Archive - Jun 15, 2010

Some, like Sal Arnuk and Joe Saluzzi, who have long been warning about the imminent threat of a May 6-like event, only to be proven correct, not only on that score, but also on their admonitions that the entire market structure is broken, end up being interviewed by such exalted financial figures as Kate Welling. Others, like their arch nemesis Irene Aldridge, who has long been warning about the imminent extinction of all those who do not buy into the religion of "HFT or bust", end up being mocked by the cash cow from The Jon Stewart Show. We present the complete interview in which Sal and Joe deconstruct market topology, HFT, innovation, market manipulation, front running, Flash trading, collocation, VWAP, Reg NMS, and everything else you have always wanted to know but been afraid to ask.

After catching a few soundbites of Cramer's spiel today, we were stunned: for once theStreeter did not lose his marbles over an engineered, 20 handle, 200DMA breakout rally. Quite the opposite. In what is likely a first, the Mad Money host actually told his viewers it is time to get out of the market: "I am calling this a bad rally. This market has now become more depressing than Ethan Frome. Even the good days are now bad days. It's almost as if the whole market is caught between 1st base and 2nd base. So we get an endless rotating short squeeze in oil, in the banks, in tech, in discretionary.... But once the shorts are done getting picked off, we've got no more reason to run. It is a rally that stops that a blast of future selling comes in. It is a rally that stops the moment the buyers just walk away. We used to have fundamentally based rallies - that's not how this market works." The 10 minute rant against the market by the legendary permabull is simply shocking: he actually describes all the different dimensions in which the stock market is completely busted and discredited in a way that makes us jealous: "This market is stupid. And it is hated for a very good reason. The market seems rapacious, arbitrary, capricious and downright ridiculous. It is a tale told by an idiot, full of sound and fury, signifying nothing."

Matt Simmons was on Bloomberg earlier, adding some additional perspective to his original appearance on the station, in which he initially endorsed the nuclear option as the only viable way to resolve the oil spill. Simmons refutes even the latest oil spill estimate of 45,000-60,000 barrels per day, and in quoting research by the Thomas Jefferson research vessel which was compiled late on Sunday, quantifies the leak at 120,000 bpd. What is scarier is that according to the Jefferson the oil lake underneath the surface of the water could be covering up to 40% of the entire Gulf of Mexico. Simmons also says that as the leak has no casing, a relief well will not work, and the only possible resolution is, as he said previously, to use a small nuclear explosion to convert the rock to glass. Simmons concludes that as punishment for BP's arrogance and stupidity the government "will take all their cash." Now if only our own administration could tell us the truth about what is really happening in the gulf...

IMF head Dominique Strauss-Khan is flying to Spain "to discuss global economic developments with the Prime Minister, and to consult with him on developments in Spain, including the government's economic policies and reforms" according to Reuters. The last time the IMF sent a delegation to a country was on April 15th when the IMF together with representatives from the EU and ECB took a jaunt over to Athens. A month later the country was insolvent. We can't wait for the official denial that this visit has nothing to do with the frozen Spanish liquidity market (like Greece), and that there is nothing to worry about (like Greece), only to end up with a full blown IMF rescue package of the Pyrenean country (just like Greece). This merely confirms the move in PIIGS spreads which despite the joke that is the market moved 10%+ wider on the day. The next domino is about to fall, and no matter how much rumored collusion between two French banks and the Federal Reserve is injected, the EURUSD is likely about to tank. At this point it is wisest to get out of any EURUSD longs, and finally follow Goldman's "advice."

The US government has revised its estimate for the daily oil spill for the third time, now decidedly higher than the last iteration which was at 25,000-40,000 barrels per day. The latest estimate puts the high end another 50% higher, at 60,000 barrels. If this is indeed the case, it means that the amount of oil already having leaked could be as high a 3 million barrels, or 12 times the amount spilled in the Exxon Valdez. Whether this means that the previous estimate of a total possible BP liability and other payments of $80 billion have to be adjusted higher once again, is still unknown. We hope the president's speech at 8pm will provide some more clarity on whether or not today's BP CDS Spread around 500 is justified.

The scramble for physical is accelerating. Following in the footsteps of PHYS and GLD, yet another gold trust announces a follow-on offering, in which the entire $800 million outstanding under the firm's previously filed Shelf will be used up. "Substantially all of the net proceeds of the offering will be used for
gold bullion purchases, in keeping with the asset allocation provisions
outlined in Central GoldTrust's Declaration of Trust and the related
policies established by its Board of Trustees." $800 million is equivalent to 640k ounces at today's fixing, or about 20 tonnes. With this 20 tonnes of gold being sucked out of the market, and GLD's
gold NAV hittinging another all time high of 1,306 tonnes, (not so) slowly
all the gold is being sucked out of the system. So yes, even as stocks were off to the headless chicken races, gold once again staged a rally, which would make absolutely no sense if the market was at least a little bit less broken. The good thing is that the Fed's chairman, as confirmed by his last week's testimony, is just as clueless in justifying this "inexplicable" move in the precious metal. Perhaps if he were to look at the Frankenstein monster of a balance sheet he has created, all his questions would be answered.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 15/06/10

Technically there is no denying it we are breaking out, and the next resistance is at 1,150 in the S&P future. We had indicated 1.2154 as the resistance for EURUSD. We had a textbook test at 1.2152, then a break, and a retest at 1.2168 last night... It does not get much more friendly like this technically, and those who bought are now almost 2 figures in the money so they have a bit of room to hang in case of volatility. AUDUSD has also broken 0.8575. There is intermediary resistance at 0.8737 but just like EURUSD the 50-DMA seem very likely candidates for a retracement. The fact the market broke after a series of rather disappointing economic numbers and on no volume following absolutely nothing positive is precisely what worries me: people could end up chasing it and then chasing it some more because of the lack of initial participation... until another sign of the impending disaster crash creates panic again. - Nic Lenoir

Once again, old habits die hard. Everyone remembers the time at a young age when they went to a strip club and went all the way with the hottest stripper. No different than the stock junkies, who remembered the SOX rocketing from 200 to 1300 in a mere 18 months.

Barney Frank has released the House "offer" language on various issues to be discussed tomorrow during the House-Senate Conference Committee, which will convene at 11am in Rayburn Room 2128. While some of the items on the docket relating to Investor Protection and Executive Compensation, are largely irrelevant, Barney will also discuss such critical issues as the Fed Audit, the Fed's emergency lending power, and Foreign FX swaps. Ignoring that 80% of the S population demand an end to fed secrecy, the just released proposed language also appears to peddle exclusively to Bernanke and his Wall Street superiors, in that items under debate for the audit will not include monetary policy, and it will be America's sad fate to extinguish under a 0% interest rate, never knowing how such lunacy can have come to be, until such time as the banking system blows itself up once again. This way the American public will never know whether someone like Goldman Sachs (in addition to Jerome Kerviel) has had any influence in determining monetary policy.

Even as the EURJPY suggests that the intraday market peak should have occurred about the time the ES was unable to breach the 200DMA for the first time earlier today, stocks are now semi-sentient, and realize that with OpEx coming up in a few days, at this point no correlations matter: the market must be gunned beyond max pain. Will stocks, as always has been the case, eventually follow FX back lower, or have we reached that critical day when even the FX traders give up, and go to watch sport, leaving their own algos at the mercy of Hal9000. At least based on empitical evidence, the spread will close. One thing is certain: the market continues to make no sense, with this straight up ramp on a day chock full of "good news."

When (not if) the need arises to dismantle the TBTFs, full of noncashflow producing loans, the next time around we have a Flashiest Crash, we will have no way to do so, despite the widely propagandized Obama FinReg reform. These are the words of Obama's right shoulder man Paul Volcker, who on William Isaac's program earlier noted that proposed legislation is "not going to prevent the top five banks from being saved." In that sense, the primary goal of Obama's attempt to overhaul financial regulations: the prevention of taxpayer bailouts when banks implode, is a miserable failure, yet it will not stop countless hours of self-congratulatory, teleprompterized appearances by the president, the Congressman from Fannie Mae and the Senator from Countrywide. In other news, the bankers win again, and nothing changes. Next up: how to get bank leverage to 100x all over again, without alerting the general public that next (if not this) year's bonuses will be once again fully funded by the US middle class.

We don't need to even discuss conspiracy theories about what happened on 9/11 to be incredibly disturbed about what happened after: the government's obstructions of justice.

Indeed, the 9/11 Commissioners THEMSELVES are disturbed ...

Yesterday we charted the third attempt to break the 200 Day Moving Average, and expected a low-volume repeat computerzied assault on the 200DMA today. Today: low volume, check, SPY hugging 200 DMA, check.... and fizzle. On the other hand, this could be a totally unrelatedaberration , driven exclusively by the EUR, which attempted to take out 1.235 earlier and failed. It just so happens that this level translates into the technical resistance level for stocks. Nonetheless, with Brazil about to kick off and volume to hit zero imminently, we are confident the DMA will be taken out resolutely by Commodore 64, on the same toxic vapors that are filling up desalinization plants in Florida and the asset side of the Fed's balance sheet.