US Equities Ignoring US Sovereign Risk Warning

Tyler Durden's picture

We have been warning of the pending fiscal cliff in the US and the somewhat inevitable debt ceiling debacle, election uncertainty, and the question of Fed independence in an election year as potential catalysts for risk flares in the US and abroad. For now, US equities are happy to ignore these events, still drawn in their Pavlovian-educated manner to US equities for their nominal enrichment. The trouble is - there are clear warning signs from some particularly noteworthy markets that all is not well (that appear more capable of comprehending fundamentals). Forget for a moment the overnight plunge and recovery in futures as this will bring only anchoring bias; a step back to 30,000 feet and we note that the spread on USA Sovereign CDS has risen by over 30% in the last month (now back at 40bps or 3-month wides) flashing a worrying warning signal for US equities if the past is any guide. Remember that US CDS are denominated in EUR and do not simply reflect the 'default' risk of the fiat-issuing USA but the devaluation or restructuring risks - and it appears market participants are getting nervous once again of the profligacy of the US government and the ineptitude of the central banks with their one-trick-pony experimentation. At the same time, central banks' broad repression has crushed volatility in every asset class - except, as Morgan Stanley notes - credit which is inferring considerably higher chance of a risk flare in the short-term. So while this week will bring cheers of growthiness and cooperation and decoupling, the all-seeing eye of credit markets remain far less sanguine.

US Sovereign CDS is flashing a warning signal for stocks...

and credit markets are gearing up for more volatility ahead (even as the rest of the retail-driven global markets remain as sanguine as can be)...

just what do these other markets think will happen when Twist's end is discounted? Deja-Vu all over again.


Source: Morgan Stanley

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Cdad's picture

Today's open was the WORST possible outcome for equity bulls...the worst!  It would have been so much better for the long camp had equities sold on the open with treasuries spiking.  Now, thanks to the perpetual HFT gang, you get institutional money sitting still in the same exact groups they have been in for months, and no cash horde created to take advantage of selling the obvious macro economic well as the political shift in Europe.

Welcome to the next six hours of being chopped to pieces, permabulls.  Way to go Wall Street...once again thwarting the proper function of the market...which continues to be a nonmarket.

Just close down the TBTF banks that we can have our markets back.

GetZeeGold's picture



Your 401K is safe.....yeah....don't worry about that.


AbelCatalyst's picture

The markets are BROKEN, which is why they will enventually fall.  As much as people seem to believe the FED is omnipotent, it is not.  Some day the curtain will be pulled open and the funny little man will be seen for who he is.  The worldwide economy, billions of people, trillions of dollars, cannot be controlled.  Eventually this tower of Babel will collapse under it's own weight and all connected to it will be pulverized.  

Just keep believing in the omnipotence of man, my "money" is on something greater than ourselves - you know, Math, Principles, Honor, Honesty, Unselfishness...  THESE are the qualities that will survive when this financialization crap goes down the flusher!!

Good luck Ben!  All that power must feel sooo good now, until you realize it was all a dream and that you had no power at all...   

AldousHuxley's picture

Markets are just indicators of health of the economy.


bailouts, subsidies, volatility all means that experiment in laissez faire capitalism and modern banking has failed.


Western "capitalist" countries are losing ground against "socialist" countries like Brazil, China, Russia due to state sponsored capitalism.

GMadScientist's picture

No QE for you, one year!

walküre's picture

Of course we'll never see the notes or hear the recordings of frantic and panicked telephone calls from Tokyo to Beijing to Hongkong to Berlin to Washington and back all day and night long.

This was a massive concerted effort to stave off the collapse. DAX was off 3% and looking desperate. EURUSD in the crapper. They HAD to act.

Buy (more) gold is the only sensible thing to do. Currency reform, defaults and massive haircuts are on the way. All paper will get vaporized or better "Corzined".

Cdad's picture

This is kind of what I am talking about.  I'm tracking the big gold miners right now, for example.  That is an area where I want to be a buyer, finally.  Have not moved yet.  Might have been able to had the market simply acted like a market this morning....with dumb ass, lazy, TBTF bankers sitting in REITs, for example [or Tbills, or tech or etc], selling out...moving money to areas of actual opportunity.  Instead, all we got this morning was the typical stick save in ES, followed by minimal movement in positions.  The status quo was preserved this least for now...thwarting an actual market response to economic data [last three weeks] and what just happened in Europe.

The extent to which the only reason to buy something is the anticipation that HFT guys will excecute "save" the extent to which there is simply nothing to buy in here...or even trade for more than an hour.

And as suspected, now what you are getting is simply choppy action here and there.  Of course, my comment is to actual human beings...

So...I guess we simply move up the percentage of daily trades executed by HFT programs today...what, from 85% to 92%.  Great.  Cue Nanex with the next 100 flash crash charts then.  Have at once again, capital formation has been thwarted,

Enough of this already!  

shuckster's picture

The Market is flat and slow so that the Big 5 can offload tons of worthless equity derivatives onto the market. They write these derivatives, and then since the market is so illiquid, they can prevent them from triggering by buying and selling equities to avoid activation of the options

Cdad's picture

Yes...and that is the status quo to which I referred.  


blueskies123's picture

no wonder they poured hundreds of millions of buy orders for US equities to stave off a down Monday. What a joke!

What's the point of futures then?  So the crooks can then undo all the damage of futures if futures look like they've fallen off  a cliff like they did over this weekend?

And they so neatly timed this thing so they just "undid" the red futures a few hours before the US equities markets opened.

SMG's picture

May 18th is the Fraudbook ...uh Facebook IPO.   Market will probably ignore reality until the criminals cash out and stick the proles with their shares.

AldousHuxley's picture

options expiry for May.

rosiescenario's picture

Today's market action looks like the Plunge Control Team is in action....add that to the HFT's and you get market acion that is undefineable.

beaker's picture

Could someone explain to me why the  HFT guys wanta static market? Why do they care about direction? Also, if this is just scalping on steroids, how does their activity stabilize prices?

Seafarer57's picture

These developments are alarming but, frankly, as long as Words with Friends and Dancing With The Stars are okay, I'm good.

hedgeless_horseman's picture



At the core, all of these markets are just the echoes of someone else's capital funding efforts.  Capital appreciation is, at best, a second derivative.  Pricing risk is not seen as an important part by TPTB.  Trade accordingly.

bullmkt's picture

i am not seeing a sell-off Tyler,why oh why?

thats just post nfp dip.

better buy before some magical PPT forces(as permabears want to call them) squeeze ya out of your shorts...

fuu's picture

If only you could upvote yourself more than once!

midgetrannyporn's picture

A republic by for and of the banksters.

GMadScientist's picture

A BBQ by for and of the banksters.



GOSPLAN HERO's picture

a government by the government for the government owned by banksters

AldousHuxley's picture

bank = government institution


they just made it look private so they can get private bonuses


in a dictatorship in 3rd world country, dictator installs his counsin in 3 most significant posts:

  1. head of military
  2. head of key natural resources corp (oil, gas, etc.)
  3. head of banking

everything else is just a window dressing.


America is starting to show her priorities in the same above 3 categories.


GetZeeGold's picture



......right off the cliff.


blueskies123's picture

WTF: anyone talking about how the market got super pumped up early this morning and at the opening? It was like water being poured into a cup to float leaking equities from sinking.

Futures were way down all weekend and last night over a point for each of the markets (dow/nasdaq/sp), then shot up to just roughly a third of point down until the past few hours before market opened.  Then the meltup to green territory within 30 minutes.

The Fed/ECB/whoever simply didn't want a "black Monday" before the big Facebook IPO next week.

Marketwatch blasted the headline: "Investors mildly bearish..." WTF? Is this manipulated or what?

Shorts getting killed this morning.

Markets should be down easily at least 1 point, not some .25% and going positive on what news?

So, even if futures are down, it doesn't mean a damn thing, the market manipulators will let the markets fall for the NFP report but not on an opening bell first thing Monday after all the elections.

shuckster's picture

If retail investors could keep their mouths shut when a sell off starts the TPTB would stop melting up the markets and destroying them

blueskies123's picture

So it's a war against market fundamentals.

TPTB have bigger guns and more money than retail investors.

WOW what a f'ed up world we live in.  savings doesn't pay interest and trying to play the market is like entering a boxing ring where your competitor brings bozookas and doesn't give a damn if he's also shooting mainstream to smithereens in his need to control the markets.

Have a good day, all, and eventually gravity will win, the markets will go down and these big bullies won't be able to do anything about it and even if the SEC refuses to lift a finger to look into this.

MrPoopypants's picture

Capital Context caught the spike at open:

Check out their SPY arb too - ridiculous.

This was an easy play for those with this arb setup. The PPT are predictable - we should be getting rich off them instead of complaining.

Robslob's picture


The markets were not "invented" for us Cdad...they were invented for "those in the know"...everyone else are just peasants.

Boilermaker's picture

Exactly the point.  It's just a mechanism to cornhole those not in the know, eventually.


The Axe's picture

The markets are BROKEN....they reflect nothing

The Axe's picture

The markets are BROKEN....they reflect nothing

junkyardjack's picture

Which is why it is funny that people expect them to go down.  Its a completely manipulated machine now.  Its not going anywhere as long as the American sheeple care more about voting for a new singing pop star on American Idol than they do about what happens in government...

SheepDog-One's picture

It will 'go down' when they want them to go down for the next 'fear and panic' to divert the sheeples attention while theyre robbed again. 

CvlDobd's picture

I usually downvote unedited double posts. I can't seem to bring myself to junk you on this one.

rubearish10's picture

I will worry if the Euro Gap gets filled.

HD's picture


Disappointing, but not in the least surprising.

jomama's picture

damn the torpedos!!  full speed ahead!!

fonzannoon's picture

How about those mining stocks. Wow. Crapola.

walküre's picture

Bearer of bad news to come. Leading the way DOWN.

Cruel Aid's picture

Mining stocks?, this is clearly a jobless housing boom.

Yea wtf.

shuckster's picture

A houseless housing boom too

rosiescenario's picture mean a homeless housing boom.......

Comay Mierda's picture

among the most glaringly obvious lessons to be learned from 21st century finance is that there is no such thing as a risk-free rate.  stupid CAPM

TwoJacks's picture

anyone not selling, or if they are buying, is equivalent to sitting on a deck chair enjoying the music from the string quartet on the Titanic and wondering if they take requests while sipping on that bourbon, neat

HD's picture

I'm not much of a drinker, but if I knew I was about to meet my end in icy waters - being three sheets to the wind, at least you'd be warm and calm on the way to oblivion.

Do they make QE brand liquor?

shuckster's picture

If they make QE brand liquor, I'm sure its watered down

Manthong's picture

The PPT is not a team… it has to be a large interbank operation (which probably has a hit out on Mikael Charoze).

Somebody else brought the underlying metaphor in yesterday, but I am happy to tweek it for this topic,,,

They are in firm control of the most desirable dry spot on the Titanic.

HD's picture

Indeed. Great point.  Of course, you only need water down the good stuff. QE Moonshine is cheap and powerful...until your liver dries up like a raisin in the sun.