are the only thing available sir.

Mon, 12/31/2012 - 14:18 | 3109600 TooBearish
TooBearish's picture

in other news HERBALIFE UP 11% 4th day in a row!

Mon, 12/31/2012 - 14:28 | 3109624 LouisDega
LouisDega's picture

Speaking of nutrition, Someone on ZH recommended the use of Hemp seeds in reply to a comment. I started taking them a month ago and i feel like a new man. Thanks ZH. Happy new year.

Mon, 12/31/2012 - 14:39 | 3109721 Bastiat
Bastiat's picture

Hemp is great stuff.

Mon, 12/31/2012 - 14:26 | 3109625 Boilermaker
Boilermaker's picture

Is there going to be any stories about "Tom" or "Suzy" in Pigs Knuckle, Arkansas that have 5 kids and work 4 jobs that were 'saved' by this bi-partisian deal?

I love that shit.  I really do.  It tugs at the heart strings for me.

Oh, yea, the only ones that have to pay more (meaning they'll loop hole out of it somehow) will be those grossing more than $450k. 

Fucking awsome.

Mon, 12/31/2012 - 14:30 | 3109655 Salon
Salon's picture

Lol. You know where pigs knuckle is.

Dueling Banjos play quietly in the background.
The toothless hayseeds Burt Reynolds faced are nothing compared to the local meth heads.

You will need more than just a bow and arrow there boy

Mon, 12/31/2012 - 15:02 | 3109925 yabyum
yabyum's picture

Every state has a pigs knuckle. Happy new year ZHers Gool luck...we are going to need it.

Mon, 12/31/2012 - 14:26 | 3109629 DosZap
DosZap's picture

Deal has been tentatively REACHED, although not signed by POTUS.

HE is taking a Photo Op with 5 selected Middle Income families(1:30 EST), for another GUT punch to the GOP.................sorry SOB, of there ever was one.( they may be one party,but the GOP is the ONLY ones wanting cuts in spending before new taxes.............

$450,000 and above, rates to 39.5%, and Death taxes not raised until 5 million+, then a 5% increase.

Stand By, after the Pres marches the Lemmings out, the GOP may say FU.

It's not personal,it's just BIDNESS.

Mon, 12/31/2012 - 14:41 | 3109651 DosZap
DosZap's picture

If you go to the UK, do not drink the milk, it's infected w/ the super flesh eating virus, take your chances on if you get the bad jug.

Hmmmmmmmmmmm.....flesh eating super virus, sounds like D.C. politics.

Mon, 12/31/2012 - 14:39 | 3109730 DosZap
DosZap's picture

 gun grab around..

Oh!!!, but wait!, that is your New Years month horror show,coming real soon, so do NOT leave your seats.

If you have not read the cunting stunts Bill, it bans everything except Flintlocks.If I could Hate anyone(I cannot) she would be in the top 20.

Mon, 12/31/2012 - 14:58 | 3109898 XtraBullish
XtraBullish's picture

Never underestimate the replacement power of equities within an inflationary spiral. Short U.S. fiat by buying ANYTHING "tangible" because the currency of the world's largest debtor nation is going to get trashed. Short cash; short bonds; short the banks. Buy gold stocks, oil stocks and depressed junior mining issues for the torque. And turn off CNBC.

Mon, 12/31/2012 - 15:22 | 3110032 q99x2
q99x2's picture

I won't go back in until I have fundamental rumors (which are graphable as opposed to laughable) to chart along with associated volume and VWAP. I'll figure this out before its over. 

Tue, 01/01/2013 - 03:41 | 3111698 dunce
dunce's picture

Part of the action today was no doubt people like me that sold just enough losing positions to get the max 3000 dollars of losses for my 1040. In 2008 i thought i would have to live for more tha 100 years past a normal life span to use up my losses at 3000 a year butall my gains since then have been shielded by selling losers like bank stocks.

Tue, 01/01/2013 - 06:33 | 3111740 Grand Supercycle
Grand Supercycle's picture

Charts don’t lie.

As mentioned, whether it’s caused by fiscal cliff, debt ceiling, Europe or something else, it doesn’t really matter because as noted before – another crash is guaranteed.

It’s a no brainer.
Charts don’t lie.

http://trader618.com
@grandsupercycle

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