SPY

JPY dumping early as G-20 showed they were as much use as a chocolate fireguard. Precious metals (then the rest of the commodity complex) cracked lower in the pre-open and USD strength but vol-crushing was not taking a day off and VIX-compression led S&P futures to test new highs (actually a tick off the week's highs) on dismal volume. Treasury yields pushed higher (though we note the 2s10s30s butterfly was the main carry driver). Correlations in general drifted lower as stocks slipped gently off their highs on mixed ECO data. As Europe closed, selling began but we noticed an odd thing - the selling continued - it was a non-POMO day! Then the WMT news broke and there was no POMO ammo to soak up the selling as the stock chipped away chunks of the Dow... but sure enough, the huge volume surge into the downturn was tickled all the way back up (as stocks tried to recouple with their more exuberant VIX neighbor) and touched VWAP into the last few minutes. VIX selling pressure into a long-weekend is not unusual but to new multi-year lows is becoming farcical. Gold -3.5%, Silver -5%, 10Y +6bps, USD +0.3%, Oil Unch, S&P +3pts, VIX -0.5vols. Quite a week of volumeless lethargy as the S&P 500 closed 1518, 1517, 1519, 1520, 1521, 1518.

Infotainment channels and slide-show CPM websites could easily mistake the data in the following charts as balance sheet stress, economic pressures, and financial industry health in Europe is improving.  To contrary, it's so bad that the vehicle used to transfer the worlds reserve currency to those sovereign regions reaching out for help that the FED is now hopelessly handing cash right over.

• John Kerry just got happier: Berkshire Hathaway, 3G Buying Heinz for $72.50 a Share, or $28 Billion - ~20% premium to last price (CNBC)
• US Airways, AMR to Merge (WSJ) - can thousands of workers spell "synergies"?
• Draghi, Carney show ascent of "whatever it takes" central bankers (BBG) ... to preserve the Goldman way of life
• Euro zone economy falls deeper than expected into recession (Reuters)
• Soros has made $1 billion betting against the Japanese Yen (WSJ)
• Ex-Analyst at SAC Felt Pressured for Tips  (WSJ)
• Desalination Seen Booming at 15% a Year as World Water Dries Up (BBG)
• China's 'Wall' Hits Business (WSJ)
• Israel publishes some details as Australian spy mystery deepens (Reuters)
• Tata Motors Profit Falls 52% (WSJ)
• AB InBev Will Sell Corona Unit to Salvage Modelo Takeover (BBG)
• "Blade Runner" Pistorius charged with murdering girlfriend (Reuters)
• In Ohio and beyond, Obama sees model for manufacturing revival (Reuters)

It’s getting impossible to keep track of all the new spy tools being rolled out by the police state in the name of “fighting terrorism”, aka spying on innocent American citizens unconstitutionally.  I thought that I had my hands full the other day with ARGUS: The World’s Highest Resolution Video Surveillance Platform, but this “Stingray” system is already being deployed illegally in cities throughout the United States.  As the EFF states: “The Stingray is the digital equivalent of the pre-revolutionary British soldier.”

Volumes were pitiful once again and while the range picked up a little (after yet another top-side stop-run) average trade size remains falling as equities appear all gung ho on the surface but the S&P 500 has closed the day session in a 2 point range for the last 4 days - 1518, 1517, 1519, 1518. All this as Treasury yields have actually been bleeding higher (+6-8bps this week), USD flat, Oil up 1.5%, and Gold and Silver -1.5%. Homebuilders remain in a high-beta world of their own +3% on the week with all the other S&P sectors between -0.25% and +0.75% (as Tech is dragged lower along with AAPL again). S&P 500 futures saw quite a drop intraday (9 points high to low) which is sad to get excited about but the ubiquitous VWAP ramp into the close saved the day and limped us into the green on the day (which was oddly accompanied by a huge sell block volume in AAPL). VIX pushed back up to 13% and credit made some more correction back up to stocks right at the close. The last 3 days in ES have seen the lowest aggregate volume in six months - not exactly the new bull market meme?

One of the largest potential volatility events for the equity markets this year will be the Q1 US Debtapalooza.  There are three main issues that are to be debated with a crescendo coming in late February – the Long Term Budget Deal, the 2013 Budget Deal and the Debt Limit.  There will obviously be many consequential threats and theatrics associated with these events – including potential threats for government shutdowns and debt defaults – while the very real consequences could be additional US ratings downgrades.  It is important to remember that outside of the 2008 shock, the Debt Ceiling Debate and consequent US Debt Downgrade in Summer 2011 created the biggest volatility event of the past two decades. Volatility metrics show that the market is extremely complacent heading into these events.

It would appear the undecideds had it. The WSJ reports that a proposal to arm Syrian rebels was stalled by the White House (cough Obama cough) because of lingering questions about which rebels could be trusted with the arms, whether the transfers would make a difference in the campaign to remove Syrian leader Bashar al-Assad, and whether the weapons would add to the suffering. It seems, however, that the Pentagon, the State Department, and the CIA were all gung ho for the plan last year as a Senate hearing today uncovered some of the facts (and disagreements). As WSJ notes, the disclosures thrust a spotlight on the extent to which President Barack Obama charts his own course in the face of calls to action by members of his own team, and on the extent of his caution about entering a new conflict. In the post-Kofi Annan talks break-down in June 2012, Hilary pushed to arm the rebels and the CIA said arms would "materially" affect the situation to overthrow Assad. With the introduction of Kerry, Hagel, and Brennan, the tensions may flare once again though only the latter has suggested anything but backing Obama's perspective.

Thanks to Draghi's jawboning the correlated risk-off rampage that occurred into and through the open of the US day-session (as EUR plunged 200 pips) sent S&P futures back well below 1500 on serious volume. Of course, that was unacceptable and once Europe closed and POMO was done, S&P futures began their VIX-coupled liftathon. By the close, S&P cash ended just in the red for the week again - within a 3pt range of closes (1511, 1512, 1509) in the last 3 days. Risk-assets in general were more correlated early on in the dip and then de-correlated (surprise) as stocks lifted. ETFs across rates, stocks, vol, and credit held together; but the underlying markets did not play along as the USD flatlined and Treasury yields only rose modestly as stocks surged this afternoon. Gold and silver ended the day down (after a flurry of dips and rips as Draghi spoke). A late-day, well-timed AAPL press release provided some impetus, pushing Tech almost into the green on the week (as only Staples are so far). European stocks, bonds, and credit are all red for the year; US credit is red for the year; US macro is red for the year; and US stocks continue to believe (SPX +6%) - even as the USD (+0.5% YTD) has the biggest 4-day jump in 7 months!

The US equity market continues to boldly go where no other market is willing to go (Dow outperforming EuroStoxx by 850bps this year). European stocks and bonds (+30-45bps) are down notably on the week (and year in some cases); Treasury yields are 4-6bps lower on the week; the USD is up 0.6% (as EUR bleeds a little lower into tomorrow's ECB); and Gold is up 0.6% (oddly with the USD) on the week; but US equities are unchanged with Staples and Industrials holding gains on the week. Today saw credit markets and treasuries pushing notably risk-off as stocks oscillated around unch on the week - pushing to the day's highs into the close on the back of yet another vol-selling ramp. Equity volume was average and trade size was lower than average as cash S&P and Dow managed small gains and Nasdaq a small loss as AAPL gave back its 'buyback rumor' gains. We've seen this EUR-USA disconnect before...

Government Prosecutes and Harasses those Who Expose Criminal Wrongdoing

• 'London Whale' Sounded an Alarm on Risky Bets (WSJ)
• Deadly Blast Strikes U.S. Embassy in Turkey (WSJ)
• Abe Shortens List for BOJ Chief as Japan Faces Monetary Overhaul (BBG)
• Endowment Returns Fail to Keep Pace with College Spending (BBG) - More student loans
• Mexico rescue workers search for survivors after Pemex blast kills 25 (Reuters)
• Lingering Bad Debts Stifle Europe Recovery (WSJ)
• Peregrine Founder Hit With 50 Years (WSJ) - there is hope Corzine will get pardoned yet
• Deutsche Bank to Limit Immediate Bonuses to 300,000 Euros
• France's Hollande to visit Mali Saturday (Reuters)
• France, Africa face tough Sahara phase of Mali war (Reuters)
• Barclays CEO refuses bonus (Barclays)
• Edward Koch, Brash New York Mayor During 1980s Boom, Dies at 88 (BBG)
• Samsung Doubles Tablet PC Market Share Amid Apple’s Lead (BBG)

Just because there is a superficially-pacifist, yet supraficially genocidal, dictatorially-inclined egomaniac in every one of us, the moment the Maisto Fresh Metal Tailwinds 1:97 Scale Die Cast United States Military Aircraft - US Air Force Medium Altitude, Long Endurance, Unmanned Aerial Vehicle (UAV) RQ-1 Predator went on loss at Amazon (we would say sale, but that would imply some probability of profit, which as even the hotdog guy, knows is never going to happen at AMZN), everyone scrambled to buy one.  However, only those first in line got one: everyone else was greeted by a "Currently unavailable. We don't know when or if this item will be back in stock" sign. So what does one do: what one should have done in the first place before going for the one impulse purchase that can murder innocent children half way around the world courtesy of the latest iPad app "iKiller": read the customer reviews of course. Below is a broad sample of the rather bipolar main street America response when faced with the opportunity of having the same great power, if not so great - or any - responsibility, as is  given, by some 25% of the population (factoring for the 55% or so who don't vote) to the president of the USA, even if on a 1:97 scale.

Updated for the summary of MSFT, SBUX and T earnings.

Amid the deafening screams of hundreds of hedge fund managers looking for any hedging port in an AAPL storm, stock indices (expect the Nasdaq) surged to new highs from the moment the US day-session began until POMO was complete and European markets closed. Volume and block size was large as we took out S&P 500 highs up to 1500 and it appeared we ran out of the short-term proverbial great fool. In general, risk-assets and stocks were well correlated though the big disconnect today was a rising VIX. HY Credit did not play along with the exuberance early on either - as it seemed relatively clear that any and every trick in the book was being used to enable more out of the AAPL boat as we ramped up to VWAP. Once Europe had closed, AAPL slid, stocks slid (with S&P 500 dropping its most of 2013 so far), and risk-assets in general slid lower. JPY weakness and EUR strength helped support risk but Treasury yields falling back and a drop in commodities overall (Gold -0.9% on the week) had the opposite effect. The typical late-day ramp failed despite the best efforts of vol compression as stocks closed almost unch, at VWAP, in line with risk-assets (ahead of tomorrow's LTRO news). AAPL at lows as ramp failed...

UPDATE: With GOOG and IBM earnings (details below), futures are pushing higher still after-hours

Lowish volume and low average trade size was all that was required to march stocks up to recent highs on the back of more VIX compression and vol term structure steepening. Today was one of the most-disconnected day in a while between equities (and vol) and the rest of the market with the USD practically unchanged, Treasury rates lower, and high-yield credit flat. Commodities pushed higher on the week with Silver outperforming (+1.2%) as Oil broke back above $96 and the Energy sector led stocks along with Utilities (safety?) and Materials. Tech was weak as AAPL plunged early on - only to recover back above VWAP into the close. The Dow Transports have been the corner-piece of this rally as it would appear AAPL's loss is rail-cars and airlines gains. Up 12 of the last 15 days and +19% in the last six weeks, we note the last time this index surged on this scale was in April 2010 (when we saw realized vol for the index also plunge to record lows such as we have now) - and this happened...

Biggest loser? China.