S&P futures fell 3.25% from high (early Draghi) to low (close) on the worst close to close drop in over two weeks as the S&P 500 lost its YTD gains, down almost 2% now. Financials were the clear laggards with the majors crushed. Broad risk assets were in negative mode all day from the moment Draghi slapped traders into reality and lead ES lower and lower. Some late day rumor-denial did little - aside from try and fail to ramp ES back to VWAP - but wherever you look there is blood. Commodities crashed lower - now down 2-3% on the week - but most of the commodity and FX weakness had peaked as Europe closed, and we note that Gold is outperforming other commodities on the week now. It was equities that slowly but surely on a decent volume day in futures (given the roll) leaked lower and lower - now clinging precariously to the edge of the 11/30 4% overnight rampfest levels. Stocks underperformed credit on the day but all ended at the lows/wides as TSYs closed at their low yields of the last 10 days. It seems the implied correlation-VIX divergence signal was flagging caution correctly once again.
This is a snapshot of pure market lunacy.
- Rumor on: 3:25 pm: ESM FUND TO BE GIVEN A BANKING LICENSE ACCORDING TO A DRAFT - RTRS
Not even 20 minutes minutes later:
- Rumor off: 15:45pm: GERMANY REJECTS DRAFT MEASURES INCLUDING BANKING LICENCE FOR ESM
Update: And it gets better. Now Dow Jones:
- Euro-Area Countries Ready To Provide IMF With Bilateral Loans, According To Draft Seen By Dow Jones
Yet earlier today, none other than Mario Draghi said that loans to the IMF to purchase European bonds would be legally unworkable. Brilliant
With just 30 minutes until the close we were cutting it close to a rumorless, headlineless session. So here is Reuters to the rescue:
- ESM BAIL-OUT FUND TO BE GIVEN BANKING LICENCE - DRAFT
- EU DETERMINED TO STRENGTHEN BAILOUT MECHANICS - REUTERS
And from earlier:
- ESM BECOMING A BANK "OFF THE TABLE"
Market pundits would have you believe that corporate profits are the driver of stock prices. They're wrong. Ultimately, it is demand for stocks that drive prices. If demand falters for whatever reason (for example, loss of faith in a rigged market), then stocks will decline in price as organic selling pressure (people liquidating positions and accounts for whatever reason, such as paying their mortgage and buying food now that the household is surviving on one shaky income) is a constant that only rises as the economy sheds stable fulltime employment. The Federal Reserve has backstopped the stock market by destroying every other source of yield via zero-interest rates (ZIRP), effectively pushing anyone seeking a yield into long-term Treasury bonds or "risk-on" assets such as stocks and junk-rated corporate bonds. But Fed manipulation cannot overcome the much larger forces of demographics and employment for long. Despite all the brave talk of the manipulators on the Board of the Federal Reserve, they've run out of manipulative tricks. With interest rates already near zero, their most basic toolbox is empty. Now they're reduced to bleating about all the phantom tools in their possession and playing around with long-term bond yields and mortgage rates-- interventions that cannot possibly create jobs or organic (i.e. real, unmanipulated) demand for stocks and housing.
With most of the world’s major economies as well as the financial system bankrupt, there is only one solution that can save the world economy. Like in the Greek tragedies, Deus ex Machina is now the only way that the world can avoid a total economic collapse. This would involve God being lowered down onto the world stage and miraculously saving the plot. For those few who believe in this, may God bless them. But since this is a very unlikely solution most people will instead rely on governments and central banks to save us. But how can anyone possibly believe that totally incompetent and clueless politicians and central bankers could solve anything. They created the problem in the first place and are therefore totally unsuitable to play the role of Deus. The main objective of governments is to stay in power and thus to buy votes. Therefore they are incapable of taking the right decisions. And the opposition, aspiring to power is even less suitable since they will lie through their teeth and promise the earth in order to be elected. (We know that there are exceptions like Ron Paul, but the voters will most probably find his medicine too strong to swallow.). What about central bankers, can’t they save us? Unfortunately any sensible person who becomes a central banker loses all his senses and becomes a prisoner of the political system. So if there is no Deus ex Machina and if governments or bankers can’t rescue the world, who can and what is the solution. Let us return to the wise von Mises to look at the options available now:
“THERE IS NO MEANS OF AVOIDING THE FINAL COLLAPSE OF A BOOM BROUGHT ABOUT BY CREDIT EXPANSION. THE ALTERNATIVE IS ONLY WHETHER THE CRISIS SHOULD COME SOONER AS A RESULT OF A VOLUNTARY ABANDONMENT OF FURTHER CREDIT EXPANSION, OR LATER AS A FINAL OR TOTAL CATASTROPHE OF THE CURRENCY SYSTEM INVOLVED”
Ludwig von Mises
While one of the bigger commodity funds out there, in this case Fortress Commodities Fund, has not done too hot recently (down 7.4% in October), which it humbly admits to and says, "the month of October was a wakeup call for us and we are adjusting accordingly" here are some must read perspectives that lead the Fortress Commodity group to conclude that "We're Long Gold, Short Base Metals, Patient Crude Strength Seller & Buyer Of Corn On Any Real Flush In Prices." Oh, and that it's "macroeconomic outlook remains pessimistic."
It is one thing for conspiracy websites to indicate that the Fed or the global central bank cartel are doing everything in their power to manipulate the price of gold lower. It is something different when the 'reputable', Deutsche Boerse owned Market News does just that.
- MARKET SOURCES REPORT BIS, BOE & FEDERAL RESERVE WERE SELLING GOLD AFTER IT POPPED TO SESSION HIGH AT GMT 1335 -MNI NEWS via BLOOMBERG
So much for all those sworn testimony claims that the central bankers do not manipulate the price of gold.
Due to our less than admirable Farsi skills, we present the following Iranian video showing the captured downed US drone without commentary. As they reverse engineer our planes, we reverse engineer their state media released video.
Deeply philosophical headlines, via Bloomberg, from our European allies:
*GERMAN BDB BANKING ASSOCIATION SAYS EBA `HAS LOST CREDIBILITY'
*GERMAN BDB BANK ASSOC. CRITICIZES EUROPEAN STRESS TESTS
*BDB SAYS STRESS TESTS HAVE NOT HELPED STABILIZE THE MARKET
*BDB SAYS GERMAN BANKS ARE NOT UNDERCAPITALIZED
In all the noise, Europe decided to rerun its stress test and come up with the following completely meaningless "latest and greatest" capital shortfalls:
- Greece: €30 billion
- Italy: €15.4 billion
- Germany: €13.1 billion
- Spain: €26.2 billion
- Portugal: €7 billion
- France: €7.3 billion
- Austria: €3.9 billion
- Belgium: €6.3 billion
Etc. Why meaningless? Simple - one chart says it all...
Well, it seems like the ECB is telling the countries they need to change the treaty if they want the ECB to act more like the Fed (giving up the pretense of sterilization). Maybe the move is designed to push the issue and make the summit come up with an even bigger plan (regardless of how unlikely it would be to get implemented). For sure, sovereign spreads are indicating disappointment as we suspect the chance of a smiling hand-holding photo op has greatly diminished.
Just when you hoped the worst was over with Draghi's market-disappointing news this morning, things just got a lot more real in the Middle-East. State media is reporting that armed terrorists blew up an oil pipeline west of the flashpoint Syrian city of Homs. In an interesting twist, an anti-regime group said the government was behind the blast. Nonetheless Fox Houston is noting that the explosion is the third reported attack on energy infrastructure since the outbreak of the pro-reform protest movement in mid-March. Interestingly oil prices (along with all other commodities) continue to plunge on USD strength and liquidations (from European upsets) but we suspect that all it would take now is for a splinter Turkish group to take responsibility for the blast and this drop will promptly reverse.
Presenting All That Is Wrong With America: Here Is The Top Contributor To The House Agriculture Committee ChairmanSubmitted by Tyler Durden on 12/08/2011 10:48 -0400
As part of the MF Global hearing, we just heard a very dignified and shall we say it disgruntled introduction by House Agriculture Commttee Chairman Frank D. Lucas (Rep-OK) where he said it is "critical" to shed light on the MF Global matter, and which in no uncertain terms made it clear just how disgusted he would be with MF Global if it was found that Jon Corzine is guilty of stealing client funds. Well, we decided to take a step back and look at the Republican's top campaign donors. To our complete lack of surprise, we found that the top lifetime donor to the Honorable Mr. Lucas is... the American Bankers Association.