The SEC sure has a sense of humor. With everyone screaming for the agency's blood unless it does something to curb rampant and blatantly speculative high frequency trading, as well as to tighten insider trading regulation, what does the Mary Schapiro-lead circus do? Just the opposite. And even as the commission is weeping that its $1 billion budget is woefully inadequate, the agency decides to reduce its own projected revenue in the form of Section 31 fees, to benefit the High Frequency Scalping brigade. The schizophrenic, sociopathic, deranged lunatics have certainly taken over the asylum at 100 F Street, NW Washington. And as if that wasn't enough, the SEC is now slowly pushing to repeal Reg FD in order to make REIT follow-ons a daily occurrence.
"The breakdown in correlations has many traders confused, and the light volumes are not really making trends easier to spot. However, this is something we had warned about and we have been monitoring on several occasions using the 90- or 120-day correlation between gold and stocks. Our assessment was that the correlation would at best go to 0, and in case of severe market movement possibly inverse and go down around -0.80 after 9 months when commodities and equities traded in perfect harmony. Traders have been pointing out that with EURUSD where it is trading right now we "should" (assuming the same market dynamics that have ruled markets since March 09 are still in place) have SPX under 1,000. The question is what now? Let's look at markets individually, which is always the approach we favor given that correlations are as good as they last." Nic Lenoir, ICAP
Following up on Mr. Freeze's prior post as to the ultimate futility of the Fed's market intervention, remember what one of the side effects of inflation is? Yes, rising prices. And the expectation of a rise in rates. Alas Ben, you can't have the taxpayers' mortgage cake and have Goldman eat record bonuses at the same time for ever. Thus the mortgage vigilantes come out again. Ans if there is one thing the Fed hates more than losing control of the stock market, it is losing control of the mortgage market. In the past few days, in addition to FFIP going off the charts as Fed Fund futures traders start panicking, we have seen a gradual divergence in the 10 Year - 30 MTG spread. Will this continue? Yes, until such time as Goldman HoldCo and OpCo decide to kill equities one more time before the March expiration of QE. The rush to safety (which unfathomably still includes MBS and agencies) should collapse the spread for the last time before the hyper [deflationary/inflationary] collapse finally sets in. In the meantime equity traders, i.e., the guys who trade 3 shares amongst each other, are hoping the top is at least one more day away. But at this point who cares about a bidless market: with so many HFT programs, it just. can't. happen.
Much has been written about the residential mortgage market and the problems it has caused and has yet to cause. The
following analysis focuses on this issue from the perspective of the ratio of outstanding mortgage debt versus real
personal income. Mortgage debt is represented by the Household and Non-Profit Mortgage Liabilities from the Federal
Reserve’s flow of funds report; personal income is represented by real personal income net of government transfers
from the Bureau of Economic Analysis.
- Eurostar may struggle to move passengers by Christmas (Bloomberg)
- Lithuania let CIA use secret prison for interrogation (Bloomberg)
- A rising euro poses a threat to parts of block (WSJ)
- FBI probes hacker attack on Citigroup (WSJ, AP)
- Dubai stock markets to merge amid debt woe (WSJ)
- Are S&P 500 growth projections realistic (Seeking Alpha)
The stock market rescue operations of 2009 have created pent-up selling demand. We should all anticipate profit-taking on the first two or three trading days of 2010. Previous examples of pent-up selling demand that led to sharp stock market declines in the first two or three trading days of the New Year were 2005 and Y2K. This report examines the Y2K pent-up selling demand model.
The rating agency that has gotten selling out down to an art, just downgraded Greece from A1 to A2, yet kept it two notches higher than where the country is now fairly rated by Fitch and S&P, thereby preventing the country from collapsing into a liquidity crisis. By taking this action, Moody's has once again proven its utter worthlessness, by pretending to be objective while at the same time keeping an artificially inflated rating high enough to prevent the unforeseen spillover effects from Greece's inability to use Treasury's as ECB collateral: the definitive first domino to fall in Europa, about which we wrote 3 days ago.
Study Finds That Of All Factors Determining The "Bailoutability" Of Crappy Banks, Ties To The Federal Reserve Are Most CriticalSubmitted by Tyler Durden on 12/21/2009 - 19:30
Adam Smith, Charles Darwin and George Washington are not only rolling in their graves, they are dancing the macarena. A new study by the UMich School of Business has found what everyone has known since the crisis began, if not centuries prior: that the biggest, crappiest banks were guaranteed to get more bailout funding the more political ties they had (and more kickbacks they had offered). Is this sufficient to claim that capitalism in its purest sense has been corrupted beyond repair, courtesy of political intervention and constant pandering? Probably not, but it sure makes a damn good argument. In any case, the data is sufficient for all bears to start keeping a track of which banks are increasing their lobbying efforts and funding: those are the ones where the greatest weakness is likely still to be uncovered (if it hasn't already). And while the political relationship probably is not a big surprise to any realistic readers, another finding of the study makes a solid case for abolition of the "apolitical" Federal Reserve:
A new study by Ross professors Ran Duchin and Denis Sosyura found that
banks with connections to members of congressional finance committees
and banks whose executives served on Federal Reserve boards were more
likely to receive funds from the Troubled Asset Relief Program, the
federal government's program to purchase assets and equity from
financial institutions to strengthen its financial sector.
The unsupervised Federal Reserve gets to make or break banks, presumably under the gun of its one and only master, Goldman Sachs, which has already destroyed its major historical competitors: Bear Stearns and Lehman Brothers. This is a sufficient condition to not only audit the central bank but to immediately seek its abolition, and also to commence anti-trust proceedings against Goldman Sachs which is not only a monopoly, but by extension has veto power over the very regulatory mechanism that is supposed to keep it "fair and honest." The system is truly broken.
After an initial bounce early in the am courtesy of a variety of undeserved and circly jerkular upgrades by the big banks, equities zombied out as the liquidity providers scalped their penny quota for the day. In the meantime the DXY hit another multimonth high, passing and closing above 78, creating massive losses for a whole range of FX trading and correlation desks which have yet to unwind underwater positions. If the dollar continues rallying into the New Year a few banks will start 2010 from a 6 feet under (the water surface) position. Another observation, as Nic Lenoir discussed earlier, Treasurys are getting spooked. The name of the game is, once again, starting the be supply, supply, supply, made ever more dreary courtesy of some "we don't get this whole M.A.D. thing" statement in China. The whole posturing about the trade deficit means that Obama will now do everything to make consumer stay true to their noun. If this means Cash for Chinese Crap, or even Cash for Cash, so be it. Summers is already on it, and Bernanke just ordered another 100 tons of ink.
"We have very convincing arguments for further selling off in US Fixed Income...We have a lot of supply next week in a relatively low year-end volume to support our technical analysis from a fundamental standpoint, and China and the US have been clashing over climate talks the past week. Now we have statements by Chinese officials saying that if the US does not blow its trade deficit back out to its widest levels they will stop buying treasuries. In an environment where people are trying to correct imbalances, China demands more imbalances, and intends growing at a 10% pace without developping demand from its middle class. Irrespectively of whether China will follow suit or not, these open discussions in the media are enough to add fuel to the firesale." - Nic Lenoir, ICAP
Somewhere Julian Robertson is convulsing in a fit of lucre-driven epilepsy. The question for today: what is the bigger pain trade - an outright stock short, or a UST flattener? Everyone knows one shouldn't go against the Fed, however the Fed is behind both of these... So where will it crack first?
With sovereign CDS (and risk) finally becoming a heated topic of debate, Moody's has compiled its 2009 Review and 2010 Theme Review for sovereigns. The report opens with some rather stark and reasonable observations: "2010 may prove to be a tumultuous year for sovereign debt issuers given the uncertainties surrounding the likely pace and intensity of fiscal and monetary 'exit strategies' as governments start to unwind quantitative easing programs. Indeed, the only certainty is that the exit strategies will be fraught with a good deal of execution risk. In our view, the key policy challenge facing advanced economies is therefore to time the exit perfectly: not too quickly or too soon so as to prevent choking off growth; and not too slowly or too late so as not to unsettle financial markets." In short: 2010 will be the year when the experiment of offloading all private sector risk on the public balance sheet ends. Whether the conclusion will be a happy or sad one, remains to be seen.
"Now that the crisis is over, and given the special circumstances of the crisis, and Goldman’s contribution to value-destroying securitizations, it is in the public interest to claw back the money paid to Goldman Sachs. AIG did not need to settle for 100 cents on the dollar in November 2008, and in September 2008, a good negotiator would have refused to hand over more collateral, and should have clawed some back (or insisted it was a temporary loan). Money should be clawed back before Goldman pays out taxpayer subsidized bonuses." - Janet Tavakoli