SPY

All you need to read.

When reporting on yesterday's bizarre market action, which in addition to criss-crossing the DJIA 13,000K a total of almost 70 times in the past 4 days, saw some very curious fireworks throughout the day, we noted a very curious sell off in stocks in the last second of trading, which we jokingly (or so we thought) claimed was another flash crash. As it turns out, the move may indeed have been a mini flash crash, with all the salient features exhibited by the market on that fateful day in May 2010 when the DJIA plunged by 1000 points in seconds. Nanex, which unlike the SEC, is eager to explain and unearth strange and unexpected market moves, has performed a forensic analysis on this data, and has uncovered the same quote dissemination delay that occured during the Flash Crash, only this time not in the NYSE, but on the Nasdaq. Which, in turn should answer readers' questions whether any exchange is safe (if anyone were to care to find out the answer), aside from Sizma X of course.

"Next up on CNBC - - an octogenerian fund manager who completely missed the boat on technology in the late 1990s and, since the early 2009 bottom, has underperformed the S&P by 50%. Stay tuned!"

So how many people do you think would stay riveted to their flat-panel Samsung to watch that? Not many, I'm guessing. But if the aforementioned gent is named Warren Buffett, the entire nation comes to a halt and hangs on to every word. A quick glance at Amazon yields 2,100 results when one does a search on his name (including the surprisingly-titled Warren Buffett Invests Like a Girl: And Why You Should, Too).

Today was another tale of two worlds as stocks outperformed everything as broadly speaking risk assets leaked notably lower post Europe's close and accelerated post Nowotny. Financials led the exuberance (in stocks not credit) on a day when volume was certainly not terrible and credit market indices tracked stocks (ES) almost tick for tick (which along with desk chatter suggested little activity in credit today as credit dealers reracked along with futures movements). HYG dipped significantly into the close - after a decent drop in the middle of the day that was saved - only to be held up by its VWAP. For the second day in a row, VIX closed higher on a higher S&P close and implied correlation is sending those trend fade warnings once again but it was the broad-based disregard for any and every other asset class today (by stocks) - as Treasuries remained near their low yields of the day, Crude, Gold and the commodity complex all sold off, FX carry reverted back to risk-off after Europe closed, and apart from a minor leak higher in the last hour bond curves were notably flatter - that was surprising (and unusual in recent weeks/months). In the medium-term, credit remains considerably less sanguine than stocks here and the late day disappointment from Nowotny ahead of LTRO2 may have just taken the jam out of the equity market's doughnut for now.

Today, instead of some arcane chart showing in some complex fashion the simple fact that only excess liquidity drives excess returns, we present something more in tune with the latest bubble du jour: social networking. As part of its social media survey Goldman Sachs asked respondents what is the main reason for people to "log on" to various social networking venues. The answer, by a wide margin, is the expected one: namely to spy, and to compare whether our lives are more boring, less glitzy and exciting, with fewer gadgets, gizmos, smaller houses or cars, and generally more in debt, than our "friends." Of course, the politically correct way of saying this is "to see what my friends are doing." In other words, there is nothing new about social media but a millennia-old regurgitated phenomenon- it is merely a new locus of exhibiting and observing social status, to see and be seen. One which can be enjoyed 24/7. At least, until something better comes along.

This one's hot off the presses. Just yesterday, our friends at the Financial Crimes Enforcement Network (FinCEN) issued a press release on its latest ruling related to foreign 'money service businesses (MSBs).' An MSB is a private company that provides certain financial services like check cashing, money orders, title pawn, payday loans, travelers' checks, prepaid stored value cards, tax refund payments, etc. Frequently, traditional MSB clients tended to be individuals without bank accounts or access to credit. But increasingly, the US government is looking at companies engaged in electronic payments, crowdsourced funding, and even microcredit finance as money service businesses. The implication? They should all be regulated. Even if they're not even US companies. That's right. FinCEN's latest ruling suggests a foreign MSB may now be subject to US regulations AND CRIMINAL PENALTIES "even if none of its agents, agencies, branches or offices are physically located in the United States."

It was a bad week for freedom loving people, but I believe there are enough patriots left in this country to change our course. We are being buried under a blizzard of lies on a daily basis. We have a choice. We can support the existing corrupt crony capitalist establishment (Obama & Romney) or we can declare war on lies, deceit and misinformation by rallying behind the only person who would truly attempt to reverse decades of corruption, sleaze, incompetence, bloat, debt accumulation, and a warped version of free market capitalism – Ron Paul. He is the only public figure willing to level with the American people and tell them the truth. Will we let the concept of truth fade out of the world? The choice is ours. 

“In our age there is no such thing as ‘keeping out of politics.’ All issues are political issues, and politics itself is a mass of lies, evasions, folly, hatred and schizophrenia. The very concept of objective truth is fading out of the world. Lies will pass into history.” –   George Orwell

A few months ago, the Mayor of Newark, NJ announced a similar program designed to reward citizens for snitching on gun owners. According to the mayor, “We don’t even have to have a conviction,” for an informant to get paid a cool $1,000 cash. Rat out your neighbor, get paid. Simple. (As an aside, police in neighboring East Orange, NJ have rolled out a new pre-crime surveillance system. In the words of Police Chief William Robinson, “The police are observing you. The police are recording you. And the police are responding.” Big Brother is clearly watching.) In the financial system, there are droves of civilian agencies that have been coerced into becoming government spies. As we discussed a few weeks ago, everyone from bankers to brokers to gold dealers are obliged to submit ‘suspicious activity reports’ to the federal government. They even have minimum quotas. What’s more, these so-called “SARs” must remain top-secret. It’s a crime for your banker to inform you that you were the subject of a suspicious activity report. Yesterday, the Financial Crimes Enforcement Network (FinCEN), the federal agency which oversees the legions of unpaid government spies, added a few more businesses to the list. Now non-bank mortgage lenders and originators must ‘assist law enforcement’ by submitting suspicious activity reports.

Since the summer of 2010, the way gold was viewed and used by the overall market has changed.   For much of the period from Jan 1, 2008 until June 30, 2010 for example, gold (GC) has had an inconsistent relationship, in correlation terms, relative to the S&P 500 (SPY).  There were times during this period when it moved in the opposite direction, but much of this time it moved in the same direction as the market.  This can be seen in the first chart shown.

One of the most ominous developments for us personally crawled out from under its rock in November. Again without any public debate, DHS unleashed its National Operations Center's Media Monitoring Initiative. Yep, it's exactly what it sounds like: The NOC's Office of Operations Coordination and Planning is going to collect information from news anchors, journalists, reporters, or anyone who may use "traditional and/or social media in real time to keep their audience situationally aware and informed." Thus Washington, D.C. unilaterally grants itself the right to monitor what you say. Doesn't matter if you're the New York Times, Brian Williams, a basement blogger, an online whistleblower, or known government critics like ourselves. They're gonna take note of your utterances and file them away for future use. Journalists are not the only targets, by the way. Also included among those subject to this surveillance are government officials (domestic or not) who make public statements; private-sector employees who do the same; and "persons known to have been involved in major crimes of Homeland Security interest," however large that umbrella might be....The larger speculation is: what's the endgame here?

Gold outperformed (+0.5%) today (as the rest of its commodity peers lost ground on USD strength today) and Copper and Silver underperformed. But for January, Silver is the clear winner in the global asset return race (at almost a 20% gain) with Gold in 2nd place at around +11.2%. JGBs and the DXY (USD) along with UK Gilts and Oil lost the most ground among the major assets we track. The outperformance of the precious metals as the dollar ebbed along with the general 'last year's losers were January's winners' and vice-versa was evident as Asia Ex-Japan and EM equities surged along with Nasdaq (and Copper). Long-dated Treasuries have just limped into the money for the year as they rallied dramatically today - ending the day at their low yields (new record 5Y lows) with 30Y now -12bps on the week. FX markets gave a little of the USD strength back in the afternoon but the rally in stocks was almost entirely unsupported by risk assets in general (as it seemed like a desperate low-volume try to push ES back to VWAP into the close to hold the 50/200DMA golden cross in SPX) after this morning's dismal macro data. Financials rallied to fill some Friday close gaps but gave some back into the close as CDS inched wider and Energy underperformed as Oil came almost 3% off its early morning highs (managing to crawl back above $98 by the close). IG credit outperformed as HY and stocks were largely in sync but open to close, credit outperformed stocks on a beta basis (after overnight exuberance in stock futures faded).

• Greek Debt Wrangle May Pull Default Trigger (Bloomberg)
• Italy Sells Maximum EU11 Billion of Bills (Bloomberg)
• Romney Demands Gingrich Apology on Immigration (Bloomberg)
• China’s Residential Prices Need to Decline 30%, Lawmaker Says (Bloomberg)
• EU Red-Flags 'Volcker' (WSJ)
• EU Official Sees Bailout-Fund Boost (WSJ)
• EU Delays Bank Bond Writedown Plans Until Fiscal Crisis Abates (Bloomberg)
• Germany Poised to Woo U.K. With Transaction Tax Alternative (Bloomberg)
• Ahmadinejad: Iran Ready to Renew Nuclear Talks (Bloomberg)
• Monti Takes On Italian Bureaucracy in Latest Policy Push to Revamp Economy (Bloomberg)

Humans are a flawed species. Our minds are easily manipulated. We don’t like pain. We prefer instant gratification. We are susceptible to mass delusion. We will often choose hope over critical thought. Those with higher IQs will regularly attempt to take advantage of those with lower IQs. Fear and greed are the two motivations used by the minority in power to control and manipulate the majority. The American people have been led astray by a small group of powerful men. We were herded through a door in the wall of perception that promised an American dream of material goods, entitlements and pleasure with no obligations or responsibility to future generations. There is only one choice that can save this country from ruin. Each individual must make a choice to either to continue supporting the manipulative, corrupt status quo or coming back through the Door in the Wall.

“The man who comes back through the Door in the Wall will never be quite the same as the man who went out. He will be wiser but less sure, happier but less self-satisfied, humbler in acknowledging his ignorance yet better equipped to understand the relationship of words to things, of systematic reasoning to the unfathomable mystery which it tries, forever vainly, to comprehend” – Aldous Huxley

The US Justice government reminds us that it still does exist. One wonders with the passage of the NDAA just what comparable lawsuits will look like when applied to regular US citizens charged with such crimes as talking to journalists and leaking photos from Guantanamo. Now we can all wait with bated breath as the DOJ i) finds where the MF Global money went, and ii) who is actually accountable. Or maybe not. From the DOJ: " A former CIA officer, John Kiriakou, was charged today with repeatedly disclosing classified information to journalists, including the name of a covert CIA officer and information revealing the role of another CIA employee in classified activities, Justice Department officials announced."

As short-term volatility leaks lower and lower and more and more talking heads use this 'risk-index' as reason to be longer and longer stocks, we thought it might be useful to get some context on recent movements in volatility-related factors. Whether its seasonality, volatility term structure, or the high-yield credit market, VIX looks low (underpricing short-term risk) and set to rise. Perhaps it is a plethora of new-year-new-book covered call euphoria or just belief in the LTRO firewall fixing tail-risk (or US decoupling shifting us to moderation), short-term options are sending some different messages to the risk-is-on-like-donkey-kong 'broadcast' that the contemporaneous (and in no way leading) VIX is being mis-understood as indicating. We present six perspectives that should be considered before more nickels are picked up in front of the micro (earnings) and macro (you name it) steamroller.