SPY

Through most of the 20th century, America led something of a charmed life, at least when compared with the disasters endured by almost every other major country. We became the richest and most powerful nation on earth, partly due to our own achievements and partly due to the mistakes of others. The public interpreted these decades of American power and prosperity as validation of our system of government and national leadership, and the technological effectiveness of our domestic propaganda machinery - our own American Pravda - has heightened this effect. Author James Bovard has described our society as an “attention deficit democracy,” and the speed with which important events are forgotten once the media loses interest might surprise George Orwell.

The market’s performance Thursday and Friday are misleading since there is so much destruction in many sectors globally. But the media depends on selling what’s going on with the DJIA. It’s just window dressing for the tourists frankly.

For all those curious why all real money managers (and not those who spend 18 hours a day on the modern day Yahoo Finance known as Twitter, "trading" with monopoly money while selling $29.95 newsletters) are furious at what Bernanke and company are doing as shown in the most recent Ira Sohn conference, we present the chart below from Goldman which confirms what most have already known: the Federal Reserve has made hedge funds a thing of the past, whose investors are sure to keep underperforming the S&P until the moment when it all goes tumbling down.

The Dow completes its 19th week in a row with a green close on a Tuesday - there are no superlatives left. As a gentle reminder, since February 1st, the Dow has gained 9.85%; absent Tuesdays it is up a mere 0.5%. Despite equity strength, bonds rallied, VIX rallied, the USD ranged violently (Fed's Bullard and Dudley) to end unchanged, and commodities drifted lower on another dismally low volume day. Correlations between stocks and the rest of risk-assets have completely broken down today.

Those who were closely following the S&P cash in the last seconds before the close, and who were eagerly looking forward to a satanic close of 1,666, were likely disappointed when in the last 5 minutes of trading the cash index ramped from 1,665 and easily crossed in and out of 1,666, with the final print pointing to a mid-1,667 close. And then something happened: instead of a closing print of 1,667.50, over one point of the cash S&P suddenly was wiped out for no reason, in turn leading to the satisfactory 1,666 closing print or exactly 1,000 points higher than the "generational" lows of 2009. Yet, refreshing the settlement of the S&P500 an hour later, showed that the final closing price was, indeed, 1667.47.

So what happened?

Whoever orchestrated the last two hour closing ramp sure has a satanic sense of humor, opting to close the S&P at 1666 or exactly 1000 points above the "generational" low. A late-day desperation to buy-buy-buy, triggered by an avalanche of stops being triggered in the DAX futures market (as it broke all time highs), sent stocks soaring. Treasuries had been weak all day (giving back yesterday's gains and more). The equity spurt was not accompanied by VIX or Credit or Oil or Copper but JPY's break of 103 was another trigger supporting the rise. But that doesn't matter. The release of weak IP and in-line CPI data on Wednesday seemed to trigger the 'change' as gold and silver diverged lower from copper and oil's surge, Treasuries rallied, and stocks and the USD surged thereafter. WTI crude ends the week unchanged (against a USD gain of 1.37%) with PMs down 6-7%. Volume was light today but that doesn't matter either.

Earlier this week, the CIA's Russian outpost was deeply humiliated when (in a calculated move following accusations that the US had not gottern appropriate Russian information on the two Boston bombers, and following the visit of John Kerry whose primary objective was to, unsuccessfully, get Russia to relent on Syria) Russia's FSB exposed and broadcast on live TV the arrest of its agents caught while attempting to recruit a Russian spy.  Back then we suggested to "expect a prompt retaliation by the US" however it turns out Russia was not nearly done with embarrassing the US in what is becoming an obvious campaign to humiliate the US intelligence service, this time by going where very few clandestine operations go, at least during peacetime detente: by publicly exposing the head counterparty US spy. As Telegraph reports, "Russia's Federal Security Service has publicly revealed the identity of a man it calls the CIA station chief in Moscow, in what experts say is a serious breach of intelligence protocol."

• Once a beacon, Obama under fire over civil liberties (Reuters)
• Eurozone in longest recession since birth of currency bloc (FT)
• EU Oil Manipulation Probe Shines Light on Platts Pricing Window (BBG)
• BMWs Cheaper Than Hyundais in Korea as Tariffs Crumble (BBG)
• Stock Boom Isn't a Bubble, Says BOJ's Kuroda (WSJ)
• Struggling France strives to shake off economic gloom (FT)
• JPMorgan investors take heat off Dimon (FT)
• Private-Equity Firms Build Instead of Buy (WSJ)
• Bloomberg Saga Highlights Clash Between Two Worlds (WSJ)
• Bank documents portray Cyprus as Russia's favorite haven (Reuters)
• HSBC Signals 14,000 Jobs Cuts in $3 Billion Savings Plan (BBG)
• Argentines Hold More Than $50 Billion in U.S. Currency (BBG)

Following the just concluded recent visit by John Kerry to Russia, one may have been left with the impression that the tensions of the Cold War are dead and buried. Just the opposite it appears. In what may be a well-timed and orchestrated announcement, moments ago Russia announced that it had caught an American, Ryan Fogle, a third-secretary at the US Embassy in Moscow, "red-handed" as he tried to recruit a Russian intelligence officer to work for the CIA. There goes any leverage the US may have had in attempting to persuade Russia to relent on the joint-Western push to "liberate" Syria. Just as Russia, run by a former KGB spy, had intended all along, and just another slap in the face of the US department of state, which lately can't seem to find its way out of a scandal-ridden (and redacted) paper bag to save its life. But perhaps most amusing is that in the attached letter given to the recruitment prospect, the CIA give out the email address to be used to indicate interest in working for Langley as follows: unbacggdA@gmail.com. How the times have changed.

The Bernanke Chicago speech became little more than a side show Friday. He did say the Fed was keeping a watchful eye on yield risk-taking given ZIRP. He’s a little late to that observation methinks.

Succinctly summarizing the positive and negative news, data, and market events of the week...

Four of them are beyond any kind of democratic control, beholden only to the elite club of unelected Eurocrats, the European Council.

More and More People Are Staring Into Our Fishbowl

“… current policies come with a cost even as they act to magically float asset prices higher…, a bond and equity investor can choose to play with historically high risk to principal or quit the game and earn nothing."  Bill Gross, PIMCO

"Off the highs" is perhaps the phrase that the mainstream should be using. The S&P gave up allits post-EU-close gains into the US close. It seems, as we noted earlier, that AAPL capturing its 50DMA, relative strength in VIX and Bonds, and a total lack of volume just could not lift the S&P 500 to new highs. The early short squeeze provided the momentum but that faded into the last hour or so. USD weakness supported the risk rally (as very little else did) and commodities were all higher on the day with the Brent Vigilantes on the prowl once again as WTI topped $94.50 back to near 3-week highs. AAPL's best day in over 3 months (up to its 50DMA) led Tech to lead the day (and the Nasdaq was the notable outperformer). The exuberance led stocks rich relative to all risk-assets and the slide into the close merely corrected to that risk-asset-proxy. JPY carry was not helpful as JPY tried and failed to recover the 98.00 level. Silver outperformed. With the Japanese on vacation last night, JPY's rip into the close is a little worrying for the risk-on crowd but month-End here we come...