One Explanation For Today's Irrational Exuberance

Tyler Durden's picture

Since the EU-Summit, US and European equity markets have (in general) outperformed. From being in sync before the Summit, US equities went into the weekend with a sell-off, which then spurred a short-squeeze push as the S&P 500 was over-exuberant (relative to European equities) on the way up at the start of last week. That cracked back to reality at the end of last week - squeezing the over-levered longs to a significant underperformance relative to European equities. It would appear that in the last 24 hours, US equities are now rallying back to that European 'surreality'. Surreal because European stocks remain dramatically exuberant relative to European (peripheral spreads unch and AAA massively bid) and US (Treasuries bid) bonds and European corporate and financial credit. As we stand, the S&P 500 has retraced back to Europe's 'fair' perspective.

Europe's BE 500 (S&P 500 Equivalent) versus the S&P 500 since the EU Summit...


and Europe's equity market remain in a world of its own relative to credit markets...

VIX has overshot this equity strength but is leaking back higher now (inverted below)...

Certainly seems like it's easy to use the infinitely sellable vol market to ramp equities to where 'they' need them - as the S&P managed to scramble back close to unch for the month (and week).

Charts: Bloomberg

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Gringo Viejo's picture

Another explanation: Manipulated markets day after day after day after day. Tiresome and eventually, catastrophic.

stocktivity's picture

Another explanation...It's all Bullshit!!

DoChenRollingBearing's picture

+ 1, yes it is...

I write about our National Debt (about to clock over $130,000 per taxpayer), Gold and six fun facts about my new home town at my blog!

Mr Lennon Hendrix's picture

Are you going to jump in front of me all day?


derek_vineyard's picture

too many eyes watching and waiting for crisis.....a watched pot never boils

saturn's picture

There is very secret EU summit tomorrow and the Skynet knows it! (Skynet = everyone except you!)

obejoyful's picture

I was watching the real estate bubble and it boiled

Mr Lennon Hendrix's picture

Why is it irrational exuberence when the dxy goes down, but then it makes sense when the euro goes down?  Because UST yields are at lows when stocks are pushed higher?

The Fiat Ponzi knows no bounds when the President's Working Group on Financial Markets has the ammo of the UST and Fed behind it.  All while POMO auctions continue.  Here is your QE!

Official President's Working Group on Financial Markets Executive Order:

Both the dollar and euro are shit stained fiat currencies that are manipulated by Central Banks who more than anything are trying to squeeze the middle class into the lower class by raising asset prices, lowering wages (due to the purchasing power of fiat) while unemployment rages on thanks to treaties such as NAFTA that sent jobs overseas where people are treated like slaves.

whstlblwr's picture

Be my BITCH! Bernanke you see you don't need to ACTUALLY print.

"Fed's Lockhart says Fed may need to 'respond more aggressively'

geno-econ's picture

Lennon right on regarding trade agreements that boost machinery  exoorts from US first year or two only to have it used to manufacture consumer goods for imports to the US in much greater volumes in subsequent years because market access is part of the agreements .  So who promotes Congress to pass these agreements??  Answer--Multinationals with no national loyalties to workers or any obligation to pay taxes, such as GE  Wierd system of economics which has finally caused inevitable outcome combined with Keynesian Voodoo and banking shadow manipulation.

hedgehog9999's picture

It is total bullshit!!!!!, good that he was arrested but why were the others not arrested?  this moron is obviously not connected.

I should add that his close family members and his VP's should go to jail maybe on lesser aiding and abbeting fraud, etc.

slaughterer's picture

Anyone who thinks this irrational exuberance will end today is not paying attention to the MM max pain pins on large-cap tech (GOOG, AMZN, PCLN, AMZN, etc.) weekly options.  QQQ will explode out of the gate on Monday: if GOOG 2Q EPS on Thursday confirms, then we will be reaching that "terminal high" before the 30-day expiration period. 

fonzannoon's picture

Anyone trading on macro news and fundamentals should just be committed at this point.

Shizzmoney's picture

I would just figure its Friday and they want the stock market to end on "a good note" so that the bankers feel good on theirs yachts (we paid for) before the "Market" get back to reality on Monday.

JPM is up $1.32......makes absolutely 100% no sense.

slaughterer's picture

This post facto explanation is fine, but: what is the next compression trade Batman?

Buck Johnson's picture

Yep, thats more like it.  Because the economy of the world is screeching to a halt and they have to keep the game going at least until after the election.  I don't think it will happen, I think something will burst and Obama will have to deal with it along with the rest of the govt..

lsbumblebee's picture

My guess is that as long as we continue to get reports of massive fraud on Wall Street the market will never need QE3.

john_connor's picture

looks like a technical trade on low volume.  nothing more, nothing less. 

Tsar Pointless's picture

Only 9 months you say?

Try 40 and counting, since March 2009.

fonzannoon's picture


Fed May Need to Begin New Asset Purchases, Lockhart Says

whstlblwr's picture

We are all in the rocking boat. Don't look over and don't fucking stand up. I'm with you Fed Bitches, ALL IN!

slaughterer's picture

Look at EZ bank equities today (esp DB) by comparison to US global banks for further  confirmation of the above ES/EZ arbitration/compression explanation for exuberance.    

gjp's picture

It all depends on your time frame.  Over the past 2-3 years, ES have dramatically outperformed EZ, both banks and the general market.  Broader indexes have outperformed by 30% or more in constant currency terms.  If ES are going to catch up to EZ it should be in the downward direction, notwithstanding short-term fluctuations.

But the whole thing is bullshit now anyway, it's just pokemon cards, pay as much or as little funny money as you like.

geno-econ's picture

Comrad Conner--Could be as you say if on low volume, debunking idea that overseas buyers are seeking curruncy refuge through equities.  However low volume has been constant meaning institutional investors on sidelines as well as retail trade absent from market.  When does the macro picture get priced in , or is it ?   Dow now close to all time high of 14,000, before sudden 2008 crash and credit freeze.  We are worse off now with hope fading on global scale.   Something Wrong

francis_sawyer's picture

 "One Explanation For Today's Irrational Exuberance:"



pleseus's picture

This rally was expected after so many down days.  Look to fade this rally.  Outlook for the economy is quite poor despite all the QE3 hope floating around.  Trade QE3 when QE3 is announced.

Conman's picture

Ya those were some brutal down days no?

gjp's picture

Seriously.  Most of those days were flat, nothing more than 1.5%, total downdraft what, less than 3%?  Wow, bear market or what?  Oversold!  Back up the truck!

Kristian's picture

Just look at the dollar: dollar up, market down and vice versa. Just the way those HFT's are programmed.

mckee's picture

WOPR and Skynet in a brutal game of PacMan?

realtick's picture

Whoever is responsible for creating your charts should be fired immediately.

Winston Churchill's picture

Just feeding the birds.

Black swans.

hugovanderbubble's picture


g3h's picture

But, but...


Why is DAX up 2%?

Village Smithy's picture

Because people are realizing that they are earning soverign rates on junk bonds and they want out.

walküre's picture

It's part of the BANK RUN

Money isn't safe. At least with equities in major German firms the capital is represented. Forget valuations. This is the new flight to safety. Shares may lose value but unless the firms go BK, the equity is ok.

Sovereigns will all get haircuts rather sooner than later.

It is a panic melt-up.

bankofvol's picture

    Well done by JPM if you have 4Billion loss when people expect 2B, then just leak to the press 9B number and then on earnings announce 4B and everyone is happy. Well done.
    In behavioural finance this is called "Anchoring"

orangegeek's picture

SP500 hourly chart currently shows upside with brutally low volume.  At the end of the corrective wave, the volume tends to dry up.


Following this is usually a motive wave in the opposite direction. 


It's 2p EDT - could see a big sell off going into the weekend.

Conman's picture

People junked me right when i commented last night  to BTFD dummy after italy was downgraded. There's  always a rally after eu sovereign gets downgraded. Don't know why. Just the facts.

Conman's picture

Nah i'll strok my electronically held fiat  instead. Happy 13th all, peace out !

Village Smithy's picture

To me it's the same simple story, too much ZIRP money chasing too little quality assets. Sure Euro equities suck but they start to look good compared to bonds that should be paying 2 to 3 times what they are if their true risk was considered. We could be looking at a post Jackson Hole redux here where the trillions that have been printed and parked in the past 4 years starts flowing into equities, commodities and PMs. God help the middle class.

Harvey Lee Oswald's picture

Looks like a trap to me. Pump equities and release bad news on Friday the 13th. Big boys selling into this rally and hoping to leave some retail investors (if they even exist) with the bag.


Expect terrible earnings and equity weakness next week would be my best guess. But fuck if I know.

Everybodys All American's picture

Don't try to rationalize the irrational.

Mr_Wonderful's picture

Well, these are computers and therefore extremely technical. They milk the market rather efficiently both ways. It went down to the 50-day MA in six losing sessions, now it´s bouncing off that. Business as usual.

blueridgeviews's picture

Another explanation for todays irrational exuberance is the markets are completely manipulated and thus, detached from reality. 

Look at the financial headlines today. Not a single piece of news that would suggest anything in the world is going to hget better. In fact, it looks like the world economy is in a recession.

Today's market move should scare every one to death for someone is trying to mask the devastation that is surely to follow.

walküre's picture

Where else do you park money when bonds and sovereigns get junked or worse yet, need a haircut?

This is a PANIC DRIVEN MELT UP from super wealthy investors freaking out they are holding all this synthetic digital wealth. What should they do with billions of Euros or Dollars? Convert to physical? They will do that but they cannot possibly accumulate enough and they know that as well. So they buy equities in their last ditch attempt to securing their positions.

For us peons it is a different story. Buy physical and stay out of equities. The rough ride is ahead. When the heavy lifting comes and the tough negotiations start, the big boyz can call the shots. We can't. They hold majority stakes and they will always get preferential treatment.

Bobportlandor's picture

You are so right!

The little guy has a chance of gaining in wealth and the big guys are fighting to see who can maintain their wealth. There will be few who do and most will become chum.


Bank failures

MF Global



The crash of the titans, that's how I see it too.

hedgehog9999's picture

No this is pure and simple manipulation. The game is totally rigged if you still had any doubts.

Here is the deal , the manipulators want QEIII, Bernanke speaks next week and while he is doing it, they will tank the market badly to try an influence him, he knows it and hence the ramp so the down damage next week will be "contained" using fed speak.... that probably means 100+ points give or take.....