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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

 

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Mon, 05/07/2012 - 10:06 | 2403185 Cdad
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 weakness...as 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 already...so that we can have our markets back.

Mon, 05/07/2012 - 10:07 | 2403190 GetZeeGold
GetZeeGold's picture

 

 

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

 

Mon, 05/07/2012 - 11:20 | 2403431 AbelCatalyst
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...   

Mon, 05/07/2012 - 11:41 | 2403518 AldousHuxley
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.

Mon, 05/07/2012 - 10:11 | 2403203 GMadScientist
GMadScientist's picture

No QE for you, one year!


Mon, 05/07/2012 - 10:18 | 2403224 walküre
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".

Mon, 05/07/2012 - 10:39 | 2403285 Cdad
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 morning...at 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" programs...is 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 it...as once again, capital formation has been thwarted,

Enough of this already!  

Mon, 05/07/2012 - 10:56 | 2403328 shuckster
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

Mon, 05/07/2012 - 11:02 | 2403351 Cdad
Cdad's picture

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

 

Mon, 05/07/2012 - 10:51 | 2403307 blueskies123
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.

Mon, 05/07/2012 - 10:28 | 2403251 SMG
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.

Mon, 05/07/2012 - 11:43 | 2403528 AldousHuxley
AldousHuxley's picture

options expiry for May.

Mon, 05/07/2012 - 11:48 | 2403541 rosiescenario
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.

Mon, 05/07/2012 - 12:12 | 2403636 beaker
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?

Mon, 05/07/2012 - 10:07 | 2403188 Seafarer57
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.

Mon, 05/07/2012 - 10:11 | 2403189 hedgeless_horseman
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.

Mon, 05/07/2012 - 10:07 | 2403191 bullmkt
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...

Mon, 05/07/2012 - 10:21 | 2403233 fuu
fuu's picture

If only you could upvote yourself more than once!

Mon, 05/07/2012 - 10:08 | 2403192 midgetrannyporn
midgetrannyporn's picture

A republic by for and of the banksters.

Mon, 05/07/2012 - 10:11 | 2403202 GMadScientist
GMadScientist's picture

A BBQ by for and of the banksters.

Fixt.

 

Mon, 05/07/2012 - 10:23 | 2403242 GOSPLAN HERO
GOSPLAN HERO's picture

a government by the government for the government owned by banksters

Mon, 05/07/2012 - 11:46 | 2403538 AldousHuxley
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.

 

Mon, 05/07/2012 - 10:08 | 2403194 short-swap
short-swap's picture

Forward!

Mon, 05/07/2012 - 10:16 | 2403212 GetZeeGold
GetZeeGold's picture

 

 

......right off the cliff.

 

Mon, 05/07/2012 - 10:09 | 2403195 blueskies123
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.

Mon, 05/07/2012 - 11:00 | 2403349 shuckster
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

Mon, 05/07/2012 - 11:36 | 2403504 blueskies123
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.

Mon, 05/07/2012 - 11:01 | 2403352 MrPoopypants
MrPoopypants's picture

Capital Context caught the spike at open:

http://capitalcontext.com/intraday/intraday-context/

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.

Mon, 05/07/2012 - 10:10 | 2403197 Robslob
Robslob's picture

 

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

Mon, 05/07/2012 - 11:10 | 2403383 Boilermaker
Boilermaker's picture

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

 

Mon, 05/07/2012 - 10:11 | 2403199 GMadScientist
Mon, 05/07/2012 - 10:12 | 2403204 The Axe
The Axe's picture

The markets are BROKEN....they reflect nothing

Mon, 05/07/2012 - 10:13 | 2403205 The Axe
The Axe's picture

The markets are BROKEN....they reflect nothing

Mon, 05/07/2012 - 10:24 | 2403245 junkyardjack
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...

Mon, 05/07/2012 - 10:29 | 2403261 SheepDog-One
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. 

Mon, 05/07/2012 - 10:35 | 2403273 CvlDobd
CvlDobd's picture

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

Mon, 05/07/2012 - 10:12 | 2403206 rubearish10
rubearish10's picture

I will worry if the Euro Gap gets filled.

Mon, 05/07/2012 - 10:14 | 2403210 HD
HD's picture

GREEN.

Disappointing, but not in the least surprising.

Mon, 05/07/2012 - 10:18 | 2403215 jomama
jomama's picture

damn the torpedos!!  full speed ahead!!

Mon, 05/07/2012 - 10:18 | 2403217 fonzannoon
fonzannoon's picture

How about those mining stocks. Wow. Crapola.

Mon, 05/07/2012 - 10:20 | 2403229 walküre
walküre's picture

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

Mon, 05/07/2012 - 10:22 | 2403230 Cruel Aid
Cruel Aid's picture

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

Yea wtf.

Mon, 05/07/2012 - 11:02 | 2403355 shuckster
shuckster's picture

A houseless housing boom too

Mon, 05/07/2012 - 11:52 | 2403552 rosiescenario
rosiescenario's picture

..you mean a homeless housing boom.......

Mon, 05/07/2012 - 10:18 | 2403218 Comay Mierda
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

Mon, 05/07/2012 - 10:20 | 2403228 TwoJacks
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

Mon, 05/07/2012 - 10:39 | 2403286 HD
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?

Mon, 05/07/2012 - 11:03 | 2403359 shuckster
shuckster's picture

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

Mon, 05/07/2012 - 11:29 | 2403474 Manthong
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.

Mon, 05/07/2012 - 11:49 | 2403544 HD
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.

Mon, 05/07/2012 - 10:26 | 2403247 GMadScientist
GMadScientist's picture

Today's Markets: Choppy, with a chance of Flash Crash.

Mon, 05/07/2012 - 10:32 | 2403267 bullmkt
bullmkt's picture

i am now waiting for Durden to bring up his "fsb 30 systemic risk chart",surely at all time highs.

he does that when his shorts are not performing:)

Mon, 05/07/2012 - 16:37 | 2404632 fuu
fuu's picture

Derp.

Mon, 05/07/2012 - 10:34 | 2403270 Waterfallsparkles
Waterfallsparkles's picture

Its Monday. Stocks always go up on Monday.  This is so that all of the people that sit and worry over the weekend feel better on Monday and then ignore the Market for the rest of the week.

Mon, 05/07/2012 - 10:35 | 2403274 midgetrannyporn
Mon, 05/07/2012 - 10:37 | 2403275 LULZBank
LULZBank's picture

The "market" is about screwing other people with other people's money.

Before

Good news: Markets go up.

Bad news: Markets go down.

Present

Good news: Markets go up.

Bad news: Markets go up.

Soon to be future

Good news: Markets go down.

Bad news: Markets go up.

Mon, 05/07/2012 - 10:46 | 2403296 topshelfstuff
topshelfstuff's picture

....could it be that if/when the USD [and perhaps the Euro, but for now I'm just referring to the USD]...so should the USD get Valued Down...the result would be a Higher S&P/DOW in weaker USD Terms

 

(and if this were the case, the evenual move, those "Inside" would know Now, and months ago as well, and be "betting" accordingly)

Mon, 05/07/2012 - 10:58 | 2403334 Global Hunter
Global Hunter's picture

longer term I agree with you yes but a free market should still "discount" risk near term and there was some bad news over the weekend that in a normal world should be discounted.

Mon, 05/07/2012 - 11:51 | 2403550 topshelfstuff
topshelfstuff's picture

"""" but a free market   should """""

I'll use your words, and they're correct but we're so, so far away from there, include a snipit from Boilmaker's post, also correct, its In Your Face Blatancy and we've been witnessing it going on and they're not being stopped...here's the snip:

"""This is f'ing RIDICULOUS.  How much more blatantly f'ing obvious can it actually get?"""


So, maybe US Equities are Not Ignoring [Headline pasted below], just maybe they're Cluing us in re: some USD ReValuation that a select Few, who love having Secrets, Secret Knowledge, know about. Now, I'm not going to invest taking this for granted, but it wouldn't be a surprise if it comes.

 

US Equities Ignoring US Sovereign Risk Warning
Mon, 05/07/2012 - 11:06 | 2403369 shuckster
shuckster's picture

Perhaps money is flooding out of Europe, into US equities? The rich European socialites might have bought the line of "the US is still the safest investment" - haha

Mon, 05/07/2012 - 10:51 | 2403301 ebworthen
ebworthen's picture

The robots know they can inflate U.S. equities yet be out the exit doors a full minute before retail and institutional human traders.

And we all know that one minute or even 30 seconds is an eternity in our current Skynet markets.

"From Here to Eternity" will have to take on a new meaning (no kissing on the beach):

http://www.imdb.com/title/tt0045793/

Mon, 05/07/2012 - 10:48 | 2403302 John Law Lives
John Law Lives's picture

Maybe the US will get a downgrade when the debt blows past $16 Trillion in a few months.  That should be interesting.

Mon, 05/07/2012 - 11:00 | 2403344 JohnKing
JohnKing's picture

I suppose the flight to safety trade is AAPL! Yah mon.... this will certainly end very well.

Mon, 05/07/2012 - 11:14 | 2403402 orangegeek
orangegeek's picture

Divergence yes, but elliott wave says SP500 is in primary wave 3 down.

 

 

http://bullandbearmash.com/index/sp-500/hourly/

Mon, 05/07/2012 - 11:15 | 2403410 Boilermaker
Boilermaker's picture

Welcome to your new centrally controlled world.

This is f'ing RIDICULOUS.  How much more blatantly f'ing obvious can it actually get?

My guess, a sudden jackhammer up at the end to have DOW up 100 at the close.  Just another strong arm IN-YOUR-FACE showing by the Fed of who has the 8lb cock and who doesn't.

How f'ing sad.

Mon, 05/07/2012 - 11:16 | 2403419 Waterfallsparkles
Waterfallsparkles's picture

CNBC pumping Facebook to raise all Nasdaq stocks.  Maybe that will save the Markets.

Mon, 05/07/2012 - 11:54 | 2403569 rosiescenario
rosiescenario's picture

The PPT is busy this morning putting another layer of varnish on the brightwork of the Titanic. Fortunately they have a full moon to assist in their work.....

Mon, 05/07/2012 - 13:05 | 2403839 kahunabear
kahunabear's picture

Nonsense, this currency is backed by drones that can kill at will.

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