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ECB 'Inaction' Succeeds In Doing What Nobody Has Achieved In Decades! Sending Risk Soaring

Tyler Durden's picture


Having seen the supposed smart money miss out on the October rally in US equities, the last few days have once again surprised many with US equity performing similarly each day and ramping to close at its highs - each time notably ahead of credit markets and broad risk markets. From the early October lows, we have seen the rotation from US to Europe reverse with the last few days see US equities dramatically outperform European. We wonder, somewhat prosaically, whether the relative inaction of the ECB with regard to BTP intervention since early Friday morning is what pushed Berlusconi over the edge and US-Europe divergence to extremes as Draghi flexes the ECB's considerable muscles.

Critically, we see low volume ramps in the afternoons which leave every other market trailing in the dust - only to leak back in the overnight sessions. Couple this extraordinary action in S&P futures with the MF Global SIPC news and we wonder what liquidation will impact next?

Initially we saw European equities outperforming US as we squeezed off the lows in early October. The last few days have seen recession fears rise and systemic risk explode in the Euro zone which appears to have forced rotation into the US equity market - which of course will remain unscathed.

However, it is the similarity of the performance of the last few days that is wonderful - presented with little comment except to say - with all the fund flows and the relative cheapness of HY as an asset class still, we are shocked it has not led this risk-on rally - or perhaps it provides just the right amount of reality to keep us from chasing tails.



And Today:

And to put the strength in ES into perspective - we note the difference between CONTEXT (the broad risk-asset based index) and ES grew very large this afternoon as FX, TSY, commodity, and credit markets golf-clapped while equities screamed...


Swissy rallied notably today, as did JPY but for much of the afternoon EUR tracked very flat and DXY went nowhere. TSYs were sold relatively hard and the 2s10s30s fly humped quite significantly from 71bps to 79bps - a major driver of risk today. Secondary bond markets saw notable net-selling though between the sell-off in TSYs and new issuance this is understandable.

Interestingly, Financials were the only sector that saw net buying today - we have been pointing to the underperformance of financials CDS relative to stocks for a few days now and while today's action was heavy, we suspect the basis traders were back in town - buying bonds against buying protection as the spread has opened up (and playing in sovereign basis has too much event risk). There was also clear duration-reduction across maturities.

The basis trade perspective on CDS vs bonds in financials could also help explain the very large divergence between equities and CDS for some major financials recently - for example Morgan Stanley:

Gold fell post-Berlusconi (after cracking $1800) and Oil spurted to $97 in the late trading.

Charts: Bloomberg


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Tue, 11/08/2011 - 17:48 | 1858381 mayhem_korner
mayhem_korner's picture



Funny how the tub, fills up?...when you pull the stopper out.

Tue, 11/08/2011 - 17:49 | 1858394 Irish66
Irish66's picture

not if it is clogged

Tue, 11/08/2011 - 18:16 | 1858497 HedgeAccordingly
HedgeAccordingly's picture

Hot chicks and Range Rovers cure all.... 

Tue, 11/08/2011 - 18:47 | 1858590 eureka
eureka's picture

Nothing - repeat: NOTHING - CURES GREED.

Of course inaction brings back risk on.

Only the Moment Of Truth - i.e. imminent death - may arrest greed - here, specifically, the greed of the elite - AND - since the elite runs the fiat printing press, there will never, ever be a Moment Of Truth. Until the day the masses may rise & cut the heads off of the elite.

Tue, 11/08/2011 - 18:16 | 1858498 jdelano
jdelano's picture

They're not gonna break me. I'm not going long this market and I'm not taking my puts off. I don't care if they go to zero.

Tue, 11/08/2011 - 19:27 | 1858760 chump666
chump666's picture

It's funds running on a momo suicide run.  No one should go long in this market.  EUR is sellling now, 10yr Italy will hit 7% in the next 48hrs

Tue, 11/08/2011 - 19:36 | 1858782 youngman
youngman's picture

If it was a stand alone market I would agree with you...but now we have the ECB to play with it whenever they want...they got their BADA BOOM they will buy it down I think...but it will go to 7 then 8 then 9...its broke too

Tue, 11/08/2011 - 20:43 | 1858977 chump666
chump666's picture

F*ck ECB, its run by a mad's probably running multi billion euro unrealized losses.  He keeps printing, Germany will leave the EU.  No doubt about that, or its Weimar Republic part 2.  The IMF will eventually bailout the ECB with it's own print job.

Tue, 11/08/2011 - 17:46 | 1858388 vast-dom
vast-dom's picture

Must be BULLISH then.

Tue, 11/08/2011 - 17:52 | 1858411 ACP
ACP's picture

What isn't bullish?

Tue, 11/08/2011 - 17:55 | 1858426 Note to self
Note to self's picture

Penn fucking State

Tue, 11/08/2011 - 18:32 | 1858557 HD
HD's picture

Reality.  Not that it matters...

Tue, 11/08/2011 - 17:50 | 1858395 PicassoInActions
PicassoInActions's picture

it seems like a serious coordinated actions.

Something is gaming the game.


Tue, 11/08/2011 - 19:04 | 1858667 A Man without Q...
A Man without Qualities's picture

Look at SocGen today - generally crap results and yet up 7%+, same with Lloyds in the UK.  What's the link - the global banking system is massively undercapitalized, so there is a desperation to juice the market.

As for Italy, half the street knows about various games the government has played to make their finances look better.  Perhaps the system needs strengthening for coming shocks?

I get the feeling the politicians are turning into daytraders - obsessively focusing on how they can control the markets, because they realize there is nothing else they can do..

Tue, 11/08/2011 - 23:11 | 1859455 constitutionalist
constitutionalist's picture


Tue, 11/08/2011 - 17:50 | 1858397 BadKiTTy
BadKiTTy's picture

Must ....... hold ............. on........... to ............sanity....


Tue, 11/08/2011 - 17:51 | 1858399 max2205
max2205's picture

Meltdowns are horrifing, meltups are gazed upon in quote

Tue, 11/08/2011 - 17:51 | 1858400 FinalCollapse
FinalCollapse's picture

All news is bad, and the market goes up. Price discovery, bitchez!

Tue, 11/08/2011 - 17:52 | 1858404 Ruffcut
Ruffcut's picture

Is this when asscroft was singing his eagles soar song?

Sorry, soaring down the shitter song by rat fuck and the cheese eaters, on the b side of their album ,"fist fuck me, at will".

Tue, 11/08/2011 - 17:52 | 1858406 Dr. Engali
Dr. Engali's picture

Smelly French Sogen banker on CNBC now.

Tue, 11/08/2011 - 17:52 | 1858410 youngman
youngman's picture

It is funny to me to watch the European Banks selling their soverign debt....and the ECB having to buy it up...or not.....Banker vs Big will it ever end...when will it ever end...

Tue, 11/08/2011 - 17:54 | 1858420 fonzanoon
fonzanoon's picture

I will never have an understanding of how financial stocks could be doing anything other than tanking in these times. Even if they are backstopped all they amount to are zombies. Who the hell actually thinks they are going to be profitable anytime in the next 50 years?

Tue, 11/08/2011 - 18:47 | 1858594 RichardENixon
RichardENixon's picture

The more apt question might be will they go up in price over the next 50 seconds.

Tue, 11/08/2011 - 18:56 | 1858633 NotApplicable
NotApplicable's picture

Profit? That's sooooo last century.

Tue, 11/08/2011 - 19:03 | 1858662 fonzanoon
fonzanoon's picture

That explains my mining stocks performance.....

Tue, 11/08/2011 - 20:08 | 1858880 Rainman
Rainman's picture

need profit ?? just hire the accounting firm that thinks your way...the right way

Tue, 11/08/2011 - 17:54 | 1858421 fonzanoon
fonzanoon's picture

I will never have an understanding of how financial stocks could be doing anything other than tanking in these times. Even if they are backstopped all they amount to are zombies. Who the hell actually thinks they are going to be profitable anytime in the next 50 years?

Tue, 11/08/2011 - 18:27 | 1858538 Panafrican Funk...
Panafrican Funktron Robot's picture

The sector is still trading about 60% below it's peak.  I agree that it's a zombie, but as you said, it's a massively propped zombie.  That, and people find it hard to resist catchig the falling knife.  That can prop shit up for a long time.

For comparison.  

Tue, 11/08/2011 - 19:01 | 1858650 fonzanoon
fonzanoon's picture

Your points are completely correct. I figure if I get angry enough about it maybe that will change things. So far not so much...

Tue, 11/08/2011 - 17:54 | 1858422 Lady Heather...UNCLE
Lady Heather...UNCLE's picture

It's been another  Lewis Carroll kinda day. Es have been chasing a white rabbit up, down then UP!

Tue, 11/08/2011 - 17:55 | 1858425 NOTW777
NOTW777's picture

the powers that be have the formula down - the weak leader resign dance. they can repeat it with the other leaders of each insolvent euro state - dow should be at 14k in a few months.

maybe they will try it with obama - I'll resign if (insert the conditions e.g. full government healthcare, every job a union job, etc etc)

Tue, 11/08/2011 - 17:57 | 1858431 Seasmoke
Seasmoke's picture


Tue, 11/08/2011 - 18:00 | 1858441 TradingJoe
TradingJoe's picture

Desperation folks! They know there is no money coming anytime soon so they do waht they can to keep the mirrage! It's funny because all they want is gov dough, in order to get it markets must plummet, yet they, wanting to be IN while it happens, send markets higher, on low volume though, hence FEDsters NOT GIVING AWAY THE PRIZE! Ergo, no money coming because greedy bancheros can't "figure it out" hehehe!

I still think a sell off before year end ramp up is in order! Say around 1178ish or so?!?! Well, I don't mind since physical is my game! And some puts/calls every now and then, otherwise this market is for algo-HFTs and suckers, at best!

Tue, 11/08/2011 - 18:29 | 1858545 Panafrican Funk...
Panafrican Funktron Robot's picture

I promise the floor is 1350 for year end.  Bank it.  No, I don't like this, but it's reality.  

Tue, 11/08/2011 - 18:00 | 1858442 alien-IQ
alien-IQ's picture

Nothing says "merry Christmas" like $100 per barrel oil.

Tue, 11/08/2011 - 18:18 | 1858506 navy62802
navy62802's picture

Nothing says "merry Christmas" and "happy Hannukah" like $200+ oil. Just wait until Israel strikes at Iran.

Tue, 11/08/2011 - 19:03 | 1858663 Savyindallas
Savyindallas's picture

Iran may surprise and kick their ass.

Tue, 11/08/2011 - 18:19 | 1858512 Mike2756
Mike2756's picture

Need a silver bullet to kill this market.

Tue, 11/08/2011 - 18:29 | 1858544 navy62802
navy62802's picture

If the potential bankruptcy of the European Union, with the political instability we are seeing now, cannot kill this market, then there is nothing that can kill it.

Tue, 11/08/2011 - 19:09 | 1858693 A Man without Q...
A Man without Qualities's picture

that's the perfect statement to illustrate the mindset of those who jump in near the end of a rally, only to see it drop 10 - 15% in a few days...

Tue, 11/08/2011 - 18:22 | 1858519 LawsofPhysics
LawsofPhysics's picture

There it is.  Energy is the only thing that matters. If $100 per barrel oil is good then $150 per barrel should be outstanding.  Let's see if TPTB can get us there before the next election.

Tue, 11/08/2011 - 18:06 | 1858468 Lady Heather...UNCLE
Lady Heather...UNCLE's picture

Impossible to short it and imprudent to long it (what's that? you have a stop loss...good luck with that when the SHTF.

Only way to win is not to play. A pity.


Tue, 11/08/2011 - 18:08 | 1858478 slaughterer
slaughterer's picture

So where is the David Rosenberg recession?  Where is the Bob Janjuah sell-off?  Where is the systemic CDS-led domino-series collapse of the EZ?  Where are these things?  Around me all I see are fat bulls charging with smiles on their faces.    

Tue, 11/08/2011 - 18:14 | 1858493 jcaz
jcaz's picture

LOL- yeah, they're just killing it, aren't they?  They just went net-positive for the year two days ago- HUGE BULL MARKET!

Tue, 11/08/2011 - 18:20 | 1858513 jdelano
jdelano's picture

Lol--my sentiments exactly. These stupid assholes gobbling up cramers new book--getting back to zero.

Tue, 11/08/2011 - 18:37 | 1858566 HD
HD's picture

"Getting back to Zero"

  Good stuff mate. Green arrow for you.

Tue, 11/08/2011 - 18:39 | 1858573 lotusblue
lotusblue's picture

Yeah,Cramer will get you to Zero.

Tue, 11/08/2011 - 21:47 | 1859169 LongBallsShortBrains
LongBallsShortBrains's picture

Lol hard at that !!!!!


Tue, 11/08/2011 - 18:14 | 1858490 Little Red Rooter
Little Red Rooter's picture

Chicken manure bitchez!

Tue, 11/08/2011 - 18:18 | 1858511 YesWeKahn
YesWeKahn's picture

Has the shorts given up yet? The market will be pumped until the next fed chairman appointed.

Tue, 11/08/2011 - 18:23 | 1858522 kito
kito's picture

shiiiiiit man, that wall of worry looks like a baby gate man. aint nothin. dow and s&p steppin over dat shit with both hands tied behind their backs. 


still holding on with DOG. getting absolutely raped......

Tue, 11/08/2011 - 18:46 | 1858586 fonzanoon
fonzanoon's picture

Kudos to you. I am an skf guy myself. It hurts. It hurts.

Tue, 11/08/2011 - 18:53 | 1858620 fonzanoon
fonzanoon's picture

My plan is simple. I think I will have to wait until a well known mid size financial firm fails. Something like a MF Global. Then maybe another mid size on starts taking on water. Something like a Jeffries. Once that happens those financials will sell off like the.......oh wait this already happened? Then WTF?!

Tue, 11/08/2011 - 18:24 | 1858529 dcb
dcb's picture

ok in regards to the s and p. first only really the primary dealers can front run the fed with twist, it isn't a big as qe, so I think htey have realized the biggest bang for the buck is to run up only the s and P ad they figure this will effect the other indexes

Tue, 11/08/2011 - 18:24 | 1858532 chump666
chump666's picture

Very good analysis.  The point is that they are still panic meltups on news headlines, as pointed out on those charts you still have nervous credit spreads, JPY buying, gold buying etc.

I think equities are trying to push into resistance that occurred in Aug/ far successfully.  But topped out markets are easly spooked on low volume.  Going long is a frightening concept, so it's mini shorts on topped indexes and the like. 

Tue, 11/08/2011 - 18:50 | 1858547 razorthin
razorthin's picture

Because algos and professional traders don't give a sh!t how ridiculous the economies and fiscal/monetary conditions are - again, all fundamentals.  The reason they "missed out" earlier on the rally is because, technically, the rally evolved from being a likely short-term counter-trend move, to an intermediate term reversal.  There will be short-term pull-backs, but the trend is now up.

Again, I feel the move is senseless bullsh!t from a fundamental standpoint.  But I don't trade my feelings. And if fundamentals mattered, TPTB would not have been successful in keeping this pig inflated.

Tue, 11/08/2011 - 18:33 | 1858558 dcb
dcb's picture

also it's a bit of a pain, and best if you have two people, but the easiest way to mint money on this market is to trade the leveraged etf's, just pick one that does both ways (don't use cmd not liquid enough). play both sides of the trade. uco, uso. it's really just been trading a channel. ( s and p the easiest)

Tue, 11/08/2011 - 18:43 | 1858578 mynhair
mynhair's picture

Who cares anymore?  Just ramp the wock outta it.  Still got a tiny IRA to unload.

Tue, 11/08/2011 - 18:49 | 1858600 Jack Kreuz
Jack Kreuz's picture

MadofF Global

Tue, 11/08/2011 - 18:54 | 1858621 yogibear
yogibear's picture

Very bullish on oil. Lots of room for a move on the upside goven the situation building overseas!

Tue, 11/08/2011 - 18:58 | 1858637 RobotTrader
RobotTrader's picture

What if March 2009 marked a bottom of a secular bull market?

And the summer 2010 and fall 2011 corrections are just one of many which will occur over the next 5 years before the Dow hits 15,000?

If any of you guys have any doubts.....

Check out the chart of IBM, WMT, INTC

Tue, 11/08/2011 - 20:04 | 1858864 homersimpson
homersimpson's picture

What if this fraudulent "bulls**t" market never had the backing of trillions of taxpayer dollars?

In other words, you obviously forgot it took over 4 years to get from 10k to 14k, but only 9 months to get from 14k to about 6.5k.

Typical Wall Street shill.

Tue, 11/08/2011 - 20:55 | 1859012 Nucking Futs
Nucking Futs's picture

Shorts piling up on the ES Daily trendline from July 8, July 22, and Oct 27.  If the market forces push past these short positions into the 1290s, this thing can get squeezed to 1330 before hitting the weekly trendline.  Too many folks waiting for the market to die.  The price action as of late has been.. bad news.. squeeze.. rinse and repeat.  But what do I know, I'm legally insane and I like to go up the downs on the escalators.

Tue, 11/08/2011 - 19:09 | 1858692 Waterfallsparkles
Waterfallsparkles's picture

Stocks seem to have flatlined since the late October Greece is fixed rally.  Flatline for at least 6 days.

They know that they caught too many people short.  Looks like the Shorts have not covererd and they are pumping to force Short Covering and Margin Calls.

Takes about 6 days to force Short Covering due to Margin Calls.  They are running out the clock on the Shorts and waiting for the Brokers to force them to cover into their ramps, so they can Sell.

Then of course they will take the Market down.


Tue, 11/08/2011 - 20:20 | 1858909 GOSPLAN HERO
GOSPLAN HERO's picture

Long gold and silver, female dogs!

Tue, 11/08/2011 - 20:39 | 1858969 tallen
tallen's picture

Getting very close to 2008 all over again, Brent Crude at $115, massive leverage in the financials, sovereigns imploding. Let the shit begin. 

Tue, 11/08/2011 - 21:28 | 1859095 surf0766
surf0766's picture

I think you are right. In 2008 gas was $4.24 around here when most people went nuts.  This past Aug/ early Sept when it hit $4.05 again they went nuts. With food prices rising . packages getting smaller , it is only a matter of time. Every ramp in the market is dollar depreciation and increase in oil.  Gas is $3.50 now. Won't be long.

Tue, 11/08/2011 - 20:40 | 1858972 Racer
Racer's picture

Tis the xmas jollies where all banksters get their xmas wishes of BIG FAT bonerses as it always is as the chairSATANmas delivers the peasants carcases for the feast

Tue, 11/08/2011 - 21:18 | 1859062 ivars
ivars's picture

One more proof of cash hoarding PLUS contraction of US money supply as causes for deflation and/or GDP reduction  very soon:

Tue, 11/08/2011 - 23:03 | 1859432 RiverRoad
RiverRoad's picture

Nothing makes any sense in the markets because the big fish are working on their bonuses.  If a tsetse fly sneezes that will be reason enough to take it up 100 points.

Wed, 11/09/2011 - 01:55 | 1859737 Bansters-in-my-...
Bansters-in-my- feces's picture

Gold didn't fall from $ got smacked in the nuts and it' too all but 15 minutes to drop $25 joo bucks.

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