Archive - Oct 7, 2010

GRANDPA JOE: But this roof is made of glass. It’ll shatter into a thousand pieces. We’ll be cut to ribbons! WILLY WONKA: Probably.

Who says flash crashes only take stock prices to zero (or somewhere thereabouts). Adobe just flash smashed, triggering circuit breakers, but to the upside, as this time the HFT algo that goes apeshit lifts every offer. Following the unhalting, the stock has resumed trading somewhat normally again: we will let you know which trades the exchanges decide to cancel momentarily. Of course, we can't decide if it is more surprising that a circuit breaker actually worked for once, or that Waddell & Reed has not yet been implicated in this roughly 20th flash crash following May 6 (we will compile a full list of all HFT-triggered crashes soon). We hope to provide Nanex's explanation of which particular exchange malfunctioned on this one shortly.

This is the math, the reasoning and the logic behind a nearly inevitable default by Greece. Why hasn't this been present in the mainstream media?

Alan Grayson is back on the scene, having sent a letter to Financial Stability Oversight Council which includes pretty much all of Wall Street's pawns, including Bernanke, Geithner, Bair, Gensler, Walsh, and DeMarco, in which he asks the FSOC to "suspend foreclosures until this problem is understood and its ramifications dealt with." And the ramifications, per Grayson, Zero Hedge and everyone else, will be dire for the banking sector: "So far, banks are claiming that the many forged documents uncovered by courts and attorneys represent a simple 'technical problem' with foreclosure processes.  This is not true.  What is happening is fraud to cover up fraud... The banks didn't keep good records, and there is good reason to believe in many if not virtually all cases during this period, failed to transfer the notes, which is the borrower IOUs in accordance with the requirements of their own pooling and servicing agreements. As a result, the notes may be put out of eligibility for the trust under New York law, which governs these securitizations. Potential cures for the note may, according to certain legal experts, be contrary to IRS rules governing REMICs. As a result, loan servicers and trusts simply lack standing to foreclose. The remedy has been foreclosure fraud, including the widespread fabrication of documents.  There are now trillions of dollars of securitizations of these loans in the hands of investors. The trusts holding these loans are in a legal gray area, as the mortgage titles were never officially transferred to the trusts... The liability here for the major banks is potentially enormous, and can lead to a systemic risk."

BN *BRAZIL CENTRAL BANK TO BUY DOLLARS IN MARKET FOR 2ND TIME TODAY
BN *BRAZIL CENTRAL BANK TO BUY DOLLARS 3:48-3:53 P.M. LOCAL TIME

Mr. Tragic - meet Mr. Comedy.

Yesterday, when we disclosed the 22nd consecutive outflow from equity mutual funds, we decided to take Bob Pisani to task, who as can be seen in clip #2 from yesterday, mispreresented the truth before an audience of at least a few hundred people, when he said: "we had inflows into stock mutual funds" followed up by the following: "we have had 4 consecutive weaks of inflows into stock mutual funds in September." This is false, and we made a point of noting it: "can someone please explain to us how Mr. Robert Pisani can say, on
national TV no less (albeit to an audience which according to Nielsen is
at the lowest it has been in 3 years) at 10 seconds into the clip that,
"we had inflows into stock mutual funds." Um, no. That's not true. In
fact, someone less polite than us may say you are completely full of
shit Bob. Luckily, since we are far too polite, and since all the data
above is sourced directly from ICI, we would politely ask, Mr. Pisani,
where on the above chart is this "inflow" you talk about. We are eagerly awaiting Pisani's reply." Today, Bob did just that, retracting his statement and confirming earlier on CNBC that "retail investors are not impressed and continue to pull money from stock mutual funds." (30 seconds into the clip 1). We appreciate Pisani's sticking to facts. However, if Bob will do us the favor, and read the following article (link), he will understand why domestic equity ETFs also (though September, we will update the October Powershares data as soon as it is out) have seen outflows year to date, completely destroying any argument of inflows into domestic stocks via mutual funds or ETFs.

DoctoRx and I have been watching the Consumer Metrics Institute's leading economic data for a while and were impressed by what we saw. Recently we had an opportunity to interview Dr. Rick Davis, a physicist, the founder of CMI, and came away as believers (with caveats) in his approach.

Harley Bassman, who used to run Merrill's successful RateLab and is now a prop trader, has sent the following note to clients. Note the bolded text: "The market has become dispeptic about the Payroll event. It is unclear if the FOMC is the BIG event (irrelevant of the data) or do the core inputs matter more. In a nutshell, will tomorrow's data shed any light on the next FOMC ? Last week the options market did now know what to think about QE2. That has all changed....or at least a few large customers have changed our collective minds. Massive option selling has reduced the cost of risk by over 12% in in two days. At least a few customers "know the number" of the FED." Our question: when, if ever, will the market become a level playing field, where everyone acts on the same information? How long will such wholesale approved and encouraged insider trading be permitted for the select few? And, lastly, when will the world rid itself of the Fed once and for all?

SITUATION: One indirect consequence of the Gulf of Mexico oil spill is the impact it may have on the financing of the many tourism projects that have sprouted along the Caspian Sea. Bordered clockwise from the North by Kazakhstan, Turkmenistan, Iran, Azerbaijan, and Russia, the Caspian Sea is one of the largest bodies of water and an object of strategic ambitions. Though the global financial crisis put may grandiose Caspian Sea tourism projects on hold, some of them are coming back to life, but investors should be alert to tourism trends, corruption, and unanswered questions about demand and potential profit.

As we expected, and suggested last night, Obama would not enact H.R. 3808 for fear of the populist fallout that would follow. Indeed, Dow Jones has just confirmed that Obama will "Pocket Veto" the notarization bill, eliminating the last possible roadblock for a tsunami of legal action against mortgage servicers.

The hits just keep on coming for the administration's failed economic policies. While everyone is focused on tomorrow's NFP which will likely indicate a 9.9% unemployment rate, Gallup today confirmed that the unemployment rate has once again pushed into double digit territory. "employment, as measured by Gallup without seasonal adjustment, increased to 10.1% in September -- up sharply from 9.3% in August and 8.9% in July." Conveniently for the BLS, the deterioration in labor markets occurred late in September and will likely not show up until the October report: "Much of this increase came during the second half of the month -- the unemployment rate was 9.4% in mid-September -- and therefore is unlikely to be picked up in the government's unemployment report on Friday."

The U.S. Federal Reserve, which is in charge of the world’s reserve currency has gone completely and totally insane. Every time the stock market is down 2 points some maniac academic with a printing press delivers a speech about how much money they are going to print, basically daring anyone to short or sell the market. No one is smart enough to know how much QE is priced into the market, is it $500B? $1 trillion? $3 trillion? No one knows, but what we all do know is that the Fed through its non-stop yapping has now set up the ultimate moral hazard in financial markets. It doesn’t matter if all of the economic data miraculously comes in extraordinarily bullish over the next three weeks. The markets have put the Fed into the biggest box they have ever been in. They must do QE2 at this point and they probably have to do it big. The problem is, with the equity market up at the levels it is I don’t think ANY amount of QE2 will cause a rally. In fact, this might be the biggest “sell the news” event in the history of the stock market. If you are smart you will take appropriate actions while you can and sell to someone with less of a clue (believe me there are plenty out there). - Mike Krieger

Missed the first Ira Sohn west conference? Here is your chance to catch the complete notes via BTIG's Mike O'Rourke. Presenters included John Burbank of Passport, Barry Rosenstein of Jana, Brian Zied of Bridge Capital, Mitch Julis of Canyon, Jeffrey Ubeen of ValueAct, Robert Rosner of Buena Vista Fund, John Taylor of the John Taylor Rule, Chris Chabris, and Richard Farber of Kayne Anderson. Ideas discussed include the future of the world, Dutch company TNT, Charles River Labs, Sirius XM, Valiant Pharma, Taiwan Semi, the Libor-OIS spread, Natty and Patriot Coal. So for all those who still hold on to the illusion that alpha is possible in this market, read on.

Now, now ... don't worry your little heads about anything. We'll tell you what you have to think about and what you don't.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 07/10/10