Archive - Oct 27, 2010

As if there was any doubt before which way the arrow of control, and particularly causality, points in America's financial system, the following stunner just released from Bloomberg confirms it once and for all. According to Rebecca Christie and Craig Torres, the New York Fed has issued a survey to Primary Dealers, which asks
for suggestions on the size of QE2 as well as the time over which it would be completed. It
also asks firms how often they anticipate the Fed will re-evaluate the program, and to estimate its ultimate size. This is nothing short of a stunning indication of three things: i) that the Fed is most likely completely paralyzed due to the escalating confrontation between the Hawks and the Doves, and that not even Bernanke believes has has sufficient clout to prevent what Time magazine has dubbed a potential opening salvo into a chain of events that could lead to civil war: in effect Bernanke will use the PD's decision as a trump card to the Hawks and say the market will plunge unless at least this much money is printed, ii) that the Fed is effectively asking the Primary Dealers to act as underwriters on whatever announcement the Fed will come up with, and thus prop the market, and, most importantly, iii) that the PDs will most likely demand the highest possible amount, using Goldman's $2-4 trillion as a benchmark, and not only frontrun the ultimate issuance knowing full well what the syndicate of 18 will decide in advance of what the final amount will be, but will also ramp stocks on November 3 to make the actual QE announcement seem like a surprise. This also means that the Primary Dealers of America, which include among them such hedge funds as Goldman Sachs, such mortgage frauds as Bank of America, such insolvent foreign banks as Deutsche, RBS, UBS and RBS, and such middle-market excuses for banks as Jefferies, are now in control of US monetary, and as we explain below fiscal, policy.

Today, the most fascinating fuck up in the stock market was not the flash dash in Renaissance Learning after hours, after the company announced it was handing out a $2 special dividend which based on some Keynesian version of mathematics resulted in a $9 surge in the stock price, but what is almost certainly a world record set in the churn of one of the most actively traded ETFs: the SPDR Select Sector Fund - Financials, better known as the XLF. As the linked Nanex data demonstrates, between the times of 14:25:18 and 14:27:20, someone sent out a total of 2,793,000 quotes on the Nasdaq exchange, an average of 23,275 quotes per second, and 23.3 quotes per millisecond! While we have not followed individual churn rates before, we assign today's quote bombardment in the XLF the world record (for the time being) in churning empty quotes. All joking aside, the SEC should immediately figure out who the offending party in this flagrant example of quote stuffing was, and politely ask just how it is that the entity could possibly expect that someone, anyone, could possibly trade on these 2.8 million quotes in 2 minutes, and if the intention was not to actually trade based on the massive quote packet (which is the only legal option, but that's a story for a parallel universe in which the SEC actually cares about the rulez), just what the actual intention of this world record in churn was?

Do you know what's happening right now?

It appears that increasingly more people are realizing that comedy is the only solution to the criminality, chaos and outright banality of daily American existence. In that vein, we introduce Charles Hugh Smith's Foreclosure Crisis Weekly.

"The Court requires an affidavit from Erica A. Johnson-Seck, a conflicted "robosigner," explaining her employment status. A "robo-signer" is a person who quickly signs hundreds or thousands of foreclosure documents in a month, despite swearing that he or she has personally reviewed the mortgage documents and has not done so."

Can Ireland avoid another potato famine? Not if they listen to senior advisers who are urging the government to use state pension monies to shore up their fledgling debt markets..

Appropriately, tonight's guest piece comes from Casey Research discussing silver

Yesterday's announcement by CFTC commissioner Bart Chilton that he was fully aware of fraudulent efforts to persuade and deviously control silver prices may have been the straw that broke the gold and silver price manipulating camel's back. Today, Brian Beatty and Peter Laskaris (Southern District Court of New York, cases 10-08146, and 10-01857) sued the two firms at the very top of the precious metal manipulation pyramid: JPMorgan and HSBC. The lawsuit, which seeks class action status, alleges that "between in or about March 2008 and continuing through the present, Defendants have combined, conspired and agreed to restrain trade in, fix, and manipulate prices of silver futures and options contracts traded in this District on the COMEX division of the NYMEX. Defendants thereby have violated Section 1 of the Sherman Act, 15 U.S.C ¶1. Also during the Class Period, individual Defendants have intentionally acted to manipulate prices of COMEX silver futures and options contracts. Such conduct violates Section 9(a) of the Commodity Exchange Act, 7 U.S.C. ¶13b." And so, the tidal wave of lawsuits by all those who may have ever lost money trading precious metals against JPM et al begins.

As we wrote recently, in what may become a rerun of the Rare Minerals export cut, after an abnormally long silence, China is finally starting to make noises in the gold market. As Bloomberg reported earlier, according to an article appearing on the website of the Chinese Ministry of Commerce, Meng Qingfa, researcher as the China Chamber of International Commerce said that China should buy more gold to diversify its foreign exchange reserves. "China should increase its gold holdings if the country aspires to “internationalize” its currency. China has $2.6 trillion of foreign-exchange reserves, mostly in dollar assets, Meng said. Such holdings will put China at a disadvantage when the U.S. dollar depreciates, as is inevitable amid a worsening U.S. debt problem, he said." While this is not an outright endorsement that the PBoC will begin to warehouse the precious metal, it is certainly an escalation in the war on words that the US and China have been engaging in for quite some time. The bigger problem is what may happen to the world gold market should China, which is now the world's largest producer of gold, decide to internalize its gold product output. Already the country's gold demand is surging. Should roughly 340 tons, or the amount of gold China makes each year, be withdrawn from supply, no amount of Goldman contemplation on the matter of physical ETFs will prevent a spike in the metal price.

“We found servicer defaults in 100 percent of the trusts”

From Apple's 10-K: "The Company expects its gross margin percentage to decrease in future periods compared to levels achieved during 2010 and anticipates gross margin levels of about 36% in the first quarter of 2011. This expected decline is largely due to a higher mix of new and innovative products that have higher cost structures and deliver greater value to customers, and expected and potential future component cost and other cost increases."

This has been a very funny story. It will end badly.

The assault on the EUR by the Bears continued on Wednesday, which saw the pair end the session with almost 100pip losses. The sell off was prompted not only by a stronger USD but also on the back of renewed concerns over the peripheral Eurozone. Wednesday’s sell off by the GBPUSD was in part driven by a stronger greenback but also on touted profit taking following stellar gains post the release of better than expected GDP data on Tuesday. Renewed USD strength meant that the USDJPY was able to post further gains on Wednesday, albeit very modest ones. The focus now will turn to the BoJ rate decision which is due to take place on Thursday where it is expected that the central bank will cut its growth forecasts, reaffirm the pledge for low rates and indicate that core consumer price growth is expected to fall short of desirable levels

To all those (most Bob Pisani) who hoped last week was going to be the last sequential outflow from domestic equity mutual funds, after a modest decline in redemptions, we have some bad news. Today, ICI reported the 25th outflow in a row. Total YTD money redeemed is now $81 billion. From the market bottom in July, all the way to the current 2010 highs, the market has seen $51 billion in 16 sequential outflows. So to recap: mutual funds are not buying, pensions are not buying, retail is no longer even remotely interested in touching stocks... yet the market surge won't end. Some 2010 market highs money can't buy. For everything else, there's Bernanke Card. It is clear now that in the Fed's pursuit of chasing the "wealth effect" of the 1,000 or so remaining traders, logic will simply not stand in the way.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 27/10/10