Put This Guy In Charge Of The SEC

Yesterday, a retiring 38-year veteran trial lawyer's remarks shone a brighter light on the farce that the SEC has become in recent years. The SEC has become “an agency that polices the broken windows on the street level and rarely goes to the penthouse floors,” Kidney said, adding that his superiors were more focused on getting high-paying jobs after their government service than on bringing difficult cases. The agency’s penalties, Kidney said, have become “at most a tollbooth on the bankster turnpike.” As the full letter below shows, he had a lot more to add on just how the toothless agency should be run...

Citi Warns The Leverage Clock Is Ticking

Citi's credit strategy team warns, for non-financial corporations - fundamentals have turned. Low interest rates hae helped keep debt service burdens low but, as they suggest, releveraging tends to sneak up on you. Leverage is as high as its ever been outside recession. This may not be a problem today, or tomorrow, but the leverage clock is ticking... and credit markets have no room for downside surprises (and, as we have vociferously explains, if credit spreads rise as the credit cycle 'cycles' then the underpinning for the entire buyback/dividend driven 'fudge' for stock valuations is removed)... and risks seem far higher in the US (than Europe) going forward. In the end we know this is unsustainable - the question is when (in 2007 it lasted 10 months or so...) but things change very quickly once collateral chains start to shrink. Perhaps this is why Carl iCahn called the top - because he knows the ability to re-leverage (his bread and butter trade) is over...

Russia's New Weapons: Passports And Pipelines

Following Russia’s annexation of Crimea and Sebastopol last month, Western leaders have been pondering how to get back at Moscow for its actions without starting a new world war. The situation is what the Brits may describe as a sticky wicket.  They want to get back at Russian President Vladimir Putin but at the same time they don’t want to upset him too much seeing that he controls much of the oil and natural gas that flows to Eastern and Western Europe via a number of pipelines. The options available to punish Russia for its actions are really quite limited when you think about it; but President Putin now has two new weapons which in some ways frightens some of the old Soviet republics and the Europeans even more than conventional and nuclear weapons

Fed Cat Bounce

Investors, or perhaps algos, it appears are shocked that the Fed is just as dovish as it has always been (despite endless speeches since Yellen's six month comment - but will not tapering the taper) and today's minutes sparked a short-squeeze loaded VIX-slamming jerk higher to get the Dow back to unchanged from the FOMC statement (S&P back to unch on the month and Nasdaq back to unch on the year). Bond yields ripped lower (the best FOMC minutes day since the Fed announced QE3 expectations) with the short-end outperforming (unwinding only 50% of the flattening post-FOMC) and long-end selling off. Gold and silver had been fading early but rallied on the FOMC minutes (back above $1310). Oil pushed on to $103.50 and copper rallied back to unch (supported by PBOC buying rumors). Credit markets were diverging notably before the FOMC jerk but remain wider on the week. Just as the initial squeeze euphoria ("most shorted" stocks had their best day in 2 months) was fading, the 330 Ramp in JPY occurred and lifted stocks to the highs of the day.

A Year Later, Cyprus Still Has "An Emergency Situation" And Capital Controls

Just over a year ago, people across Cyprus went to bed thinking everything was just fine. They woke up the next morning to a brand new reality: their government AND their banking system were flat broke. Cash withdrawal limits were imposed. Funds transfers were curtailed. Cypriots were even forbidden from doing something as simple as cashing a check. These destructive tactics are called capital controls. And one year later they’re still in place. Naturally, since this is an “emergency situation” in their view, they have to impose these “restrictive measures” in order to safeguard “public order and public security”. In other words, capital controls are for your own good.

Goldman Warns 67% Odds Of A 10% Market Decline In Next Year

While quick to explain how next year will be better (even though he keeps his year-end 1900 target for the S&P 500), Goldman's chief US equity strategist David Kostin warns there is a good chance of a 10% drop sometime in the next 12 months. The recent 6% pullback (sparked by EM concerns) is only one-third of typical historical corrections and as Kostin notes, the market has gone way too long without a so-called correction (10% from peak to trough). It's been 22 months (and 50% gains) since the last 10% drop and, based on Kostin's quant work, there is a 67% probability that we'll see that correction - which would take the S&P to around 1700.

An Iowa City With A Population Of 7,000 Will Receive Armored Military Vehicle

We’ve covered the militarization of the domestic police force on several occasions but today's absurdity takes the proverbial biscuit. the tiny city of Washington, Iowa with a population of 7,000 and 11 police officers, will be receiving a Mine Resistant Ambush Protected (MRAP) vehicle. These things normally cosy $500,000, but will be given to Washington, Iowa for free under a Defense Department program that gives surplus military equipment to domestic law enforcement.


One sees a market reaction such as this, and what can one say but... alpha!

VIX Slammed As Dow Recovers Post-FOMC Losses; Everything Bought

We wondered earlier whether Kevin Henry would achieve his goal.. and he did. VIX is now sub-14 once again and thanks to a lift-off in EURJPY, stocks are surging. The Dow Industrials (and almost the Transports) have recovered all their post-FOMC losses in this reaction to the apparently more dovish minutes. Gold is maintaining gains. Bond markets ripped lower in yield and the USD is tumbling. The ammo, of course, for all this, is "most shorted" stocks which are spiking post-FOMC.

FOMC Minutes Confirms "Forecasts Overstate Rate Rise Pace"

With all eyes fixed on any mention of the length of time post-taper before rate hikes, stocks and bonds slid gently in the last few minutes before the minutes release - and sure enough...


In other words, we are way more dovish than you thought we were... Weather was blamed for any slowdown and the pace of tapering appears set. Bear in mind these minutes reflect a discussion that took place - at least from a chronological standpoint - before Janet Yellen's "six months" statement.

Bonds Sell Off After Weak, Tailing 10 Year Auction Ahead Of Fed Minutes

With today's 10 Year auction just an hour ahead of the traditionally negative for rates FOMC Minutes, it was no surprise that the just completed issuance of $21 billion in 10 Year paper was nothing to write home about. Sure enough, with a high yield of 2.72% tailing the When Issued by 0.8 bps or the biggest tail for a 10Y auction in 2014, the reception was hardly impressive. That said, the yield was still 1 bp lower than the March auction when bonds sold for 2.73%, which in the aftermath of yesterday's wider 3Y, confirmed that flattening is still on everyone's mind.The Bid To Cover was also hardly notable and while it was below March's 2.92, it was well above the TTM average of 2.66 at 2.76.

Bond Bulls Beware - Here's What Happened The Last 18 FOMC Minutes Release Days

Of all the Fed’s communication tools, BofA notes that the minutes seem to be the most confusing to the markets. They should be “old news," Ethan Harris comments, and yet, investors look to the minutes for nuggets of insight. The result, in our view, is a steady stream of “head fakes” and a regular pattern of weakness in the bond market. The results are striking and more consistent than we had expected: the bond market sold off on 18 out of 20 days. Of course, this time could be different but the last 2 years of FOMC Minutes releases have seen bond yields rise on average 3.5bps (bonds are already 3bps higher in yield) and effective Fed watching these days appears mainly a matter of avoiding misleading messages and fading "misinterpretation" of their communications.

German Vice Chancellor Warns 'No Alternative To Russian Gas'

Even Germany's vice chancellor Sigmar Gabriel realizes that there is no alternative to Russian gas for Germany, at least not in the near future.

 “In the debate over Europe's dependence on Russian natural gas it is often falsely pretended that there are many other possibilities. This is incorrect.”

But keep hanging on that "we'll export LNG to fix Putin" meme anyway

These Are The Most Levered Hedge Funds

In top place, for many years in a row, remains that HFT and quant wolf in fundamental analyst sheep's clothing, Chicago's very own HFT champion Citadel, followed closely by perpetual SAC pod-PM wannabe, Millennium.

House Panel Refers IRS' "Teaparty Nemesis" Lois Lerner For Criminal Prosecution

The woman at the center of the IRS-Tea-Party-Targeting debacle is back in the limelight once again as the House Ways and Means Committee voted 23-14 to formally ask the Justice Department to investigate the ex-IRS official. As Fox notes, this appears to be an escalation by the Republicans to confront Lerner over her role in the agency's controversial practice of singling out conservative groups seeking tax-exempt status for extra scrutiny. On another front, a separate committee will vote Thursday on whether to hold her in contempt of Congress for twice refusing to testify on the scandal. Democrats called the move "unprecedented." The question, of course, is just how more 'da fifs' can she plead.

Consumer Spending "Recovery" Stalls As Pent-Up Demand Fails To Appear

For the first time since the 'recovery' began, Gallup reports that consumer's average daily spending flatlined year-over-year. As Gallup concludes, at a daily rate of $87, Americans' average daily spending in March looks positive by comparison to spending over the past five years. But the stall in spending, both month-over-month and compared with a year ago, most likely signals a continuation of the lackluster retail sales seen so far in 2014. While government data suggested that retail sales rebounded in February (though still the weakest YoY since Nov 2009), the Gallup data appears to confirm the post-weather pent-up-demand has failed to arrive.

Fed To The Sharks, Part 2: Housing And The Death Of The Middle Class

The Fed sacrificed the foundation of middle class wealth - stable housing values - to boost bank profits. Middle class wealth was Fed to the sharks. As the current housing bubble deflates, the investor-buyers who fueled the rally are exiting en masse: what's the value of an asset when the bid vanishes, i.e. there's nobody left who's willing to pay today's prices? The Fed has failed to restore middle class wealth with its latest housing bubble, and the costs of the bubble's collapse will fall not on the Fed but on those who believed the recovery was more than Fed manipulation.

Ban Knives? High School Student Goes On Stabbing Rampage In Pennsylvania School

Another day another dismal headline of some killing spree and while the American people is becoming almost numb to these dreadful occurrences, this one was different. As Reuters reports, twenty people were injured, at least nine seriously, when a student at a Pittsburgh-area high school went on a stabbing rampage early on Wednesday. We are sure the administration is closely watching the events and considering what actions to take to ensure this does not happen again. The good news, for now, is that no one has died but indications are that these are very serious injuries.