Archive - Aug 2009

The US bond market is 2x bigger than the stock market (counting the value of all US bonds), and, there are less idiots running around. Since most bonds trade over the counter—obviously we have the Tbond futes—you better know what you are doing.

Late Night with Marla Singer.

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This should be another time saving moment for our readers as we measure several levels of investor sentiment with one unique indicator.

Pickens: Oil Will Reach $300 a Barrel
"Oil legend T. Boone Pickens, now CEO of BP Capital, says oil prices will continue to rise… So, 10 years from now, the price of oil could well be $300.”

And this is just the beginning. Chairman Ben has yet to be fully unleashed.

Japan's ruling party for the past 50 years is set to lose the elections tomorrow. The opposition has threatened to demand payment from the United States in yen.

"JP Morgan Chase allegedly had deposits from Bernard L. Madoff totaling $5.5 billion at
one point in 2008. The Chase account was supposedly where most of the funds in his
Ponzi scheme were deposited. Any large deposit can be a considerable source of profit
to a bank. Assuming that the deposits returned the bank’s net interest margin and grew
at a random geometric rate, this paper estimates that JP Morgan Chase generated $483
million in after-tax profits from this very large account over the course of sixteen years.
With JP Morgan Chase the target of pending lawsuits relating to the Madoff fraud, this
paper’s methodology and results may be of interest to litigants, prosecutors, journalists,
and academics."

One of the key headlines these days has been the unmasking of what has been dubbed the biggest identity theft and credit card fraud case in history, allegedly spearheaded by one Albert Gonzalez, who in 2003 was involved in a comparable scheme however upon being caught, promptly became an informant for the Secret Service and turned over 30 of his hacking buddies. Six years later it is he this time who is in the hot seat, together with most of his associates, including one 25 year old Stephen Watt, who supposedly was the creator of the credit card sniffer software used to hack into over 130 million of various credit cards for merchants such as TJX, Dave And Busters and 7-Eleven, which numbers were subsequently sold for hefty sums to Eastern European purchasers. What is peculiar in all this is that apparently for the entire duration of this operation, Stephen was working in "Application infrastructure development and in house security toolkit development" at Morgan Stanley (earning $99,000 a year as a 21-23 year old programmer in 2004-2007), and subsequently took a brief position with Imagine Software, where he developed "real-time computer trading programs for financial firms." Did Stephen learn the tools of the trading game at MS, while at the same time hacking millions of credit cards, only to take what he learned from both ventures into a new operation, one that counts among its clients the Who's Who of Wall Street? Or, alternatively, did he use his packet sniffing skills at Morgan Stanley? The questions grow...

A 'secret' conversation reveals some thinking and practices on Wall Street. Shocking!

Long before Sergey Aleynikov, in the summer of 2007, a major lawsuit between two quant titans shook the shadowy world of stat arbitrage and HFT. Alexander Belopolsky and Pavel Volfbeyn, at the time residing on the 7th floor of 666 Fifth Avenue (but not for long) and reporting to Millennium's Israel Englander, were about to get the back door treatment by their employer, who had just settled multi-year litigation with their former boss - East Setauket's original quant fund - Renaissance Technologies. But they would not go quietly into the night...

Pump up the (trading) Volume!

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Dear Senator Kaufman, we at Zero Hedge applaud your effort to bring transparency to, and evaluate the various new forces that, for better or worse, determine the modern market landscape. However, we would like to bring to your attention a fact which renders your entire approach of seeking fair and unbiased commentary from the SEC irrevocably moot. The reason is that the SEC, in alignment with many of the very industry players who may be abusing market structure for their own tiered benefit, stands to benefit significantly from an increased amount of daytrading volume across all markets, and, in fact, based on actions as recent as 4 months ago by the SEC, the regulator is well aware of the monetary benefits that ever-increasing churn creates for the commission and is fully intent on capitalizing on them. We thus suggest you bypass any protocol that has an SEC intermediation and go directly to penning a Bill which, we trust, will prove to be more fair and objective than anything the SEC would ever provide you with. The reason for the SEC's insurmountable conflict of interest is the so-called Section 31.

Judge Loretta Preska, who earlier this week ruled against the Fed in its long running FOIA lawsuit with Bloomberg, and demanded it disclose firms benefiting from and loan amounts handed out under various emergency order, has filed a stay on the original order and has awarded the Fed with a September 30 deadline to appeal the order.

Credit underperformed equities this week as single-name tighteners edged wideners by four-to-three leaving indices (especially HY) underperforming intrinsics in general. CONSumer and ENRG names underperformed as TMT and FINLs were best with INDUstrials mixed. Financials outperformed non-financials but the strength in the former was more at the tails of the distribution while the weakness in the latter was more broad-based.