When asked by Maria Bartiromo on why Morgan Stanley was picked to sell the Tsy's Citi stake, Geithner replies: "That's not a decision i can speak to. We have a good team of people who looked at the competition carefully and made a good judgment." Is Blankfein officially isolated by the administration now? We wonder when Goldman will look at the market carefully and decide to make the good judgment it is time to buy (i.e., for Goldman's prop desk to sell). Also, on whether the UST will be selling its AIG stake (Goldman's ears perking up here): response meanders [thank god Paulson is not trying to avoid the topic here], but no firm committment.
Let The Churn In QQQQ, Citi And Bank of America Hit Infinity: ISE To Offer Special Rebates For Liquidity Providers In These Three NamesSubmitted by Tyler Durden on 03/29/2010 - 15:19
Today, one quarter of the volume in the market is attributable to trading in Citi shares. This is simply a ridiculous statistic, and shows that the broader equity market, which merely trades based on the momentum of one stock, is and has been busted for about a year, when we first wrote about this phenomenon. Yet this insane churn is not enough for some: The ISE has just announced it is introducing a "Modified Maker/Taker Fee Schedule" for the three most actively traded options products on its exchange: QQQQ, C, and BAC. In essence, the ISE will provide even greater rebates to "liquidity providers" in these three stocks. The entire market will soon consists of exactly two companies (both of which are wards of the state) and one ETF, as liquidity finds the path of least resistance and greatest (evaporating) profit margins. This is what "liquidity" in the market has become. And all the while, the latest DMM, GETCO, which is certainly not frontrunning its prop positions based on massive NYSE flow traffic, is laughing all the way to the bank.
Dear Chief Financial Officer:
We are currently reviewing your Form 10-K for fiscal year ended__. In our effort to better understand the decisions you made in determining the accounting for certain of your repurchase agreements, securities lending transactions, or other transactions involving the transfer of financial assets with an obligation to repurchase the transferred assets, we ask that you provide us with information relating to those decisions and your disclosure.
With regard to your repurchase agreements, please tell us whether you account for any of those agreements as sales for accounting purposes in your financial statements. If you do, we ask that you:
Is Goldman's Image Problem The Reason Why The Treasury Picked Morgan Stanley To Sell Its Citi Stake? Gasparino Says YesSubmitted by Tyler Durden on 03/29/2010 - 14:21
Charlie Gasparino who last week interviewed John Mack (and, we contend, failed to ask any truly provocative questions especially as pertains to MS' record prop trading losses), contends that the reason why Morgan Stanley was picked over GS in selling the Treasury's shopping Citi stake, even as Pandit's firm is set to quadruple and become the most valuable worthless company in the world (with one quadrillion outstanding shares, and a projected price per share of $16, well you do the math), is Goldman's increasingly shaky public image. And that the firm's negative perception may ultimately alienate more investment banking clients who wish to avoid the "fallout of working with Goldman."
Here come the Repo 105 disclosure consequences... And the SEC is only about 5 years behind the curve as always.
SEC SENDING LETTERS TO 24 LARGE FIN FIRMS RE REPO AGREEMNTS
SEC: WANT SPECIFIC INFO RE FIRMS REPO ACCOUNTING, DISCLOSURE
SEC: SENDING LETTER TO 'CLOSE TO TWO DOZEN' LARGE FIN FIRMS
We are fairly confident all the 18 Primary Dealers are on this list (not to mention the key TBTF Prop Trading firms).
The latest summary strategy deck from Morgan Stanley does a great job of capturing the key market driving themes: Greece, Europe, Principal Reduction, End of QE, Swap Spreads and the broader UST Curve
Are Pig Farmers Doing All The Trading? "The Top Five Prop Desks Are Buying And Selling Securities With Leverage ... To Each Other!"Submitted by Tyler Durden on 03/29/2010 - 12:56
A suitable follow up to our earlier post on domestic equity fund flows (which have been negative year to date), and our conclusion that Primary Dealers are merely taking advantage of the ZIRP carry trade, is Rosie's observation that the only entities doing any relevant trading are the prop desks of the Big Five TBTFs. If that is indeed the case, the market, which Rosenberg concludes optimistically is 25% overvalued will certainly face a Black Monday-type correction as soon as the elusive "unpredictable" occurs and the Prop desks as always scurry for cover, with no volume consolidation to the upside. It would be such a wonderful time to truly implement the Volcker Rule as the bank's prop desks, if David is correct, are about to cause some major damage to the market... Of course, it is these very prop desks that are the staunchest opposition to the Volcker Rule and its negative implication on prop trading.
Yesterday we discussed the S&P futures capitulation following last week's record cover in Large S&Ps of over 66,000 contracts. We just got word that as of 11:20 am CST UBS has purchased another 3,000 S&P Large (thank you open outcry). Cost to them: nearly $1 billion. On a cash equivalent margin basis, this is about $20 billion in S&P moving power. As UBS is not quite as, let's say, connected as GS et al, these are considered to be short covering trades.
Flows Into Domestic Equity Mutual Funds Hit Highest Since Pre-February Correction, Year To Date Flows Still NegativeSubmitted by Tyler Durden on 03/29/2010 - 11:38
The Investment Company Institute notes that the week of March 17 saw the largest inflows into domestic equity mutual funds since just before the February correction. At $1.6 billion, the inflow was the second highest in 2010, and only topped by the January 20 number of $2.2 billion. Yet the year to date number is still negative by a large margin at ($2.6) billion, even as the market has risen by 3% since the beginning of the year. The money to push the market higher has certainly not come from domestic equity mutual funds. And as we pointed out in the most recent TIC analysis, foreigners had sold a record amount of Corporate Bonds in January, likely translating in a lack of desire for US equities as well. Where did the demand come from? Why primary dealers, who continue to acquire zero interest Bills and use the proceeds to purchase stocks in a continuation of the Fed-funded carry trade.
The US Treasury is filling the Primary Dealer demand for ultra-short term, zero interest Bills. Today it announced it would auction off:
- $31 Billion in 4 week Bills, maturing April 29
- $25 Billion in 56-Day Cash Management Bills, maturing May 27
- $17 Billion in 18-Day Cash Management Bills, maturing April 19
While this is the 6th 56-Day auction since the SFP reopening in February 24, the 18-Day is a new addition to plug the endless PD demand for cheap money which can be used for other much more lucrative purposes, such as buying equities for example. We expect all these Bills will come out at a yield of about 0.1% as banks do all they can do take advantage of ZIRP for as long as they can.
Greek CDS Jump As Books For New 7 Year €5Bn Issue Covered Just 1.4 Times, Greeks Blame Weak Demand On EasterSubmitted by Tyler Durden on 03/29/2010 - 10:42
Greek CDS are moving 10 bps wider from 293 to 303 bps as demand for the bailed out country's bonds was much weaker than expected. Greek weakness is spreading to other European countries: The cost of protecting other euro zone government bonds from default were also mostly higher. The German 5-year credit default swap rose to 30.1 bps from 28.9 bps. In the meantime, and in keeping with the Greek tradition of scapegoating, the very weak demand for the new 7 Year issue was blamed on... Easter.
WGC Releases China Gold Report - "A New World Of Opportunity" As PBoC Expected To Buy Gold, Chinese Gold Mines Become DepletedSubmitted by Tyler Durden on 03/29/2010 - 10:05
The People’s Bank of China (PBoC) is also playing an increasingly supportive role for gold on the demand side. PBoC’s gold holdings are currently at 1.6% of its US$2.4tn total reserves – a fraction by international standards. If PBoC decides to rebalance its books to its recent peak gold holding as a proportion of reserves of 2.2% in Q4 2002, WGC estimates it could account for a total incremental demand of 400 tonnes at the current gold price....Assuming the US Geological Survey’s figures are correct, China may exhaust existing gold mines in just six years. - World Gold Council
The UK, which many think is quickly becoming the uber-Greece of Europe, just got a pat on the shoulder by S&P.
First Goldman was stopped out on the bullish EUR call, now it appears that the firm is about to be stopped out for a second time, less than a week after its revised, bearish call on the EUR currency. This will likely be the second time the newly relocated bank will be massively wrong about the direction of the EURUSD in the span of a month. With the stop out at 1.35, and the euro almost hitting that earlier today, could we see this trade unwinding as early as today? In the meantime, Goldman will have made massive profits on both trades, even as its biggest clients lick their wounds and wonder what the hell just happened.
The BEA released its February Personal Income and Outlays data: continuing the trend of PI outpacing or same as Expenditures, the sequential change in February Personal Income came in at 0.0%, lower than the 0.1% consensus. On the other side, expenditures increased by 0.3%. Previous revisions indicated that January PI has been an increase of 0.3%, while PCE was greater by 0.4%. Most troubling, this implies that the Personal Savings Rate declined by 0.3% from 3.4% to 3.1%, the lowest this metric has been in over a year. Keep in mind, the primary reason why Goldman sees that 10 Year at 3.25% (as opposed to Morgan Stanley's 5.5% call) is because of the "increased" savings by US consumers. Now that these same consumers have decided to put their money in iMaxiPad pre-orders, maybe Goldman will consider reevaluating their Treasury forecast.