Archive - Oct 27, 2009

The pension debate needs to reopened. It's not a Conservative, Liberal or New Democratic issue, it's about doing what's best for hard working Canadians. The reforms proposed today are simply not enough and will leave far too many Canadians teetering on the edge of pension poverty. Surely we can do better. We owe it to millions of Canadians that through no fault of their own, have fallen victim to vagaries of the market.

In a surprising outcome, Securities Industry News reports that according to a research survey conducted by Greenwich Associates, 55% of investors think high-frequency trading does not have a negative impact on their trading operations, "viewing the phenomenon as the latest development in a constantly evolving market," while 46% think that their institutions are placed at a disadvantage by traders who employ such strategies. Basically, the conclusion, before we disclose more of the study's observations, is that practically nobody has any idea what is really under the HFT surface. With an equal number of advocates and critics, confusion is rampant (and for some of the more vocal HFTsupporters who believe the NBBO is never crossed and displayed liquidity is always protected, we have three words: you are wrong... More on that and "qualified contingent orders" tomorrow).

"Goldman was not a disinterested party in AIG’s bailout. AIG’s bailout—and the way the payouts were handled for its trading counterparties—hugely benefited Goldman Sachs. Goldman received a cash payment worth more than $10 billion from the U.S. Treasury—via AIG—during a system?wide liquidity crunch. Under the circumstances, I cannot think of any scenario that would have provided a more certain and stable outcome for Goldman Sachs." Janet Tavakoli

"In terms of purchasing power parity, the dollar seems a tad undervalued these days, but that does not mean it will soon appreciate...Using a real exchange rate to judge whether the dollar is overvalued or undervalued, however, requires some reference point at which purchasing power parity holds. Such a point should also be consistent with a global balance-of-payments configuration that is sustainable. Good luck finding that!...Let’s hope the exchange market does not see something that the rest of us are missing." - Cleveland Fed

Fellow Zerohedge contributor George Washington parrots the lovely Janet Tavakoli and states his (her?) ire that the "Evil Vampire Squids" at Goldman SHOULD NOT have been paid at Par for their CDS trades with AIG.

I, for one, don't necessarily agree.

I originally wrote this list of recommended books last year; recently I updated and added a few more. I hope to keep adding to it every year. It contains six sections: Selling, Think Like an Investor, Behavioral Investing, Economics, Stock Market History, and Books for the Soul. Due to its length, I divided it into two parts. Here is part 2. I hope you enjoy it.

It was interesting to see the bears all come out of their caves today after the move yesterday. What's even more interesting is that non-bears joined the negative talk, with Bill Gross calling basically for a 30% sell-off in equities and arguing housing was overvalued by 50% from 2007 highs (by the way if the latter is true, the stock market should then correct by a lot more than 30%, more like 75%), and GS and BOAML came out with bearish outlooks on housing. Given upbeat equity predictions by the latter two firms (helps to have replaced Rosenberg with a bull!) it's all the more intriguing.

Although we remain committed to a higher rate world as the FED’s printing presses will (sooner than you think) create Inflation, we also believe that you can be both bearish on the market and a seller of ultra-high rate Insurance...A 10yr – 10yr payer swaption struck at 6.0% would roll up in mid-market price from 209bps to 265bps over three years, all else equal. Since being short while the curve is steep and being long options are both hugely negative carry positions, this situation was truly extraordinary. Over the next few months, we implored all who would listen to buy these options...This trade is not for the faint of heart. In fact, I can almost certainly assure you that you will not “top tic” this idea so you should expect this structure to mark against you early on. Nevertheless, with RV hedge funds sidelined until their VAR limits increase sometime in Q1 next year, the dealer community has had no choice but to press up the skew until a seller is found. We urge you to be that seller. The massive skews here create the anomaly that you can structure a costless package with almost no delta or gamma exposure for even a +200bps shock. - ML RateLabs

Yet another "Wash, Rinse, Repeat" cycle, as the Treasury Dept. attempts to hock out another $100+ billion, stocks are sold, de-risking returns, and investors lap up U.S. Dollars and Treasuries with a vengeance. It's getting way too easy.

If anyone wants to know why CNBC anchors are so pale and nervous these days, look no further. As Comcast CEO Brian Roberts considers what to keep and what to, well, cut, post his digestion of NBC Universal (assuming deal rumors are true naturally) his eyes likely cast casual nervous glances at Nielsen reports of CNBC viewership. Yet his nervousness is quite minor compared to what actual employees must be feeling after Nielsen reported a 50% plunge in CNBC viewership in October year over year. Specifically, CNBC has experienced a massive 52% decline in overall viewers during business day hours (5 am - 7 pm), and a not much better 49% drop in its demo (25-54) in the month of October as compared to last year. Specific shows that are likely to follow the fate of Dennis Kneale's recently cancelled 8pm gobbledygook are likely the Kudlow Report and Mad Money, which are down 59% and 56%, respectively.

It appears the computers are so used to low volume daily drifts higher that they literally are unable to handle i) spikes in volume and ii) sharp downward moves. Today, NYSE's Euronext subsidiary was so inundated with massive selling volume in ING that it decided to take a cigarette break and shut down trading in the company altogether.

The defenders of the TBTFs say that bigger is more efficient.

Are they right?

"Rage, rage, against this conclusion if you wish, but the six-month rally in risk assets- while still continuously supported by Fed and Treasury policymakers - is likely at its pinnacle. Out, out, brief candle." - Bill Gross, PIMCO

Janet Tavakoli with some more great quotes ...