Archive - May 11, 2010

Starting as of this evening everyday I will provide futures charts for the night owls. Since many of you do not have access to a Bloomberg terminal or a retail trading platform I have found the idea of providing futures charts valuable. I will post only the most significant indexes, currencies and commodities without going into individual stocks and ETFs. The point of this is, beside the aforementioned one, to paint a clear picture before the next trading day opens. So I hope you find this valuable. All futures can be seen by clicking on the link provided below the charts.

Risk aversion is here and even if we get a short-term bounce on some sort of political event/reactionary policy, it will be short-lasted and by the end of the summer/beginning of the fall, it should be clear that the next wave of the financial crisis has arrived. And sovereign debt crises are much more political and have worse economic and social consequences (trade wars, revolts, riots, civil wars, and even world wars) than financial/private debt crises.

Those of you who have been following this blog from its humble beginnings know that I have been consistently bullish on the long-term prospects of gold, and consistently bearish on the long-term prospects for the American economy. With gold sitting at $1,232 dollars and sovereign debt concerns entering the system, my thesis is unfolding before our very eyes. This is very unfortunate. I would much rather be wrong and lose money investing than be right when it entails hard times for Americans.

"Surely, however, one of the most important financial decisions in EU history, which will now lead inexorably to the creation of a federal budget running into trillions of euros, should not have been taken in one Sunday night sitting, on a proposal that had not even been mooted until the previous Friday, and at a time when Britain did not have a functioning government and the German finance minister was suddenly in hospital." - Anatole Kaletsky

Tuesday was a very strange day in oil. Oil prices were higher in early trading, even with equities lower and the US dollar rallying. No one we spoke with could offer us anything as a decent reason for this advance other than it being as the result of a technical rally, with prices rallying after last week’s big decline.
Then, equities rallied. But, even as they worked into positive territory, oil prices were in the opposite lane, going south, passing them by. So, almost all day long, oil and equities had a negative correlation.
They got back together at the end of the day. Once everything was said and done, both finished with minor losses on the day. It appears that a weaker euro may have helped both markets into negative territory.

Spreads ended the day wider in the US with HY underperforming IG and US underperforming Europe but the tale of the tape was 3s5s flattening and FINL underperformance. After opening notably gap wider this morning, credit markets rallied most of the morning with Main and XOver dramatically so as we sense some exaggeration by correlation desk hedging. HY never made it into positive territory today and even IG only managed a small compression at its best levels.

First the fun stuff: gold hit an all time record today. To those who have had the foresight to realize that in the currency devaluation race to the bottom, the only winners will be non-dilutable precious metals (and not industrial gimmickry and bets on China's excess capacity like copper), we salute you. In fact, so does the market: the S&P is now down 8% year to date when expressed in ounces of gold. Because while central banks can monetize, sterilize (whatever that means), and dilutize that last remnant of the dying Keynesian religion, the FRN and its equivalents around the world, gold is untouchable, and increases in value with each desperate attempt to save a failed economic system. Yet the bandwagon is once again getting heavy: the EUR is getting killed after hours, approaching $1.25 and is about to break the E-mini critical 117 yen support once again. Should central bank buyers not materialize, hello gravity. Which would also mean freefall for the ES. The bailout plan is now null and void, and in need of a bailout plan itself. The French banks won: we expect their FX traders to make a killing this year. We hope their contract demands bonus payment in gold.

Bloomberg reports that "U.S. Securities and Exchange Commission Chairman Mary Schapiro said the agency’s enforcement unit has issued subpoenas as part of its investigation of last week’s stock plunge." Is the general population about to get our first unredacted, and unbiased look into the nuts and bolts of HFT operations like Getco, Medallion, Citadel and Goldman (yeah, we can name drop too)? And whatever happened with that SEC investigation of Renaissance (yeah, we haven't forgotten). We can't wait to see what public data the subpoena uncovers.

And so we move from the simply surreal to the PTSD-inducing, opium-den acid flashback.

Banks protesters storm Irish parliament

Protesters have stormed parliament during a march against government plans to inject billions of euros into the country's banks.

Dozens of people broke away from the march and ran at the gates of the parliament's main building, Leinster House.

They wrestled with police, who tried to force them back and secure the gate.

At least one man suffered a head injury during the scuffles with organisers appealing for calm.

Hilarious

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 11/05/10

Right about now the world's foremost expert on pornography, Mary Schapiro, is discussing, on a cable channel near you, market structure. We urge you not to listen to her on pain of brain liquification. Sitting next to her is Goldman emeritus cum laude Gary Gensler, head of the organization that today is getting pounded in the buttocks by its inability to manipulate gold prices lower any longer, courtesy of a DOJ that is only 20 years behind the antitrust curve, thus resulting in a new all time high in the precious metal. Yet as both of these special people have something to say about the market crash, we have culled the key points from Gensler's prepared remarks that present the official party line on Thursday's festivities.

Buckle up ...

"Most institutional and retail investors have no idea that the private trade information they are entrusting to the market centers is being made public by the exchanges. The exchanges are not making this clear to their clients, but instead are actively broadcasting the information to the HFT’s in order to court their order flow. The exchanges are likely to counter that when a subscriber signs up to their exchange they then allow the exchange to use this data as they see fit. However, how many investors would have signed that agreement knowing that their hidden orders were being exposed? This practice has been going on for years but not many investors have read the market data specifications. Every day high frequency traders are using the information that some exchanges are supplying to disadvantage unsuspecting investors.
Every time a trader places an order in certain market centers, whether at the market centers directly, or through a third-party DMA, those market centers are collecting data regarding the trader’s order flow. They are supplying the information to HFT’s that allows them to track when an investor changes price and how much stock has been accumulated. This information is helping HFT’s predict short term price movements. Institutional as well as retail footprints are being detected, and “modus operandi” and trading profiles are being created. Traders believe that their trading strategies are protected, when actually their strategies (personal data) -- including variables such as displayed quantity, time stamp, side, revisions, reserve orders, linked executions, order id numbers, accumulations, number of shares -- are being misappropriated for sale by the market centers." - Themis Trading