Archive - Sep 2009

Dear FINRA,

We know you are busy, we also know you are hell bent on intercepting IOI manipulation as per Mr. Jon Kroeper's recent media appearances. Which is why we kindly request that you get back to us at your earliest convenience with information on how many of the IOIs disclosed below are, in fact, "natural." We will make this a recurring topic on Zero Hedge until such time as you respond to our information request. You can contact us at outsourcefinra@zerohedge.com

We appreciate your prompt attention to the matter

Zero Hedge staff.

The monetization continues: today's $3.5 billion POMO was practically all used to repurchase CUSIP LM0, a 3 Year Note auctioned off by the treasury a whopping 20 days ago: this one. Recall that the auction had $16 billion of Primary Dealers interest accepted. Not a bad way for PD's to offload 21% of their allocation in less than three weeks. Any questions why there was $81 billion in PD bids tendered?

"[FDIC] staff estimates that both the Fund balance and the reserve ratio as of September 30, 2009, will be negative. This reflects, in part, an increase in provisioning for anticipated failures. In contrast, cash and marketable securities available to resolve failed institutions remain positive." - FDIC, September 28

"This inventory has yet to hit the market, but it will. So pundits that get excited about two or three months of Case-Shiller data are spending too much time looking out the back window. More deflation is coming in residential real estate — this bear market in housing ain’t over yet. Remember, homes that are foreclosed typically go on to the market at discounts ranging between 10% and 50%." - David Rosenberg

Big surprise in the Conf Board consumer confidence index, which posted a September reading of 53, down from 54.5 in August, and an expected reading by "economists" of 57. The market, which trades solely on macro headlines these days, takes a brief dive. Expect this not to last as window dressing time promptly regains a foothold, and bad news continues to be good news.

Irrational exuberance in High Yield shows no sign of abating: the loan-HY bond spread is down to 2009 tights: a mere 326 bps for the represented universe of credits. Last week HY bonds averaged 710 bps, while loans were are 383 bps. For rational types, now is the time to consider some long loan-short bond basis packages, at a 1.0x:1.85x ratio. Also the negative loan-HY basis in Sealy continues, now at about 500 bps: either the data there is really faulty or somehow that relationship makes sense... in some parallel universe.

• SEC weighs new rules for lending of securities (WSJ)
• GE's Immelt warns US recovery slowest in decades (AP)
• Fed may wait too long to raise rates, says Steve Hanke (Bloomberg) as if there was any doubt
• Is Paulson considering merging CIT and IndyMac, or is he still just accumulating C (NY Post)... Yes, the NY Post
• FDIC seeking to pocket years of bank advances to pretend it is not insolvent (FT)

• Asian stocks rise from two-week low; led by oil and technology companies.
• China will support mergers among `able' companies: Stocks Regulator says.
• FDIC expected to propose banking industry to prepay assessments for the next 3 years.
• The Federal Reserve decided to keep pumping $1.25 trillion of new money into the mortgage market.
• Japan consumer prices fall record 2.4%; deflation return threatens economy.
• Obama admin close to committing $35B to help state and local housing agencies.

One of Zero Hedge's recurring concerns with market abuse has been the concept of manipulated natural Indications of Interest, or IOIs, a topic which readers can catch up on here and here. And yes, absent feedback from regulators this could have added to the ever increasing list of conspiracy theories broached by Zero Hedge. Yet ironically shortly after Zero Hedge first posted on this, FINRA came out with the following regulatory notice 09-28 from May 2009, in which the regulator "reminded firms of their obligation to provide accurate information in disseminating indications of interest."

Should Britain get ready for a mass exodus of bankers who are pissed at these new measures to curb their bonuses? Oh please, where are they going to go? Wall Street? They're next in the line of fire.

"Wall Street supplies a swinging door of jobs for its financial regulators, and—in the case of many members of Congress and our Presidents—campaign contributions. This dependence is known as “capture,” and the result is that instead of reigning in Wall Street, dependent thinking enables mayhem. In the recent Ponzi scheme only the agents—mortgage lenders, rating agencies, fund managers, securitization professionals, CFOs, CEOs, and other fee or bonus beneficiaries—prospered. Controls and risk management were undermined. The financial institutions and their shareholders, for which these agents are failed stewards, collapsed. Investors in toxic securitizations lost money. Had regulators done their jobs, they would have shut down Wall Street’s financial meth labs, and the Ponzi scheme would have quickly choked to death from lack of monetary oxygen." - Janet Tavakoli

In the new, new normal, if you want to keep your job, look up moral hazard: it is your friend.

Where IS the economy going? Ben Bernanke says we've turned the corner and the economy is in recovery. Don't assume that is the case. It isn't. The data has too many negatives to assume that everything is going to re-set to pre-2008. The prospect of deflation and then stagflation is a more likely scenario.

Investors are long commodities as a placement AGAINST the value of the USD, and banks and governments around the world borrow in USD. Germany and Austria have recently issued debt that is USD denominated, and they were soon immitated by... Venezuela. That to me is a sign the short-USD trade is ripe for a reversal, when basically even the biggest idiot in the house is short. The ultimate pain trade would certainly be renewed USD strength. Maybe if it happens the Fed will have the pleasure this time of bailing Venezuela with cross-currency swaps.

Spreads were tighter in the US as all the indices improved (though were unable to break Friday's tights and closed wider than Thursday's close). IG trades only 8.1bps tight (rich) to its 50d moving average, which is a Z-Score of -0.7s.d. At 105bps, IG has closed tighter on only 8 days so far this year (192 trading days). The last five days have seen IG converging to its 50d moving average.