As Reality Recedes, Rumor Rampage Returns

Tyler Durden's picture

Equities and broad risk-assets were generally in sync today until around 1430ET when between rumors of a Euro-wide deposit-guarantee 'scheme' - which we had already dismissed as impossible short-term, very unlikely medium-term, and not a long-term solution to redenomination/insolvency risk - and Kocherlakota's hints as NEW QE if the fiscal cliff arrives - US equity markets took off (as did Gold). S&P 500 e-mini futures (ES) pushed to more than 12pts rich to CONTEXT (our proxy for risk-assets based on TSYs, FX carry, credit, and commodities) on all that hope - stalling at yesterday's late-day heavy volume swing highs. Of course the high-beta momo monkeys were pounced on and AAPL as well as the major financials all popped notably - breaking above yesterday's closing VWAP. Today was a low average trade size day - the lowest in a week (but a relatively high volume day) - after a large average trade size day yesterday which smells like algos pushing to enable larger selling (especially as we expect a denial any moment from Europe). VIX plunged off its highs but closed only marginally down with ES closing very marginally higher on the day - so some context is required to avoid anchoring bias intraday and while TSY yields did pop and EUR rallied after equities got going, they remain notably divergent from that sur-reality. Gold and Silver surged on the QE/EU hopes as well but remain down 2% and 3% on the week.

Trying to gauge equity's performance relative to the rest of risk assets is tough so we use the CONTEXT model below - which stayed nicely in sync until the full-retard hope trade came back in the last 90 minutes or so of the day...


And digging into some of the detail - equities started the silliness along with Gold (green arrows) and USD and TSYs followed (red arrow) after 30 mins or so - dragged by correlations but clearly a lot less impressed by the 'chatter'...

Credit markets were not as enthused as stocks into the close (though did get retacked tighter/higher as stocks rallied)...


S&P 500 e-mini futures saw average trade size drop notably today (lower pane)...

and medium-term it appears ES managed to rollover at yesterday's heavy volume swing (blue region and green arrow)...

In the majaor financials, JPM and Citi managed to scramble back into the green YTD, but BofA outperformed on the day - even if Morgan Stanley was the best off the pre-rumor lows (+4.3%!)...

but while Facebook managed to gain over 3% - it clung to yesterday's VWAP like lint to a hoodie...

Broadly speaking cross asset-class correlations were rising through the European day into early afternoon in the US but as the right chart below shows - cracked as stocks soared on the full-retard afternoon exuberance...

VIX also seemed a little rich early on (above chart left), fell towards crediot/equity fair into the afternoon then ended notably below fair (cheap) into the close.

Charts: Bloomberg and Capital Context


Bonus Chart: Gold vs Gold Lease Rates

Based on an idea (h/t @SoberLook), we looked at the rolling correlation between gold and gold lease rates and found that during periods of non-intervention the 'rational' positive correlation between the two holds but once central bank interveners begin (QE1, QE2, Twist, LTRO) then correlations flip and the irrational becomes the new normal...


Bonus Bonus Chart: European sovereigns did not explode as much as FX, equity, and corporate credit markets might have expected today... perhaps the reason is seen below - as we have talked about recently - there is a growing trade-arb to get short LTRO-facing financials credit against a long credit position in their domestic sovereign - 3 major pushes for that trade here...

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phyregold's picture

So i'm putting away about 350$ a week now into PM, i just can't decide if gold is the way or silver.  Silver is being surprssed so sooner or later it'll explode, but gold is gold.  Which would you guys do?

SMG's picture

Dow -6.66 points today. 

Satan laughing spreads his wings.

Clueless Economist's picture

ROLLS of 1960-1964 Silver quarters.  Not much wear as older dates

phyregold's picture

Well and see thats the thing gold coins you have to get pre 33, there is no law for silver.

Spirit Of Truth's picture

Sorry but precious metals won't save you from the danger we're up against:

john39's picture

come on man.  Russia is obviously playing defense, as is China and Iran.  The U.S./NATO/Israel are the aggressor states here, or haven't you noticed which side has troops on every continent fighting wars constantly for the last decade?  there is only one death star, and its not Russia.

ZeroAvatar's picture

Spirit:  I have read most of your material over the course of the last year or two.

Your heart's in the right place. And I agree, It'll be Russia that we fight (at least 1st) during WW3.

Disclosure: Long 7.62x39, silver, freeze-dried foods.



HelluvaEngineer's picture

If we're gonna fight Russia, you might want a 5.45x39 rifle.  Just saying.

barliman's picture


Or better yet a 7.62 x 39 ...


Ahmeexnal's picture

Fight the russians with bootleg 'made in china' vodka.

guinea's picture

I'm a surgeon, screw silver or gold.  I'll trade appendix removals for chickens.  No one would shoot or gas me for my silver or gold stash.

garypaul's picture

Be wary that it might be a right-side diverticulitis instead (possibly of congenital origin).

vast-dom's picture

buying AND trading RUMORS is the only way forward, but not just plain rumors; rather, inside-info rumors. there is no way to invest day to day at this point -- you must be able to afford your narrative and slough through the rigged day to day nonsense -- it's only a matter of time before this market collapses...

lasvegaspersona's picture

by your name you already know the answer phyre...

5880's picture

Take your money from you

gmak's picture

The gold / silver spot ratio is above 55. In recent times, this is about the max, which means that silver will outperform going forward until the ratio reaches the low of around 45. Note that these values have changed over time and the ratio has been as high as 80 briefly and as low as 30ish (when silver was up over 40 in irrational exhuberance).

I favour buying silver when the ratio is high and switching to gold when it is lower. Conversely, I favour buying gold when the ratio is low and switching the gold for silver when it is high (as I have done recently with my physical).


Note that this precludes taking a philosophical stance on what 'gold' is, or what 'silver' is. It merely seeks to increase supplies of the metal by switching between them when the ratio is favourable in that direction.



Bill D. Cat's picture

Loves me the alliteration .

bdc63's picture

Nicely done Tyler.  Thanks for the charts.

Muppet Pimp's picture

Agreed, was thinking the same thing as I read it, very nice work gents.

FieldingMellish's picture

HUI showing the way for gold diggers...

Angel Face's picture

Did Germany annex Greece?

brooklynlou's picture

Actually Greece annexed Germany ;-)

nobusiness's picture

I have a headache.  they might as well just ban shorting instead of crushing us every time it starts to work.

The Monkey's picture

These days, markets can crash down, or up.  Rule of thumb, be very patient and only take the very deep retracements following "great' news.

rocker's picture

It's their money once you put a trade on. Long or Short does not matter.

It's a Rigged, Manipulated, Casino Wheel.  Don't you get it.

Nobody but hedge funds, HFTs,  (Trading desk at Goldman Sachs, JP Morgan, Citigroup, Wells Fargo), are allowed to take money out.

And Never Forget Rule #1.   Goldman Rules the World. (That's the financial World).   

nobusiness's picture

If they keep burning the shorts, who is going to cover when the plunge comes?  Thats how crashes happen, no one willing to buy.  Never mind, I forgot the fed always buys.


To do items






The Monkey's picture

This is typical range bound market before it (probalby) breaks to the downside.  Last year top formation took half a year before breaking down, so we likely have a long way to go and the rallies will be surprising as always.

Gene8696's picture

To do:
- more Ammo
- more toilet paper.

The rest I will get from my neighbors...

SmoothCoolSmoke's picture

Shorts made a ton of $$$ the last 3 weeks. I took my IRA from $32K to $89K playing weekly puts.

spinone's picture

No one is left to set the floor but the Fed.

gjp's picture

Gold and ES may both react to the rumours, but gold is down 2-3% on the week while ES are up nearly 2% and the NASDAQ up nearly 3%.  Looks like Bernanke is winning again, for now.

It's terrible to root for destruction of the system, but it's really gotta go.

The Monkey's picture

Bernanke will look like an idiot when P/E multiples suddenly compress and all of the slack of the central banks liquidity renders monetary policy useless.  The Fed is helping set up conditions for sustained deflation by inflating the gap between price and demand.

Hedgetard55's picture

It is a market of intervention and rumors of intervention, nothing more.

nobusiness's picture

What's with these tech firms telling the truth all of a sudden.  First FB then Dell now NTAP?  Must really be getting bad if the old earnings tricks don't work anymore!!!!!

Calidreaming's picture

THis joke will end soon enough.   Nothing Big Ben ,Merkel, IMF, China or the world can do much about it.  Fucking playing trading games. Messing with my kids future. 

The future is so bright I have to wear shades  (to shield me from that nuclear explosion stuff)



RaymondKHessel's picture

Don't decide phyregold. Hard questions demand hard solutions and here are two hardasses ready to go the distance!!




Scalaris's picture

I'd say that I'm surprised, but that would simply be untrue.

nobusiness's picture

Dear SEC


It is simple.  What did they know? and when did they know it?  Just look at the trades.

LongSoupLine's picture

unbelievable horseshit from 2:30 on.  Just more proof how fucked this whole rigged game is.

John Law Lives's picture

It is nauseating when fundamentals are swept aside in lieu of rumors and game rigging by whoremasters.

The Monkey's picture

They can't hold it up forever, but most likely, it will go on a long, long time.  Don't get overly agressive.  Make sure to cover when it's looking especially bearish.

Comay Mierda's picture

you gotta expect the algo ramps on bad news europe days

The Monkey's picture

Don't be a sucker short seller.  The froth in the equity market is your friend.  The whole thing moved on a few pips of euro short covering.  Expect very big rips and then wait for even more retracement before you hit the short button. 

SPAREPARTS's picture

no big deal, this is how it must be done, we have to play it out. The only thing that will change the tune is checkmate and even if you might have stacked, you are going to be shaken when it hits. nothing will seem safe