Now that the NYSE no longer has to concern itself with various overeager acquirers procuring highly confident letters from the likes of Jefferies that it can procure 10x Debt/EBITDA B2/B- HY bonds to purchase every single public exchange in the world, it can focus on doing what it does best: busting flash smash trades, and taking away the profits of those who are lucky enough to spot an algo gone apeshit and trade against it. Earlier this morning the stock of Strategic Hotels and Resorts 8.25% Cumulative Preferred Shares (BEE.PR.C) traded from $29 to $2,600 in just about a second. Thank you NYSE, SEC and fair and efficient markets. Or, according to Mary Schapiro, Waddell & Reed. Naturally none of this is any consolation to those who may have prudently been hoping that some idiot robot will take the stock into the stratosphere and had a $2,600 sell limit: all trades (all 15,900 of them) above $29.74 were cancelled. Thank you fair and efficient SkyNet.
Yesterday when we broke the news that DSK was housed in Rikers Island "West Facility" reserved for inmates with infectious diseases, we speculated, jokingly we hoped, that this may be due to his affliction with a certain sexually transmitted disease. Alas, if what the the NY Post reports this morning ends up being true, the situation may be substantially more serious: "Dominique Strauss-Kahn may have more to worry about than a possible prison sentence. The IMF chief's alleged sex-assault victim lives in a Bronx apartment rented exclusively for adults with HIV or AIDS, The Post has learned. The hotel maid, a West African immigrant, has occupied the fourth-floor High Bridge pad with her 15-year-old daughter since January -- and before that, lived in another Bronx apartment set aside by Harlem Community AIDS United strictly for adults with the virus and their families." Oops.
In a report released yesterday titled "Multipolarity: The New Global Economy", that other "bailout" organization, the World Bank, says that due to the developing world's pronounced greater growth curve through 2025 (expected to grow at 4.7% compared to 2.3% for the developed countries), the outcome will be that "The balance of global growth and investment will shift to developing or emerging economies." More importantly, as the FT summarized, a "different international monetary system will gradually evolve, wiping out the US dollar’s position as the world’s main reserve currency." As a result of these "inevitabilities" (which will be interested to see how they are attained considering according to a recent report, the world will need to double its debt to double it GDP, so where all this new debt will come from we don't really know), there are three potential scenarios: i) A status quo centered on the US dollar, ii) A system with the Special Drawing Rights (SDR) as the main international currency, iii) A multicurrency system. And while this obviously covers every possible outcome so absolutely no value added there, the WB is focused on outcome iii and believes that the dollar will gradually shift away from its current position of reserve currency prominence. This is not surprising: after all it is none other than World Bank president Robert Zoellick who recently predicted a return to the gold standard and an end to USD hegemony. Our advice to Bob: stay away from penthouse suites at the Sofitel.
Following the risk aversion rally in bonds over the past month, as a result of the increasingly jittery outlook on stocks, many dealers have had to realign their positioning in the rates arena. And while some who have an outright short exposure on the fixed income market such as Pimco attempt to downplay their bearishness for fears of how LPs will react, others like Goldman are becoming increasingly more vocal in their bearish bias to fixed income. In a note released overnight Goldman's Francesco Garzarelli repeats that the firm which does god's work continues to be negatively inclined toward the treasury prices, reiterating its 10 year forecast (3.50% and 3.75% for 10-yr USTs by end-June and end-December), although not due to structural considerations such as the US being technical insolvent if not practically so (for the time being the US is more than capable of paying its interest expense out of collected tax revenue) but due to the ongoing false impression that the economy is improving. In short, due to still strong (and soon to be revised lower) forecasts on US GDP, coupled with increasing inflation expectations, Goldman urges clients to be short here: "Consistently, we would treat a further decline in intermediate to longer-dated yields as an opportunity to recommend short positions again." So while in the long-run Goldman is likely correct, it is for the wrong reasons. The right one, naturally, continues to be the latent threat of fixed income rumblings manifesting themselves via the latent bond vigilantes finally moving away from Europe and shifting their attention to the insolvent US. With the Fed shifting away from its position of structural support in the fixed income market following June 30's end of QE2, the economy will once again be in uncharted territory especially with a record amount of bonds needing to find willing buyers over the next 12 months. On the other hand, with GS clients urged to sell bonds, that means that as usual Goldman is buying, so take the typical reverse psychology approach to any Goldman call with a grain of salt.
- Al Qaeda names Egyptian militant Adel as interim chief - Al Jazeera (Reuters)
- Geithner: U.S. must deal with budget woes or pay more (Reuters)
- Pressure mounts on Strauss-Kahn to quit (FT)
- IMF issues stark warning to Greece on fiscal goals (Reuters)
- Europe Aims to Keep IMF Job After Strauss-Kahn (Bloomberg)
- The eurozone after Strauss-Kahn (Martin Wolf, FT)
- U.S. mulls White House aide Lipton for IMF No. 2 job (Reuters)
- Could Greece be the next Lehman Brothers? Yes – and potentially even worse (Guardian)
- Moody's Cuts Rating of Four Major Australian Banks (WSJ)
- Fed seeks annual US bank stress tests (FT)
- Mideast peace bid needed more than ever (Reuters)
- World Bank sees end to dollar’s hegemony (FT)
As Repo Volumes Plunge And The GC-IOER Carry Trade Dries Up, One Third Of Treasury Repo Volume Is Now At Negative RatesSubmitted by Tyler Durden on 05/18/2011 - 08:15
Zero Hedge was the first to observe the curious phenomenon of the collapse in the General Collateral-IOER carry trade following the implementation of the FDIC assessment rate back in early April (discussed in depth here) which continues to force repo rates far below where they would ordinarily be (and is generating an undue amount of stress on short end rates, impacting money markets, repo, and other shadow economy components, and also substantially complicating an unwind by the Fed if and when one occurs). But that's not all. As Barclays' Joseph Abate points out, another consequence, which is rapidly becoming appreciate by repo market players, is that up to a third of all Treasury repo volume now trades at sub zero rates, making life for money markets a living hell, which perhaps that was the goal all along... And while the fails rates for the time being has not picked up substantially (liquidity is still ample although if the Fed continues to pummel the market with its foolhardy sale of Maiden Lane II securities this may change, more on this later), it does present a complication for the Fed, should Bernanke decided to halt securities reinvestment. Granted it appears this will not be a major worry at a time when some believe QE3 is a given, and others believe QE2 Lite will be precisely the ineffectual, yet critical reinvestment of maturity securities.
Today's Economic And Political Docket - FOMC Minutes, Toomey On The Debt Ceiling, Hearing On SecuritizationSubmitted by Tyler Durden on 05/18/2011 - 07:55
The only thing on today's light economic calendar is the FOMC’s April 26-27 meeting minutes, as the Fed proceeds to monetize bonds now that the debt ceiling has been reached. And meanwhile in Washington we get a debt limit discussion, two securitization-related events, and another energy vote that is expected to fail...
According to Gallup, attempts to distract the US population with trivial side stories is failing spectacularly, as 74% of survey respondents have responded that the economy is the "most important problem" facing America today, which is the highest percentage in two years, and since the market lows in March 2009. So even as the market has doubled, this appears to have done little for the average American who is now more concerned about the true "economy" than ever since the Great Financial Crash, and not merely the one indicated by the Russell 2000. Chalk one more failure to Ben's attempt at forcing the wealth effect upon the great unwashed.
U.K. unemployment claims rose in April at the fastest pace since January 2010, showing the very fragile nature of the recent tentative economic recovery. Government spending cuts, austerity measures and accelerating inflation are clearly beginning to impact embattled consumers. In the U.S., stagflation is also an increasing, if unacknowledged, threat as the classic symptoms of inflation - slow growth, high unemployment and inflation are present. Weak U.S. factory output and home building data yesterday suggests that the world's largest economy is slowing down again. Official inflation figures in the U.S. remain benign but hedonic adjustments and many adjustments to the methodology of calculating inflation in the last 20 years mean that that the Consumer Price Index is no longer an accurate measure of real inflation in the economy. This macroeconomic risk coupled with continuing geopolitical risk is supportive of gold continuing to receive safe haven demand. The launch of the new Hong Kong Commodity Exchange will result in Asia having an even bigger say in prices of commodities and precious metals. The exchange is backed by China’s biggest bank and a Russian tycoon and will challenge established markets and exchanges in Europe and the U.S.
I am now of the opinion that the US will have to go back to fighting deflation soon and that Q/E (probably in a different form) will be needed. Massive inflationary impacts look to be delayed (for now): Whilst I am happy to accept that Bernanke may have delayed or stopped a deep depression for now and that he has made a lot of Wall St. guys very rich, the whole idea of the Q/E programme was supposed to be, if we are to believe him, to create growth and set the economy back on a sustainable growth path, reduce unemployment and cure the housing problem by getting banks to lend and the consumer spending. Mate, you failed! Unemployment is still at 9% (and a lot more if you look at the real stats), the participation rate is falling and the amount on food stamps is over 4mln! Housing is spiralling lower again as prices continue to fall and banks, whilst having their balance sheets ballooned by free money still sit on hidden toxic waste from the sub-prime issue and refuse to lend at competitive rates.
A snapshot of the European Morning Briefing covering Stocks, Bonds, FX, etc.
Market Recaps to help improve your Trading and Global knowledge
What we are witnessing is the ideological exhaustion of “Western liberal democracy” and therefore the last gasp of the fraud upon which it rests: the state, even its best form. No longer able to hide behind the Jeffersonian dream of constitutional freedom and order or the Lincolnian myth that the dream could be preserved at the expense of the principle upon which it was founded, the American state’s demise proves that “the final form of human government” has not yet arrived – not because a final form shouldn’t have arrived but because, for those who have had so much fun during historical times, the aftermath won’t be any fun. On the contrary, it will be “a very sad time”
As of 8 pm Eastern, the Comex' monopoly to the precious metals futures is over. As we reported previously, today, at 8 am local time, is when the Hong Kong Mercantile exchange would start trading the inaugural Asian precious metal futures contract: the 32 ounce /1 kilo/ gold futures. In the first 30 minutes of trading it appears to have been a subdued session, with just 22 contracts changing hands in the August 2011-June 2012 frame. How this trading will impact prices: nobody knows (yet). The spot price of gold has barely budged in the past hour. That said, now that PM futures fragmentation is starting, we expect that within 2 years we will have various deranged HFT algos trading tonnes of gold, quote stuffing globally, and otherwise creating one of the most volatile trading environments imaginable. And since we know you are asking: the margin schedule for the HKMerx will be kept and listed by the same LCH.Clearnet that hikes and lowers Irish and Portuguese bond margins by 10% on an almost weekly basis. Let see now how the Comex hikes its gold margins with impunity if it has competition that keeps margins "artificially" low, and provides disgruntled Comex clients with an alternative venue that accepts far less cash collateral to trade.
There are those who thought that following the material pushback by every chatterbox on CNBC that the muni situation is actually nice to quite nice, contrary to what Meredith Whitney had prophesied, that the scourge of Citi would slink back into whatever hole it is she crawled out of. And then there is Meredith Whitney, whose occasional appearances on TV have resulted in 25 weeks of consecutive, and material outflow from municipal funds. Undaunted by her critics, she has now doubled down, and shifting away from munis, is now focusing one level higher: on the state financial crisis. Her conclusion, sure to set off a firestorm of angry responses tomorrow when the Op-Ed hits the print version of the WSJ: "Defaults in a variety of forms by states and municipalities are already happening and more are inevitable. Taxpayers have borne the initial brunt of these defaults by paying higher taxes in exchange for lower social services. And state and local government employees are having to renegotiate labor contracts that they once believed were sacrosanct." And sure enough, she refuses to abandon her muni thesis: "Municipal bond holders will experience their own form of contract renegotiation in the form of debt restructurings at the local level. These are just the facts. The sooner we accept them, the sooner we can get state finances back on track, and a real U.S. economic recovery underway." Yes, well, one can argue that the sooner Ms. Whitney accepts that the modus operandi in the developed world is to preserve the status quo no matter the cost, and kick the can down the road indefinitely, the sooner we can all get back to a state of vegetative existence in which nobody questions anything and the world is one swell place until everything blows up.