SPY

This was one helluva week. Nevertheless current markets are still hooked on QE.

Obama Indistinguishable from Bush ... Or Stasi East Germans

As of this moment, Obama is making the case that the US government is not eavesdropping on phone calls. Specifically, he said "nobody is listening to your phone calls - they are just looking at phone numbers and duration of calls" and concluded that the NSA was only engaged in "modest encroachments." It was unclear if that clarification was meant to put to rest fears that Big Brother has made personal privacy a thing of the past. He further went on to add that the telephone surveillance program is fully vetted by Congress and supervised by the Federal Intelligence Surveillance Court (FISA). In other words: Obama is making the case that the NSA's Big Brother supervision is perfectly legal and not only that, there are checks and balances and neither the telephonic snooping nor the internet supervision is anything to be concerned about.  There is one problem: Obama is lying.

Artist's impression of course. Now: who can't wait to become a not so secret NSA agent and wear Google (spy)Glass everywhere?

• Reports on surveillance of Americans fuel debate over privacy, security (Reuters)
• Apple to Yahoo Deny Providing Direct Access to Spy Agency (Bloomberg)
• Misfired 2010 email alerted IRS officials in Washington of targeting (Reuters)
• Spy vs Spy: Cyber disputes loom large as Obama meets China's Xi (Reuters)
• When NSA Calls, Companies Answer (WSJ)
• How the Robots Lost: High-Frequency Trading's Rise and Fall (BBG)
• Japan's Pension Fund to Buy More Stocks  (WSJ)
• ‘Frankenstein’ CDOs twitch back to life (FT)
• China’s ‘great power’ call to the US could stir friction (FT)
• Toyota Tries on Corolla Look That’s Just Different Enough (BBG)

The disclosures involving this (and the prior) administration's Big Brother surveillance state, which would make Nixon blush with envy are now coming fast and furious (one wonders - why now: even that bastion of liberalism the NY Times, has turned against Obama). Although while the Guardian's overnight news that Verizon (and most certainly AT&T as well among others) was cooperating with the NSA on spying on US citizens, so far at least the internet seemed, if only to the great unwashed masses, immune. That is no longer the case following news from the WaPo exposing PRISM, a highly classified program, which has not been disclosed publicly before. "Its establishment in 2007 and six years of exponential growth took place beneath the surface of a roiling debate over the boundaries of surveillance and privacy." What PRISM does is to allow the NSA and the FBI to tap directly "into the central servers of nine leading U.S. Internet companies, extracting audio, video, photographs, e-mails, documents and connection logs that enable analysts to track a person’s movements and contacts over time."

The major compression in VIX into the close combined with a complete lack of JPY-based carry-driver for the equity market comeback today has many asking just what happened? Though the mechanism for quote-stuffing or momentum ignition in this case is unclear - one thing is absolutely crystal clear - today's total and utter explosion in the quote volume for SPY options provides more than a little concern for just what this market has become. As Nanex notes, over 1.1 billion quotes for SPY Options were posted today as 'quote spam' seems to be serving as some kind of parasitic momentum spark. The point here is that just as the market's flash-crash occurred on a day in which quote-stuffing in cash stocks hit a record; so today we got the inverse flash-smash higher in stocks from a surge in quotes on the far-more levered options market. Just look at these charts!!

Quite a day in the markets but for those who turn on the six-o-clock news tonight - all is well in the world - Dow +78! Overnight weakness in Japan spilled over into Europe and so began the inkling of JPY-based levered trade unwinds. European high-beta risk was shellacked and as US opened JPY's strength accelerated and credit markets opened significantly gap wider (worse). Equity futures began to tumble and this weakness escalated through the open climaxing as Europe closed. JPY crashed and stocks collapsed soon after the EU close in what seemed very liquidation-driven moves but as soon as Europe was closed - and despite no follow-through from the JPY - equities were ramped magically back to overnight highs (on low volumes). It seems VIX and HYG were the ramping weapons of choice. Dow 15,000 appeared to be all that mattered as we head into the NFP tomorrow - but perhaps investors forgot that a) Japan opens in a 4 hours, b) Europe opens in 11 houors, and c) The 'Taper' talk is the fed jawboning us off the exuberance band-wagon - it is not about NFP.

Yes, Government Spooks May Be Listening

Our final observation on the matter of the US government, no longer accountable to anyone, and treating its citizens as indentured debt serfs who are entitled to precisely zero privacy rights, comes from Stephen Wolfson and "The NSA, AT&T And The Secrets Of Room 641A."

Back on Monday, following the huge miss in the Manufacturing ISM, in collaboration with Nanex, we exposed yet another instance of blatant headline data frontrunning in "15 Milliseconds Of HFT Fame: Watch Today's Early Leak Of The ISM Print" where we showed aggressive trading amounting to tens of millions in notional contracts ahead of the 10am release of the key economic indicator. We assumed that just like every other lament about a market that is front-run by those "who have the means", manipulated (by the Fed of course - remember when that was just a conspiracy theory: good times) and simply broken, it would disappear in the ether forever. After all: why bring attention to facts when hopium is sufficient for the E-Trade baby to retire rich and famous before it has hit 2.  We were delighted to learn that CNBC's Eamon Javers picked up the torch and actually did some further investigating, which in turn led to an actual admission out of Reuters that it "inadvertently" sent out the data to "a select group of high frequency traders, many of whom immediately traded on the information before it was available to the wider market, CNBC has learned." Inadvertently? The humor just never stops.

Worried that manipulated official data is the only thing one has to "predict" on a day to day basis in a world drenched with "Baffle with BS", where China expanding and contracting at the same time is perfectly normal, and where Chicago PMI soaring by an 8 sigma beat to multi year highs precedes by one day the lowest US manufacturing print in 4 years? Turns out that's not all - in addition to everything else, one should also realize that key market moving data continues to be disseminated ahead of its official release time to those who have the "funds" and the interest in trading on early leaks. Take today's key economic data point: the Manufacturing ISM. As Nanex shows, trading in SPY exploded at 09:59:59.985, which is 15 milliseconds before the ISM's Manufacturing number released at 10:00:00. Activity in the eMini (traded in Chicago), exploded at 09:59:59.992, which is 8 milliseconds before the news release, but 7 milliseconds after SPY. Surely someone decided to perform a massive headfake and like a plunging goaltender during a penalty kick just happened to guess the direction right. That, or the clock on the CQS tape is just a little off. Oh, and this is merely today's example of early distribution of data to those who have the means(and the funds) to trade on it. Everyone else - well, the saying involving a sucker, a poker table and confusion, is quite applicable right now...

Sell in May and go away will be on every investor’s mind after Friday’s week performance. It’s always been when you sell that’s been the measure for this maxim to be effective. If so the high for SPY would have been May 21^st at $167.17. Then there’s the reappearance of the Hindenburg Omen but that’s for another day’s discussion.

•     550,000 SPY shares
•     10,000 June 2013 eMini futures contracts
•     1,400 Nasdaq 100 futures contracts
•     800 Dow Jones futures contracts
•     350 Russell 2000 futures contracts
•     125 S&P 400 Midcap futures contracts
•     300 Crude Oil futures contracts
•     900 Dollar Index futures contracts
•     800 Gold futures contracts
•     10,000 10yr T-Note futures contracts
•     2,500 5yr T-Note futures contracts
•     3,500 T-Bond futures contracts
•     5,000 Eurodollar futures contracts
•     750 Japanese Yen futures contracts
•     600 Euro futures contracts

• ‘Cov-lite’ loans soar in dash for yield (FT)
• Cambodian police clash with thousands of garment workers, 23 hurt (Reuters)
• Obama Accepting Sequestration as Deficit Shrinks (BBG)
• Having done nothing to restore confidence in a fragmented market, the SEC turns back to main street fraud (WSJ)
• Europe's austerity-to-growth shift largely semantic (Reuters)
• Germany thwarts EU in China solar fight (FT)
• In EU-China dispute, Beijing warns of trade  (FT)
• U.S. Oil Boom Divides OPEC (WSJ)
• Record Cash Sent to Balanced Funds (BBG)
• Hilsenrath: Fed Wrestles With Market Expectations About Pace of QE (WSJ)
• Worse-Than-Cyprus Debt Load Means Caribbean Defaults to Moody’s (BBG)
• States Raise College Budgets After Years of Deep Cuts (WSJ)
• U.K. Banks Cut 189,000 With Employment at Nine-Year Low (BBG)