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Is The Risk-On Rally Real?

Tyler Durden's picture


Whether its non-confirming volumeless rallies in stocks, hard-to-find collateral, sovereign risk, counterparty risk, USD funding stress, GDP growth dislocations, EM credit dispersion, or equity market outperformance, Nomura's EEMEA FX and Fixed Income team has a little for everyone in today's '10 Things We Did Not Know'. Today's obvious risk-on knee-jerk-response rally is perhaps not so broadly supported.


1) Did you know that volume is not confirming the recent rally? On a 2-day average basis, Monday's volume was lowest y-t-d despite a 3% jump in the stock markets...(clearly some well-informed managers knew something though as we discussed).

In 2010 volume patterns were similar

But Did you know that in 2010 two days including Black Friday also had the lowest average volume if we exclude trading in the last days of the year? The main difference, though, is big pick-up in volume in December, with a rising trend in the S&P500 and a very bullish market at the time.

The search for balance sheet (collateral) continues...

2) Did you know that both EUR and USD FRA-OIS spreads are above May 2010 levels and continue to rise? As the chart shows the European banking system suffers more as the spread between EUR and USD widens.

Risky Sovereigns in some countries, risky countyerparties in others...

3) Did you know that in Germany and France markets have signalled much higher counterparty risk, while Italy signals higher sovereign risk? In UK and US, counterparty risk is rising, according to markets.

Demand for dollars is at a peak once again, but not everywhere...

4) a) Did you know that not only EUR basis has moved significantly to the right, but the same has happened in NOK, SEK and JPY? USD funding in these countries has become much more expensive.


4) b) Did you know that cross-currency basis in AUD, KRW, GBP and CAD has not experienced any significant moves lower and in CAD basis is even increasing?

In EM we look at hard currency demand...

5) Did you know that in EM the basis has moved to the right, but while moves in PLN and ZAR were contained in HUF and TRY they were very significant?

Probably, the only good news for the bulls is the market is short EUR/USD again...

6) Did you know that the market sold EUR/USD once again and that positioning has become stretched again? That was probably why EUR/USD tried to squeeze towards the key 1.35 level recently...

...but even there, what it represents is questionable when you look at the balance sheet appetite

7) Did you know that asset swaps in Europe have widened very sharply recently (asset swap showing 10y yield minus 10y IRS)? Hungary has much tighter asset swaps than Belgium and Poland tighter than France these days...

And you thought the markets would respond sensibly to macro developments? Not in the current environment...

8) a) Did you know that the US has been one of the few countries where consensus growth forecasts were raised during the past month?

 9) But Did you know that US stocks have underperformed European stocks in the past month despite stronger growth vs. expectations?

One needs to find the right markets to trade your monetary policy views...

10) Did you know that in EM most of the markets are trading like credit proxies rather than rate markets? The only market where you can trade monetary policy without looking on EPFR inflows/outflows or tick-trading in currency is ILS? Apart from AUD, NZD and KRW, ILS is the only market in EM where 1y1y has been falling, suggesting to us that credit/currency concerns are not there.


All-in-all, today's smash higher in risk perhaps skews some of these relationships even more towards value and as we wrote earlier, the promise of USD funding (at only a marginally lower rate) seems to have persuaded everyone that all is solved - even as the Grand Plan has now totally failed.


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Wed, 11/30/2011 - 16:33 | 1932109 GeneMarchbanks
GeneMarchbanks's picture

I must say that I knew all them things and it still doesn't help me when the CBs get together to announce globally coordinated policy...

Wed, 11/30/2011 - 16:40 | 1932150 CrashisOptimistic
CrashisOptimistic's picture

There is no analysis.

There is no market.

There is no economy.

There is only perpetual intervention, on a whim, by whomever can intervene.  

Oil is killing everything and they will delay it as long as they can, without even knowing what is causing them to fail.

Wed, 11/30/2011 - 16:49 | 1932192 sqz
sqz's picture


Everyone in Europe is too tired from the Eurozone stress and now going on holidays!

Of course, this just means in the New Year everyone will look back on 2011 fondly...

Wed, 11/30/2011 - 16:50 | 1932210 redpill
redpill's picture

There is nothing real about "coordinated action"/"rescue"/"liquidity injection"/ponzi fiat fraud by central banks almost by definition. If anything it's a willful denial of reality.

What's the famous Rand quote? "You can avoid reality, but you cannot avoid the consequences of avoiding reality"

Reality will eventually come home to roost.

Wed, 11/30/2011 - 16:55 | 1932248 GeneMarchbanks
GeneMarchbanks's picture

'Reality will eventually come home to roost.'

Only in the form of war.

Wed, 11/30/2011 - 16:56 | 1932256 redpill
redpill's picture

Certainly one of the scenarios I'm hedging for!

Wed, 11/30/2011 - 16:52 | 1932225 Rynak
Rynak's picture

Someone remind me why commodity prices are even affected by this videogame.

Wed, 11/30/2011 - 17:02 | 1932295 Sophist Economicus
Sophist Economicus's picture

Shorts were roasted across the board today.    I can smell their cooked flesh all the way from eastern PA!




Wed, 11/30/2011 - 17:14 | 1932364 Rynak
Wed, 11/30/2011 - 17:43 | 1932589 Sophist Economicus
Sophist Economicus's picture

I like 'the market'.   I'm by no means a 'trader', but year in, year out, I happen to make enough 'mad money' to make life a little more comfortable...

Of course, I don't get emotional, don't have preconceived notions of what price should be, etc...   Oh, I used to be that way - way before it was 'hip' to blame central bankers, Wall street insiders or what ever other ghosts haunt some folks around here.    I don't know who/what I blamed for my failures, but I'm sure I blamed somebody.    But then, I realized that the only enemy was me, yup, t'was my own fault that I risked lots on stupid 'hunches', assumptions, etc.    But now, I LIKE the MARKET.   It almost talks to you.   The insanity can be quite rewarding - especially if you're a little schlub like me, without the rules, etc that hamper the 'professionals'.   Yup, I like the markets....

Wed, 11/30/2011 - 17:45 | 1932610 firstdivision
firstdivision's picture

I'd like to see you fight a war with your enemy, I'll provide the funding and weapons.

Wed, 11/30/2011 - 17:46 | 1932619 firstdivision
firstdivision's picture

Ben Bernanke, Obama, all of Congress, everyone with a 401k, 403b, any retirement funds, etc., etc.

Wed, 11/30/2011 - 17:36 | 1932552 walküre
walküre's picture

Why vote when CBs rule the world?

Wed, 11/30/2011 - 16:37 | 1932134 Tsar Pointless
Tsar Pointless's picture

But Ben Bernanke says, "Damn the torpedoes - full steam ahead! There's nothing keeping us from unlimited growth and upside potential other than that tiny little ice cube."

Wed, 11/30/2011 - 16:44 | 1932171 TruthInSunshine
TruthInSunshine's picture

The Bernank only has two boats to commandeer- the Lusitania & the Titanic.

Aye Aye, Captain Bernankio!

Wed, 11/30/2011 - 16:39 | 1932141 distopiandreamboy
distopiandreamboy's picture

Also 10 Direxion ETFs change to 300% leveraged from 200%,  tomorrow. Somebody is about to get a margin call. Good thing they can borrow cheap to cover it!

Wed, 11/30/2011 - 16:43 | 1932170 Tsar Pointless
Tsar Pointless's picture

Oh, I know about that first-hand, seeing as I work at the place that is the custodian for these funds and personally processed the name changes yesterday.

So, market up or down with these changes?

Wed, 11/30/2011 - 17:32 | 1932514 Cthonic
Cthonic's picture

Is it just my broker, or do they all limit margin use on these leveraged ETFs?  Never mind, here's an old article I just found:


Wed, 11/30/2011 - 16:38 | 1932144 firstdivision
firstdivision's picture

Time to short this shit show of a market.  I cannot wait til it figures out that Europe is still insolvent, there's $100T new outstanding derivative contracts than last year, and that the China bubble has begun deflating.

Wed, 11/30/2011 - 17:06 | 1932313 ucsbcanuck
ucsbcanuck's picture

Yeah, but the market can stay irrational longer than you can stay solvent. Warning.

Wed, 11/30/2011 - 17:47 | 1932628 firstdivision
firstdivision's picture

I only punt naked when paper trading.  Far OTM calls will do fine, though vol is a bit high but that is the premium for hedging.

Wed, 11/30/2011 - 18:32 | 1932841 Melin
Melin's picture

That's the quote I've been trying to remember!

Fri, 12/02/2011 - 21:09 | 1940537 ucsbcanuck
ucsbcanuck's picture

Thank Keynes for that.

Wed, 11/30/2011 - 17:51 | 1932650 walküre
walküre's picture

You have no idea what type of bubble machines they're building over there. Deflation shall not happen in China. Rumor has it they're growing 8% p.a. for another 20 years at least.

Wed, 11/30/2011 - 16:39 | 1932147 Irish66
Irish66's picture

because I had to listen to all the bs today and played the drinking game, I'm done for today.

Wed, 11/30/2011 - 16:40 | 1932151 midgetrannyporn
midgetrannyporn's picture

This market is totally jap-tarded.

Wed, 11/30/2011 - 16:41 | 1932158 Carlyle Groupie
Carlyle Groupie's picture

Bizarroland rejects all well reasoned arguments. BUY!

Wed, 11/30/2011 - 16:56 | 1932254 scatterbrains
scatterbrains's picture

for realz, the ppt is acutely aware of all these points Tyler raises and as you can see they are pumping extra hard.. perhaps many +200 or 300 point days up into the end of the year as a result of their extra efforts.

Wed, 11/30/2011 - 16:41 | 1932160 azzhatter
azzhatter's picture

I have to wait for Cramer to tell me what I think

Wed, 11/30/2011 - 16:46 | 1932187 HD
HD's picture

Sadly, people actually do that. Last week Cramer's rating were higher than Squawk Box - and that's with Becky Quicks return. Someone is watching that moron, I just don't understand who or why...

Wed, 11/30/2011 - 17:07 | 1932318 ucsbcanuck
ucsbcanuck's picture

He DID admit that Europe was at DefCon 3. On the other hand he also did say not to sell Bear Stearns stock.

Fri, 12/02/2011 - 21:10 | 1940542 ucsbcanuck
ucsbcanuck's picture

Hey what's up with the junk? Alright, alright - Jim Cramer is a clown who wears big floppy shoes. Happy now? 

Wed, 11/30/2011 - 16:43 | 1932165 Randall Cabot
Randall Cabot's picture

It's real for today that's for sure-watch them annihilate the shorts into the close.

Wed, 11/30/2011 - 16:46 | 1932186 firstdivision
firstdivision's picture

All 12 people that are short?  There's barely any shorts this time around.  If no volume occurs, then plunge it will.

Wed, 11/30/2011 - 16:43 | 1932168 LongSoupLine
LongSoupLine's picture

Nothing trumps the printers...short term.



Buy Silver.

Wed, 11/30/2011 - 16:50 | 1932213 HellFish
HellFish's picture

Added 1 RCM 100oz bar.

Wed, 11/30/2011 - 16:44 | 1932173 Sudden Debt
Sudden Debt's picture

Enough lemmings who can't stand not to get envolved in this... And lose in this market... Again....
Won't have seen it comming... Again....

Wed, 11/30/2011 - 16:44 | 1932176 Stax Edwards
Stax Edwards's picture


Anybody see the action in Coal today?  F'n unbelievable.  I have been waiting patiently on this building my position in BTU.  This one still has lots of upside BTW. 

Wed, 11/30/2011 - 16:44 | 1932178 kralizec
kralizec's picture

Seems to me not everybody is drinking the CB kool aid, that must really piss them off.  Can't wait to see what tomorrow brings!

Wed, 11/30/2011 - 16:45 | 1932180 Cleanclog
Cleanclog's picture

VIX saying risk off (or at least ebbing).  Buy like there is no tomorrow.  Since there will once again be no free or unfettered markets tomorrow.

Wed, 11/30/2011 - 16:46 | 1932188 Stoploss
Stoploss's picture

The 3:30 afternoon justification pundits are out in force right now, touting........volume.... and how there's just sooooooo muchhhhh volummmme today. ooooooooohhhhhh.. 

Wed, 11/30/2011 - 16:46 | 1932191 Tsar Pointless
Tsar Pointless's picture

S&P broke through the 1240 resistance level I was eyeing.

So, next stop is 1253. If it truly can get through there, then I think it's smooth sailing to 1340 by the time that fat-ass comes down the chimney.

Wed, 11/30/2011 - 16:47 | 1932195 topshelfstuff
topshelfstuff's picture

They mentioned the ultra-anemic Volume today

Wed, 11/30/2011 - 16:48 | 1932196 RobotTrader
RobotTrader's picture

Dow 12,000

Michelle's nipples just turned hard

Wed, 11/30/2011 - 16:53 | 1932234 Tsar Pointless
Tsar Pointless's picture

Good to know.

Now go check to see if your mother's did, too. Isn't it about the time of day you perform that duty?

Please - at least have the dignity of wiping off the Cheez Doodle gunk from your hands first.

Wed, 11/30/2011 - 17:04 | 1932305 Sophist Economicus
Sophist Economicus's picture

Great!  Wonder how many bottles of wine it will take to wipe that image from my mind....

Wed, 11/30/2011 - 16:49 | 1932204 Catullus
Catullus's picture

It's more a martial law rally than a CB intervention rally. Now anyone demanding money from a bank can be labeled a terrorist. Selling is illegal now. Rally on.

Wed, 11/30/2011 - 16:49 | 1932205 EuroBear
EuroBear's picture

Based on IBD metrics, it's a follow-through today -> Risk ON.

Wed, 11/30/2011 - 16:53 | 1932209 devo
devo's picture

How I know it's not real: not once did I consider buying.

The pending collapse is going to be beyond epic. It is clear now the catalyist will be the lack of faith in all currencies.

Wed, 11/30/2011 - 18:22 | 1932803 xcehn
xcehn's picture

Exactly.  Long on whisky.

Wed, 11/30/2011 - 22:24 | 1933421 NumNutt
NumNutt's picture

On days like this you just kind of have to sit back and scratch your head and ask 'WTF is going on here?'  does this make sense to anyone?  I always try to put things in a personal perspective to enable myself to wrap my head around a situation, like this:

  Suppose your sitting in your house with nothing to do because you have been laid off from your job, you have no money, and almost all your credit cards are maxed out.  Then there is a knock at the door and there is your neighbor, and he is all upset because he is in the same situation but worse. He has just been informed that TPTB are going to foreclose on his house unless he comes up with a large some of cash. You freak out because if his house gets foreclosed on your house will also go down in value and you too will ultimately be forclosed on. So you grab the last credit card and take a cash advance on it. Now all your cards are maxed out, you then give the cash to your neighbor. He is all giddy happy, and you (for some reason) are also all giddy happy even though you realize your neighbor will never be able to pay back the money. The two of you then go down to the local pub and drink yourselves silly. Neither of you want to think what will happen next month when one of you is unable to make the mortgage payment ......again......

So I find myself trying to understand the euphoria that was part of the markets today, I fear the end game is upon us....

Wed, 11/30/2011 - 16:50 | 1932212 mayhem_korner
mayhem_korner's picture



The house just watered down the whiskey and everyone's buying more.  Makes sense if you're an addict.

Wed, 11/30/2011 - 16:50 | 1932216 firstdivision
firstdivision's picture

Come on baaaaby, lets hit 5% in a day.  You can do it!

Wed, 11/30/2011 - 16:52 | 1932227 Village Smithy
Village Smithy's picture

1:10, I have carefully calculated it and that is the ratio we are working off of. 1 piece of good news rumour, old news, irrelevant news is all that is required to offset 10 pieces of carefully vetted, truthful bad news.

Wed, 11/30/2011 - 16:52 | 1932229 s2man
s2man's picture

I didn't know that.

Wed, 11/30/2011 - 16:57 | 1932237 Wixard
Wixard's picture

I think tomorrow is down. Specifically bank stocks again take a hit. Just imo. 


medium sized sell off tomorrow, again imo. 


I sure as hell am not putting my money there though, nearly everyone thought the fed would wait longer till they really got involved. 


Lots of shorts got burned, but their turn is coming. Theres no way this lasts longer than a day or two, then it's back to the regular programming. again just imo.


I underestimated the danger the fed is willing to put things in. Won't make that mistake again. 


Ironically just like years past this makes the situation worse instead of better. 

Wed, 11/30/2011 - 16:54 | 1932241 slewie the pi-rat
slewie the pi-rat's picture

i think this rally is as real any we've had, but the risk-0ff leg was pretty short, so maybe this will be, too, as per nomura, here
but, the EUR/U$D did go upskie, so we're in kansas, right, BiCheZ?

Wed, 11/30/2011 - 16:54 | 1932246 devo
devo's picture

This is honestly surreal. To say it feels Orwellian isn't doing it justice. It feels like an Orwell novel set in a Dali painting.

Wed, 11/30/2011 - 16:58 | 1932264 Randall Cabot
Randall Cabot's picture

With Zappa playing in the background. 

Wed, 11/30/2011 - 16:59 | 1932279 devo
devo's picture

Haha. Bingo.

Wed, 11/30/2011 - 17:27 | 1932475 Girl Trader
Girl Trader's picture

Actually I think the landscapes of Hieronymous Bosch would be a better choice (and this from a person with a Dali painting for an avatar).  Better depiction of the life of the 99%.

Wed, 11/30/2011 - 16:55 | 1932252 pmcgoohan
pmcgoohan's picture

Wow! Ive got a hard on. And Im short.

Wed, 11/30/2011 - 16:59 | 1932272 Randall Cabot
Randall Cabot's picture

That's too bad.

Wed, 11/30/2011 - 17:01 | 1932288 mayhem_korner
mayhem_korner's picture



Hope that's not your tag line on yer match-dot-com account.

Wed, 11/30/2011 - 16:58 | 1932263 ebworthen
ebworthen's picture

Git out yer credit cards and let's go shopping!

Wed, 11/30/2011 - 16:59 | 1932275 pmcgoohan
pmcgoohan's picture


Wed, 11/30/2011 - 17:02 | 1932287 Frank N. Beans
Frank N. Beans's picture

i'll tell you what's real: the pain I feel in my balls today.

they really turned the screws on the shorts, and added more pain into the close. 



Wed, 11/30/2011 - 19:05 | 1932966 Randall Cabot
Randall Cabot's picture

I know a very wise old man from the mountains of interior Italy who speaks a near extinct non-Indo-European language and just a few weeks ago I saw him munching on a big raw anise bulb like he was eating an apple-he said it's good for sore balls.

Wed, 11/30/2011 - 19:21 | 1933028 Frank N. Beans
Frank N. Beans's picture

much appreciated.

Wed, 11/30/2011 - 20:29 | 1933218 redpill
redpill's picture

FYI it was probably Fennel, not Anise.  The two are often confused due to the similar flavor profile :)


Wed, 11/30/2011 - 20:58 | 1933326 Randall Cabot
Randall Cabot's picture

Could be. It looked like what the supermarkets around here call anise though.

Wed, 11/30/2011 - 17:11 | 1932333 tooktheredpill
tooktheredpill's picture

volume in our systems today was at post Lehman crash levels - tho it is just one day - rare tho to get a big rally on v high volume

Wed, 11/30/2011 - 17:11 | 1932334 walküre
walküre's picture

Occasionally I visit the casino and play a good game. If I can afford to loose the cash, I'm enjoying the fun.

Despite my utter and complete disgust for the bankers, I don't see them any worse than casino owners.

If they favor hyper inflation over a healthy cleanse and deflation, then the only play money left is going on green. Energy and agriculture should do well in a world of diluted paper money and millions of starving people.

Wed, 11/30/2011 - 17:13 | 1932352 mayhem_korner
mayhem_korner's picture



CNBC is pulling out the heavy lumber now...they tossed "soar" mid-afternoon and went for the jugular, saying "stocks rocket 4%".

Wed, 11/30/2011 - 17:15 | 1932366 chancee
chancee's picture

Right now Bernanke thinks he's brilliant.  He and his team have spent the last week following the blogospher and watching Fast Money... waiting, for just enough people to pick 1000 as their target for the S and P on the downside.  And BAM. 


He is O  B  S  E  S  S  E  D with not letting the stock market go down.

Wed, 11/30/2011 - 17:15 | 1932369 somethingelse
somethingelse's picture

did you know that it's bonus season and da bankers gots to get PAID $$$$$$$

Wed, 11/30/2011 - 17:46 | 1932617 max2205
max2205's picture

AND November closes....... Unch. So what

Wed, 11/30/2011 - 17:15 | 1932375 zonkie
zonkie's picture

My S&P shorts got toasted and fried today. I also quit on EUR/USD shorts while I could. This rally up is likely to continue for at least a month or more in my view, there may be a few dips but overall they are eyeing 1350 by year end. They will make sure some good news comes out on Dec-9 so that everybody can look up their chimneys. 

What happens in new year is another story. So I am beaten but not out and I am going to wait them out while staying solvent. Just thinking.. 

Wed, 11/30/2011 - 17:29 | 1932494 walküre
walküre's picture

Same here. Bought some DBO instead. Diluted $$ and rumors of war should push oil to $110 over next few weeks min.


Nimble serf in Bernankistan

Wed, 11/30/2011 - 17:15 | 1932377 Westcoastliberal
Westcoastliberal's picture

To infinity and beyond! And pay no attention to that man behind the curtain (who looks suspiciously like helicopter Ben).

Wed, 11/30/2011 - 17:18 | 1932403 blunderdog
blunderdog's picture

Why even use the word "rally" to describe this?

This just looks like volatility to me.  We don't usually call it a rally when something ticks up a few cents for an hour, either.

What I'm wondering is how large the price-swings can get before a bit of volatility starts savaging the market-makers...

Wed, 11/30/2011 - 17:23 | 1932452 TradingJoe
TradingJoe's picture

Me agree with you all but, y'all, I made a boat load since Monday and will make until year end, just like any good money runner hehehe! This train is going to run now, long and hard! 1350ish should be STOP and REVERSE! A nice overshoot to 1365ish possible though! Rest is politely put...PITTYFUL!

Wed, 11/30/2011 - 17:25 | 1932462 moonman
moonman's picture

I am thinking to myself. The idiots are gonna keep this rally going, i need to get back in to the market. Then I realized that makes me one of the idiots. So i will sit continue to sit on the side and just giggle uncontrollably.

Wed, 11/30/2011 - 17:34 | 1932536 Odin
Odin's picture

Did you know that by this point in the game the market is completely manipulated and thus, a complete fraud?

Wed, 11/30/2011 - 17:54 | 1932635 Boxed Merlot
Boxed Merlot's picture

I figured it was Barney announcing retirement that accounted for the upswing. Now that I've read the comments, I see it's just another short sweep by leviathan attempting to throw up Ben's excess liquidity.

It appears the drunken stupor and dry heaves will return after this bout of projectile vomiting has run its course.

(At least BAC is now safely frn .44 above the frn 4. handle.)

Wed, 11/30/2011 - 17:55 | 1932667 lechmm
lechmm's picture

Never fight the FED... especially when all the world's CBs go along.

Wed, 11/30/2011 - 18:01 | 1932707 gbresnahan
gbresnahan's picture

I think this was done to save a figh dolla bank

Wed, 11/30/2011 - 18:46 | 1932904 FreeNewEnergy
FreeNewEnergy's picture

Monday morning, when futures were way up, genius that he is, Cramer, said buying at the open would be certain death.

The Bernank must have been listening. Wrong-o again-o, Cramerica!

Nice charts on this post, BTW. Trippy, almost. My 12-step Bloody Mary is just smashing.

Markets? I trade select collectibles and do quite well. There's always a buyer and a seller, and I'm just a middleman. Never lose cause I never snooze. There are two kinds of people in America today: those who are suffering hard times and those who believe it.

One's a seller and the other is buying out of fear.


Wed, 11/30/2011 - 18:47 | 1932912 YesWeKahn
YesWeKahn's picture

I am thinking about exiting the market all togather, this is a russian roulette. Rumor this, intervention that, bail out this, print that.

4 years after the financial crisis, we are still in the crisis mode. I don't know why Bernanke hasn't dead of panic.

Wed, 11/30/2011 - 18:51 | 1932923 fpscod9
fpscod9's picture


Wed, 11/30/2011 - 20:18 | 1933178 frugartarian
frugartarian's picture

well... if the stock market is valued in US dollars and all the big players want to print then the answer is.... YEAP. Deficits will be financed by central bank money and SDRs.  In 10 years, gasoline will be 10 bucks a gallon and my lunch will be 20 bucks a meal...

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