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European Credit Weakens As Stocks Rally
European markets are thin this week, thinner even that in the US from what we see in credit runs and equity volumes, but today saw a notable divergence between credit (sovereign, financial, and corporate) and equity markets continue. The broad BE500 equity index (of European stocks) rose majestically in the European afternoon (after US day session began), ending the day nicely positive, while spreads were wider in every category. Financials were the worst performers in European credit as they didn't see any bid into the close even as investment grade and crossover credit rallied modestly. There are a lot of divergences (and breakdowns in correlation) occurring in and across asset-classes as we see EURUSD weaken - unch now (weak auctions, macro data, or market recognition of ECB QE that is not QE occurring), Gold down (because the dollar is up? liquidation/collateral/cash needs?), Stocks up (QE that is not QE again?), Corp and financial credit wider (nothing is solved and QE does not help a spread-based not currency-based numeraire), Sovereigns wider (nothing is solved and even ECB buying is not working now). Its always tricky to read too much into Christmas week trading - low volumes, high marginal impact, and year-end rotations and window-dressing (cash management), but the trend in risk assets overall seems to be lower not higher, no matter how you squint at it (even though last year's opening-day rampfest is fresh in most people's memories).
Stocks (the dark blue line) outperformed notably into the US day session. Financials (senior red and sub light blue) stayed stubbornly wider (lower on the chart) while investment grade and crossover credit did rally (rerack more like) but remained wider on the day.
European sovereign spreads are notably off yesterday's tights and even with the ECB rumored to be in this afternoon, Italian markets did not rally much at all (leaking off into the close). French spreads look worrisome (+19bps from Christmas Eve) as the downgrade seems ever closer.
And the EUR is now practically unchanged on the day (still holding the cliff-like losses from yesterday). This has pulled Silver and Copper back from the edge but Gold remains down (collateral/cash/redemptions?) as does Oil (inventories).
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There is one correlation that has broken down today that I'm somewhat interested in.
Since Labor day Gold has traded in a strongly correlated way to equities (S&P, Dow).
today equities are up and gold is down.
I don't know what that means... but it is somewhat refreshing to me that Gold is finally trading differently than equities.
I'm one of the few people around here who is upside down on his physical Gold purchases. sucks big bum. but I am considering puchasing again if gold falls much further from here. I might even get a little here. Not sure, because I'm a gold wuss...
just a little end of year goose to keep the S&P green for the year.
Just got to keep S&P green for the year at all costs. Then of course on the 1st Jan. there will be a big rally....well because its the 1st of a glorious new year and all, then a Jan end ramp due to 'window dressing', followed by every other daily reason why the markets cant drop.
You forgot "options expiration" and "global growth" and "China" and "priced in." Wall Street...morons...all. This as Average Joe does nothing but SELL out of equity positions month after month.
Thats under the 'every other daily reason why stocks cant drop and reality cant enter, for today' area.
So the FED wants to own everything, as they basically already do, they own all the stocks, bonds, ETF's REIT's...but maybe they were confused on IF they really want to own it all? Whats the point? We're a bankrupt nation. LAST time the FED did it, was when we were coming out of WW2 and a brand new industrial production nation.
Now? Forever Lazy is #1 purchase in america. FOREVER LAZY COMMERCIAL - YouTube So now as avg american sits on the couch on any given Monday or Wednesday or whatever, whats it really matter what day it is when youre unemployed, pounding bags of Lays while watching NFL channel re-runs all day, they dont even need to hassle with cumbersome buttons and belt buckles to take that emergency crap.
When this one crashes, it will be the total one.
Just stupid...the market. This is one of those days that, if smart traders just sat still...for 30 minutes even...the market would come in. Every single uptick today is being sold. Shares are being chucked back into the bid all day long. But the market rises because the bid is repeatedly lifted. Selling that causes things to rise????????????????????????/
It isn't a market. These are not market participants. These are monied interests with a clear agenda...pay more for each position taken...keep it moving up no matter what...take the higher ask, not the lower bid.
Just pathetic.
And yes, when it falls, who will buy it? Answer...no one. Our market is the proverbial headless chicken. Just has not fallen over yet due to the aforementioned market perversions.
Thats what the entire conundrum consists of...sure they can buy higher, because really that costs them nothing they just imagine up the money... but who will they ever sell to? Nothing but thin air underneath. To me theyre just buying a bit more time, because they know something will happen soon that makes the price of things meaningless so they wont have to worry about selling anything, theyll just own everything outright anyway. How else can we explain any of this shit?
There is no market based, rational explanation for why this market cannot arb out a moron racing in and buying an index fund up...but instead pays him by the close. You don't even see these fools arb'd intraday. The market is simply not functioning.
One must ask the question...why is that?
**take a gander at MCD's chart. For one full year, Wall Street lemmings have been buying it...and the market has not ever tested that position, shaken out the weak hands...not once in a year.**
Go for it!
Hedge with puts on UGL
All seriousness aside here...ahem, "we're talking gold now"...what I heard today struck a chord: "the trade has been for sometime long gold/long euro" and that is why gold keeps getting slammed even though "the fundamentals" so to speak remain perfect for the gold bugs. It also goes a long way towards explaining surging values of treasuries with the commensurate plunge in yields I might since "if this trade is being done at the institutional level" then in order to "buy protection" on said trade would leave you at the planet's most expensive...and perhaps only true...asset. (namely Treasuries for all you kindergartners out there.)
Questions for Tyler and other more enlightened folks at ZH forum - If ECB balance sheet is inflating then why is this bad for Gold, Silver, given yesterday's blood bath and today's constant hemorrhage? Also on the much talked about USD liquidity squeeze. Why is that not resulting in treasuries sell off?
Is it all about Fed not printing for now that is causing all this havoc?
Finally is the Gold/Silver bull markets over? I am still long SIlver and Gold (physical) but I am not ready for a 10 year bear market.
Thanks guys!
Am not Tyler, but Martin Armstrong answers your question in his opinion piece here http://www.martinarmstrong.org/files/Gold%20Report%2012-27-2011.pdf
It's the deleveraging of the debt that is taking money supply out of the sytem that is being offset by the money printing.. going to Govt debt that is preventing ravaging deflation.
BC nothing fucking works so just do something you think works slightly less shitily than everything else and keep it up.
I'm thinking drugs.
digital dollars need a digital parking lot. MFG MF'd digital gold. Since deflation (or a really good deflationay scare) is a prequesite for mad monetization and digital dollar overflow out of the designated digital parking lots, digital gold and small quantity physical gold will get whacked in the short run
I think correlations might start to fall apart. 2012 could start to see the emergence of alpha again as the weakest will fall big time.
It seems to me that the problem with a repeat of last year's opening is...the fact that Mutual Funds have zero cash. While a couple hedge funds can push this market up, a non market market with as little participation as this one has, sustaining such moves requires cash.
Pfft. Cash.
HFT bots don't deal in cash.
HFT bots don't hold positions, tool.
Quite possibly true.
But I like to hold my tool in numerous positions.
So there.
I haven't seen one reported number that I believe, maybe the Kansas manufacturing
I'll say this; this market has seen way more manipulation in the last month then probably anything we have seen in our entire lifetimes. Including 2008. Buckle up because 2012 is going to be a heck of a ride when reality sets.
Good or bad they have propped it up to the bitter end.
EC Blog says it best. If everything is not set to crash then why are bailouts happening left and right.
'French downgrade seems ever closer', so all the more reason to pump....then when France is downgraded that will be 'good news' of course as everyone will scream to 'PRINT' so theyll again juice stocks. Until 1 morning when it all suddenly crashes right when no one expected it.
the markets will close higher tomorrow no matter what the news, it is tradition
Stocks are supposed to be the window dressing to hide the rot, the unrepaired cracks and downsizing of the US economy. There is great fear on the part of the elite and WS of a coming political backlash. They feel that a rising DOW justifies keeping the status quo and can be used to undermine arguments that all is not right
Don't forget that a lot of people have 401(k)s that are stock heavy.
Man, those people are going to get screwed big time one of these days. They dont really think the FED is printing money and manipulating stocks to ensure they have a nice comfy retirement at The Villages, do they? If so, then theyre fukin retarded.
I just can't get excited about any trade involving paper. It is all worthless.
In relation to Hmm's comment, here are my thoughts on the precious metals markets and why they are trading opposite equities. Primarily because the fucking markets and true price discovery mechanisms are broken. http://thecivillibertarian.blogspot.com/2011/12/absent-volume-metals-mel...
thanks,
I'll read it later!
If anyone wants to know what will happen in ES today just look at the last 20 min of any European index....SD1 is exactly right about the first trading day of January
One thing that really really hurted the US ego this year was the S&P US downgrade. Not beacuse of the downgrade itself BUT the very true fact that France kept its AAA. That has been the constant "thorny" issue during the whole 2h of 2011.
Grow up US. I don't say that France deserve a AAA but all the comments and analysis and the rethoric from left to right is pathetichly childish.