RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 24/09/10
Ironically the only sane call on the now openly deranged market action comes from an long-term institutional establishmentarian in the face of none other than Templeton's Mark Mobius. His brief and spot on assessment : "The entire Petrobras issue is an abomination and a terrible violation of shareholder rights. We may be entering an IPO bubble. It means that people are just not looking at the values and irrationally buying these things." Oh shut up Mark, who cares about values... Yet perhaps someone can channel a little Mobius on CNBC so he can quell some of the overly exuberant lunacy that is spewing forth from the now leaderless TV station, which nonetheless does nothing to change the autopilot "ponzi propaganda" mode.
Easy Al Greenspan created the Mother of All Bubbles by keeping interest rates at 1% for a prolonged period of time while encouraging everyone to take out adjustable rate mortgages. His unshakeable faith in the free market policing itself allowed Wall Street criminals, knaves and dirtbags to create fraudulent mortgage products which were then marketed to willing dupes and “retired” internet day traders. Al’s easy money policies and disinterest in enforcing existing banking regulations also birthed the ugly stepsister of the Mother of All Bubbles. Her name is the Consumer Debt Bubble. The chart below is hauntingly similar to the home price chart above. The consumer will be deleveraging for the next ten years. The numbskulls on CNBC and the other mainstream media have been falsely reporting for months that consumers were deleveraging when it was really just debt being written off by banks. Baby Boomers are not prepared for retirement and will be shifting dramatically from consuming to saving. As consumer expenditures decline from 70% of GDP back to 65% of GDP, consumer debt will resemble the home price chart to the downside.
The first global currency wars are now delcared fully open. Participation for all non-gold standard backed countries is mandatory.
BN 11:47 *BRAZIL CENTRAL BANK TO BUY DOLLARS IN SPOT CURRENCY MARKET
BN 11:47 *BRAZIL CENTRAL BANK TO BUY DOLLARS 3:46-3:51 P.M. LOCAL TIME
BN 11:42 *PERU CENTRAL BANK ANNOUNCES U.S. CURRENCY PURCHASE ON WEBSITE
BN 11:42 *PERU CENTRAL BANK BUYS U.S. CURRENCY AT 2.7870 SOLES/DOLLAR
BN 11:42 *PERU CENTRAL BANK BUYS $156 MILLION IN FOREIGN-EXCHANGE MARKET
At least Peru stocks are surging. The wealth effect to the 20 people who hold them is palpable. Apple is already laying the groundwork for its latest store in Lima.
Themis trading has submitted a white paper suggesting what the four distinct steps the SEC may take as a response to a sudden surge in complaints against pervasive and uncontrollable HFT market manipulation. These are as follows: i) Alter the existing single stock circuit breaker to include a limit up/down feature; ii) Eliminate stop-loss market orders; iii) Eliminate stub quotes and allow one-sided quotes (a stub quote is basically a place holder that a market maker uses in order to provide a two-sided quote), iv) Increase market maker requirements, including a minimal time for market makers to quote on the NBBO. We believe option 4 would be the most applicable, yet most retail investors will likely be most interested by the elimination of the traditional stop loss option that has become a staple in retail investing. Themis describes this possibility as follows: "Many investors that lost money on May 6th did so because they thought they were protecting themselves with stop-loss market orders. As the market melted down, these orders were activated and chased prices down a vicious spiral. These orders were not the cause of the Flash Crash per se, but they resulted in enormous damage to many unsuspecting traditional investors. The SEC has indicated that it may require market order “collars,” effectively converting market orders into limit orders." Schapiro is expected to release her list of recommendations shortly, and we are confident the entire HFT lobby is currently waiting patiently in her lobby to lavish her with untold riches which serve one function and one alone: convincing her that HFT does nothing but provide liquidity and collapse bid/ask spreads. The fact that it also collapses the market may be conveniently left out.
Large spread trades in Jan. GLD Options: customer sold Jan 115 and 120 calls and bought 130 calls. Looks like about 16 mil taken off the table while still maintaining a long GLD call position.
Grayson Sends Letter To Fannie CEO Demanding Explanation To Company's Actions Vis-A-Vis Pervasive Mortgage FraudSubmitted by Tyler Durden on 09/24/2010 - 13:17
Alan "Taz" Grayson is back again, and asks some very relevant questions of Fannie's CEO Michael Williams:"Why is Fannie Mae using lawyers that are accused of regularly engaging in fraud to kick people out of their homes? Given that Fannie Mae is at this point a government entity, and it is the policy of the government that foreclosures are a costly situation best avoided if there are any lower cost alternatives, what steps is Fannie Mae taking to avoid the use of foreclosure mills? What additional steps is Fannie Mae going to take to ensure that foreclosures are done only when necessary and only in accordance with recognized law? How do your servicer guidelines take into account the incentives for fraud in the fee structure of foreclosure attorneys and others engage in the foreclosure process? What mechanisms do you employ to monitor legal outsourcing?" He almost asks the correct one: "Is Fannie (and Freddie) a shell operation to willfully and illegally transfer non-existent deeds to servicer banks so they can collect subsequent cash flows associated with misappropriated properties, while receiving tens of billions in taxpayer funding each and every quarter."
All I can say is that Naoto Kan must be fuming. Ben Bernanke accomplished with three words what it took Mr. Kan $24 billion to do and Ben doesn’t even look like the bad guy. In fact, Ben Bernanke is looking pretty brilliant right now, in my view. By doing the only thing he can do in these “unusually uncertain” times which is to assure investors that the Fed will step in and “provide additional accommodation” if the outlook should deteriorate, Mr. Bernanke has convinced investors he’s holding a royal flush. And because investors are choosing to believe his bluff and that another round of quantitative easing will be launched to stimulate a slow economy if needed, investors are doing Mr. Bernanke’s bidding for him. In just a few days, Treasury yields are down dramatically and the dollar has declined by as much as 1.5% since the Fed’s statement. If the Fed really plays this hand right, it may even help with its inflation mandate, stimulate economic growth, and push investors toward risk.
A few months ago we penned an article titled: "Bond Yields Imply The Fair Value Of The S&P Is 750" and this was when the 10 Year was still above 3.00%. It is now around 40 bps tighter, meaning the fair value of stocks is even lower based on the historical regression pattern we indicated back in June. Today, David Rosenberg also chimes in on this ridiculous divergence between the S&P and bonds, and in graphic form shows that should the gap ever close, it would lead the stock market to its fair value, which ironically, is just around the March 2009 lows of 666 based purely on bond yields.
Presenting the chart of AAPL: the stock, which has surged from $240 to $292 in less than a month, has done so without violating the 2std dev upward channel once! In other words, nobody but programs which are designed to trade within the traditional technical upward channel of +/- 2 Std Devs are doing the trading in AAPL. And now that your confidence in a rational, non-binary market has returned, please buy, buy, buy. And pray none of these machines has a short circuit, and/or nobody decides to use the Stuxnet virus on the NYSE.
Same Fund That Is Now Investing In Greek Bonds Sues Citi Over "Willful Financial Misstatements" Causing Fund To Buy Citi SharesSubmitted by Tyler Durden on 09/24/2010 - 11:48
A hilarious little detour that will likely get no press attention and will be promptly covered up with another taxpayer sponsored settlement. Apparently the Norway Wealth Fund has decided to sue Citi "over alleged misstatements about the company's financial condition, which it claims caused it to buy Citi shares at inflated prices." The purchases resulted in over $835 million of losses in Citi stocks, bonds and preferred. And the cherry on top is that this is coming from the same fiduciarily irresponsible people who are now buying up Greek debt on the assumption that on a Yield to Infinity it is all "money good." Has the collective IQ of investors in the world over the past 30 years just correlated inversely with the amount of cheap (and now free) liquidity out there? Just how dumb do you have to be before you realize that everything is rigged?
The Fed just completed today's POMO. The result: $3.9 billion in debt monetized, and swiftly used by the PDs to force the Ponzi ramp to new ludicrous heights. This brings the weekly high beta stock liquidity injection courtesy of Brian Sack to just under $12 billion. After all gotta get the sheeple in: otherwise what greater fool will the HFTs and insiders sell their holdings at ever higher cost bases to? Also, the Fed is just oh so generous: the submitted to accepted ratio was the lowest during the entire QE Lite episode so far. Even banks are not all that confident they can convert the "sure money" from USTs into risk free return in a 1,000,000 PE Amazon, of course assuming the Kindle expert does not begin selling crack cocaine on its website (at margins that may for once be positive).
Last night the New York Federal Reserve reported its custody account holdings of agencies (red line, bottom panel) dropped $45.972 billion, or -5.8%, in the week ending Wednesday, September 22. Both measures are a weekly record decline. At the same time, custody holdings of Treasuries (blue line, top panel) increased by $49.657 billion, or 2.06%. This is a nominal record and the largest percentage increase in two years (since Oct 8, 2008). We have heard/read no explanation or color about this decline. So we cannot say whether this massive shift out of agencies and into Treasuries means foreigners are “running scared” from agencies or if this is simply some kind of technical adjustment.