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Overnight weakness from Japan (NKY -3%) and USDJPY slowly leaked away as Europe was bid – bouncing higher on Draghi's SovQE "whatever it takes" comments (and multiple broken markets), but once he stopped speaking stocks faded to the lows of the day at the European Close. Once it was just the American algos playing, the S&P and Dow ripped back to green. However, Small Caps, Nasdaq and Trannies were not playing along, nor was VIX or HY Credit. The USD surged 0.45% (on EUR weakness) which stalled the bounce in commodities. Gold flatlined through the US session (-0.25%) with Silver -1% (bouncing this afternoon). Oil prices slipped 0.5% again (but above Friday's lows) at $75.50. Treasury yields rose 1-2bps on the day (but 5-6bps off the overnight lows as Europe opened) but flatlined during US session. Most notably, it seems many feel like Carl Icahn that a major correction is coming and hedging via VIX and HY credit was significant.

• CARL ICAHN STILL HEDGING AGAINST STOCK-MARKET DECLINE, BELIEVES THERE WILL BE A 'MAJOR CORRECTION'
• ICAHN SAYS CORPORATE EARNINGS ARE ‘SUSPECT’: REUTERS
• ICAHN: "YOU HAVE TO BE CONCERNED" ABOUT GLOBAL GROWTH: REUTERS

Last six days S&P close: 2038, 2039, 2038, 2039, 2039, 2041.

 

Quite a divergence in major stock indices today… with Small Caps slammed at the close

 

But realistically, the S&P and Dow merely crept back to the futures close from Friday.

 

This is The Russell 2000's worst streak since the Bullard lows and the start of the drop last month…

 

 

HY credit is not buying this exuberance…

 

Nor is VIX…

 

But on the day, Treasury yields surged in the Europe session then flatlined in US session…

 

FX markets were a one-way-street of USD strength until Draghi stopped speaking

 

Oil prices were almost not mentioned today – but fell – along with the rest of the commodity complex…

 

Charts: Bloomberg

Bonus Chart: While USDJPY levitated back during the US and EU session, Japanese stocks hardly liofted at all…

via Zero Hedge http://ift.tt/1uA1Sju Tyler Durden

Submitted by Simon Black via Sovereign Man blog,

Something is dreadfully wrong with this picture.

In a report just released today by the National Center on Family Homelessness, a team of academics has demonstrated that the number of homeless children in the Land of the Free now stands at 2.5 million.

 

This is far and away an all-time high and constitutes roughly one out of every 30 children in America.

The report goes on to explain that among the major causes of this problem are the continuing impacts of the Great Recession that began in 2008.

Funny thing, someone ought to tell these homeless kids that the economy is doing great. Of course, we know this to be true because the stock market is near its all-time high.

The Dow Jones Industrial Average now stands at 17,633, just off its all-time high.

Also near its all-time highs is the bond market, and coincidentally, the US debt—which is now within spitting distance of $18 trillion.

In other words, if these kids ever do manage to pick themselves up off the streets, they’ll work their entire lives to pay off a debt that they never signed up for.

And it all comes down to a completely perverse, corrupt, debt-based paper money system.

Yes, no matter what happens in the world, there are always going to be rich and poor. And as painful as it may be, there will always be homeless children. That’s not really the point.

For the most part, financial wealth used to be something that people had to work to achieve. They had to produce something valuable for consumers. They had to develop new technologies and be innovative. They had to take chances and in many cases risk it all.

That’s less and less the case today.

Today one’s station in life is much more tied to how you grew up. If you were born poor, you have a 70% chance of staying poor (according to a recent study from the Pew Charitable Trust).

And needless to say, if you’re born rich, you’re going to stay rich. Much of that is due to the monetary system.

In our system today, unelected central bankers wield total control of the money supply. In their sole discretion, they have conjured trillions of dollars out of thin air, and have thus greatly inflated the money supply.

This monetary inflation has created a number of effects.

On one hand there has been substantial asset price inflation. We’ve seen the prices of stocks, bonds, luxury properties, etc. hitting fresh highs again and again.

And, naturally, it’s people who are already very wealthy who own these assets.

Then there’s the other side– retail price inflation. Think ‘cost of living’. Rent. Food. Fuel. Medical costs. All the stuff that normal people need to live.

Both asset prices and retail prices have gone up.

Now, if you’re already very wealthy, you might spend as little as 1% of your annual income on living expenses, and you keep the other 99% to invest in these assets that keep hitting fresh highs.

In this case, retail price inflation is irrelevant; central bankers are putting so much money in your pocket you don’t even notice the increase in retail prices.

Then there’s the case for everyone else. People who struggle to make ends meet and have to spend 99% of their income on living expenses. If they’re lucky they save 1% of their income.

Obviously to these folks, retail price inflation eats away at their living standards. And a substantial portion of them fall out of the system entirely and end up on the streets.

Again, this isn’t intended to rant against wealth. We tell our students each year at our entrepreneurship camps– wealth accumulated by producing valuable products and services, through hard work, great ideas, and risk-taking, is pure and noble.

By creating wealth for yourself you create wealth for others, and you create progress for humanity.

But we’re not talking about wealth creation. We’re talking about theft.

This system puts money in the pockets of people who are already wealthy by sacrificing the purchasing power and savings of everyone else. The rich get richer, the middle class gets hollowed out, and pensioners get squeezed.

They have completely broken capitalism and replaced it with state-sponsored welfare for select corporations and special interests. Totally destroying upward mobility in the process.

This is a far cry from a society that’s supposed to espouse ‘freedom and justice for all.’

As a system, it’s a complete failure.

But the only reason why it continues to have such destructive power is because we allow it to have that power.

A hundred years ago when they legalized fractional reserve banking and created the Federal Reserve, people didn’t have the options that they have today.

Now, all of the tools and technologies exist for you to completely divorce yourself from this system. Or at a minimum, substantially reduce the power and influence that governments and central bankers have over your life.

via Zero Hedge http://ift.tt/1wPFU8U Tyler Durden

it’s been a while since the public disturbance in Ferguson, MO made the front pages, so here is a reminder: with the St. Louis County prosecutor saying he expects the grand jury to reach a decision in mid-to-late November whether Ferguson Police Officer Darren Wilson should face charges for shooting Michael Brown on Aug. 9, Missouri Gov. Jay Nixon is not taking any chances and moments ago declared a state of emergency and activated the National Guard in advance of a grand jury decision about whether a white police officer will be charged in the fatal shooting of a black 18-year-old in the St. Louis suburb of Ferguson.

Per AP, Nixon said Monday that the National Guard would assist state and local police as needed, in case there is civil unrest when the grand jury’s decision is announced. There was no indication an announcement is imminent. There is no specific date for a decision to be revealed about whether Ferguson Police Officer Darren Wilson should face charges for shooting Michael Brown on Aug. 9.

Below is the full executive order:

WHEREAS, the City of Ferguson and the St. Louis region have experienced periods of unrest over the past three months; and

WHEREAS, the United States Department of Justice and St. Louis County authorities are conducting separate criminal investigations into the facts surrounding the death of Michael Brown; and

WHEREAS, the United States Department of Justice and St. Louis County authorities could soon announce the findings of their independent criminal investigations; and

WHEREAS, regardless of the outcomes of the federal and state criminal investigations, there is the possibility of expanded unrest; and

WHEREAS, the State of Missouri will be prepared to appropriately respond to any reaction to these announcements; and

WHEREAS, our citizens have the right to peacefully assemble and protest and the State of Missouri is committed to protecting those rights; and

WHEREAS, our citizens and businesses must be protected from violence and damage; and

WHEREAS, an invocation of the provisions of Sections 44.010 through 44.130, RSMo, is appropriate to ensure the safety and welfare of our citizens.

NOW, THEREFORE, I, JEREMIAH W. (JAY) NIXON, GOVERNOR OF THE STATE OF MISSOURI, by virtue of the authority vested in me by the Constitution and Laws of the State of Missouri, including Sections 44.010 through 44.130, RSMo, do hereby declare a State of Emergency exists in the State of Missouri.

I further direct the Missouri State Highway Patrol together with the St. Louis County Police Department and the St. Louis Metropolitan Police Department to operate as a Unified Command to protect civil rights and ensure public safety in the City of Ferguson and the St. Louis region.

I further order that the St. Louis County Police Department shall have command and operational control over security in the City of Ferguson relating to areas of protests, acts of civil disobedience and conduct otherwise arising from such activities.

I further order that the Unified Command may exercise operational authority in such other jurisdictions it deems necessary to protect civil rights and ensure public safety and that other law enforcement agencies shall assist the Unified Command when so requested and shall cooperate with operational directives of the Unified Command.

I further order, pursuant to Section 41.480, RSMo, the Adjutant General of the State of Missouri, or his designee, to forthwith call and order into active service such portions of the organized militia as he deems necessary to protect life and property and assist civilian authorities and it is further directed that the Adjutant General or his designee, and through him, the commanding officer of any unit or other organization of such organized militia so called into active service take such action and employ such equipment as may be necessary to carry out requests processed through the Missouri State Highway Patrol and ordered by the Governor of the state to protect life and property and support civilian authorities.

This Order shall expire in thirty days unless extended in whole or in part by subsequent Executive Order.

IN WITNESS WHEREOF, I have hereunto set my hand and caused to be affixed the Great Seal of the State of Missouri, in the City of Jefferson, on this 17th day of November, 2014.

via Zero Hedge http://ift.tt/1wPAlay Tyler Durden

Four years ago, bankers, politicians, and traders were patting themselves on the back after Petroleo Brasiliero (Petrobras) raised a stunning $70 billion in the world’s largest share sale, as Bloomberg reported at the time, investors bet on its plans to double output within a decade by tapping offshore fields. Things haven’t worked out so well…

 

 

Bloomberg, Sept 24th 2010: Petrobras Raises $70 Billion in World’s Largest Share Sale

Petrobras, based in Rio de Janeiro, sold 2.4 billion common shares for 29.65 reais each and priced 1.87 billion preferred stock at 26.30 reais apiece. The company sold 115 billion reais ($67 billion) of shares and banks have an option to buy another 5 billion reais, according to a statement sent late yesterday.

 

Petrobras is spending about $224 billion over the next five years to boost production to 5.38 million barrels a day by tapping deposits trapped under a layer of salt beneath the ocean floor. The share sale was priced at a 2 percent discount to yesterday’s close, suggesting investors are backing Petrobras’s plans to overtake industry rivals such as Chevron Corp.

 

…

 

“Given Petrobras’s superior asset base and growth profile versus global oils, we believe the stock should trade at a premium relative to peers,” Bank of America analyst Frank McGann said in a note to clients.

and now…

Bloomberg, Nov 16th 2014: Rousseff Says Petrobras Probe to Forever Alter Brazilian Society

The investigation of corruption at state-run oil producer Petroleo Brasileiro SA (PETR4) will permanently change Brazil, President Dilma Rousseff said.

 

“It will forever change the relationship between Brazilian society, the Brazilian government and private companies,” she told reporters today at the summit of the Group of 20 nations in Brisbane, Australia. “This will end impunity. This, to me, is the main feature of this investigation.”

 

Police found evidence that at least seven construction companies formed a cartel to win public contracts, including a combined 59 billion reais ($23 billion) in orders from Petrobras as the state company is known, officers including Commissioner Igor Romario de Paula said last week in Curitiba, where the case is before a judge. They declined to name the alleged cartel members.

 

While the government says the investigation won’t put a stop to the company’s work, it has put pressure on Rousseff’s administration just weeks after she won re-election in the closest race since at least 1945.

 

…

 

The scandal spread to Petrobras earlier this year after investigators uncovered ties between Paulo Roberto Costa, the company’s former head of refining, and a black-market money dealer.

Bloomberg, Nov 17th 2014: Petrobras Bonds Decline With Brazilian Builders Amid Graft Probe

Petrobras’s $3.5 billion of 2023 notes dropped 1.3 cents to 88.25 cents on dollar, the lowest level since Jan. 31, after saying last week that it would release unaudited third-quarter results on Dec. 12, a month later than originally scheduled.

 

“Recent scandals surrounding Petrobras’s contracting practices could have a negative implication for the company’s effectiveness in negotiating with equipment suppliers as its executives will likely exercise incremental caution when signing or amending contracts,” Fitch Ratings analyst Lucas Aristizabal wrote in an e-mailed report today. “Petrobras’s credit quality will deteriorate if the ongoing corruption investigation results in monetary penalties or loss of assets.” Fitch rates Petrobras at BBB, the second-lowest level of investment grade.

*  *  *

Things are getting ugly fast…

• *FITCH SOLUTIONS: PETROBAS’ CDS NOW AT WIDEST LEVEL SINCE 2009

via Zero Hedge http://ift.tt/11lgI1b Tyler Durden

While Wall Street is certainly free to broken record that Michael Lewis’ hugely popular story about HFT and market rigging did not impact the natural course of events, the reality is it did: the collapse in Barclays’ dark pool LX (shown in the bolded red line on the chart below), in the aftermath of the NY AG case against the British bank, has been documented in the past, and is just one example. An even more vivid case study comes from the surge in popularity of upstart dark pool IEX (green dotted line below), the protagonist of Lewis’ Flash Boys book, and which out of nowhere, has just tied with Lavaflow’s dark pool for fourth spot in ATS trading with just over 200 million shares in the week ended October 27. 

Select ATS venues as ranked by total shares traded:

Above IEX is only the traditional (Europe-based) trifecta of dark pool titans: Deutsche Bank, UBS and in top spot, Credit Suisse. How long until IEX’ current rate of ascent cements it as the most desired venue to execute large order blocks without being frontrun by millions of frontrunning HFT algos?

What is clear is that the revulstion against HFT is only growing: overnight we learned that the world’s largest sovereign wealth fund, Norway’s, with $860 billion AUM, “has worked out how to dodge traders in the U.S. trying to profit on his orders by leaving no pattern for them to track.”

From Bloomberg:

Investors who want to pre-empt trades by the world’s biggest sovereign-wealth fund and act on that information to make a profit — a practice known as front running — won’t have much success, he said.

Norway’s solution: get away from the scam that is VWAP and do everything in a dark pool, that of IEX itself: “We’ve done a lot to try and avoid leaving those patterns,” Schanke said in a Nov. 14 interview at the Oslo headquarters of the fund. “We’re trading less using algorithmic trading now than we did some years ago and are doing much more trading in large block sizes to avoid pattern-reading.”

Sure enough, more and more intelligent institutional investors are sick and tired of HFT-induced slippage, of the recursive collapse in liquidity in which markets dominated by HFTs also stand to see all the liquidity evaporate in a millisecond once the “machines are turned off” for whatever reason, and are pulling away from venues they know are populated by frontrunning preadtors and parasites:

The market as [Schanke] sees it “isn’t good enough for raising investor confidence,” which has been an issue in the U.S. since the financial crisis and was deepened by the flash crash of May 2010. While the solution isn’t necessarily public ownership of exchanges, he said a closer look at the existing regulation could help make markets less complicated.

 

“Some of the things that an exchange does are in a way a utility function,” Schanke said.

 

The fund in June said it supported Brad Katsuyama’s IEX Group Inc. exchange because it allows “all players to participate on the same terms.”

Perhaps the only question is why it took so long. Another question: when the Fed’s natural and symbiotic partner in the relentless stock market levitation of the past 6 years, the Hi-Freaks, finally go away when all the institutional money follows in Norway’s footsteps, just how will the Fed be able to dictate the direction of the market when catching momentum inversion points courtesy of the likes of Citadel, which has long since done its patriotic duty and stepped up to buy ES at the just beyond arm’s length bidding of Liberty 33, and halt market crashes.

Because when everyone is on an HFT-free dark pools, momentum ignition strategies are finally done.

Now if only everyone else could hurry up and do what the Norwegians did, perhaps the market will finally rid itself of the HFT terror, since by now it is clear to even 5 year olds that the SEC, bought and paid for by the same HFT “lobby”, will never move a finger, at least not until the market crashes out of its own weight and the need to crucify a scapegoat means HFT will be finally sacrificed at the altar of populist anger.

via Zero Hedge http://ift.tt/1Hb8ytm Tyler Durden

Excerpted from John Hussman’s Weekly Market Comment,

The current market environment joins the full range of ingredients that have characterized the most extreme market peaks – and preceded the deepest market plunges – in more than a century of history. On the basis of measures that are best correlated with actual subsequent market returns (and plenty of popular measures are not), we observe the richest market valuations in history with the exception of the 2000 peak. Even then, current levels on the best performing measures are only about 15-20% below the 2000 extreme. Current valuations now exceed those observed in 1901, 1929, 1937, 1972, 1987, and 2007. The 5-year market advance from the 2009 low, encouraged by yield-seeking speculation, now places the S&P 500 at more than double the level that we would associate with historically normal returns. Put another way, we presently estimate S&P 500 prospective nominal total returns of just 1.4% annually over the coming decade, with zero or negative average total returns out to roughly 2022. These valuations are coupled with extremely overbought conditions and the most lopsided bullish sentiment since 1987. Bearish sentiment is now down to 14.8% (Investor’s Intelligence), close to the low of 13.3% reached in September. Prior to this year, the last two times we’ve seen such lopsided sentiment were the April 2011 peak (just before a near-20% dive), and the October 2007 peak.

Of particular note, extreme overvalued, overbought, overbullish conditions – which we’ve observed sporadically for quite some time now – have more recently been accompanied by widening credit spreads and deterioration in broad market internals. We have entered an environment in which extraordinarily thin risk premiums have been joined in recent weeks by a subtle shift toward increasing risk aversion.

…

As Nigel Tufnel of Spinal Tap described the volume knobs on his guitar amplifier – “You’re on ten here, all the way up, all the way up, all the way up, you’re on ten on your guitar. Where can you go from there? Where? Eleven. Exactly. One louder. These go to eleven.”

The chart below presents a slightly different perspective than similar charts I’ve presented over time. Rather than showing discrete instances where a whole syndrome of overvalued, overbought, overbullish conditions has occurred (points with bullish sentiment at extremes, valuations historically rich, prices pushing upper Bollinger bands, etc), the vertical bars show a count of individual components, coupled with additional components that reflect deteriorating market internals. This gives a less binary view of these syndromes. The spikes (such as 1929, 1972, 1998, 2000, 2007, 2011, and the past year) show points when a preponderance of conditions – extreme valuation, lopsided bullish sentiment, overbought conditions, widening credit spreads, and at least some aspects of deteriorating market internals – have been observed in unison. The red line shows the S&P 500 Index (log scale).

The market has been dodging boomerangs, not bullets, and they are likely to come back harder for it.

Importantly, rich valuations here cannot be “justified” by appeals to current interest rates or profit margins unless that justification carries with it the assumption that both zero interest rate policy and cyclically-elevated profit margins will be sustained for decades, coupled with the assumption that economic growth will proceed at historically normal rates. Even 3-4 more years of zero-interest rate policy would only be “worth” a 12-16% increase in valuations over and above their historical norms. No, this is a market that is priced for utter perfection, reflecting the Potemkin Village that Fed-induced speculation has built on Wall Street, even as Main Street struggles in its shadow.

…

That’s really what quantitative easing has exploited: the willingness of investors to speculate, regardless of historically elevated valuations and extremely lopsided bullish sentiment, because of the discomfort that zero interest rates seem to offer “no other choice” but to take risk.

On that front, I clearly underestimated the willingness of investors to dispense with the lessons of history in recent years, responding to zero short-term interest rates by piling into a massive speculative carry trade. Again, from our standpoint, the proper response has not been to join in discarding those lessons, but to identify the criteria that distinguish where overextended extremes have had little near-term impact from periods when those extremes matter with a vengeance. That’s why we’re focused on market internals here – the recent deterioration suggests a subtle shift toward increasing risk aversion, despite depressed short-term interest rates.

via Zero Hedge http://ift.tt/1HaVy70 Tyler Durden