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US Equity Markets Remain Odd Bull Out

Tyler Durden's picture


The ongoing squeeze in US equities, evident in the significant outperformance of the most-shorted-name indices from Goldman relative to market indices, continues to keep domestic wealth effects ticking along nicely while US credit and European equity and credit markets do not seem to have got the same memo. While this rally, seemingly predicated on the fact that Europe 'get's it' finally (and admittedly some talking head chatter about the number of earnings beats - which we argue is useless given previous discussions of the wholesale downgrading of expectations heading into earnings), the US equity market is the only market to have made new highs this week, is outperforming its credit peers in the US (which is simply ignorant given HY's relative cheapness if this was a risk-on buying spree), and most wonderfully - is hugely outperforming the European financials, European sovereigns, European IG and HY credit, and European equities. Did US equities become the new safe-haven play of the world? Perhaps this week, but we suspect that won't end well - at least from the experience of the last decade or so.

US equities managed to make new highs today (taking out Monday's highs) while US credit remains well of those tights and has dramatically lagged this last burst higher in US equities over the course of this morning.

While the region that should be all ponies and unicorns is notably lagging from Monday's highs - especially Senior financials (recap size not enough?).

On a broader basis, US equities look ahead of themselves relative to a global risk basket. CONTEXT has been sideways all day while ES squeezes higher. We seemed to have switched to risk leading ES regime this week and while ES is outperforming, post-European close, we will see if the EUR strength continues (driven by more repatriation we suspect given PrimeX's consistent drops - although today's move higher is surprising).

So what exactly is it that US equities are overjoyed about? It seems the austerity of Europe will still be there (perhaps worse), the potential for highly dilutive recaps remains potentially troublesome for US exposures (net and gross), cost of funds for new sovereign debt may be improved (EFSF) but without ongoing ECB buying legacy debt will drag MtM exposure down for everyone and the fact that CDS are becoming marginalized as effective tools by the unintended-consequence crowd perhaps means that all that 'net' zero exposure that US banks so proudly tell us all about will come unhinged (just wait for FASB or IASB to amend 157 or 23 for rules on sovereign risk hedges?).


For now, it seems US equities are the odd one out - living in a beating lowered expectations, de-re-de-coupled world of their own.

Charts: Bloomberg


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Fri, 10/21/2011 - 11:54 | 1797327 vast-dom
vast-dom's picture

Clearly all of this is BULLISH. How the fuck are markets up? Please God, Santa and Tooth Fairy pray tell!


US equities overjoyed about one thing and one thing only: HOPIUM. And let's just not forget that one of the many components of said hopium is boundless psychotic joy!

Fri, 10/21/2011 - 12:29 | 1797444 caerus
caerus's picture

spy volume has been consistently greater on each of the down moves since the beginning of august...each "rally" has been on relatively weak volume...unless we get a big rally on significant volume through resistance at the neckline around at least es 1233 (which goes back to 3/17) it's all bullshit imho

Fri, 10/21/2011 - 13:13 | 1797593 Andy_Jackson_Jihad
Andy_Jackson_Jihad's picture

Money fleeing the debt of inept entities?  When the defaults eventually start, I expect stocks to moon-launch along with PMs.  Think of the size of the debt markets vs. the size of real assets (commodities and shares of companies that actually make shit people want).

Fri, 10/21/2011 - 13:18 | 1797615 SAME AS IT EVER WAS

nope, just squeezing money. plain and simple.

Fri, 10/21/2011 - 11:57 | 1797346 maxw3st
maxw3st's picture

What goes up....

Fri, 10/21/2011 - 11:59 | 1797350 LawsofPhysics
LawsofPhysics's picture

...can go up forever when backed by an eCONomist with a printing press or computer.  Expect new method for calculating the CPI in 3...2...1...

Fri, 10/21/2011 - 12:19 | 1797419 jdelano
jdelano's picture

Have you looked at a ten year chart lately?

Fri, 10/21/2011 - 12:34 | 1797453 Manthong
Manthong's picture

Gee, I wonder where the hyperinflation will evidence itself first?

Fri, 10/21/2011 - 12:38 | 1797466 jdelano
jdelano's picture

At the pump.  

Fri, 10/21/2011 - 12:58 | 1797543 jdelano
jdelano's picture

there are two kinds of getting junked.  The bad kind, where you know you made a lousy joke or said something stupid.  Then there's the good kind, where you know you got junked because your rapier hit bone...

Fri, 10/21/2011 - 13:15 | 1797602 Andy_Jackson_Jihad
Andy_Jackson_Jihad's picture

"your rapier hit bone..." 

I'm stealing that line......err...bailing you out of it.

Fri, 10/21/2011 - 19:29 | 1797631 Manthong
Manthong's picture

For the record, it wasn't me that did the junking, but regardless, there's a lot of inertia in oil and the demand can get whacked big time, mitigating a price rise.

There's only so much gas you can accumulate and you won't need that much when you don't have to drive to work anymore.

The market, though can go up or down in huge amounts in a nanosecond, as has been demonstrated on this site numerous times.

+1  on the double entendres..

Fri, 10/21/2011 - 11:57 | 1797347 adr
adr's picture

and this is surprising how? US equity markets have always been the bastion for stupidity.

We've been playing the green shoots seen through the Kepler array for three years now. We've documented the lowering of earnings expectations by 15% or more the week before the reports are due time and time again. The beating of lowered expectations by one penny causing a 5% upsurge in said stock isn't even news anymore. 

The propaganda machine that is Wall Street press claims that banks blew out earnings even though it was all based on accounting tricks.

Cheating isn't even a crime anymore as long as you don't cheat the chief cheater.

Fri, 10/21/2011 - 12:09 | 1797389 scatterbrains
scatterbrains's picture

Would luv to see a chart visualization of  the  expectation dip/beat vs. equities. Do you have a link maybe?

Fri, 10/21/2011 - 11:57 | 1797348 YesWeKahn
YesWeKahn's picture

Today's best performing groups: REITs, Financials, energy, etc.

Fri, 10/21/2011 - 12:12 | 1797393 Ragnar24
Ragnar24's picture

profound analysis.

Fri, 10/21/2011 - 12:18 | 1797416 YesWeKahn
YesWeKahn's picture

lol, it wasn't even an analysis, idiot.

Sat, 10/22/2011 - 01:37 | 1799590 StychoKiller
StychoKiller's picture

Whoosh!! :>D

Fri, 10/21/2011 - 12:00 | 1797352 EL INDIO
EL INDIO's picture

A light bulb shines strongly just before it burns out and plunges the users in darkness !

Fri, 10/21/2011 - 12:00 | 1797354 spartan117
spartan117's picture

Tonight, I will eat at Chipotle's, while using my iPhone 4S to purchase goodies through Amazon.  USA! USA!

Fri, 10/21/2011 - 12:03 | 1797368 SeverinSlade
SeverinSlade's picture

You then have to use your iPhone 4S to launch a drone strike on a US citizen.  Giving money to a drug dealer (NTC aka Al-CIA-eda( and ordering him to kill another drug dealer (Gadhafi) would make you a true American too.

Fri, 10/21/2011 - 13:18 | 1797614 Andy_Jackson_Jihad
Andy_Jackson_Jihad's picture

videotape the explosive diarrhea afterward and you've got your own presidential speach. 

Fri, 10/21/2011 - 12:01 | 1797362 SeverinSlade
SeverinSlade's picture

Just when you think the market can't possibly get any dumber, it surprises you by going full retard.

The prize of Wall Street, Apple Inc., missed expectations...When Apple begins missing, you know there's a problem.

How ironic.  Wall Street is dominated by HFT algos yet fails to understand how basic math proves that Europe is doomed.

Fri, 10/21/2011 - 12:16 | 1797409 junkyardjack
junkyardjack's picture

All the banks are up on losses.  The market doesn't care what your business is, its the greater fool theory now

Fri, 10/21/2011 - 12:01 | 1797363 buzzsaw99
buzzsaw99's picture

the bernank has one mandate, BTFD.

Fri, 10/21/2011 - 12:02 | 1797366 FunkyMonkeyBoy
FunkyMonkeyBoy's picture

It's fascism, pure and simple. What did you think Fascism looked like? Black and white grainy photos of ugly people like you see in history books?

Fri, 10/21/2011 - 12:19 | 1797420 nyse
nyse's picture

What did you think Fascism looked like? Black and white grainy photos of ugly people like you see in history books?

+1 Awesome Points

Fri, 10/21/2011 - 12:23 | 1797431 SheepDog-One
SheepDog-One's picture

No doubt, and people think it will all just 'get better' later? And in the meantime, 'trade it'? 

LOL theyll all be killed soon.

Fri, 10/21/2011 - 12:05 | 1797374 TradingJoe
TradingJoe's picture

Bueno, uno mas:

1. Options Expiration

2. (Early) Month End "Bonus" Rally


PS Low Volume It is!

Fri, 10/21/2011 - 12:09 | 1797388 EL INDIO
EL INDIO's picture

Your third point is no good.

Participating in this ridiculous charade is what keeps it going.

Sat, 10/22/2011 - 01:41 | 1799593 StychoKiller
StychoKiller's picture

When one of the playas pulls out a shiv and stabs another right in front of the Referee and doesn't get carded, it's time to bench yourself!

Fri, 10/21/2011 - 12:09 | 1797384 YesWeKahn
YesWeKahn's picture

Love to know who is driving this rally. They can't be all this stupid.

Fri, 10/21/2011 - 12:14 | 1797398 EL INDIO
EL INDIO's picture

It’s a fat man whose job is to set the daily levels for the stock market.

Instead of increasing the sound volume on his computer to listen to Lady Kaka he accidentally increased the EURO/USD level with his fat finger.

Fri, 10/21/2011 - 12:09 | 1797386 somethingelse
somethingelse's picture

Hope Floats.....not just a Sandy Bullock flick apparently.

Fri, 10/21/2011 - 12:21 | 1797425 SheepDog-One
SheepDog-One's picture

Yea well poop floats too.

Fri, 10/21/2011 - 14:35 | 1797953 earleflorida
earleflorida's picture

only the unhealthy floats - the good shit  goes right to the bottom?

Fri, 10/21/2011 - 12:11 | 1797392 oddjob
oddjob's picture

Even Robo's Netflix is up today. Hopefully for his sake it gets back to the 50x book he paid for it.

Fri, 10/21/2011 - 12:16 | 1797406 unionbroker
unionbroker's picture

no matter how much we may not like it there is a large percentage of the financial community that only wants equities to trade higher no matter what and no amount of whining and complaining will prevent them from doing just that. As long as they have the credit and the margin they can pay as much as they want .All we can do is stay out of the way.

Fri, 10/21/2011 - 12:31 | 1797449 jdelano
jdelano's picture

then why did they bug out and screw themselves in august in the first place?  I'm not buying it.  Sticking to my shorts.  This is a desperate all-in attempt and if it blows, it's gonna blow huge.  I'll take them odds over the potential 2% upside to be had going long from here.  

Fri, 10/21/2011 - 12:16 | 1797410 chancee
chancee's picture

Ramp the futures in pre-market - check.  Spend the past 48 hours giving a thousand different reasons on CNBC why FCX(copper) should be higher - check.  Another thousand reasons why Intel and Microsoft are such great buys here (since Apple tanked, gotta keep the tech story going) - check.  Fed's plant, Hilsenrath, writes timely story in WSJ about QE3 on the way - check. 

Desperate, desperate attempt to keep the market hanging like a stuck pig at these nose-bleed levels in hopes news of Euro bailout next week will force a year end rally and save a million money managers across Wall Street.

Fri, 10/21/2011 - 12:17 | 1797415 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

Liquidity doth cometh, the markets do rise

It's a risk on and off thing in the face of true lies

The stars up above the inferno below

As we break up and out how much further to go?

To the moon say the bankers!

To the sun says Bernank!

You can take what I say all the way to the bank.

Fri, 10/21/2011 - 12:22 | 1797428 slewie the pi-rat
slewie the pi-rat's picture

So what exactly is it that US equities are overjoyed about?

the PPT likes ponies and unicorns?  RainbowLandPicture2.jpgrainbow4slewie

Fri, 10/21/2011 - 12:25 | 1797439 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

Mix into your image Dennis Hopper, an eight ball and some h--kers at a PPT strategy session and yes, equities are on the rockestship.

Fri, 10/21/2011 - 12:42 | 1797470 Pure Evil
Pure Evil's picture

So is rainbow4slewi's bush the same color as her coiffure.

Enquiring minds want to know.



Fri, 10/21/2011 - 12:55 | 1797532 slewie the pi-rat
slewie the pi-rat's picture

my, what a horny old devil you are!

at the risk of disappointing, the carpet does not match the drapes, b/c there is no carpet, BiCheZ!!!

Fri, 10/21/2011 - 13:00 | 1797548 fuu
fuu's picture


Fri, 10/21/2011 - 12:50 | 1797500 fuu
fuu's picture

Helloooooooooooo nurse!

I demand rainbow4fuu.

Fri, 10/21/2011 - 13:05 | 1797567 slewie the pi-rat
Fri, 10/21/2011 - 12:23 | 1797437 Lady Heather...UNCLE
Lady Heather...UNCLE's picture

hey...put a flier in a couple of days ago...1234.56 on S& done. Nice number

Fri, 10/21/2011 - 12:29 | 1797445 Comrade de Chaos
Comrade de Chaos's picture

Market is somewhat irrational lately. However, it is to be expected because that what high degree of the Central Planning does. Markets stop being a tool that reflects and directs any meaningful information, hence all long time planning is somewhat futile.

Not calling for anyone to be bearish, however if you are uberbullish just wait untill we have our own debt crysis circa EU. 

And yes, one day this 'war' shell end. 

Fri, 10/21/2011 - 12:36 | 1797461 anony
anony's picture

Buy the goddamned motherfucking dip!..

That one little morsel of market wisdom would have made everyone wealthy as Midas if followed religiously.

Fri, 10/21/2011 - 12:52 | 1797511 ZeroPoint
ZeroPoint's picture

So what they say is true - you only have to run faster than the slowest boy scout when the bear comes charging into the camp.


Herd mentality is worse than consumer mentality.


Fri, 10/21/2011 - 12:58 | 1797544 Kina
Kina's picture

Have a friend who thinks there are lots of nice shiney pennies in front of that bulldozer yonder and is determined to go pick them all up.

Fri, 10/21/2011 - 13:26 | 1797643 Andy_Jackson_Jihad
Andy_Jackson_Jihad's picture

And why not? The FOMC has been throwing handfulls of them and the minutes they hint they'll even throw some nickels next time.  Free money!

Fri, 10/21/2011 - 14:12 | 1797859 Lews Therin
Lews Therin's picture

It amazes me that most ZH people miss the obvious.

The US Dollar is being devalued!  The world is pissing all over it right now.  When the US Dollar gets dumped, stocks rally!   Most times of late, if the USD goes down, stocks go up.  If the USD goes up in value, the stocks go down in value.  

Zimababwe and early 1920s Germany had BOOMING stock markets.  Didn't mean much because the currency was worthless.  The US stock markets have lost value in real purchasing terms since 2000 so higher indices means nothing but it is better than holding cash that turns worthless.

The hard part for me... is when to switch to stocks from cash and vice versa.  Its so fucking hard now due to these idiotic meddlesome Central Banksters.  If things were normal, I'll be shorting the fuck out of stocks.  But things ain't normal!  

I do own some certain physical stuff as the ultimate insurance, though.  

Fri, 10/21/2011 - 14:38 | 1797970 Odin
Odin's picture

Whatever the cause for this clearly irrational rally, it will come as a surprise to me if the circus this Sunday in Europe doesn't prove to be a complete waste of time. Thus, it will be an even larger surprise if the US markets don't tank next week if that does happen, especially after this ridiculous rally. Then again, I can't underestimate the tendency of the sheeple to believe anything the boob tube blasts them with... Holding my shorts…

Fri, 10/21/2011 - 16:13 | 1798431 dogismyth
dogismyth's picture

Hang in there Odin.  We have another downturn waiting in the near term wings.

I guarantee it.  I'm never wrong.  And I live alone.

Fri, 10/21/2011 - 17:51 | 1798736 howswave5workin...
howswave5workingforyou's picture

the elephant in the room is US growth. you will notice from economic history that most housing markets stabilie with 3 to 6 months of inventory. now if you want to live in "shadow inventory" but most people don't. the inventory of decent homes is getting low, housing affordability is at record levels and confidence is contagious. good luck. engulfing bullish pattern on XHB on high volumes. my thoughts are with you guys. 8% earnings yield on S&P with 10 year yields at record lows. that is some hell of a risk premium. keep shorting and ignoring your valuation textbooks. 

Fri, 10/21/2011 - 17:54 | 1798743 Cat On A Ledge
Cat On A Ledge's picture

Given the slew of heavyweight reports today, coupled with strong showing on the European bourses, i'm surprised the US markets didn't move higher. Well, the stock market is forward-looking, that's one maxim many tend to forget. Thus, i've always marveled at rallies based on reported earnings. Maybe this is the result of the 'MTV generation'? (Or is that too 1990?)

Another nice phrase to bear in mind is: 'Past performance is no guaranty of future returns', of which (strangely enough) the buyer is seldom reminded until such time he wishes to reclaim his losses.

There is also the pending legislation regarding repatriation of corporate profits (kindly brought to our attention by flyonmywall in the thread Now that one has the potential to be a real game-changer!

Sat, 10/22/2011 - 15:43 | 1800320 Epicurus
Epicurus's picture

The market seems to believe that the 440bn ESF is funded and will receive additional funding or leveraging.

I believe the market (excl ZH readers) does not understand that the 440bn ESF is about guarantees/promises as this money needs to be raised through bonds. A process which is not going well at all. How can you leverage that?

Sat, 10/22/2011 - 15:51 | 1800327 Epicurus
Epicurus's picture

More facts on the reality of the ESF.

Its subscribed share capital was minimal - less than €29 million, and I do mean million not billion, as can be checked on page 4 of the Articles of Incorporation:

So far it has borrowed a total of €13 billion through three bond issues as detailed here:

and it has disbursed a total of €9.5 billion as detailed here:

on which basis it will presently have less than €3.5 billion to hand.

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