Schaeffler Financing Complete, Next On Deck: Continental Merger And Lots Of Pain For RBS

New developments in that "other" German automotive soap opera. Reuters is reporting that the most insanely leveraged behemoth of an auto-supplier, Continental-Schaeffler has finally managed to close on the terms of a critical $17 billion deal, a critical step which will make the biggest M&A blunder in the last decade (tiny ball-bearing maker Schaeffler's purchase of much, much larger and much more indebted auto supplier conglomerate Continental).

Q2 Hedge Fund Asset Flow Summary

HedgeFund.Net has compiled Q2 asset flow trends in the hedge fund industry. Surprisingly, in Q2 the bulk of the increase in AUM (a 5.9% increase to $1.8 trillion) was primarily performance driven rater than coming from investor flows. The trend of outgoing investor flows seems to have moderated but as of June was still negative. It is possible that at the market's peak in July, investors finally starting allocating capital to select performing strategies, just as the market was peaking. And as anyone within earshot of a hedge fund in 2008 will attest, money flows out much faster than in. If the same investors are bitten again once the melt up has no more room to grow, it should get quite interesting.

Congratulations To Matt Taibbi For Winning Wall St. Cheat Sheet's Best Reporter Award

Damien Hoffman could not have picked a better person for his Wall St. Cheat Sheet Best Reporter Award for Outstanding Journalism: Matt Taibbi. Matt, who effuses just the right amount of gonzo, deadpan, fact, fiction and paranoia, embodies perfectly the qualities of what a real reporter of our Kafkaesque reality should exemplify and strive to - namely, through the grotesque (yet grounded in reality) to bring attention to the small details that the establishment has long sought to keep deep in the shade, in perpetuation of a status quo that has persistently and increasingly benefited just a small minority.

PIMCO and Zero Hedge?

In an article titled "The dumb money is buying equities" dated August 17, 2009, City Wire's Charlie Parker writes:

Please understand me, if you are a buyer of equities at the moment then I am not calling you stupid.

I am just saying that you are acting with the stupid. In fact, it is not really me that is saying this, but Pimco.

The mammoth US fixed income operation, which is most famous for bringing investor Bill Gross to the world, also offers a prolific blogging service from its fund managers. The service, called 'Zero hedge', comes with the rather unnerving catchphrase 'On a long enough timescale the survival rate for everyone drops to zero'. Anyway.

Levitt, Advisor To Goldman And Getco, Voices For HFT

Arthur Levitt, former chairman of the SEC, writes an Op-Ed in the WSJ on HFT, titled "Don't set speed limits on trading" providing the usual justification for the phenomenon, claiming it "contributes significantly to market liquidity, a critical measure of market health and something all investors value." What ensues is a less than objective defense, with no disclosure of his existing substantial conflicts of interest.

Frontrunning: August 18

• PPI down 0.9%, Core down 0.1%, more than forecast - Byron Wien: "most certainly last month of deflation" (Bloomberg)
• July housing starts of 581,000 down 1.0% versus June 587,000 (Bloomberg)
• CIT second-quarter loss narrows, posts reserves for bad loans (Bloomberg)
• UK inflation is presumably high as booze, video game and DVD prices rise, a sure sign "recession eases" (Bloomberg)
• Democrats urge Obama to keep government-run health-care option (Bloomberg)

OpEx Max Pain

We closed at OpEx max pain. If SPY moves sideways right into Friday 4pm, the market will prove to be a vicious sadist, to which masochistic traders return day after day, begging for more. Of course, one assumes the Chinese bubble doesn't implode first.