Archive - Aug 2010

August 31st

madhedgefundtrader's picture

Buried in the recently passed Dodd-Frank financial reform bill are massive financial rewards for turning in your boss. Turning in Goldman Sachs could have earned you a reward of $500 million. Wall Street firms are bracing themselves for an onslaught of claims, legitimate and otherwise, by droves of hungry gold diggers looking for an early retirement.

Econophile's picture

Good is Bad, Bad is Good

If you listen to most economists they seem to have an Orwellian Newspeak version of economics which turns everything on its head. What we thought was good economic behavior is now bad economic behavior according to them. They say we should be spending not saving. Consumers aren't listening. They are saving because they know that good is good and bad is bad.

At $4 Trillion A Day, And At 50x Leverage, FX Trading Volume (and Risk) Dwarfs That Of Equities And Treasuries

If one looks around and wonders where the speculators have gone (the carbon-based variety, not the feedback-loop creating, binary terrorists) look no further than the FX market, which according to the latest BIS data, has hit $4 trillion in daily notional volume (20% higher than the $3.3 trillion in 2007), nearly quadruple the combined U.S. stock and Treasury trading, which in April averaged about $134 billion a
day (down from a daily average of $148 billion in 2007) and $456 billion (down from an average
of $570 billion for all of 2007), respectively. This amounts to nearly one quadrillion in total dollar transaction volume per year. There are two main reasons for the exodus from other products, and for ongoing cloning of the "Japanese housewife" phenomenon: the ongoing migration away from the bizarre daily moves in stocks, which are now traded almost exclusively by robots, or other frontrunning machines (see Schwab daily 52 week low), and the ridiculous leverage allowed in FX margin accounts. Just today, the CFTC announced that after the proposed 10-to-1 retail FX transaction leverage was shot down by "dealers, lawmakers in Congress and others who
feared it could push investors into overseas markets with less
protection", instead Gary Gensler's goons decided to keep all the habitual gamblers in house, and give them virtually unlimited leverage, or, as the case may be: 50 times. Recall that Bear and Lehman just needed 30x leverage to blow themselves up, and that happened with the FRBNY and the SEC both supervising. So let's see: $4 trillion...50x retail regulation...this will surely end well.

Guest Post: A Termite-Riddled House: Treasury Bonds

Right now, we are at a stage where Treasury bonds are as weakened as a termite-riddled house. They look fine: But they are well on their way to a complete collapse. Why? Because of the way they have been mishandled and mistreated by the Federal Reserve Board, and the U.S. Treasury. Whether by incompetence or by design, U.S. Treasury bonds have become the New & Improved Toxic Asset. The question is no longer if they will collapse—it’s when. Here's why. —Gonzalo Lira

Michael Pento Says Fed Will Buy Stocks And Real Estate In Its Next Attempt To Create Inflation

As part of the Fed's latest QE iteration, it has already been made clear that despite initial disclosures that the Fed would stay in the 2-10 Year bound of Treasurys, Ben Bernanke is now also gobbling up the very long end of the curve. For all those who are, therefore, still confused why bonds continue to surge to record levels, don't be: when there is a guaranteed bidder just below you in the face of the Fed, and who you can turn around and sell to at will, there is no pricing risk. The problem, from a bigger stand point, is what happens when the Fed is actively buying up 30 Year bonds with impunity and the much desired (by the Fed) inflation still does not appear? Well, the Fed then, in Michael Pento's opinion, will begin to purchase stocks and real estate. And as all those who enjoy comparing the US to Japan can attest, outright purchases of securities by the Japanese government is a long-honored tradition in the ongoing fight with deflation in Japan. However, and as the recent BOJ (lack of) intervention demonstrated, Japan never could do anything with the required resolve, and bidding up one stock and there piecemeal would never achieve anything. Which is why in this interview with Eric King, Michael Pento makes the case that as opposed to the occasional market intervention via the President's Working Group, Bernanke will soon make stock purchases an outright policy of the Federal Reserve as its last ditch attempt to engender inflation before the hundreds of billions of Commercial Real Estate and other debt starts maturing in 2011/2012. Bernanke is running out of time and he knows it. And once the Fed become the bidder of last resort in stocks, all bets are off, as the Central Bank will become the defacto only market in virtually every risky category. And the only safe vehicle, once the market then begins to price in asset-price hyperinflation, will be gold.

Leo Kolivakis's picture

Magna Cum Laude?

Despite strong opposition from Canada's largest public pension funds, Magna International said it will move ahead with a deal to have founder Frank Stronach give up control over the auto parts giant. In all, the payout is valued at roughly $1 billion – an unprecedented 1,800% premium and dilution compared to other conversion deals.

Nic Lenoir's Market Close Observations

Until I send a more complete market overview tomorrow, there are a few things I want to point out: The market data is atrocious and yet we fail to accelerate lower. I have highlighted the past two weeks how the 1,040/1,050 are should provide strong support here and so ar so good. We remain core short from 1,126 but feel rather pleased to be out of tactical positions so the chopping around the lows does not give us any headaches. I still believe we should see 1,085/1,100 at the minimum before selling off more aggressively.

SEC Refuses To Sue Moody's Over Computer "Glitch" Which Inflated Ratings By 1.5-3.5 Notches On Thousands Of CDOs

Another day, another SEC farce. Today, Schapiro's captured henchmen sent a notice to credit rating agencies about internal conduct and methods the firms use to determine the riskiness of financial products. As the alternative was to pursue a fraud enforcement action, in this particular case against Mark Zandi's Moody's, one can see why the SEC opted out for the action that would not implicitly open it up as well to like legal treatment by millions of investors, who had kinda, sorta hoped that the SEC would not allow this kind of fraud in the first place. As Housing Wire reports, "the SEC announcement stems from an inquiry by its enforcement division into whether Moody's Investors Service violated registration provisions or anti-fraud provisions of federal securities laws." Additionally, "the commission notes that Dodd-Frank gives federal district courts jurisdiction over SEC enforcement actions that allege violations of the anti-fraud provisions of the securities laws." In other words, while the SEC is a toothless, gutless, corrupt POS, others may take offense to this lack of responsible action and sue Moody's directly. And what is the reason for the SEC investigation? Why, a computer "glitch", which "inadvertently" raised the ratings of various notes by up to 3.5 notches! Housing Wire notes: "The SEC inquiry stems from allegations that a Moody's computer coding
error improved, "by 1.5 to 3.5 notches," the credit ratings for certain
debt obligation notes."
Yet having been caught with its pants down was not enough for Moody's to actually fix the "glitch" - "shortly thereafter during a
meeting in Europe, a Moody's rating committee voted against taking
responsive rating action, in part because of concerns that doing so
would negatively impact Moody's business reputation." And people are surprised that wholesale market manipulation occurs on a day to day basis, with the ongoing blessing of the SEC...

The Last Minute Ramp Job Dissected

How do you prevent a 5% drop in a month (which as Credit Trader points out is precisely what the last minute ramp achieved)? A reader explains:

approx 175k ESU0 traded between 3:59 and 4:00 - $9.1B notional.  in the 16 minutes between 3:59 and 4:15 just under 300k contracts traded total (12% of full day / overnight volume --- 200% of the previous 5 trading days) for total of $15B notional

And now you know. Beginning tomorrow, the stock market will open at 3:59 pm and close at 4:15 pm . Traders rejoice as this will open up whole new unexplored avenues to kill time during the day with trips to Scores and Baltusrol.

Chris Whalen Sends Memo To Obama, Says It Is Time To Break The Refinance Strike By The Big Banks

There are growing signs of unease bordering on desperation inside the Obama White House. Most of the O Team now understands that the real, private economy never got out of Dip Number One. The prospect of a permanent downward shift in “trend growth” to a lower track, and continued double digit unemployment, are driving a search for alternative measures that has even touched conservatives in the worlds of finance and economics. The Obama Administration and the Fed have taken the position that the crisis affecting the U.S. economy and the financial sector is slowly ending. In fact, the largest banks remain profoundly troubled by bad assets on their books as well as claims against these same banks for assets sold to investors. By allowing banks to “muddle along” and heal these wounds using low interest rates provided by the Fed, the Obama Administration is embracing a policy of deflation that has horrible consequences for U.S. workers and households.

Victory For The Fed As 10K Holds; Volume Surges On Unchanged Market

In a day in which volume surged to one of the highest total days in all of August, if not the summer, the FRBNY's Brian Sack can claim victory: Dow closed above the ridiculous 10K level, which for some ungodly reason everyone in the administration sees as the Maginot line of the depression. And despite the spike in volume, the market closed virtually unchanged on the day, even as futures go nuts after hours where it has once again become a felony to sell or put on shorts. Confirming that the market is totally, irrevocably broken, the HY index closed at the day's wides, as futures closed at the highs. Calling this robotic farce a shitshow is an insult to shit and to show. And will the last guy out at Liberty 33 please turn off the "buy everything" program currently raging in the AUDJPY. We got the memo: the FRBNY is in charge.

Phoenix Capital Research's picture

In today’s Crony capitalist economy, the political system is bought outright by the large multinational corporations via various lobbying efforts/ corporate donations. These multinationals then receive kickbacks in the form of deregulatory policies and other tax loopholes, which permit them to further expand their power and influence.