Archive - Nov 9, 2010

LA TIMES--[T]he curiosity over what exactly was spotted some 35 miles off the coast was met Tuesday only by a puzzling lack of answers from federal officials.

While QE2 stirs up passions, the truth is nobody really knows how this is going to end. It might turn out to be a disaster, or it might turn out to be a stroke of genius...

The first casualty of Goldman's new "client facing" regime, now that prop trading is presumably dead and all prop traders have shifted one seat to the left, pretending they all do flow (even as they still take massive inventory positions) is Alexandre Harfouche - a managing director and head of the firms' European block trading divions. Harfouche was sacked for "failing to make proper disclosures to the bank’s compliance department" according to the FT. And now that Goldman is spreading the lie that it no longer does prop trading even thought it, well does, block trading is basically the latest iteration in the nomenclature of what Goldman does when commingling prop and client order flow, before it proceeds to split up an order block via internalized algos, or dumping it in the market. It is thereby precisely at the level of block order aggregation that potential front-running violations can occur, which is why Zero Hedge would be very interested to find out just what were the circumstances associated with Harfouce's termination. Unfortunately, "while
Goldman did not specify the reasons for Mr Harfouche’s departure,
people close to the situation stressed that no securities law had been
violated and no client had been harmed by the events that led to his
dismissal." So he was just fired on general principle? Yeah, right. And while we were trying to access Harfouce's FSA record, we had no luck as the now defunct English regulator's website is down. Lovely.

It was another lackluster day in the market as investors are still trying to regain their bearings from last week's quadruple news high of elections, QE2, the jobs report, and Kat Dennings nude photos being released. With all of the excitement...

A couple of luminaries share their perspectives on recent developments in the precious metal space. First, we have Jim Rickards sharing his thoughts on what today's Comex margin hike means for trading. And second, and just as important, is Peter Schiff, who grades WB president Robert Zoellick's call for a new gold standards, and its implications for the future. Both are as always insightful and enlightening.

In an exclusive collaboration between Nanex and Zero Hedge, we are pleased to present to our readers the first part of a multi-series project that will demonstrate the flash crashes of 2010, and subsequently, of 2009 and 2008. The concern is that since the number of mini crashes, precipitated in most part by HFT algorithms gone wild, is simply staggering, it is impossible to present all the individual events in one presentation due to size limitations. The reason - there have been 549 "flash crash" events in 2010 to date alone! We dare anyone at the SEC to go through this list and look anyone in the eye and tell them that i) the market is not broken and ii) that High Frequency Trading is not a major scourge to proper and efficiently operating markets. And while we do not want to take away from the recent uproar at ETFs, courtesy of the Kauffman foundation (and its chairman who as we presented earlier has a rather sizable conflict of interest in DST Systems, Inc) none of the presented 549 crashes are ETFs implicated: this is (mostly) all HFT, baby, all the way.

Ouch ...

Presented without comment.

In these crazy times, all one could ask for is sanity. Yes, sanity – a clear mind, free of noise, with which to face the insanity that the volatile, noisy stock market thrusts upon us. We find ourselves glued to our computer screens or CNBC, waiting to find out what the Dow’s next tick is going to be. What do we get out of it? Only a headache and wasted time.

Here is my advice: read.

Both of Bernanke’s claims (that QE will help housing and spur business investment) are a crock. So what’s the REAL reason he’s frantic to kep interst rates low?

Derivatives.

According to the Office of the Comptroller of the Currency’s Quarterly Report on Bank Trading and Derivatives Activities for the Second Quarter 2010 (most recent), the notional value of derivatives held by U.S. commercial banks is around $223.4 TRILLION.

Five banks account for 95% of this. Can you guess which five?

A crazy day in the markets closes, and one of the biggest non-market related stories still has no closure. As per the AP, nobody still has any clue what the "missile" sighting was. A suggestion being floated by the Pentagon is that this may have been a "private company." NORAD chimes in: "We can confirm that there is no threat to our nation, and from all indications this was not a launch by a foreign military." In other words, nobody knows nothing.

EUR fell against the USD on Tuesday amid ongoing concerns over the unsustainable debt levels in Ireland and Portugal, which are both due to tap the primary markets on Wednesday. The move lower saw the pair breach the key 76.4% Fibonacci retracement level and also consolidate below 1.3900. Position squaring ahead of the upcoming Quarterly Inflation Report by the BoE on Wednesday, as well as vague market chatter that the central bank may increase its mandated inflation target which currently stands at 2% meant that GBPUSD finished lower on Tuesday. USDJPY finished the session higher on Tuesday amid renewed strength in the USD as investors continued to fret over the implication the latest widening of the peripheral spreads will have on the PIIGS states ability to raise money in the primary markets.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 09/11/10

Here is how the CME just changed the rules just as the Fed was losing the game. Full new margin schedule attached.

And if that doesn't work, there is always confiscation.