A few days ago we reported, quite stunned, that the US Treasury had redeemed nearly $600 billion in Bills in the month of April. Alas, the side-effects of an massively short-maturity heavy bond curve will be here to haunts us for a long time: according to today's DTS, in the first 4 business days of May alone, the UST has redeemed $144 billion in Bills. Annualized this number is surely something that even Richard Feynman would not joke about. We have gotten to the point where the roll issue is not a monthly concern, but is becoming a weekly funding threat, and even daily. Of course, as we speculated in December, what better way to raise demand for Treasuries than to stage an equity selloff. Well, we got our selloff, and the 10 Year was trading in the lower 3% range today. However, the risk now is how the sovereign fire will spread through the periphery and into the core. Already, we are seeing that CDS traders are massively betting on a collapse of the UK as the next bastion of sovereign spending lunacy. And when the UK goes, Germany is next, shortly to be followed by Japan and the US. At that point the only buyer of US debt will be the US itself. Which will lead to the final outcome of massive consumer deflation as economic collapse finally strikes home, coupled with asset price hyperinflation, as a gallon of oil hits $10 (and helping the Dow hit 36,000). And as this is not an equilibrium state, the outcome will be, as it always is in these situations, war. Hopefully the US is good as it historically has been at finding its "deserving" opponent, WMDs aside. Otherwise, things may be a little rough for the great declining American civilization after the next 5 years.
Spreads were broadly wider today with breadth very negative as single-names caught up to the index underperformance from yesterday. Despite what appeared a better-than-expected jobs print, derisking was rife once again and European financials led the way. High beta single-names underperformed low-beta dramatically and curves generally flattened at the short-end and steepened at the long-end (though liquidity out from 5Y was less than average).
As an aside, it may be time for IG accounts to take a look at NRUC again. May be getting ready to blow again
Computerized trading platforms and various algos are entering the biggest frenzy over assorted technological gimmicks since the October 1987 crash. And the public demands their blood. Or as the case may be, Lithium Hydride. Alas, the agency that is supposed to protect investors from abuses of HFT and various other newfangled technologies is woefully stupid to be able to deal with this great issue. Nonetheless, Senators Ted Kaufman (D-DE) and Mark Warner (D-VA) on Friday proposed an addition to the Senate’s Wall Street reform bill that would direct the Securities and Exchange Commission and the Commodity Futures Trading Commission to report to Congress on several key issues surrounding the May 6, 2010 market meltdown, which sent the Dow Jones Industrial Average tumbling dramatically in minutes. High-frequency-trading algorithms have been the initial focus of questions concerning the collapse. We hope Kaufman is successful. On the other hand, the most likely product of the SEC's work product will be a 1 million page printout of all the jpegs in www.underagetransvestitesforregulators.com, better known in SEC circles as due diligence output. As usual, we hope we are wrong. As usual, we suspect we aren't.
The only trend that seems unlikely to abate at this point is Gold's bullish trend. We seem to be set to take out the highs and further accelerate from here. The only danger to the trend is a wave of defaults which would be massively deflationary in theory, but at this points it is unlikely politicians will let that happen. They will only make everyone wait painfully to come up to the obvious conclusion that they will bend and provide the liquidity needed and thereby cause damage to the system. - Nic Lenoir
One of the smarter people out there, yet one who constantly confuses his hopium kool-aid for other more alcoholically infused beverages, Credit Research's Tim Backshall, provides our temporally challenged viewer a 3 minutes crystal summary on the next steps for Greece (sorry, no Hollywood ending here), what record negative basis spreads mean (ref: Hollywood ending), on why idiots who say Greece is irrelevant with its mere 3% of European GDP are idiots (ref: Bear Stearns), what the contagion will look like, and how a Greek restructuring will be effectuated (will, not may).
The one main benefit to the financial reform effort so far is that it helps further do away with the false paradigms of "left" or "right" and "Democrat" or "Republican" - fewer and fewer people are falling for those lies anymore. Try to get an ideological conservative to explain why Republicans love spending and so eagerly give welfare to banks. Try to get your local liberal to explain why it was a good idea to make backroom deals with abhorrent corporations and drill, baby, drill. Heck, even try to get a Tea Partier to explain choosing bailout-lover Sarah Palin to keynote their convention, especially when that movement once had at least some pre-astroturf roots in protesting government giveaways. - Dylan Ratigan
Fed Preparing To Bail Out World Again: WSJ Reports Dollar Swap Lines Likely To Be Reopened By The FedSubmitted by Tyler Durden on 05/07/2010 - 16:16
Thanks to Leo for pointing out that the WSJ's Jon Hilsenrath has reported that the Fed is considering reopening swap lines with central banks, likely in conjunction with the rumored rescue package. This is the news that shot the market up in the last 10 minutes of trading as the Fed would never allow the market to close at the days lows, as it was preparing to do. "Apparently New York Fed President Dudley and Vice Chair Don Kohn are in Basel this weekend for an already scheduled meeting with European central bankers. A Sunday announcement seems like a growing possibility." Lehman weekends are back baby. And with that, we are paging Alan Grayson, who personally had a thing or two to tell the Fed lunatic about bailing out the world ever again without getting prior approval first.
Alan Grayson Comedic Stand Up Special On The Bankrupt Red Roof Inn Chain And Its Proud Owner, The Federal ReserveSubmitted by Tyler Durden on 05/07/2010 - 15:17
When we disclosed that the Fed was getting crammed down last week on Red Roof Inn foreclosures, little did we know that Alan Grayson was going to take the material and make pure comedic poetry out of it. One more reason to applaud the brilliance of our corrupt and moronic Senators for preventing the much needed and long-overdue audit of the Fed.Enjoy.
Where Was Goldman's Supplementary Liquidity Provider Team Yesterday? A Recap Of Goldman's Program Trading MonopolySubmitted by Tyler Durden on 05/07/2010 - 14:19
In addition to having said many things about HFT in general in the last year, over the past 12 months Zero Hedge has focused a lot of attention specifically on Goldman's dominance of the NYSE's Program Trading platform, where in addition to recent entrant GETCO, it has been to date an explicit monopolist of the so-called Supplementary Liquidity Provider program, a role which affords the company greater liquidity rebates for, well providing liquidity (more on this below), and generating who knows what other possible front market-looking, flow-prop integration (presumably legal) benefits. Yesterday, Goldman's SLP function was non-existent. One wonders - was the Goldman SLP team in fact liquidity taking, or to put it bluntly, among the main reasons for the market collapse. We are confident the SEC will aggressively pursue this line of questioning as they attempt to justify their $1 billion porn download budget. We are also confident, that should the SEC truly take its role of protectors of investor interest seriously for once, it will uncover such criminality and corruption at the level of trading integration of open exchange and ATS venues (and the "but it's so complicated - let's just leave it untouched because nobody understands it" excuse is not flying any more), that it will make Goldman's CDO criminal and civil case seems like a dimestore misdemeanor. We have written about 1,000 posts about this. Readers are welcome to go back through our archives and acquaint themselves with the NYSE's SLP program, with Goldman's domination of program trading, with Goldman's domination of dark trading venues via the Sigma X suite, with Goldman's domination of flow trading via Redi X, and with Goldman's domination of virtually every vertical of the capital markets, which would be terrific if monopolies were encouraged in the US. Alas (last time we checked with the DOJ), they are not. Which is why we ask, for the nth time, when will the anti-trust division of the DOJ finally dismantle the biggest market monopolist in the history of capital markets.
Yesterday, the Fed disclosed that liquidity swaps have remained at 0 for the eleventh week in a row. This is not unexpected, as it is in line with the Fed's statement of eliminating emergency liquidity facilities (and the CB liquidity swap lines are among these). Of course, there is no way to truly verify whether or not the Fed is syphoning off US money to once again bail out foreign central banks as the Fed is shrouded in secrecy, and while we have to figure out just what exchange Bernie Sanders concluded with Chris Dodd, on the surface we are disappointed that the socialist is not sticking with his initial much stronger language for Fed transparency. Furthermore, we know all too well that the Fed would never lie to the US population, right - just look at the chart below, which discloses the Fed-determined values of Maiden Lane I-III. Somehow, the combined value of these three Bear/AIG rescue facilities have surged to one year highs in the last week. This is somewhat stunning as we reported a week ago that the Fed is about to be crammed down on its Red Roof portfolio holdings due to initiatied foreclosure proceedings. We have no figured out why REITs have been defying gravity for the past year - according to the Fed and the FASB, foreclosures are now a valuation enhancing process. How could we be so blind not to realize this.
CME Issues Press Release, Confirms No Fat Finger: Will CNBC Issue Retraction For Repeated Factless Rumor Dissemination?Submitted by Tyler Durden on 05/07/2010 - 12:48
CME Group has issued a statement following rumors that erroneous or irregular trades by Citigroup Global Markets Inc may have been the cause for a more than 900 point drop in the Dow Jones Industrial Average during mid-day trading on Thursday:
“While our policy is not to comment on individual participation in our markets, in light of volatile market conditions, CME Group confirmed that activity by Citigroup Global Markets Inc. in CME Group stock index futures markets does not appear to be irregular or unusual in light of market activity today.”
Even as the market is now surging on rumors of massive pan-European bail outs (someone explain to us how a tsunami of failed banks is equity positive... or for that matter how imminent monetization is EUR positive), Bloomberg is reporting that the liquidity crisis in Europe has struck smack in the middle: after the FinMin released a draft bill to forcibly write down real estate asset holdings by 10, investors in certain mutual funds have panicked and attempted massive redemptions, which in turn forced redemption halts by these funds which likely are woefully undercapitalized to begin with. This is just the beginning of the liquidity squeeze moving from the periphery to the core.
Euro (and the market) surging on rumors that the ECB is preparing to bail out 1,100 banks in Europe. And with that the bailout moves officially to Europe. From the dealer community:
CHATTER OF NEWS ECB LOAN FACILITY GOING AROUND
- Chatter of €600bn ECB loan facility to be announced over the weekend
- Terms mentioned are 1% for 1 year loans to cover 1,100 banks
- UNCONFIRMED - Euro is moving on this chatter
Imagine Lehman. Times 1,000. Now it gets fun.
The market is now irreparably broken - if you are trading your own money today, or in the near-future you will lose it, and you can thank the SEC, the NYSE, dark pools, Goldman and all the other "liquidity providers" and market makers. The damage control by the mainstream media has failed. The European bailout has failed. The Nonfarm number was a failure, despite Obama's attempt to spin it favorably. The entire bear market rally is finally being seen for the sham scam we have said it was from the very algo-manipulated beginning. So is it any surprise that the VIX is now double where it was a few days ago. All those who sold calls on the VIX are getting carried away in bodybags, the only question is whether the decimation there is worse than among the ranks of the carry traders. At this rate the market is likely going to close near the stop limit positions in the 1,050 range, which will push traders over the weekend to take weapons grade doses of Xanax. Alternatively, mutual and pension fund idiot money will simply sell.