Archive - Oct 2009

The weakest sector was commercial real estate, with conditions described as either weak or deteriorating across all Districts. Banking also faltered in several Districts, with Kansas City and San Francisco noting continued erosion in credit quality (often with more expected in the future). One bright spot in the banking sector was lending to new homebuyers, in response to the first-time homebuyer tax credit. Finally, labor markets were typically characterized as weak or mixed, but with occasional pockets of improvement.

"Banning flash orders and imposing limits on dark pools should not be the end of the story, nor should they be seen as sacrificial lambs offered up by a substantial majority of Wall Street players as the price to ward off deeper review. Chief among the systemic issues that must be carefully reviewed is high frequency trading, which now makes up over 70% of the daily market volume. The SEC needs to closely review these strategies -- whether employed in dark pools or the public markets -- to ensure that high frequency traders are not able to take advantage of the long-term investors who are the backbone of our capital markets. It is the SEC’s mission to protect long-term investors, who care about the valuations of the underlying companies, not those who quest for trading profits achieved in milliseconds." - Senator Ted Kaufman

No sooner than we took note of the sudden appearance of Fortune's puff piece on the restructuring genius embodied in Steven Rattner, the man himself appears on Bloomberg Live TV (adroitly brought to you by the new E-Class by Mercedes Benz!) almost literally reading word-for-word from a cutout of the Fortune article.  Why, one wonders, the sudden push?

DXY Breaks 75, No Statement From White House Over Dollar Coma Forthcoming

S&P futures put on another nice intraday bear trap today. As we had discussed in the morning, 1,082 was partially violated but we needed a quick acceleration and a break of 1,075 to confirm the break on the Dax of the 5,750 level. As we are getting used to this kind of bear trap, we had indicated that the market should move down quickly, otherwise any hesitation would result in testing and breaking 1,091... As always the market does not fail to disappoint.

I wondered how America fell so fast. I think I found the answers.

Ahead of tomorrow's Committee of Oversight and Congressional Reform hearing on the Bank Of America - Merrill Lynch strong-arming by the Fed, entitled "Bank of America and Merrill Lynch: How Did a Private Deal Turn Into a Federal Bailout? Part IV" (which may or may not happen), Dylan Ratigan discusses some salient points with California Republican Darrell Issa. As a reminder, prominent witnesses tomorrow will be BofA GC Tim Mayopolous and Directors Charles Gifford and Thomas May.

This is a good start...

Michelle Caruso-Cabrera asks hard hitting questions, and provides even more hard-hitting post mortems. Case in point: today the Power Lunch anchor escalates her argument that the whole lawsuit by California Attorney General Brown against State Street is a cheap "Spitzeresque" ploy to generate brownie points for a meager penalty:

On closer inspection this looks more like a naked attempt at boosting a
Brown run for Governor than it is about protecting fire fighters'
retirement funds.

Flash down, dark pools regulated... and now the last, and logical, focus - HFT.

In the meantime NITE and other dark pool operators not doing too hot.

Neil Barofsky is a "Czar" (well, isn't everyone these days?) who watches over the $700 billion bailout package given to banks and others to avoid utter collapse; and in a report fully disclosed later today, thinks it’s not realistic that we’ll get all the money back.

The VIX gets ready to break through the 20 resistance level, courtesy of the Federal Reserve. And speaking of the Fed, Bernanke seems intent on continuing liquidity transfer in perpetuity, and milking marginal volumes higher, as the S&P is set to hit 1,200 today on oddlots. Today's play: circa billion dollar luvin of long-dated treasuries. Presumably, large enough to goose the market higher, but little enough to leave time for one last ditch attempt to bail out the market the next time futures are negative pre-market.

Steven Rattner's somewhat self-congratulatory mini-memoir on the bailout of GM and Chrysler is a light, charming dalliance about the Car Czar's spring fling with the automotive industry.  "Light," in that Rattner effectively glosses over the difficult issues that permeated the massive government intervention in markets that characterized the bailout.  "Charming," in that sort of quaint way one smiles at the naive misconceptions of self-centered children not one's own.  (Surely it takes no small measure of self-love to put one's name under the subtitle "How the Obama Team Did It" in the face of the newly impending doom that, even now, rushes, nebulous and sandstorm like, to consume GM and Chrysler in the fine red sands of commercial failure).

Down pre-market got you down? Throw a little POMO and sprinkle a dash of mangled dollars, and voila: another 52 week high.

On Monday the Federal Reserve held a major reverse repo test, as was announced by the NY Fed and by Zero Hedge. We have subsequently received several unconfirmed reports that the conducted test has been a disaster (we have calls into the Federal Reserve to confirm or deny this, we are eagerly awaiting their reply). Presumably, after conducting various repos last year, a typical transaction would be in the $1 to $5 billion range. At around the time the financial system was being pulledapart, were two separate $50 billion repo transactions on September 18, 2009, a day when as Paul Kanjorski had highlighted earlier in the year the money market system nearly collapsed as a result of Lehman and AIG's failure, and the Reserve Fund breaking the buck. Notable about Monday's reverse repo "test" was that it was quite sizable: in the $100 billion ballpark, on parallel with the biggest liquidity extraction from 2008. The outcome was the discovery that the dealer community does not have the capacity to do reverse transactions of this magnitude. As a result the Fed was forced to go directly to the money market industry, which has been speculated as a key source of excess liquidity withdrawals, another topic we discussed previously.