SPY

Just a month ago we raised more than a proverbial eyebrow when we noted the creation of the NSA's Utah Data Center (codename Stellar Wind) and William Binney's formidable statement that "we are this far from a turnkey totalitarian state". Democracy Now has the former National Security Agency technical director whistleblower's first TV interview in which he discusses the NSA's massive power to spy on Americans and why the FBI raided his home. Since retiring from the NSA in 2001, he has warned that the NSA’s data-mining program has become so vast that it could "create an Orwellian state." Today marks the first time Binney has spoken on national TV about NSA surveillance. Starting with his pre-9-11 identification of the world-wide-web as a voluminous problem since the NSA was 'falling behind the rate-of-change', his success in creating a system (codenamed Thin-Thread) for 'grabbing' all the data and the critical 'lawful' anonymization of that data (according to mandate at the time) which as soon as 9-11 occurred went out of the window as all domestic and foreign communications was now stored (starting with AT&T's forking over their data). This direct violation of the constitutional rights of everybody in the country was why Binney decided he could not stay (leaving one month after 9-11) along with the violation of almost every privacy and intelligence act as near-bottomless databases store all forms of communication collected by the agency, including private emails, cell phone calls, Google searches and other personal data.

There was a time when Americans still cared about matters such as personal privacy. Luckily, they now have iGadgets to keep them distracted as they hand over their last pieces of individuality to the Tzar of conformity as simply put "The NSA Is Lying - The government has copies of most of your emails".

Amid the fourth heaviest volume of the year, Apple shares fell over 4% today - its largest single-day drop in six months (and largest two-day drop in 23 months) and GOOG also fell over 3%. This dragged the NASDAQ down but the S&P 500 (which was implicitly hurt by this major underperformance) managed to survive with relatively minimal damage close-to-close as the EUR repatriation drove TSY yields up and the USD down with correlations doing the rest to support stocks. Heavier volume and trade size came in as ES (the S&P 500 e-mini future) slid notably into the close though - almost 10pts off its afternoon highs and over 1% off its day-session opening levels (which were the highs). USD weakness accelerated rapidly after the European close - quite evenly distributed across all the majors but EUR weighed heavily as it retraced most of Friday's losses. The USD selling stopped around 130pm ET. The USD weakness supported some recovery from early weakness in commodities but the second largest compression in Brent-WTI in 16 months to around $15 - led by Brent more than WTI - on the Seaway reversal date being brought forward, was the biggest news in commodities. Silver ended unch and gold down modestly. Credit outperformed stocks on the day (and from open-to-close) but this seems as much credit-equity index arb as credit remains notably weaker. HYG stayed in sync with SPY today after we first noted the convergence on Friday (following the April asset allocation shift). After rallying early, Treasuries stabilized through the USD selling frenzy immediately post-European close but as the USD stabilized in the late afternoon (and AUD weakened) so Treasuries were oddly sold off (along with stocks) ending the day basically unchanged (after being lower by 4-5bps before the US open). VIX closed unchanged after opening lower and pushing to well over 20% at its worst - as 19% seemed to support it as we rallied in the afternoon. ES tested above its 50DMA once again and closed back below it on a relatively heavy day with very low average trade size.

The heaviest weekly loss (down 2%) in the S&P 500 since mid-December and largest two-week drop since the rally began in November was dominated by losses in financials (and energy). The major financials most notably have been crushed from the start of April (MS -13%, Citi/BofA -11%, GS -8.5% since the European close on 4/2). Credit broadly underperformed on the day (after ripping to pre-NFP levels yesterday) but HYG (the high-yield bond ETF) outperformed surprisingly but this appears to be related to an equity-credit (SPY-HYG) convergence trade as HYG looks very rich now once again to its NAV. The dismal close in ES (S&P futures) on significantly heavier volume and block size. VIX pushed back above 19.5% and we worry that the violent swings that we saw in credit and equity markets this week are very reminiscent of the beginning of the chaos mid-Summer last year - and perhaps rightfully so given the European situation that is escalating. FX markets were much more active today with EURUSD breaking back under 1.31 and AUD leaking lower after gapping down on China GDP news last night. Interestingly the USD ended basically unchanged from last week's close while Gold managed to hold onto its gains for the week (+1.5% at $1655) despite drops in Silver and Copper also today (Silver and Gold retracing the spike highs from yesterday). Copper kept sliding -4.7% on the week. Treasuries slipped lower in yield from late last night exaggerated by China's news with the entire complex notably lower (5-9bps on the week) in yield and flatter as the long-end outperformed. Stocks pulled back towards CONTEXT with broad risk assets at the close today though it remains rich to Treasuries and credit on a medium-term basis.

More jaw-boning helped squeeze shorts as equity indices, credit, and precious metals all closed their highest since the NFP dive as QE3 hope is back on the table. The best day in four months for Materials (now the only sector green from before the NFP print) and Industrials, and the best two-day gain in financials and energy in four months but the S&P 500 remains around 1% off pre-NFP levels (but managed to fill the gap to the lows of last Thursday in S&P futures). Credit (both investment grade and high-yield spreads) managed - just as in Europe - to rip up to pre-NFP levels also (outperforming stocks). Notable divergence between AAPL and SPY started at 1045ET today - as GOOG volume picked up and accelerated which was also when ES (S&P e-mini futures) broke Tuesday's opening level and ran stops. Volume was average with higher average trade size coming in as we reached post-NFP highs (suggesting again professionals selling into strength as weak shorts are squeezed out in a hurry). The dovish comments sent Gold and Silver surging (and China rumors pushed Copper up - and WTI to around $104). VIX crumbled into the close - with its largest drop in over 5 months in percentage terms - though still higher than last Thursday's close. FX markets were noisy once again through Europe but USD ebbed higher in the afternoon - still very modestly lower on the week and day (with JPY leaking weaker today helping carry support risk a little). Treasuries also leaked higher in yield but remain at the immediate spike low yields post-NFP (pretty much in line with stocks generally) but between FX and TSYs, broad risk assets were not as excited as credit and equity markets specifically as we suspect this was weak recent shorts being shaken out suddenly. In context, the S&P 500 is down over 3% in gold terms from before the payrolls print.

America Slides Into Fascism

While the S&P closed lower for the day, the dramatic save as ES (the S&P 500 e-mini) hit 1399.5 (again) pushed it all the way back to the safety of VWAP and perfectly unchanged from pre-FOMC news. Meanwhile, Gold and Silver lost around 2%, Treasuries snapped 13-15bps higher in yield and the USD ripped 0.6% higher closing pretty much at their extreme levels of the day. AAPL was unphased as the rest of the world appeared to sell any and everything on news of no more Fed liquidity in the short-term as the stock clung to its VWAP ending with new all-time highs once again. VIX, which managed to surge over 16.5% once again - above yesterday's highs - recovered all the way back to practically unchanged by the close (outperforming the small loss in stocks on the day). With Treasury yields and the USD back at one-week highs and stocks just 0.5% off their multi-year highs, it looked for a moment like equities were going to reconnect with credit's much less sanguine perspective - and indeed they covered half the difference at one point - but by the close HY and IG credit remains unchanged from Friday 3/23 while the S&P is up over 2% from then. Volume was average today but concentrated in the sell-off period of the day but we note that average trade size was very near the lowest of the year (suggesting algos using small lots to tickle us up to VWAP for the close) and some larger blocks going thru in the last few minutes as we peered above VWAP - combined with the shrug from credit, significant weakness in the major US financials, and unwinds in every other asset class - make us nervous for unhedged equity longs here - especially with European weakness now a trend and not a one-off.

Watching pompous politicians, egotistical economists, arrogant investment geniuses, clueless media pundits, and self- proclaimed experts on the Great Depression predict an economic recovery and a return to normalcy would be amusing if it wasn’t so pathetic. Their lack of historical perspective does a huge disservice to the American people, as their failure to grasp the cyclical nature of history results in a broad misunderstanding of the Crisis the country is facing. The ruling class and opinion leaders are dominated by linear thinkers that believe the world progresses in a straight line. Despite all evidence of history clearly moving through cycles that repeat every eighty to one hundred years (a long human life), the present generations are always surprised by these turnings in history. I can guarantee you this country will not truly experience an economic recovery or progress for another fifteen to twenty years. If you think the last four years have been bad, you ain’t seen nothing yet. Hope is not an option. There is too much debt, too little cash-flow, too many promises, too many lies, too little common sense, too much mass delusion, too much corruption, too little trust, too much hate, too many weapons in the hands of too many crazies, and too few visionary leaders to not create an epic worldwide implosion. Too bad. We stand here in the year 2012 with no good options, only less worse options. Decades of foolishness, debt accumulation, and a materialistic feeding frenzy of delusion have left the world broke and out of options. And still our leaders accelerate the debt accumulation, while encouraging the masses to carry-on as if nothing has changed since 2008.

The last 90 minutes of the day dragged ES (the S&P 500 e-mini futures contract) back up to the safety of its VWAP on what seems to be some comments by Jamie Dimon on the Fed looking for much larger job creation (prompting QE3 moves) or another housing bottom-call? After what had been an ugly day in which stocks sold off (aggressively after the European close) back to the post-Bernanke reality that is the less sanguine credit markets, the USD weakened, commodities and stocks popped (led by financials), and Treasuries sold off (belly underperforming). It seems that no matter who comes on TV nowadays and says anything, the algos market will rally. By the close, Financials were the only sector in the green (as GS and JPM surged but not so much BAC or MS) but Materials, Energy, and Industrials were the worst. VIX managed to get above 17 before reversing back to unchanged and the term-structure steepened back a little. Gold (which dropped the most in 2 weeks today after Goldman's long call) remains the only metals/oil commodity higher on the week - though only marginally - as plunges in Oil and Silver bounced quite positively into the close. Stocks underperformed credit on the day in general but the low volume limp up into the close saw them even out and we note that as ES hit its VWAP - heavier negative delta volume came through somewhat suggesting this was an effort to ease institutional exit - as both NYSE and ES volume was above average. 30Y Treasuries are back to higher in yield for the week but this afternoon's selloff lifted yields 4-5bps off their earlier lows. Broad risk assets led the equity market down but quite coincidentally, the S&P ended the day almost perfectly in CONTEXT with risk assets and credit/vol (after a significant dislocation the last few days).

A relatively quiet day after the excitement of the last few as T+3 settlement day into Quarter-end bought little action until the last hour or so. Two main themes appeared for the whole day - VIX pushed higher all day - notably more than the equity move would suggest (which is interesting given our comments on the capitulative normalization of the short-end volatility term structure yesterday) though some looked like catch up to yesterday's blow-off, and Treasuries rallied consistently all day long (with the short-end notably outperforming - as 5Y also down through its 200DMA and saw its largest percentage drop in yield in 2 months). Stocks leaked lower from an early morning spike on German Ifo (stuck in a very narrow range for much of the US day session), FX markets were dull with JPY stable at its lows while the USD rallied very modestly (dragging FX carry off a little and not supporting risk), Oil wavered around with the USD once again (ending up a little) as metal traded lower with a bigger gap down into the last hour or so. Stocks remain notably rich to credit which underperformed once again today. The last hour saw financials and Discretionary stocks start to rollover and then Tech (mainly the majors as GOOG showed the biggest drop top-to-bottom but most did not close strong - though AAPL made new highs once again). Certainly did not seem like a confirming move today of the 35pt rally off Friday's lows as perhaps Quarter-End sees some chips coming off the table - though hard to read too much into today's action.

Short term, the bulls will probably remain in control. 

For the third day in a row (equal most for the year), stocks fell, led by the broad high-beta sectors (as one would expect) with energy (suffering as WTI lost almost 2%), materials, industrials, and financials all down notably (with the majors dominating weakness in the financials - though still up significantly post-JPM-divi). Futures and cash volumes picked up from yesterday - nearing their average year-to-date but average trade size fell further equaling the lowest year-to-date. With the China news (and then Europe), it was AUD and JPY that dominated price action as JPY strengthened and AUD weakened leaving the USD tracking the EUR and ending very modestly higher on the day. Commodities faced another day of torment with Silver underperforming. Gold outperformed but was down on the day still as from mid-afternoon, the commodity complex crept higher as the USD stabilized.  Broadly speaking risk assets (CONTEXT) led the equity market lower into lunch and then stabilized this afternoon - holding stocks off from further deterioration. An up-day for HYG (the high-yield bond ETF) - seemingly on the back of HY-HYG arbitrage more than asset rotation - and the craziness in the vol complex (VXX vs TVIX) somewhat supported SPY on the day but we note that ES (the S&P 500 e-mini futures contract) was unable to break above its VWAP meaningfully the entire day. Treasuries sold off from early in the US day session but only very marginally as 30Y remains -4bps on the week while the rest of the curve is unch to 1bps lower in yield only.

Quietly, and with little fanfare, President Obama signed a “National Defense Resources Preparedness” Executive Order on Friday. As the name suggests, the order intends to shore up the country’s national defense resources in advance of a national emergency. To be fair, this is not the first time that such an order has been written. President Obama’s order, however, takes things much, much further.This is all playing out with nearly perfect historical precision. Time and time again throughout history as once great empires accelerated their declines, governments have taken steps to protect their interests against the people. In the past, they have imposed curfews, disarmed the population, curtailed civil liberties, and declared national emergencies, usually against some great faceless enemy from abroad who threatens their way of life. As it turns out, though, our great faceless enemy is not some mythical boogeyman living in a cave, nor some angry brown person who hates us for our freedoms… but the very people within the system who’ve taken an oath to ‘support and defend the Constitution of the United States against all enemies, foreign and domestic.’ Have you hit your breaking point yet?

George Orwell was right. He was just 30 years early.

In its April cover story, Wired has an exclusive report on the NSA's Utah Data Center, which is a must read for anyone who believes any privacy is still a possibility in the United States: "A project of immense secrecy, it is the final piece in a complex puzzle assembled over the past decade. Its purpose: to intercept, decipher, analyze, and store vast swaths of the world’s communications as they zap down from satellites and zip through the underground and undersea cables of international, foreign, and domestic networks.... Flowing through its servers and routers and stored in near-bottomless databases will be all forms of communication, including the complete contents of private emails, cell phone calls, and Google searches, as well as all sorts of personal data trails—parking receipts, travel itineraries, bookstore purchases, and other digital “pocket litter.”... The heavily fortified $2 billion center should be up and running in September 2013." In other words, in just over 1 year, virtually anything one communicates through any traceable medium, or any record of one's existence in the electronic medium, which these days is everything, will unofficially be property of the US government to deal with as it sees fit... As former NSA operative William Binney who was a senior NSA crypto-mathematician, and is the basis for the Wired article (which we guess makes him merely the latest whistleblower to step up: is America suddenly experiencing an ethical revulsion?), and quit his job only after he realized that the NSA is now openly trampling the constitution, says as he holds his thumb and forefinger close together. "We are, like, that far from a turnkey totalitarian state."

UPDATE: The UK outlook change has had little reaction so far: TSY yield down 1-2bps, gold/silver bounced up a little, and a small drop in GBP.

While most of the talk will be about the drop in precious metals today, the sell-off in Treasuries is of a much larger relative magnitude and yet equities broadly ignored this re-risking 'signal'. At almost 2.5 standard deviations, today's 10Y rate jump (closing it above the 200DMA for the first time in eight months) trumps the 1.3 standard deviation drop in Gold prices - taking prices back to mid-January levels. According to our data (h/t JL) for only the 14th time in the last five years (and not seen for 16 months) Treasury yields rose significantly and stocks fell as the broad gains in yesterday's financials (on the JPM rip) were held on to at the ETF level but not for Morgan Stanley, Goldman Sachs, or Citigroup (who gave all the knee-jerk reaction back). Tech led the way as AAPL surged once again (though faltered a few times intraday) having now completed back-to-back unfilled gap-up-openings. Credit and equity were generally in sync until mid afternoon when the up-in-quality rotation took over and stocks and high-yield sold off (notably HYG - the high-yield bond ETF underperformed all day long) while investment grade credit rallied to multi-month tights. VIX bounced higher (notably more than the S&P would have implied) recovering to Monday's closing levels and back above 15%. The Treasury sell-off was 'balanced' in terms of risk-on/-off by the strength in the USD (and modest weakness in FX carry pairs as JPY's weakness was largely in sync with the rest of the majors - hinting its was a USD story). Oil and Copper both lost ground (as did Silver - the most on the day) though they tracked more in line with USD strength than the PMs.

Global risk markets and US equity futures were drifting lower together (post China trade deficit data) into this morning's confusion in Europe but around 430ET, equities pushed higher, Treasuries rallied rapidly as we approached the US day session open and broadly speaking risk was off (in everything except stocks). Commodities dropped notably with Oil and Silver losing over 1.5% from Friday's close before heading into the US open. The across-the-board weakness in credit and our broad risk asset proxy (CONTEXT) reversed, as if by magic, as the day-session open in the US dawned and led generally by Treasuries, which staged a 4-5bps sell-off from overnight low yields (with 2s10s30s notably rising on 30Y outperformance and 10Y underperformance), we leaked back to unchanged in ES (the e-mini S&P 500 futures contract) having traded in a very narrow range all day on low volumes (across MAR and JUN). VIX made headlines for its low levels but the steepness of the term structure should be a much bigger concern. AUD weakness spurred much of the early risk-off but accelerated stringer into the US close to maintain equities as close to green as possible. A very noisy day given very little news/event risk and the general confusion in European sovereign markets which all leaked wider. Credit and the vol term structure remain notable canaries as it appears EURJPY has become carry trade-of-the-day once again.