Guest Post: A Grand Unified Theory Of Market Manipulation

There is much speculation and anecdotal information regarding the rally that began March 6 2009, which have suggested the gains are the result of massive manipulation on the part of the Federal Reserve (FR) and the large institutions that dominate Treasury securities dealing, program trading and the derivatives markets. Traders have reported that traditional indicators and metrics used for market analysis stopped working for periods of time or altogether, and that correlations among markets have been erratic and quick to change. Record program trading by Goldman Sachs as reported by the NYSE, heightened focus on high frequency trading (HFT), outsized profits by the large and well-connected banks, along with unprecedented intervention by the FR in the markets only fuel the manipulation speculation.

Guest Post: Dr. Blankfein, Or: How I Learned To Stop Worrying And Love Goldman Sachs

The Financial Crisis was a Hoax. The global casino is open again.

No worries!  You actually believed there was a problem when Paulson and Bernanke threatened Congress last year with Martial Law; to blast the U.S. economy back to the 16th century; to crash the market unless ransom was paid requiring each American to fork over $100,000, give or take, dollars in impossible-to-payback future loans today to add to the hundreds of thousands each American already owes forever.

HAHAHA. It's all good, bro.

Frontrunning: August 3

• Goldman Sachs' reputation tarnished (FT)
• HFT Recap:
  • Paul Krugman - Rewarding bad actors (NYT)
  • RIse of hte machines (Economist)
  • Countering High-Frequency Trading (Strategic Reasoning)
  • Tradeanator 2: Settlement Day (YouTube)
• Wall Street profits from trades with the Fed (FT)

Daily Highlights: 8.03.09

• Asian stocks rise, as Mitsubishi UFJ leads banks higher; Nissan advances.
• Bank, auto shares jump in Japan; Topix hits 9-month high but Nikkei fractionally lower.
• Britain's manufacturing sector grew in July; pound rallies on the news.
• Cash for Clunkers program could end unless Senate approves $2B in addln funding.
• China's Manufacturing grows in July as lending, stimulus counter slump in exports.
• China shares hit 14-month high as surveys show manufacturing is expanding.

On The Triviality Of Campaign Promises And "Letting The Process Work Its Way Through"

Some more memorable blue pill moments brought to you courtesy of Washington D.C.

Weekend Reading

• More on GDP:
  • GDP Report is just plain wrong (Chris Martenson)
  • Wacky waving inflatable arm-flailing GDP report (Melting Pot Project)
  • Been down long long it looks like up (Econbrowser, h/t Paul)
  • Falling Imports versus falling Exports (Ritholtz)
• The next brewing scandal: Chase serves itself first in mortgage mods; MBS bond holders up in ARMs (DebtWire, h/t Paul) - "You have Barney Frank and the government raising all this noise about hedge funds and investors, and you have Chase … taking half the borrowers’ interest payment each month"
• Who is Capco? (NYT)

Goldman Correlation Desk Makes Mint On CIT CDS, Sallie Mae Up Next

One of Wall Street's biggest whipping boys since the post-Lehman days, culminating with the insanity in credit markets in early March, have undoubtedly been correlation desks. These trading outfits, which hit their heyday in 2004-2005, when CDS spreads were nice and tight, and negative convexity would at most bring a 20-30bps widening, would repackage securitization tranches whereby usually they kept the senior and equity wrap around a mezzanine piece, which was in turn sold to investors. Buyers of mezz tranches, whose junior and senior layers would become impaired after a 15% and 30% cumulative losses, respecitvely, saw what the definition of a world of pain is first hand recently, and effectively shut down the correlation business at many major banks. But not all.