South Korea To Formally Blame North Korea For Torpedo Attack On Thursday

Europe is broken, HFT traders are about to make cameo appearances on "How to catch a predator", Iran and Israel are scrambling to weaponize plutonium, and now South Korea is about to escalate its involvement with North Korea, by formally blaming Pyongyang for the recent torpedo attack. What happens next nobody knows, but something tells us Hillary Clinton will be completely useless (as usual) in resolving whatever conflict develops out of this. As WaPo reports: "South Korea will formally blame North Korea on Thursday for launching a torpedo at one of its warships in March, causing an explosion that killed 46 sailors and heightened tensions in one of the world's most perilous regions, U.S. and East Asian officials said."

FX Heatmaps: Epic Unwind

Several major FX desks now getting margin calls.

Bid-Side Market Depth Evaporating As Gold Explodes

Market depth is still available although even with a full bidside load at every quarter stop, these are getting taken out with machine gun regularity. Watch this carefully to see if it makes sense to put $0.01 bids on Procter and Gamble. Actually go ahead and put that bid in. At this rate you will get hit. Also, we hope you bought gold today.

So On This Whole Naked Sovereign CDS Ban...

There are 4 hours until midnight in Germany. There are trillions in gross sovereign CDS notional. Germany alone had $71.4 billion in Gross CDS notional and $13.3 billion in net according to DTCC. Add up all of Europe and you get half a trillion. How on earth will the German market unwind these with all European traders already long gone. We also make the generous assumption that US CDS traders are still around: most of the BSDs tend to leave for the nearest Marriott Garden Inn by 1pm. So with naked CDS positions now verboten, who will be allowed to sell CDS? For a symmetric hedged transaction, anyone selling CDS (long credit), would have to be short cash govvies to be permitted to sell CDS. And who in their right mind would disclose that they are short anything. This is the most ill-thought out regulatory plan in the history of capital markets, and that, shockingly, includes the Frankenstein monster created by our own lame duck coruptus in extremis senator.

European Union Issues Q&A On "War With Speculators"

Europe today officially fell off the stupid tree and hit every branch on the way down. The CDS ban is all but fixed: "Michel Barnier, the European commissioner in charge of an overhaul of financial services, may propose capping the size of individual trades, giving watchdogs the power to police big deals in derivatives such as Greek debt default insurance. Under a model which would resemble the approach in Washington, traders could be stopped from building up a large position that could let them swing prices in anything from oil to currency in their favour."

Germany To Ban Short Selling At Midnight, Only Naked Shorts To Be Affected

Update 4: Merkel to formally announce short-ban on Wednesday.

Update 3: Hearing naked ban will also apply to credit derivatives, i.e. naked CDS.

Update 2: Bloomberg chimes in quoting Deutsche Presse which reports that the ban will only apply to naked shorting. We are looking for official confirmation on what the final proposal will look like as there is a lot of confusion currently and no formal announcement. Regardless, investors are wondering what has changed today to institute this now.  

Update: short selling ban will apply to stocks and euro government bonds according to German N-TV station. This is an act of desperation and will force all those who are long German assets to sell asap (selling is still legal).

Reuters headline for now, that the German Finance Minister will institute a short-selling ban at midnight. If true, this is huge, as it means the market will become massively dislocated once again. We can show charts of how Thailand, US and Greek markets reacted when this was introduced (short jump followed by significant slide lower), but you get the image. One wonders just how horrible the news flow over the next 24 hours will be for this drastic measure to be introduced.

Volume Picks Up Market Dies Redux

Just like clockwork, and in direct refutation that anyone but computers trades this discredited shell of market, market turns over as volume picks up. We expect volume to die shortly, and the market to resume the ascent as the HFTs go right back to doing whatever they do. In other news, we expect the CME to announce any minute that not only did HFT not cause the May 6 market crash, but that HFT in fact helped. We also expect Goldman to say they were, in fact, innocent of CDO fraud allegations.