Barclays

Life imitates math.

It just is not Barclays' year. After being exposed (so far the only one) as a ringleader in a massive LIBOR-rigging scandal which cost Bob Diamond his job, yesterday the British bank added insult to injury, after the Federal Energy Regulatory Commission (FERC) fined it $470 million - the largest penalty ever levied by the energy regulator, and even larger than the bank's LIBOR fine - for getting caught doing what Enron got caught doing about a decade ago: manipulating California's electricity markets. Although while the former ended up being the biggest corporate bankruptcy at the time, led to the end of one of the nation's largest auditors and sparked a scandal so great it was all corporate America spoke for about for the next year, this time the news has come and gone, and nobody cares. Perhaps this is to be expected: in a time when none other than the central bank intervenes each and every day in every single market to preserve the "wealth effect", habituation to epic corporate manipulation of every imaginable kind is perfectly normal.

• Millions still lack power (WSJ); New York Region Transit Tracker (WSJ), Blackouts Remain for 6.1 Million as Power Repairs Begin (Bloomberg)
• U.S. regulator seeks $470 million from Barclays (Reuters)
• J.P. Morgan Sues Whale's Ex-Boss (WSJ)
• London Frets Future as Financial Hub Outside Bank Union (Bloomberg)
• SNB now selling EUR: Swiss Central Bank Pulls Off Euro Sleight of Hand (WSJ)
• United Said to Study Biggest Airbus A350 to Replace Jumbos (Bloomberg)
• Draghi expands role in fight to save euro (FT)
• Panasonic Plunges by Daily Limit on Loss Forecast, CDS Soars (BusinessWeek)
• Italy risks economic ‘vicious circle’ (FT)
• Starbucks's European tax bill disappears down $100 million hole (Reuters)
• Bernanke Depression Guru Seeks Roosevelt Well-Being (Bloomberg)

• In Darkened NYC, Safety On The List Of Concerns (AP)
• New York Subway System Faces Weeks to Recover From Storm (Bloomberg) ... as we said
• Power Outages May Last More Than a Week (WSJ)... same
• U.S. stock markets to reopen on Wednesday after storm (Reuters)
• Questions Cloud Market Reopening (WSJ)
• Apple revolution shows signs of reboot (FT)
• Euro Chiefs Set to Grant Greece Extension Amid Squabbles (Bloomberg)
• Italy Bank Poll Casts Shadow Over Savings (WSJ)
• Shocked UBS staff take to Twitter (FT)
• Corporate China hit by unpaid bills (FT)
• Panasonic Posts Loss of Nearly $9 Billion (WSJ)
• BoJ independence called into question (FT)
• Barclays hit by fresh U.S. investigations (Reuters)
• Adoboli’s Girlfriend Said Confess, Co-Worker Said to Run (Bloomberg)

The US elections have the potential to have a significant impact on US equities and rates markets, according to a recent survey by Barclays Research. Investors seem to believe in a more promising growth outlook under a Romney win, in spite of their concerns about a likely tighter monetary policy stance. They favor long equities and short bond portfolios as the best way to express a Romney win. Under an Obama win, investors favor bonds and are divided about the direction of equities, but would choose bonds and equities over FX and commodities to express this scenario. Obama’s victory would likely be perceived as preserving the status quo (asset market moves are expected to be muted across the board), while a Romney win is more likely to suggest a change of direction to clients by way of a better growth outlook. Congressional deadlock remains the biggest economic/policy concern no matter who wins.

It is cloudy out there as Sandy enters the mid-Atlantic region, although for all the pre-apocalypse preparations in New York, the Frankenstorm may just be yet another dud now that its landfall is expected to come sufficiently south of NYC to make the latest round of Zone 1 evacuations about overblown as last year's Irene hysteria (of course it will be a gift from god for each and every S&P company as it will provide a perfect excuse for everyone to miss revenues and earnings in Q4). That said, Wall Street is effectively closed today for carbon-based lifeforms if not for electron ones, and a quick look at the futures bottom line, which will be open until 9:15 am Eastern, shows a lot of red, with ES down nearly 10 ticks (Shanghai down again as the same old realization seeps day after day - no major easing from the PBOC means Bernanke and company is on their own) as the Friday overnight summary is back on again: Johnny 5 must defend 1400 in ES and 1.2900 in EURUSD at all costs for just two more hours.

Wizened old market participants are often heard mumbling into their cups of green tea that "credit anticipates, and equity confirms" and so it is once again that the credit markets - fresh from the exuberance of endless technical flows, CLOs, and PIK-Toggles - has made a rather abrupt U-Turn in recent weeks. As Barclays points out, the ratio of High-Yield bond spreads to Investment-Grade bond spreads is its highest in three years as IG has been dragged lower by QEtc's impact on MBS and rotation up the spread spectrum. Typically, this kind of push would mean high-beta credit would outperform but far from it as cash bond markets have gapped out very recently. With call constraints (thanks to ZIRP) on high-yield bonds, the extreme price dislocation (given HY's inability to rally 'enough') will likely drag IG credit out - and that is a very crowded trade. Just one more unintended consequence from the Fed.

Heading into the North American open, equities in Europe are seen higher, supported by financials and basic material stocks. With banks benefiting from improved credit spreads in Europe, while reports from the Chinese industry ministry saying that China’s industrial output may be faster in Q4 than in Q3 underpinned the strength by basic material sector. In terms of EU related commentary, the Spanish treasury chief has said that Spain is almost fully funded until year end and can start funding itself for 2013 adding that the ECB has already been very explicit about details of a potential bond-buying plan for Spain. He added that Spain's central government funding program for 2013 will also cover regions' financial needs. In turn, spreads tightened, with SP/GE below the 400bps level, with cash inflows via looming redemption/coupon payments also weighing on German Bunds. However the focus has been on the latest UK GDP print, which came in much higher than the median estimate and also above the upper est. GBP/USD continued to advance, with EUR/GBP on path to make a test on 0.8000 to the downside. Going forward, the second half of the session sees the release of the latest weekly jobs and durables reports.

• Japan grapples with own fiscal cliff (Bloomberg)
• Japan Protests After Four Chinese Vessels Enter Disputed Waters (Bloomberg)
• Asian Stocks Rise as Exporters Gain on China, U.S. Data (Bloomberg)
• An obsolete Hilsenrath speaks: Fed Keeps Rates Low, Says Growth Is Moderate (WSJ)
• ECB Said to Push Spain’s Bankia to Swap Junior Debt for Shares (Bloomberg)
• Spain’s Bad Bank Seen as Too Big to Work (Bloomberg)
• China postpones Japan anniversary events (China Daily)
• Carney Says Rate Increase ‘Less Imminent’ on Economy Risk (Bloomberg)
• Credit Suisse to Cut More Costs as Quarterly Profit Falls (Bloomberg)
• Obama offers a glimpse of his second-term priorities (Reuters)
• Draghi defends bond-buying programme (FT)

While Tom Lee may well spit out his morning tea at yet another one of his truisms smashed  in front of his eyes, it seems that not only is the market the most net long it has been since the top in 2008, but now Barclays proprietary risk appetite index has reached extreme bullish levels - signaling contrarian-wise, consolidation at best and a more significant sell-off typically. It is oh-so-annoying when the facts get in the way of a good wall-of-worry-climbing, money-on-the-sidelines-spewing, beta-performance catch-up chasing market rally that appears to have stalled - especially when your year-end target is inexorably rising...

• Dead Heat for Romney, Obama (WSJ)
• The Cheerful Billionaire Who Thinks Obama's a Socialist (Businessweek)
• "Get to work, Mr. Japanese Chairman": Japan Exports Tumble 10% as Maehara Presses BOJ to Ease (Bloomberg)
• Chinese Investors Fear Chill in Canada (WSJ)
• Rosneft Buys BP’s TNK-BP Stake for $26 Billion in Cash, Shares (Bloomberg)
• Hong Kong Defends Its Currency Peg for First Time Since 2009 (Bloomberg)
• Democrats threaten payroll tax cut consensus (FT)
• Spain's Rajoy gets mixed message in regional votes (Reuters)
• Merkel to warn UK on Europe budget veto (FT)
• Netanyahu says doesn't know of any U.S.-Iran talks (Reuters)... neither does Iran, so near certainty
• Der Kurrency Tsar: ECB’s Knot Backs Schaeuble Call for Stronger EU Budget Power (Bloomberg)
• Fannie Mae Limiting Loans Helps JPMorgan Mortgage Profits (Bloomberg)

Whether it is hope, greed, fear, repression, systemic correlation, volatility suppression, or sheer unadulterated idiocy; the smart money has been desperately underperforming the 'index' in US equity markets since Ben Bernanke unwrapped a can of QE2 on us all. Are the smart-money 'realists' playing the long-term game and the dumb-money index-trackers herding into whatever worked yesterday? Who knows? One thing is for sure, Bernanke is no friend of the hedge fund community - anymore.

When you are out this evening at your cocktail party, discussing the state of the world, how everyone should be buying GOOG on the dips, how AAPL looks cheap (and the mini-iPad is coming soon), all that cash-on-the-sidelines, and how sentiment is so low; perhaps this handy little global economic scorecard will help bring a sense of reality back to the conversation. Barclays' Julian Callow provides everything you need to know about financial balances and economic performance (but were afraid to look) in one handy table.

• Debt Fuels a Dividend Boom - Firms Collect Payouts, and Investors Get Yield; 'Reminiscent of the Bubble Era' (WSJ)
• Black Monday Echoes With Computers Failing to Restore Confidence (BBG)
• Poll: Obama Leads in Wisconsin, Iowa (WSJ)
• Gold Imports by India Seen Climbing First Time in Six Quarters (BBG)
• Europe pushes ahead towards ECB bank supervision (Reuters)
• ... And fails: Summit fails to agree timetable for aid to failing lenders (FT)
• Toyota Prius Dominates California as State’s No. 1 Model (BBG)
• Italy raises €18bn in huge bond sale (FT)
• Diplomacy inbox fills up as U.N. awaits U.S. presidential vote (Reuters)
• Goldman braced for more revelations (FT)
• China power brokers agree preferred leadership team (Reuters)
• EU, Japan Warn Against New US Swaps Rules (WSJ)
• Why VaR is the most meaningless contraption ever: Morgan Stanley shows the ‘flaky’ side of model (FT)
• Made in France Trumps Consumer Choice in Hollande Jobs Quest (BBG)
• North Korea threatens South over propaganda balloons (Reuters)

• Germany will pay Greek aid (Spiegel)
• Spain Banks Face More Pain as Worst-Case Scenario Turns Real (Bloomberg)
• China’s Growth Continues to Slow (WSJ)
• Executives Lack Confidence in U.S. Competitiveness (WSJ)
• Poor Market Conditions will See 180 Solar Manufacturers Fail by 2015 (OilPrice)
• Wen upbeat on China’s economy (FT)
• Gold remains popular, despite the doubts of economists (Economist)
• Armstrong Stands to Lose $30 Million as Sponsors Flee (Bloomberg)
• IMF urges aid for Italy, Spain but Rome baulking (Reuters)
• EU Summit Highlights Financial Divide (WSJ)
• FOMC Straying on Price Target, Former Fed Officials Say (Bloomberg)
• Putin defiant over weapons sales (FT)