Archive - Feb 11, 2010

Earlier it was announced that the NYSE has added GETCO as a NYSE Designated Market Maker, and that GETCO has purchased 350 NYSE DMM assignment from Barclays Capital. GETCO is already a supplementary liquidity provider (a program that was conceived as a temporary measure, yet which is now running almost a year past its original expiration date, merely to pay "liquidity providers" Goldman and GETCO), as well as a market maker on the NYSE. Yet the question of just how much principal/prop exposure GETCO takes (as the WSJ disclosed previously this amount is staggering and is often 10-20% of daily volume) in "providing" all this liquidity, deserves additional analysis, as being so intimately linked in various cross-markets means that GETCO, which is struggling in the face of ever increasing HFT competition, will now need to become an ever greater "economy of scale" (think Goldman) in the markets to extract the same unleveraged returns it did in the past. And by doing so, it will likely take on ever greater unbalanced prop exposure, whose eventual (and very sudden) unwind will prove most interesting due to the ever increasing implied correlation between all asset classes. Themis Trading shares some additional insight into just what this development means for both exchanges and investors.

The market is being bored into oblivion trying to follow the political soap opera in Europe. One second there is an agreement, the next there isn't. The main problem right now seems to be that too many people who are quoted as "senior government officials" yet have probably no say in the final decision are allowed to express themselves publicly on the question, and there is no political/legal framework to administer the needed dose of bail-out. While more drama unfolds, it still appears to us there is no other solution than a bailout given that Greece's ability to deliver austerity is most unrealistic for now. Maybe the hope of politicians is that they will kill the momentum of the trade and won't have to deliver in the end, but the bottom line is that you have to pay your bills at some point and with debt refinancing coming up in April/May Greece has probably a vital interest in getting things sorted before that... The momentum would clearly reignite quickly at a bond auction!- Nic Lenoir

The recent intraday low of 1.3586 was hit in the prior week. We will likely take that out shortly. Yet even this EURUSD level goes back only to May 2009 levels. There is much more room to go as the posturing in Europe continues, and no definitive bailout plan is announced. If Van Rompuy wanted to send a "clear political message" he sure succeeded... if that message was that cohesion and a united understanding are sorely lacking, or that Europe will now really lean on the euro. In the meantime, we can't wait to see just how excited the broader Greek population will be about the upcoming austerity measure.

Even as the realization that a "bail out" (and not just any bailout, but the most confused and unwanted bailout in history) is nothing but a preamble to the same economic collapse that we saw after Bear and the GSEs were bailed out, and the dollar goes vertical taking out yesterday's highs, the Dow tries to stage a rally following MO's $12 billion buyback announcement... and fails. The dollar-market correlation algos are just too powerful.

All euro area members must conduct sound national policies in line with the agreed rules. They have a shared responsibility for the economic and financial stability in the area.

In this context, we fully support the efforts of the Greek government and their commitment to do whatever is necessary, including adopting additional measures to ensure that the ambitious targets set in the stability programme for 2010 and the following years are met. We call on the Greek government to implement all these measures in a rigorous and determined manner to effectively reduce the budgetary deficit by 4% in 2010.

After peaking at just over $2 billion in early January, domestic equity inflows as tracked by ICI have reversed, and the just released outflow of ($2.2) billion is the biggest shift away from equities since early December. An odd observation (odd because it makes sense), is that since the market peak in mid January when the SPY hit a 52 week high of 115.06, the equity fund flows have been decidedly negative, and are now coinciding with prevailing market moves. This is a marked regime change, as during the paradoxical H2 rally when the market continued its relentless rise it was accompanied by tens of billions of equity funds outflows, prompting TrimTabs to wonder if the Federal Reserve is doing the buying. It appears that since January 1, the "mysterious endless cash holder bid" is gone, and now the market does in fact correlate with in/outflows. How long this persists will depend on how many market supports are taken out in the near term, and how long the winter break at Liberty 33 continues.

RANsquawk 11th February US Morning Briefing - Stocks, Bonds, FX etc.

"Cocktail Napkin Charting – As noted above, Wednesday’s action may have clouded rather than clarified the technical picture. Even a seasoned technician like Walter Murphy titled his discussion this morning “A Coin Toss”.

Yesterday, the S&P circled the wagons within the support band of 1058/1053. The intra-day low was 1059. The snowstorm may have postponed the technical resolution. Now the Lunar New Year may blur trading as much of Asia goes on holiday. Nonetheless, a definitive move appears to be looming in the next few trading days. We hope to get some clue to direction before it actually happens.

For today, the napkins suggest that first support still is 1058/1063. Resistance looks like 1074/1078 and then 1083/1088" Art Cashin

Euro area debt levels are rising faster than at any peacetime rate in the aftermath of the ongoing crisis. Further, as a result of the crisis government bond yield spreads between different euro area member states have exploded. The Maastricht Treaty’s debt-to-GDP criterion of 60% seems unrealistic within the next 10 years for many EMU countries. Even a 100% debt-to-GDP ratio in 10 years time could prove difficult for several countries.

• Majority of Germans wants D-Mark back (Frankfurter Allgemeine h/t Paul)
• Fed in talks with money market funds to help drain $1 trillion (Bloomberg)
• Jobless claims in US decrease more than anticipated (Bloomberg)
• Jobless suffer with corporate cash climbing to $1.9 trillion (Bloomberg)
• PIGS in rescue lipstick are uglier than default (Bloomberg)
• Greece: how the bond vigilantes left it in ruins (BusinessWeek)
• Stuyvesant Town ownership hinges on payment of $90 million (Bloomberg)

Time to recalibrate the FX/market correlating robots. Shockingly, the emerging wave of still unknown bailouts is finally starting to be perceived as euro weakness. The onlly logical "euro-strength" outcomeis if the IMF is once again dragged in, which in turn becomes dollar weakness.

Just in case you were mystified what "excess capacity" cheerleader #1 Jim O'Neill thinks of the world, be mystified no more. Spoiler alert: Jim uses the words "remarkable analytical mind" and "Alan Greenspan" in the same sentence. And with that out of the way, read on, and while you are at it, buy buy buy.

• Asian shares were higher Thursday, with China's more benign than feared inflation data.
• Australia job growth surges, unemployment rate falls; Aussie dollar strengthens.
• Bernanke says Federal Reserve may opt to raise discount rate 'before long'.
• China's January loans rises to $203B, property prices surge as banks extend more credit.
• EU to lay groundwork for Greek aid summit package in push to shield Euro.
• Health groups urge U.S. states to increase cigarette taxes by $1 a pack
• U.S. foreclosure filings rose 15% in January from a year earlier

South Korea (EWY) is the “K” that should be in “BRICK.” The country where the classic “V” shaped recovery is real. The international nuclear industry was blown away by Korea Electric Power’s $20.4 billion UAE deal. Speaking volumes about the direction of the global economy. South Korea takes a quantum leap ahead in the race for competitiveness, while the US falls further to the back in the dust. One small problem: the megalomaniac who lives next door with the starving million man army. Time for a visit to the Hermit Kingdom. (EWY)

The non-bailout bailout is here. Or is it? They really should have used Larry Summers. Van Rompuy says "determined and coordinated action if needed" will be provided. Uh, it is needed. But what is the deal? And what are the details? Greek 2s10s 40 bps steeper to +93 bps as 2 Year trades 56 bps lower to 4.97%.