Oil prices rebounded sharply on Monday, just as soon as we thought we had some conclusive technical indications that the oil complex might be headed lower. This has been an ongoing embarrassment for a number of us who have been watching this complex for most of our lives. Every time, we seem to see a fresh statistic or chart that tells us prices now want to move in one direction to the preference of the other direction, we see an immediate move in the opposite direction. On Friday, it looked like prices had made a top in this complex – to our eyes. Of course, by the end of the day’s trading, it looked like prices were back in a trading range - or might be turning higher, again. - Cameron Hanover
Lately, it appears, it has gotten trendy to bash the New York Fed's Permanent Open Market Operations (POMO), especially by various self-appointed godfathers of the blogosphere. The logic goes, or so we interpret the thinking, that any given POMO is nothing but yet another component of the various signals that enter into the "perfectly efficient market" and the Fed's intervention is something that is perfectly acceptable, should be a tradeable event, and is nothing of real significance (and, of course, the original narrative would come wrapped in 10 paragraphs or so of fluff). Whatever. Below, in collaboration with John Lohman, we show what the market would look like without POMO, versus a market that is predicated exclusively on FRBNY interventions. The bottom line: starting with the first POMO in 2005, when the S&P was at 1,200 and continuing through today, the broader market index would have been at just over 800 if performance from POMO days was excluded. Alternatively, purely POMO days would have had the effect of doubling the stock market in the past 5 years. We hope readers can decide on their own whether Fed intervention in this case implies causation.
The world's most traded security flash crashes. NYSE forced to unwind $500 million worth of shares. The market is a farce, wrapped in a joke, inside a tragicomedy.
150 funds are responsible for $177 billion worth of Apple's market cap. The question now is who, among the 150 below, in tried and true and neverfailing "game theory" will be the first to defect and bail, starting an avalanche in the price of the fad-focused retailer.
Funny thing about bubbles. They pop. HFTs playing a serious game of pass the hot grenade right now. Everyone please join us in prayer that Waddell and Reed does not decide to sell a block of 10 ES contracts right now, as the world could very well blow up.
Apple Halted As It Reports $20.34 Billion In Q4 Revenue, $4.64 In Earnings, Big Miss In iPad Sales ExpectationsSubmitted by Tyler Durden on 10/18/2010 - 16:33
Apple is halted as it beats top and bottom line: Q4 revenue USD 20.34BN vs. Exp. USD 18.90BN, Q4 EPS USD 4.64 vs. Exp. USD 4.10. Margins come weak, but that does not stop Steve Jobs from proclaiming: “We are blown away to report over $20 billion in revenue and over $4 billion in after-tax earnings—both all-time records for Apple.” Looks like ES is certainly not as impressed as the gaunt CEO, as the company undersells iPad by a big margin: Q4 iPads units sold 4.19mln vs. Exp. 4.81mln.
While the biggest near-term catalyst for the market will be the imminent earnings release from AAPL, which itself defines the market due to its massive weighing in various indices, stocks once again fizzled when priced in gold. The S&P for October continues to underperform gold, and today closed unchanged priced in non-fiat, which merely reaffirms that the loss in dollar purchasing power is not being compensated by the stock bubble. And yes, this happened even though it was a POMO day. As we have speculated, gold has become nothing less than a natural short hedge to stocks: one, which, however unlike traditional shorts, has no upside limit. As long as retail refuses to throw its hands up and join the ponzi orgy, the relative underperformance of stocks will continue. In the meantime, there is no POMO tomorrow.
As the ongoing strikes in France against austerity continue, and see increasingly more participation, the latest development is all too familiar to all those who travelled through Athens in the summer: huge lines for gas. About 1,000 gas stations across France have run out of fuel because strikers had blocked access to oil refineries and depots, Alexandre de Benoist, a Union of Independent Oil Importers official, told CNN on Monday. It gets worse: per the AP, the head of France's petroleum industry body said fuel reserves were "enough to keep us going for a few weeks." Jean-Louis Schilansky, president of the Petrol Industries Association, warned however that if the strikers continue to block fuel depots and if the nation's truckers join the movement, "then we will have a very big problem." Sure enough, truckers did join the fray on Monday, staging organized slowdowns aimed at snarling highway traffic. French TV showed images of cars and trucks on a "Snail Operation," driving at a snail's pace along the main highway between Paris and the northern city of Lille, with red union flags waving out the windows. Will Europe's little experiment with Austerity be doomed, as the continent realizes that there is no solution to the imminent insolvency of the PIIGS and soon everyone else, and should just enjoy it last months and days of the existing status quo?
Interactive Brokers' Peterffy Lashes Out Against The Broken Market, As Nanex Conclusively Proves HFT's Were Cause For Flash CrashSubmitted by Tyler Durden on 10/18/2010 - 14:47
A recent speech by Interactive Brokers' CEO Thomas Peterffy at the World Federation of Exchanges may just be the watershed insider conversion event that finally opens the eyes of all those who have been living for years with the delusion that modern markets are fair, honest and transparent. As the Interactive Brokers head says: "It is not so much anymore that the public does not trust their brokers. They do not trust the markets, the exchanges, or the regulators either. And why should they, given our showing in the past few years? I must confess to you that I was an ardent proponent of bringing technology to trading and brokerage. Unfortunately, I only saw the good sides. I saw how electronic trading and recordkeeping could be used to force people to be more honest, to make the process more efficient, to lower transaction costs and to bring liquidity to the markets. I did not see the forces of fragmentation and the opportunity for people to use technology to keep to the letter but avoid the spirit of the rules -- creating the current crisis. It is vitally important that we bring an end to this crisis of trust before it spreads any further; that we bring back order, fair dealing and trust in the marketplace." And if there is anything that the 23 sequential outflows from equities demonstrate, it is precisely that the average investor no longer has any trust in either the markets, or its regulator. Furthermore, the latest piece of evidence from Nanex, definitively confirms that not only was the Waddell & Reed's order not the catalyst for the May 6 flash crash, but it was the HFT buyers of this sell order, that "transformed
a passive, low impact event, into a series of large, intense bursts of
market impacting events which overloaded the system. The SEC report uses an
analogy of a game of hot-potato. We think it was more like a game of dodge-ball
among first-graders, with a few eighth-graders mixed in. When the
eighth-graders got the ball, everyone cleared the deck out of panic and
fear." At this point, to the SEC's chagrin, there is nobody left to watch how this particular game of dodgeball, or the latest propaganda scapegoating campaign for that matter, will end.
Just a brief intraday update on the USD. We have potential H&S formation in EURUSD, AUDUSD, and inverse H&S in DXY. Furthermore we are very close to the 61.8% retracement from the highs in AUDUSD at 99.26, and while in EURUSD the level is 1.4035, we have resistance around the highs of 10/0 and 10/10 between 1.4010 and 1.4031. Overall the USD if it must find support should ind it around here. AUDUSD chart shows massive saturation on the slow stochastic and the RSI is at levels where the market corrected both in May and October 2009. - Nic Lenoir
I wrote a couple of weeks ago about Brian & Ilsa, a retired couple in their sixties who were trying to refinance their house through HAMP, but were being jerked around by their bank—probably so the banks and servicers could get government bonuses that created perverse incentives to put homeowners into the HAMP program, then toss them out after a three-month "trial mod". In this update of their story, we find out the happy ending they got—and the cattle-prod to the crotch that their bank got. All Brian and Ilsa needed to do was say four little words: "Show Me The Note." — Gonzalo Lira
On the wires:
- Fed's Lockhart says leaning in favour of more monetary stimulus, decision not clear cut
Somehow this will lead to even more QE "pricing in", even though by now it is "priced in" about 150%. Of course, this is no surprise as Lockhart has long been in the opposing camp of an ever increasing group of hawkish Fed presidents such as Hoenig, Bullard, Kocherlakota and to some extent, Fisher. That only one of them is a voting member is irrelevant. After all at the end of the day, only one madman has the launch codes.
As if anyone needed a reminder of how corrupt Wall Street is, here are two easy to digest videos providing some additional perspectives on why the entity that controls the Fed, Congress and the Senate, not to mention the teleprompter in chief, is nothing but a bunch of criminals. While nothing new to regular readers, the NYT's Louise Story has taken a look at securities lending, dominated by firms such as State Street, BoNY and JPM, which she describes as follows: "funds lend some of their stocks and bonds to Wall Street, in return for
cash that banks like JPMorgan then invest. If the trades do well, the
bank takes a cut of the profits. If the trades do poorly, the funds
absorb all of the losses." In other words, just one more of two magic coin flips in which the US taxpayer always has a 100% chance of losing. The response by JPM on allegations that it entices clients in a rigged game is memorable: "If customers lose money that they have entrusted with the bank, he said,
that “can lead to a loss of clients and can affect the reputation of
the business." Um, what reputation? And in another clip, the Huffington Post Investigative Fund also takes a look at JPMorgan (is the administration's former war with Goldman now shifting over to the house of Dimon? That will teach you to turn down that SecTres post Jamie...) in a documentary which look at what it dubs Wall Street's new sweet spot "as surrogate tax collectors who see profits in tacking on fees and threatening to foreclose when homeowners fall behind on property taxes." Well, at least the whole foreclose bit is off the table for now.
One of the more notable 2010 "highs" achieved recently (and in a year when pretty much every metric is trading at or near all time highs, thanks to the Fed becoming the primary market maker in virtually everything), is the surge in Net non-commercial speculative positions in the VIX futures, which also confirms the latest bandwagon trade du jour. At -17,181, the net outstanding bets are at the most bearish for 2010, surpassing the previous record from August 17. However, while then the market was plunging, and the bet was a contrarian one, now it is one of momentum chasing, as pretty much everyone expects stocks to continue going higher, leading the VIX to plunge to fresh lows. So far it is working. Of course, as it the problem with every bandwagon trade, the second someone blinks and the direction in stocks is interrupted (and it will unless stocks continue rising every day from now until the last POMO officially takes America into a Fed-facilitated, ponzi-driven hyperinflation), the unwind will be vicious, as these are levered bets on what is basically a second derivative on stocks, which in turn are a first derivative on stocks. Anyone who wants to bypass all the daily noise and put a big bet either way, should just go the 4th or 5th level of leverage, and merely bet on whether this trend in record VIX bearishness continues, or, if it will stall. And since everything is now predicated on the moves in the dollar, and thus the EURUSD, the only question is how long will Europe tolerate incursions by the dollar in the 1.40+ space, which results in big losses to Germany's export sector, and thus, a very angry Angela Merkel.
Just when everyone thought we may see some moderation in the wholesale dumping of equities by those who actually know what their companies are worth better than moronic stock pumpers on stations that are rapidly losing their viewership, here come the same insiders and pull the rug right from underneath the latest batch of hot potato recipients (that would be various collocated computers mostly, and involuntary taxpayers course). Two weeks ago, insiders sold "only" 1,169 times more than they bought. Alas, last week selling apparently is the new black again, with selling outpacing buying on the S&P by a factor of 2,018. Insiders in Oracle, GameStop, Google, CSX and General Mills appear to be particularly partial to the new black. Something tells us CNBC will not pick up this particular piece of news.