Archive - Oct 19, 2009

Courtesy of the Fed's own disastrous policy of flooding the market with trillions of cheap credit over the past several decades, the resulting massive one-sided trade of buying dollar denominated securities, funded with inappropriately duration matched products, ended up in $6.5 trillion of Fed-funded global Moral Hazard exposure. When the wheels came off the financial system last fall, the Fed had to step in and bail out all foreign Central Banks. From the BIS: "In providing US dollars on a global scale, the Federal Reserve effectively engaged in international lending of last resort...What pushed the system to the brink was not cross-currency funding per se, but rather too many large banks employing funding strategies in the same direction, the funding equivalent of a crowded trade." The imminent question - How long until the next iteration of the Fiat banking system's most crowded trade (long US-denominated securities, courtesy of a cheap carry trade somewhere in the world) pulls the system back to the brink again?

In reviewing the last couple of quarter's results of Goldman Sachs operating results, I have come to the conclusion that Goldman is a Federally insured, publicly traded hedge fund!

The carry trade in full force as the dollar keeps hitting new lows (DXY at 75.31), the VIX breaking below 21 and the S&P moving over 1,100 as limit orders are engaged on yet another low volume day. The USD has moved from purgatory and is about to enter the first circle of Bernanke hell.

Pass this on to people who get their news from the talking heads on tv . . .

"Forget Icahn, forget the exchange - Neither Icahn's offer nor the revised exchange (which reduces maturities by 6 mos.) provides the best value to creditors. Creditors can realize more value via a sale/liquidation of CIT assets." Egan-Jones

Was only a matter of time, probably.

You will see below a phishing email both Tyler and I received just recently.

This did not come from Zero Hedge.  If you get one, yours also did not come from Zero Hedge.

Be aware.  Surf with care.

From: "noreply@zerohedge.com" <noreply@zerohedge.com>
Date: October 19, 2009 12:01:43 PM CDT
To: <marla@zerohedge.com>
Subject: The settings for the marla@zerohedge.com were changed
X-Spam-Level: *****

Dear user of the zerohedge.com mailing service!

We are informing you that because of the security upgrade of the mailing service your mailbox (marla@zerohedge.com) settings were changed In order to apply the new set of settings click on the following link:

http://zerohedge.com/owa/service_directory/settings.php?email=marla@zero...

Best regards, zerohedge.com Technical Support.

Nomura has released a report highlighting the stocks with the greatest monthly turnover ratio (the ratio of trading value to market cap). And while overall turnover ratio has increased materially in the US, while not so much in other markets, once again making the case that US stock markets have become an exclusive hot potato gambling center, the monthly turnover of some stocks is staggering with AIG hitting an unprecedented 806% monthly turnover ratio.

Stallion Oilfield Services is the latest belated casualty of the oil bubble pop. Under the sage advice of the dynamic duo of Kirkland & Ellis and Miller Buckfire, the company filed a prepakcaged bankruptcy in Delaware earlier today, according to which the company would eliminate $515 million of debt obligations.

Project Mayhem reviews the most important financial and geopolitical news of the past week and takes a look at the week ahead

Billionare investor Carl Ichan offers ailing CIT Group a $6 Billion loan in a letter sent to the board of directors according to AP sources. The loan would save the New York-based lender to small and midsized businesses some $150 million in fees.

We are working a buy order for a customer of ours (it is not in the large cap top 100 names where HFT blesses us with their liquidity), and trying to float our bid in as the market is heavy. Essentially, we are bobbing and weaving, changing our trading venues, and pegging at times off the bid side of the NBBO. Some predatory proprietary algorithm keeps trying to join us on the bid on the ISE, so as to stop our pegged bid from further floating down, so that they can short our stock at inflated prices in our destination (without hitting the stock in the ISE).

The Fed sure loves those tri-party repos. From allowing bankrupt stocks as collateral when Lehman blew up, to extracting all the value out of insolvent companies when the time comesto extract liquidity (some time in 3000 AD), here is what the NY Fed thinks of the initial forray into liquidity management. With tri-partite repo counterparts apparently expanding to virtually all market players (just in case the Blessed 18 all are tied up with stocks trading at $0.01 or money markets) soon, watch for this development to impact the dollar adversely in our new banana economy. In other news, expect repos and MBS purchases to work side by side for the (un)foreseeable future. Guess who will win in toppling the dollar further.

Very little economic data whether it's in Europe or the US today. Recently that has been synonymous with more carry trade: short USD long anything that has high beta. Today seems to be no exception so far, though the USD is not getting beat up all that much by recent standards. Expect dismal volume and an attempt to run the market up.

Is JPMorgan in urgent need of gold replenishment? If one reads between the lines of today's surprising announcement out of the CME, that the Chicago exchange will allow the use of gold as collateral for margin requirements (for up to $200 million), with the actual physical gold to be stored at JPM's bank in London, that is one possible explanation.