Overnight and in to the open

Yesterday's ICI flow of funds report showed a 13th consecutive week of domestic equity fund outflows from retail, $3.5 bn last week alone, this makes 52 of 56 weeks in which retail has been flooding out of the market. Mark Cuban thought that FB was the most important IPO in recent history because it would bring retail back, obviously they aren't biting and given FB's performance, have more reason to be scared of this market than ever. The size of the outflows are increasing too, at this point in 2011 there was about 6.5 bn in fund outflows, for 2012- $46 bn so far.

Wonder why volatility is so crazy? Just from a liquidity perspective you'd expect volatility to increase not only from the outflows, but from less liquidity in the market. Furthermore Wall Street needs to make more traders wrong to make money on the ones that are left,  the net result: EXPECT EVEN MORE VOLATILITY.

The bank runs continue to create the snowball effect or the point of no return. Just 2 days ago Spain's nationalized Bankia was estimated to need $9bn Euros to pull it back from the abyss, not even two days later that number is now $15 bn. Remember the posts about how and why things snowball out of control once a point of no return is reached (Lehman was the example)?  Of course bank runs are limited to Bankia or even Spain, they are Euro wide with Spain, Greece, Italy and Portugal seeing the worst.


The bank runs in Greece have caused this PSA from Greek police:


" Greece's national police spokesman, Thanassis Kokkalakis, told Reuters: "Many people have withdrawn their money from the banks fearing a financial crash, and they either carry it on them, find a hideout at home or in storage rooms. We urge people to trust the banking system, leave their money there, or at least in a safe place, not hide it at home" 


The market which is concerned that Spain will need a bailout just found a new reason to fret, "SPAIN'S CATALONIA REGION Asks for government bailout as they run out of financing options"




The PIIGS/French Alliance vs the Germans and Northern EU countries is about to heat up as Italy's Mario Monti (another Goldman Sachs alumni) says the majority supports Euro-bonds, something Merkel and Hollande have already clashed over, the North vs South alliances are starting to become clear in the Euro-zone, this may play out to be a major theme in the restructuring of Europe.


Here's an example of two leaders take on Euro-bonds at the Euro conference:

Euro bonds “didn’t find much support” at the EU conference.
                              -Jean-Claude Juncker

“A majority of European Union leaders at a Brussels summit this week backed joint euro-area bonds.”
                             -Mario  Monti

Those two simple, contradictory statements show the divide. Europe couldn't solve problems when they were all working together! 




Speaking of Monti and Goldman Alumni, right after GS came out with their bearish call on the market (which usually means they are buying), one of their own, former Greek PM, Papademos said Greece was preparing for a Euro exit, then denied this on CNBC but only after the damage to the Euro was done. Now Monti comes out and says "Greece will probably stay with the Euro"-all in the same week, all GS puppets, I doubt there's any coincidence in these events and their timing, perhaps GS has loaded up already.


We also see last night that Chinese loan growth is plunging, which will not help the real estate bubble explosion currently underway, nor will it help China's soft landing scenario.


In the US this morning the only eco-data of note on the day, Consumer Sentiment


Released On 5/25/2012 9:55:00 AM For May, 2012

	Prior	Consensus	Consensus Range	Actual
Sentiment Index - Level	77.8	77.8	76.0  to 79.5	79.3

This is an interesting beat, the highest since 2007. You have to wonder about this one.


In FX and ES...

 ES saw a move higher off a positive divergence overnight, if you look at the chart of the Euro below, you'll see the correlation. There was a negative divergence at the highs just after Europe opened. Going in to the US open there was a slight positive ES divergence.

The Euro remains volatile and broke another level of support before breaking above  a level of resistance. Since the open the Euro has fallen off a bit.




Being we have a 3 day weekend with the market's closed Monday and a shortened Treasury session today I would expect volumes to be low as many traders are already on vacation today or leaving early, this could cause some increased intraday volatility, I suppose it depends on what algos they leave running. Normally I'd also expect traders to take some risk off the table in front of a 3 day weekend.


Market Update coming up next.