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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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...

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.

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...

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.

GeneMarchbanks's picture

'Reality will eventually come home to roost.'

Only in the form of war.

redpill's picture

Certainly one of the scenarios I'm hedging for!

Rynak's picture

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

Sophist Economicus's picture

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




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....

firstdivision's picture

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

firstdivision's picture

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

walküre's picture

Why vote when CBs rule the world?

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."

TruthInSunshine's picture

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

Aye Aye, Captain Bernankio!

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!

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?

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:


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.

ucsbcanuck's picture

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

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.

Melin's picture

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

ucsbcanuck's picture

Thank Keynes for that.

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.

Irish66's picture

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

midgetrannyporn's picture

This market is totally jap-tarded.

Carlyle Groupie's picture

Bizarroland rejects all well reasoned arguments. BUY!

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.

azzhatter's picture

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

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...

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.

ucsbcanuck's picture

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

Randall Cabot's picture

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

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.

LongSoupLine's picture

Nothing trumps the printers...short term.



Buy Silver.

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....

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. 

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!

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.

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.. 

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.

topshelfstuff's picture

They mentioned the ultra-anemic Volume today

RobotTrader's picture

Dow 12,000

Michelle's nipples just turned hard

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.

Sophist Economicus's picture

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

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.

EuroBear's picture

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

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.

xcehn's picture

Exactly.  Long on whisky.