Market Crash

Despite a grumpy open in the major cash equity indices - which opened pretty much in line with where S&P futures had closed on Friday morning - equity indices provided some BTFD reassurance for any and everyone who wanted to get on TV today. In sad reality, a lot of this equity index performance was due to Apple's 2% rally off pre-open lows, as it made new highs and vol continued to push higher. Financials, Industrials, and Materials all underperformed on the day (and Utes outperformed but still lost 0.5%). The majors were hurt most once again but remain notably expensive still to their credit-market perspective. On an admittedly quiet volume day (with Europe closed), the credit market (especially HYG) underperformed equity's resilience open to close but an after-hours reality check dragged ES down to VWAP once again on notably above average trade size and volume for the day. VIX managed top almost reach 19%, leaked back under 18 before pushing back up to near its highs of the day by the close - breaking back above its 50DMA (as the Dow broke below its 50DMA but the S&P remains above). Treasuries shrugged off the equity resilience and stayed in very narrow range near their low yields as stocks diverged once again (until after hours). FX markets were very quiet with JPY crosses getting some action as EUR and AUD managed to drag the USD down a little. Commodities were mixed off Thursday's close with Copper the major loser and Gold outperforming. Oil managed a decent intraday recovery today most notably back over $102. The weakness after-hours in ES (the S&P 500 e-mini future) is worrisome as its lost the support of AAPL and its options. At the cash market close, ES peaked for the day at 1382.75 and has since drifted back all the way to 1374.25 - just shy of the day's lows.

Now that the world is covered in at least $707 trillion in assorted unregulated Over the Counter derivatives (as of June 30, the most recent number is easily tens of trillions greater) and with at least one JPMorgan prop|non-prop trader exposed to having a ~$100 billion notional position in some IG-related index trade, pundits, always eager to score political brownie points, are starting to ruminate over ways to put the half alive/half dead cat back into the box. Unfortunately they are about 20 years too late: with the world literally covered in various levered bets all of which demand hundreds of billions in variation margin on a daily basis, the second the one bank at the nexus of the derivative bubble (ahem JPMorgan) starts keeling over, it will once again be "the end of the world as we know it" unless said bank is immediately bailed out. Again.

It is no secret that when it comes to attention spans and 'deep thought', Americans would rather be at the movies. After all, for a country which prides itself on its distractability and sales of ADHD medications, the only thing that matters is the line up of entertainment. Perhaps one reason why last summer's debt ceiling fiasco ended up being such a popular thriller with the masses is that the movie lineup at the time was less than inspiring, leading to a 1.4% decline in summer theater attendance. Which begs the question: what is in store for this year? Because as we have noted, we already know that the US debt ceiling will likely be breached sometime in September, leading into the presidential election, and as a result Americans will demand distraction, or else there is an all too real possibility the same market crash as happened in August of 2011, may recur. So what are the distractions in store for the herd? Courtesy of BofA and the Hollywood Stock Exchange, here is the complete summer lineup, coupled with the HSX movie stock price (an indicator of expected revenues). Will it be enough to offset reality setting in with a thud? You decide.

Why save when one can spend (and, more importantly, why save when one has ZIRP)? This appears to have been the motto of American consumers in the past three months when the US Savings rate has plunged from 4.7% in December to a tiny 3.7% in February: the lowest since December 2007's 2.6%, and just as the recession and the market crash was about to send everyone scrambling for the safety of bank savings. The reason: in February personal spending soared by 0.8% on expectations of a 0.6% rise, while incomes barely rose by 0.2% on a consensus rise of 0.4%. Which means the balance had to be savings funded. So even as we have seen retail weakness in the past three months, we now know that it was not only credit funded, but also forced US consumers to burn through their meager savings. And all this before the gasoline price shock hit. The question then is: with the remainder of US savings about to be tapped out on gasoline purchases, just where will the money come to fund all those priced in NEW iPad acquisitions? Or will Apple finally use up its cash hoard and start a captive lending unit, giving consumers credit to purchase its products?  At the rate the US consumer is going broke it may soon have no other option.

Last week, Bernanke's first (of four) lecture at George Washington University was entirely dedicated to attempting to discredit gold and all that sound money stands for. The propaganda machine was so transparent that it hardly merited a response: those away from the MSM know the truth (which, simply said, is the "creation" of over $100 trillion in derivatives in just the first six months of 2011 to a record $707 trillion - how does one spell stability?), while those who rely on mainstream media for the news would never see an alternative perspective - financial firms are not among the top three sources of advertising dollars for legacy media for nothing. Still, for those who feel like the Chairman's word need to be challenged, the following extensive and annotated reply by QBAMCO's Paul Brodsky makes a mockery of the Fed's full on assault on gold, and any attempts by the subservient media to defend it. To wit: "Has anyone asked why so many powerful people are going out of their way to discredit an inert rock? We think it comes down to maintaining power and control over commercial economies. After professionally watching Fed chairmen cajole, threaten, persuade and manage sentiment in the markets since 1982, we argue this latest permutation is understandable, predictable and, for those willing to bet on the Fed’s ultimate success in saving the banking system (as we are), quite exciting.... Gold is no longer being ignored and gold holders are no longer being laughed at. “The Powers That Be” seem to have begun a campaign to discredit gold."

A gigantic tsunami of unfunded pension obligations is coming.

Do not, for one minute, believe that the folks involved in the Crisis will get away with it. The only reason why we haven’t yet seen major players get slammed is because no one wants the system to crumble again. And the only way for the system to remain propped up is for the Powers That Be to appear to have things under control and be on good terms with one another. However, eventually things will come unhinged again. When this happens, the relationships between Wall Street, the Fed, and the White House will crumble to the point that some key figures are sacrificed.

In the spirit of George Orwell’s Animal Farm commandment: “all animals are equal, but some animals are more equal then others” comes the galling news that bankruptcy trustee, Louis Freeh, could approve the defunct, MF Global to pay bonuses to certain senior executives. This, despite the fact that nearly $1.6 billion of customer funds remains “missing” or otherwise partially accounted for, yet beyond the reach of those customers, perhaps forever, since before the firm declared bankruptcy on October 31, 2011... The Orwellian nature of finance is spiraling out of control. It was acutely demonstrated during the fall 2008, merge-and-be-bailed period, and subsequently, through mainstream acceptance that “too big to fail” validates the subsidization of reckless banking practices (bail first, ask questions or consider tepid regulation later), and the European debacle. Three wrinkles of audacity underscore the potential MF Global bonus approvals.

Some of these 15 swans are blacker than others....

All this money sloshing around is nothing but kindling. This is enough to start one hell of a large inflationary fire, but probably not until we have a deflationary panic first – which will add even more kindling to the pile. The progression from the $1.5 billion Chrysler rescue to the current multi-trillion dollar worldwide financial support operations seems to parallel the march from the first US forestry service attempts to limit forest fires about a century ago to the far more sophisticated efforts possible today... Studies have shown that the onset of that catastrophe is almost totally unpredictable. By suppressing small fires, the forests approach an unstable state where the dead wood, resulting from the natural cycle of birth and death in the wild, is piled high, ready to explode into flames if the conditions are right. The central banks and other governmental authorities have piled the money so high that bubbles are popping up everywhere. With so many bubbles and so much kindling, volatility in price is a sure thing. As research has shown that the timing of these dramatic breakdowns, whether a forest fire, an earthquake, or a market crash cannot predicted, or mitigated as it runs its course, the time to control these crises is way before they start. The US Forestry Service knows that, please tell Bernanke!

We need to look to Europe now to see what TPTB have in store for us. This is the consummate problem, reaction, solution game being played for all the marbles. First, you get the problem “spiking interest rates for the peripheral countries.” Then the “reaction,” financial panic and fear. Finally the “solution.” The placement of unelected technocrats as the leaders of Greece and Italy with ties to all the power structure’s institution such as the Trilateral Commission, the Bilderberg group and of course Goldman Sachs. It is like a coup that takes the shadow government from the shadows and puts them in your face. The reason that this is so key is because we are next. They don’t want to roll up everything at once. If they can get Europe safely consolidated then they will move here. That is when interest rates in the U.S. will spike (problem), and we get panic (reaction) and then the solution (bankster technocratic committees in charge and the IMF to the rescue, ie loss of sovereignty). This is the plan and I see it as clear as day.

Now everybody's bank bashing, of course the reason to bash the banks is 4 years old, despite Bove-like analysis to the contrary. I will discuss this on CNBC for a FULL HOUR tomorrow from 12 pm to 1pm.

Explain to me again, how often is EVERYBODY ALWAYS RIGHT? Finding value in not following the name brand following crowd...

Here comes the (re)crash and the search for shortable stock is on! The good thing about bankruptcy is that despite silly manilly market, bankrupt is bankrupt and the stock will act accordingly. Ask GGP/LEH investors.

A lot of stuff in here this morning.