Of Interest…

Early in trading the S&P 500 is lower by 0.30%, while the 10-year Treasury note yield continues to fall, now 1.45%. Even as yields in the US remain low (and will likely move lower), a noted strategist says that the marketplace will send yields much higher within the next four years. Vanguard’s head of fixed income, Robert Auwaerter commented on the treasury market this weekend, saying “in the absence of a long-term credible plan, we are somewhere around four years away on where the markets are going to say ‘enough is enough.’”

Citigroup is higher by 1.69% early in trading after posting better than expected earnings. Their earnings beat comes on the heels of JP Morgan’s positive report last week. Investors still are cautious on the financial sector though, as most of the large banks continue to trade at a significant discount to their tangible book value.

Commodities are mostly flat as the US dollar index (.DXY) hovers near 2 year highs around 83.35 (6-month chart below). Best of luck out there, and on with the links…

• Citigroup Q2 earnings summary and presentation. (Zero Hedge)
• US building cases in Libor fixing scandal. (Dealbook)
• 10-year yields and the race to the bottom. (The Big Picture)
• Homebuilder stocks are outperforming. (Bespoke)
• More stimulus on the way for China? (Sober Look)
• Retail sales were weak in June. (Bloomberg)
• Consumers are hopeless at math. (The Atlantic)
• Treasuries doomsday is 4 years away. (Bloomberg)

It has been a long time since the Facebook IPO, and global markets have endured quite a bit of drama. Never mind that the social media giant’s IPO was a disaster on so many levels, as market participants have shifted their focus back to Europe. While a Greek meltdown is all but guaranteed, a full blown banking crisis has gripped Spain and spooked financial markets into an ugly sell off.

The European Central Bank announced this morning that it will leave rates unchanged at 1%, but markets seem to be basking in the hope of a grand EU rescue plan conjured up by the politicians, mainly German Chancellor Merkel. Remember that hope is a four letter word, and as Hedgeye CEO Keith McCullough likes to say – “Hope is not a risk management process.”

Here at home in the US, markets are practically begging Bernanke to give them more QE, which while it is not out of the question, probably would do very little to cure what ails the global economy. The Fed’s purchase of US Treasury bonds has been successful with respect to keeping rates low, but that ‘stimulus’ has not leaked through to the general economy.

S&P 500 futures are higher by 0.62% ahead of the open. Gold continues its trek higher, now at $1635/oz. After touching historic low yields last week, the US 10-year note is yielding 1.56%. Best of luck out there, and on with the links…

• ECB keeps rates on hold as crisis increases. (Bloomberg)
• Europe: Panic has become all too rational. (FT)
• Charts: Morning market analysis. (The Bonddad Blog)
• Is Bernanke really our only hope? (The Atlantic)
• Comparing housing recoveries. (Calculated Risk)
• Best and worst stocks of the pullback. (Bespoke)
• After loss, JPM regulators in spotlight. (Dealbook)
• Japan’s unsustainable deficit-financing. (Bloomberg)

The wait is nearly over. Facebook’s much anticipated IPO will price after the bell today, and come to market tomorrow. It will likely price in the low $40 range, since the offering is capped around $45 due to SEC regulations. Given the euphoria surrounding this offering, it wouldn’t surprise me if the stock moves much higher in its first session, but retail investors should proceed with caution.

In other market news, oil and precious metals are bouncing back today after touching YTD lows. US equities are slightly lower early in trading, while the 10-year Treasury note is yielding a paltry 1.77%. European woes have entered into the conversation (once again), with a growing banking crisis in Spain, and continued deterioration in Greece. It seems that the EU and ECB are running out of options, and inevitably the printing presses will be put to work very soon. Best of luck out there, and on with the links…

• Spain beset by bank crisis, recession, bond pressure. (Reuters)
• Possible endings for the Greek drama. (A Dash of Insight)
• JP Morgan trading loss to rise at least 50%. (DealBook)
• Goldman to cash out $1B of Facebook holding. (Bloomberg)
• History lesson: How we ended Glass Steagall. (The Big Picture)
• Charts show commodities were oversold. (Bespoke)
• Mauldin: Fire up printing presses to save Europe. (Yahoo Finance)
• Dollar longs are late to the party. (Pragmatic Capitalism)
• BRICs hit by capital outflows. (Sober Look)

The world’s largest prop-trading desk just lost $2 billion in 6 weeks. The losses took place on the CIO trading desk, mostly due to trades made by London trader Bruno Iksil, a.k.a. The Whale. Iksil was making bets as large as $200 billion, mostly synthetic credit-related trades. CEO Jamie Dimon said there may be further losses to come, and the firm would need to post a considerable amount of collateral in the event of a ratings downgrade. As one would expect, JP Morgan’s stock took a beating in the after hours, losing more than 6%. In the pre-market, the stock is off 8.4%.

This is having a negative effect on the financials, and the market in general. S&P 500 futures are lower by 0.77% just before the bell. The 10-year note yield is 1.85%. Gold prices continue to move lower, with futures trading at $1579/oz. WTI crude oil keeps getting hammered, now at $95.77/bbl.

During yesterday’s JPM conference call, one analyst asked about the other big US banks, to which CEO Jamie Dimon responded: “I don’t know just because we are stupid doesn’t mean everybody else was.” Best of luck out there, and on with the links…

JP Morgan

• When basis trades blow up. (Reuters)
• JPM discloses huge trading loss. (DealBook)
• Notable quotes from the conference call. (The Australian)
• The world’s largest prop trading desk just went bust. (Zero Hedge)
• So you wanna talk about JPM’s trading loss? (Kid Dynamite)

And the rest…

• Demand for Facebook IPO weaker than expected. (Bloomberg)
• Spain to force banks to set aside more than 30B Euros. (FT)
• Producer prices drop, giving Fed more space. (Reuters)
• Ignore the fiscal cliff at your own risk. (Pragmatic Capitalism)
• It’s the student loans, stupid. (Sober Look)

Just before the bell, S&P 500 futures are up 11 points, or 0.85%. Even after yesterday’s “rally” into the close, the S&P lost 0.67%, but finished off the lows of the trading session. While the Greek (and European) crisis is back in the headlines, the US market was reaching oversold levels on a short-term basis. With yesterday’s close, the S&P 500 is off 3.64% from its May 1st close of 1405.82. The US 10-year note yield remains sub-2%, at 1.90% this morning. Best of luck out there, and on with the links…

• Oversold stocks piling up. (Bespoke)
• US trade gap widens more than expected. (Bloomberg)
• Pimco’s Gross cuts exposure to emerging market debt. (Bloomberg)
• Jobless claims “beat” after another upward revision. (Calculated Risk)
• “Oil Choke Collar,” same time, next year. (The Bonddad Blog)
• The impossible choice for Greece, Germany. (MarketBeat)
• Sell in May? It’s clear, just upside down. (Market Anthropology)
• HSBC may sell Latin American units. (DealBook)
• Why not to panic about Europe. (A Dash of Insight)
• Goldman stands by gold forecast. (Yahoo Finance)

• Billion $ traders quit Wall St. for hedge funds. (Bloomberg)
• Stock trading still falling after ’08 crisis. (NYT)
• When the Exxon way stops working. (Reuters)
• China’s gold imports surge in Q1. (Bloomberg)
• No follow through on earnings. (Bespoke)
• Flash Crash: What really happened? (Bloomberg)
• BofA offers principal reduction to homeowners. (Realty Check)

The old adage “Sell in May and go away” remains one of the most popular ideas on Wall Street, even though it actually originated in London’s financial district. It certainly worked well last year, but many analysts and pundits are cautioning against the strategy this year. No matter where you look on Wall Street, you’ll find a strong opinion this time around, and I’ve included a few links below for you to decide for yourself. Early in trading, the S&P 500 is up 0.44% to 1404.07. The 10-year note yield continues to move lower, now at 1.905%. Commodities are mostly flat this AM, with gold sitting just above $1663/oz, and WTI crude oil at $105/bbl. Best of luck out there, and on with the links…

Sell in May, and Go Away?

• Pragmatic Capitalism
• Globe Investor
• Global Macro Monitor
• Bloomberg
• Yahoo Finance

And the Rest

• April’s best and worst performers. (Bespoke)
• Gross: Shakespeare, inflation, and stock vs. flow. (Zero Hedge)
• GSE delinquency rates declined in March. (Calculated Risk)
• Private equity firm buys P.F. Chang’s for $1.1B. (Dealbook)
• Food prices, and the cost of high frequency trading. (PRLOG)
• How colleges feed the Wall Street machine. (Dealbook)
• Pfizer beats earnings estimates on spin-off. (Bloomberg)
• Fed criticizes big banks on risk models. (Bloomberg)
• China’s PMI number higher, still cause for concern. (Yahoo Finance)