Archive - Oct 2010

Wall Street responds to my missive on the potential of concentrated derivatives risk blowing up the banking system. Traders, salesman and financial engineers chimed in, and made some cogent points. Of course, I must rebut. It is the actual rebuttals that are probably more stinging than the original article - particularly the one concerning hedge funds. Please read on and feel free to chime in. Don't forget to bring the "Fiery Sword of Truth!"

Today's 2 Year $35 billion auction closed at a brand new record low yield of 0.40%, compared to 0.44%, and just over 1% a year earlier. the Bid To Cover of 3.43 was a drop from last month's record 3.78, but was still in the top 5 highest BTCs in history. Indirect bidders took 39.98%, leaving the balance to primary dealers and directs, the latter of which jumped by 50% from 10.78% to 15.90%, and only the second highest in 2010. Since the 2 year is now almost a functional equivalent of a money market issue, and since the Fed will soon be forced to buy as much of the short-end as it can get its hands on, this auction was not very indicative of much: auctions in the 7-10 year bucket continue to be the most critical (5 Year auction tomorrow, 7 Year on Thursday).

As we noted yesterday, Goldman was in the market for a 50 year bond at a token amount of $250 million. We speculated this was merely a test to gauge market interest in the space. Sure enough, courtesy of the Fed's free money, interest was massive, and today, Goldman announced that the deal was upsized. Not only that, but price talk has been reduced from 6.25% to 6.125%. What this means is that bank after bank is about to begin rolling out 50 year and possible longer dated debt issuance, as investors no longer care about bullet maturity repayment but are all looking for yield. And it appears that anything over 6% will get massively oversubscribed, maturity be damned. After all, it is other people's money (hopefully).

The conference itself does not take itself too seriously. Even Nassim Taleb was able to make a few jokes while explaining to us why the financial system is irrevocably screwed up unless we give it a major overhaul.

Lately I’ve heard a lot of heated conversation about the day trading industry. There’s an intriguing debate with opinions ranging from “it’s a great way to make a living” to “it never worked in the first place” to “we’re now in the midst of the great shakeout.” But the bottom line is: day trading is DEAD. Two-thirds of the rhetoric focuses on the idea that day trading is a firmly entrenched part of markets with a somewhat stable future ahead. I disagree. More realistically, a much larger change is taking place with market structure. Like the extinction of human beings roaming the floor of the NYSE, this evolution presents a bleak picture for the day trading community moving forward.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 26/10/10

Today's POMO is over: the Fed has monetized $2.5 billion in bonds, and 80% of the CUSIP we expected earlier to be monetized were validated. The Fed bought back 73% in notional in the 5 issues we suggested earlier were most likely to be repurchased. The expected CUSIPs are highlighted on the chart below. As expected, those who took our advice and leveraged a "few million times" made out just like a PIMCO bandit. Most amusingly, is that stocks sell off the second POMO is over. Just as they surged the second POMO started earlier. This is frankly getting boring.

A quick glance at CAH CDS ceretainly seems to imply so...

Bloomberg responds to the Kleptocratic House Association

Two simple charts tell it all. Bonus: at the end, we explain how to make Paul Krugman squirm.

The 10:15 POMO start moment when the Fed begins to indirectly buy Amazon and Netflix is as stealthy as a fart in an elevator. Nobody even pretends to hide the manipulation. Enjoy the free for all.

Amusingly, following up on earlier reports that the Clearing House Association (aka the banking oligarchy) will petition the SCOTUS to hide their oh so very secret insolvency which by now everyone knows about, the Fed has decided to amusingly distance itself from the kleptocratic crowd and will not seek court review. In other words, the public's anger when the SCOTUS sides with the bankers will fall squarely upon Lloyd Blankfein et al, and not Ben Bernanke, even though it is the Fed who is the defendant in the Pittman lawsuit. This is just plain ridiculous. And the reason provided by the banks: why more mutual assured destruction of course: "disclosure of the information threatens to harm the borrowing banks by allowing the public to observe their borrowing patterns during the recent financial crisis and draw inferences--whether justified or not--about their current financial conditions." Here is an inference about their current financial conditions: they are all insolvent. Does that matter? No. Because the only holders of bank stocks now are other banks. It is called a ponzi for a reason after all.

And Richmond Fed beats too, coming at +5, on expectations of 1... QE2 not looking so hot all of a sudden.

If this is not some nasty and quite early April Fool's joke, this is very, very bad news for JPMorgan:

• BN CFTC CHILTON MAKES STATEMENT ON SILVER MARKET
• BN * SILVER PRICES SUBJECT TO "FRAUDULENT" INFLUENCES, CHILTON SAY
• BN *"REPEATED ATTEMPTS" MADE TO INFLUENCE SILVER MARKET, CHILTON
• BN *SILVER MANIPULATION SHOULD BE PROSECUTED, CHILTON SAYS

Now... where are all of those tin foil hats...

As we expected months ago, the fate of the US constitution, and the tyranny of the Federal Reserve and the banking oligarchy as a whole, will be decided by the captured Supreme Court, after Dow Jones reports that the Clearinghouse Association has asked the US Supreme Court to hear the Fed disclosure ("Pittman") case. The SCOTUS decision, given the recent Obama appointment, is a moot point. What happens after the judicial branch is also exposed to have been fully bought by the banks, after the executive and the legislative, is up to 99% of the US population.