B+

The fact that the High Yield ETFs are trading at a discount should be a big concern to anyone in the high yield market, not just those who own the ETF.  There is a real risk that this discount can translate into arb activity which leads to further declines. We are very concerned that the same index-arbitrage process occurring in CDS markets can occur in the HY bond market and liquidity, as bad as it is in a strong market, is far worse in a down market.  As of yet there is no sign that this is happening in a meaningful way, but JNK has seen outflows for a few days and HYG saw outflows yesterday.

While equity trading last March trading was affected by the excess volatility arising from the Fukushima explosions a year earlier, and the Japan earthquake induced volatility in general, today's monthly volume update by the NYSE shows that no matter what the reason for the volume collapse, toplines for banks and traders will suffer, on both a Y/Y as well as sequential basis. Per the NYSE: "European and U.S. Cash ADV Down 13% and 24% Year-over-Year.... NYSE Euronext European cash products ADV of 1.6 million transactions in March 2012 decreased 12.7% compared to March 2011, but increased 0.5% compared to February 2012. NYSE Euronext U.S. cash products handled ADV in March 2012 decreased 23.6% to 1.8 billion shares compared to March 2011 and decreased 0.6% from February 2012." An even bigger year-over-year collapse took place in the one product which everyone thinks is taking the place of individual stock trading: the synthetic CDOs known as ETFs: "NYSE Euronext U.S. matched exchange-traded funds ADV (included in volumes for Tape B and Tape C) of 222 million shares in March 2012 decreased 29.3% compared to March 2011, but increased 4.1% compared to February 2012. In the first quarter of 2012, NYSE Euronext U.S. matched exchange-traded funds ADV of 221 million shares was 21.8% below prior year levels." The YoY collapse in trading volumes for derivatives was less compared to cash, but the sequential drop from February 2012 was even more pronounced: "NYSE Euronext global derivatives ADV in March 2012 of 8.1 million contracts decreased 11.5% compared to March 2011 and decreased 15.4% from February 2012 levels." We can only hope that banks have found some innovative ways of compensating for this collapse in overall market participation, such as traditional revenue pathways like underwriting and advisory fees, as well as lending and arbing the carry trade. Alas, as the following Bloomberg piece points out, this will hardly be the case, as Zero Hedge has warned previously.

As North America comes to market, there is a lot to digest. European equity markets are trading higher, with the FTSE MIB in particular outperforming after a volatile morning’s session, with bargain-hunting the active theme among investors. The first major risk event came and went with the Italian T-Bill auction. Participants were looking for a poor auction due to the ongoing Eurozone woes, and although bid/covers fell short and yields did increase, the auction was not as poorly received as many had feared.  As such, Italian and Spanish 10-yr spreads have tightened with the German Bund, with the Spanish spread closing in on 400BPS, with talk of domestic buying in the periphery and profit-taking from the last few sessions adding to the tightening effect.  A flashpoint of the day was the German Bund auction; results came in showing the auction to be technically uncovered, failing to sell the expected EUR 5bln. Analysts have pinned the poor auction on the Bund having record low yields providing a disincentive to buy the German security. Following the minutes after the auction, around 25,000 contracts went through on the Bund, spiking lower around 20ticks.

In a few weeks the Treasury will most likely launch Floating Rate Notes. Will that be the signal to get out of Dodge? If history is any precedent, and especially the 1951 Accord... you bet.

I know, I know: the stock market will never go down because Ben Bernanke and the other central bankers won't let it. It's funny how the "Bernanke/European Central Bank Put" is ranked alongside gravity as a rule of Nature until markets roll over; then talk shifts from purring adulation of central bankers' godlike powers to panicky calls for another flood of liquidity/free money to "save" the market from the harsh reality of global recession. The crash test dummies know better: they've been called up for a humongous crash. The basic mechanism that is being overlooked is Liquidity Resistance. This is akin to insulin resistance, where insulin becomes less effective at lowering blood sugars. The amount of insulin required to maintain normal blood sugar levels increases as resistance rises until even massive doses of insulin no longer have the desired effect and the system crashes.

Facebook has not even collected the cash from going public and it is already precommitting funds to expand growth (what's wrong with its organic growth? Not good enough?) by purchasing tangential services, such as everyone's favorite photo filtering application Instagram for the ridiculous price of $1 billion (a company which completed its Series A round 14 months ago for a $20 million post-money valuation). In other words, FB hasn't even flash dashed (or crashed - thank you BATS) yet, and it is already facing Traffic Acquisition Costs, because with 30 million users, assuming none of them use Facebook, each user just cost Facebook $33.333 (and realistically much more since virtually everyone who uses Instagram uses Facebook). Shutterfly stock not happy as one more greater fool drops out of the race. That said, we read to encounter the inescapable labyrinth that shutting down one's Instagram account is set to become in a few short days.

No soft landing for Japan. 

Now that the time has come to expect Greek March economic data, which will show an acceleration in the total financial collapse of a society which is merely used as an intermediary to bail out insolvent European banks, something that virtually everyone takes for granted, together with a third bailout package sometime in the late summer, we can focus on the more entertaining developments out of the country that has become a symbol of all that is broken in Europe. Such as this story from Greek Protothema that one can now hire a cop for as little as €30/hour. €20 more gives one the option of chosing between the Athenian version of Erik Estrada, together with bike and ambiguous sexual tendencies, or a K-9 option. Finally, for those who are in need of urgent transport from point A to point B in total security, the Greek police choppers can be had for as little as €1500 an hour. In other words, one can own a 24/7 full-time militia of 20 policemen for as little as €14,400 a month. Naturally, the Greek PD has stooped so low because it simply has no money, and in its attempt to protect and serve, it has to do a little paid moonlighting on the side. As to what happens when all the wealthy robber barrons and tax evaders in Greek society end up owning all the officers in circulation, leaving the rest of the country defenseless, well, we are confident the local underworld elements will be more than happy to find out just what the consequences of that particular outcome will be. But at least Greece is still in the euro. And that's all that matters.

An Oregon University professor has controversially compared skepticism of global warming to racism. Sociology and environmental studies professor Kari Norgaard wrote a paper criticising non-believers, suggesting that doubters have a ‘sickness’. The professor, who holds a B.S. in biology and a master’s and PhD in sociology, argued that ‘cultural resistance’ to accepting humans as being responsible for climate change ‘must be recognised and treated’ as an aberrant sociological behaviour.

This is easily the meatiest, most offensive, most controversial and probably the most hardhitting post of the year. Here's proof that Goldman STUFFED ITS MUPPET clients!!! 20 pgs of research warning non-muppet clients to back off, proof of the Muppet biz model...

Pop quiz: What is the common theme among the following "best of breed" 2 and 20 (at least) hedge funds, whose YTD performance is presented below?

Today's otherwise key news event - the ECB rate announcement (which just printed at unchanged as expected) and press conference, will be trivial. As such, everyone is set to ignore the latest update from Mario Draghi, who courtesy of a $1.3 trillion liquidity injection since December has now largely wasted all his liquidity dry powder, at least until Spanish and Italian bonds are trading back at 7%, some time in the next few months. The result is that people like Citi's Steven Englander are saying to ignore the ECB, and to focus solely on the ADP (which has a horrendous predictive track record of the actual NFP print) report, to be released at 8:15 am, as it may be the only tradable hint ahead of the NFP report which as noted before is coming out on Friday, which is an equity holiday, although futures and bonds will be trading at the time of the release. More importantly, since the Fed now responds to economic data points in real time, a big miss to the consensus print of 206K will likely set the market surging as it will mean the Fed doves are back in control. Paradoxically, a meat or big beat, will be very market negative, as it will justify the withdrawal of liquidity support for at least 3-4 months, when the election fight will be in full swing, and Obama would be quite happy for another boost to the S&P in advance of November, and the repeat of the debt ceiling fiasco.

The Deepwater Horizon incident demonstrated that most of the oil left is deep offshore or in other locations difficult to reach. Moreover, to obtain the oil remaining in currently producing reservoirs requires additional equipment and technology that comes at a higher price in both capital and energy. In this regard, the physical limitations on producing ever-increasing quantities of oil are highlighted, as well as the possibility of the peak of production occurring this decade. The economics of oil supply and demand are also briefly discussed, showing why the available supply is basically fixed in the short to medium term. Also, an alarm bell for economic recessions is raised when energy takes a disproportionate amount of total consumer expenditures. In this context, risk mitigation practices in government and business are called for. As for the former, early education of the citizenry about the risk of economic contraction is a prudent policy to minimize potential future social discord. As for the latter, all business operations should be examined with the aim of building in resilience and preparing for a scenario in which capital and energy are much more expensive than in the business-as-usual one.

Having been an onlooker of the recent tiff between Paul Krugman and Steve Keen, I was very eager to see what Mr. Keen had to say in tonight's LSE public lecture on "Banks Versus the Economy." Observing how Keen had quarreled with Krugman and effectively ate his lunch, I thought he would bring a lot to the table. I was wrong. Keen had raised the (very interesting) issue about how neoclassical economists and their models fail to recognize the role of banks in the economy.

In the first of two major bankruptcy stories du jour (the next one coming up shortly), we learn that AFA Foods, best known for being the maker of "pink slime", and a portfolio company of labor unions and Clinton afficionado Ron Burkle and his PE firm Yucaipa, has just filed for bankruptcy. The reason? The sudden public realization what pink slime is, and just how prevalent it is - perhaps it is best to think of it as the Bernie Madoff of the food industry - it was always there, yet it took a wholesale shift in public awareness and consciousness for the firm to realize it would have been prudent to come up with a slightly different name for its ground-beef product. As for whether or not the company is going to the pink sheets, well no. But one thing is certain: the management team is about to get a pink slip.