Archive - Aug 1, 2010
Guest Post: HFT Bot-Versus-Bot
Submitted by Tyler Durden on 08/01/2010 17:59 -0500HFT began with the observation that there is “structure” to the tick-by-tick movement of the markets, that as market participants – analog Hedge Funds, Real Money Investors, Brokerage Houses – made their trades, there were patterns to the price movements that could be predicted, and therefore profited from. From this position, it is a natural next step that as HFT trading bots become a large part of the transaction volume of the stock market (they are) that the algorithms that power these HFT trading bots should look to exploit the “structure” provided by other HFT trading bots. A logical next step, no doubt, but we are really at what I call “the end of the rationale road” of this stock market thing. We created this stock market thing so Montgomery Burns with capital, could get that capital to Transatlantic Zeppelin, which needed capital, in an efficient manner. Now, who knows why it exists. And concomitant with the rise HFT trading bots is an increasing correlation between the individual components of indexes[1] (e.g. all the stocks in the S&P are moving in lockstep). That great line that traders started in the 80?s “The ticker symbol is just a name on my screen, I don’t even know what the company does” has now become in the roaring 10?s “The name is just a line in the computer code, I don’t even know what the fucking name is anymore!?!”
Top 10 Most Read Posts In The Past Week
Submitted by Tyler Durden on 08/01/2010 17:48 -0500These are the Top 10 most read posts of the prior week:
- Marc Faber: Relax, This Will Hurt A Lot
- Ever Wondered How You Know You Are In A Depression? David Rosenberg Explains
- Guest Post: Gold Swap Signals the Roadmap Ahead
- "It's Not A Market, It's An HFT 'Crop Circle' Crime Scene" - Further Evidence Of Quote Stuffing Manipulation By HFT
- Jim Rickards Compares The Collapse Of The Roman Empire To The US, Concludes That We Are Far Worse Off
- LBMA Closes Off Public Access To Key Bullion Bank Trading Data
- S&P Priced In Gold: Comparison Between The Great Depression And Now
- Warren Pollock Warns Of Emergency Drug Shortage As EMTs Told To Go To "Alternate Protocols"
- China Calls Our Bluff: "The US is Insolvent and Faces Bankruptcy as a Pure Debtor Nation but [U.S.] Rating Agencies Still Give it High Rankings"
- Already Bought A 3D LCD In Anticipation Of QE "Instarefi" 1.999? You May Want To Consider A Refund
Guest Post: How to Find Low Risk SP500, Gold & Oil ETF Setups
Submitted by Tyler Durden on 08/01/2010 14:50 -0500As we all know there is an unlimited amount of ways to trade the financial markets. Each person sees the market in a different way, has different skill sets, trading experience and risk tolerance levels. While some individuals create and use complete systems to make money there are some very basic trading strategies which still work well and require nothing more than basic charting, patience and a little money management.
Alan Greenspan: "The Financial System Is Broke"
Submitted by Tyler Durden on 08/01/2010 13:11 -0500For the definitive confirmation that the Fed is and has always been very open to, at least philosophically, pushing the market higher no matter what the cost (if not in practice - they would never do that, oh no, Liberty 33 would never stoop so low), is this quote from former Fed chairman Alan Greenspan who was on Meet The Press earlier, where he said the following stunner: "if the stock market continues higher it will do more to stimulate the economy than any other measure we have discussed here." In other words, the Fed's dual mandate of maximizing employment and promoting a stable inflation rate have been brushed aside, and the one and only prerogative for Chairman Ben currently, and for the short and long-term future, is to keep the Dow Jones (because nobody in the administration, even the Fed, has heard about the S&P yet), above 10,000. Yet Greenspan, who now apparently is off the reservation concludes with this stunner: "There is no doubt that the federal funds rate can be fixed at what the Fed wants it to be but which the government has no control over is long-term interest rates and long-term interest rates are what make the economy move. And if this budget problem eventually merges to the point where it begins to become very toxic, it will be reflected in rising long-term interest rates, rising mortgage rates, lower housing. At the moment there is no sign of that because the financial system is broke and you can not have inflation if the financial system is not working." In other words, we will be in deflation until the broke financial system becomes unbroke... and then we will have hyperinflation. Well, ladies and gentlemen, Q.E.D.
With Just Five Months To Go, Stocks Are 90% Short Of Meeting Goldman's Full Year Equity Inflow Target
Submitted by Tyler Durden on 08/01/2010 11:45 -0500In his earlier presentation, David Kostin (way back on page 28), candidly admits that anyone who follows rule #1 in finance, which is "Always Follow the Money" can easily skip through the first 27 pages of his presentation and realize that there is simply no way that the market can meet the permabullish strategist's expectation for equity inflows for the full year 2010. While way back in December, Kostin speculated that stocks are so undervalued they would see $600 billion in net equity inflows, with seven months down, there have been only $57 billion on inflows Year To Date, of which retail flows are actually negative $16 billion. Will stocks be able to make up the $543 billion shortfall in 5 short months even as the market is unchanged for the year, and would be far lower if it weren't for the constant HFT intervention on low or no volume to stuff assorted bids ever higher? The chart below shows just what a great disappointment the market has been year to date for all those who seek validation in sizable net inflows.
Where To Invest Now: The Great Micro Vs Macro Debate
Submitted by Tyler Durden on 08/01/2010 11:17 -0500David Kostin has put together a ton of pretty charts in this attempt to convince everyone that the fair value of stocks is precisely +/- 1,350. The presentation gets interesting after page 26 (in fact you can skip part one which is merely the obligatory propaganda, and confirmation that Kostin refuses to read Jan Hatzius).
Guest Post: A Tale Of Two Economies
Submitted by Tyler Durden on 08/01/2010 11:05 -0500The Bearish: "Bottom line summary. The tale of two economies theme remains valid and intact for now. We are seeing a huge divergence between large and small business condition outlooks at present. A divergence we have never seen in modern historical experience. Large businesses represent the micro in terms of the positive of company specific earnings. They are the large S&P 500 companies whose earnings are more dependent on the rhythm of the global economy as opposed to the domestic US economy specifically. They are the large companies whose reported "operating" earnings are not falling apart, despite a few bumps in the road now and again. Alternatively, we see the small business community representing the domestic US macro. They are the job and ultimately personal income creators. They are largely the service sector, the largest driver of domestic US economic outcomes. The NFIB numbers are simply telling us of a deceleration in macro economic activity ahead. And herein lies the tension for investors. What will be more important in decision making immediately ahead, the tone and rhythm of the US macro economy inclusive of jobs and personal income, or the micro of reported quarterly "operating" earnings of truly large and globally centric companies whose job and personal income creation activities largely lie abroad? It's why we need to remain focused on this "tales of two economies" theme. Is it really going to be the case that the S&P 500 companies alone (as a proxy for large corporations) experienced a headline economic recovery in the current cycle while small businesses never even left the post recessionary starting gate? It's sure looking that way for now. In terms of "counting cards" as per a potential US double dip recession outcome, the NFIB puts a checkmark in the plus column for the double dip scenario. Just keepin' a list."
'Post-Liberation' Politics?
Submitted by Leo Kolivakis on 08/01/2010 10:29 -0500There is a paradigm shift going on in the treatment of multiple sclerosis (MS). While Big Pharma frets over the new treatment, many MS patients are flying in droves to Poland, India and elsewhere to get treated, and some are reporting drastic improvements. But now that clinical trials are commencing in Canada and the US, MS patients should finally get the answers we're looking for.
S&P 500 Full Year Sources And Uses Of Cash
Submitted by Tyler Durden on 08/01/2010 10:22 -0500
M&A and Underwriting bankers are all too familiar with a Sources and Uses of Cash analysis(and yes, for our NYT readers, this is far more popular, practical and worthwhile than a DCF analysis). Yet we had never seen an Sources and Uses conducted for the entire market prior to this table created by Goldman Sachs which demonstrates succinctly and to the point precisely how roughly $2.25 trillion of cash was raised in 2009 by the S&P 500 (ex Fins and CNBC parent General Propaganda), and what this cash was used for. It is not surprising that nearly 50% of cash was generated from operating cash flow ($1 trillion) while $600 billion came from new debt issuance (the rest from asset disposition). Yet despite consistent claims that companies have massive deleveraged, just $635 billion of debt was repaid, meaning only $35 billion of debt was actually retired! What the flow was used for, however, was to extend maturities, and to shift debt across different sections of the S&P500's balance sheet, lowering the debt cost of capital. And while $400 billion in new cash was used for CapEx (far less than the recent historical average), only $189 billion was put to use in the form of dividends: a fact that shareholders are certainly not too happy about. In a comparable operation, while just $63 billion of new equity was issue, double that amount was bought back, thus boosting EPS by reducing the denominator. Yet total shareholder friendly cash in 2009 (dividends and buybacks) amount to just over $300 billion: a small fraction of the total $2.25 trillion used by companies for various purposes.
More Embarrassment For Congressional Black Caucus After Maxine Waters Joins Rangel In Alleged Ethics Breaches
Submitted by Tyler Durden on 08/01/2010 08:44 -0500After Charlie Rangel was humiliated recently by the Congressional Ethics Panel, and faces ethics charges that included failure to disclose assets and income, nonpayment of taxes and doing legislative favors for donors to a college center named after him, today we learn that another democrat, prominent member of the Financial Services Committee, and the funniest Ben and Tim interrogator by a mile, Maxine Waters, is about to face an ethics trial herself, dealing a huge reputational blow to the Congressional Black Caucus, where it now appears pretty much everyone in a position of power had been allegedly abusing their privilege for years. Of course, this means the other 358 members of Congress are perfectly honest and clean. Then again, perhaps it is not a bad thing that Maxine will soon be gone from the FSA, as her repeated questioning of Tim Geithner and Ben Bernanke was a farce of such moronic magnitude, that it actually made the Fed chairman look good during Q&A (we dare you to watch the clip below with a straight face). Either way, it will be amusing to watch all of Maxine's faux indignation now that she will be on the receiving end of questioning that should be at least a little smarter than her own.
Hedge Funds Now Advertising Ultra Short-Term Liquidity Exposure As Market Becomes A Day-Trading, Speculative Venue
Submitted by Tyler Durden on 08/01/2010 03:48 -0500It is one thing for HFT's to end each and every day in "all cash", once the daily stock churn is exhausted, having made a few risk free dollars from collecting liquidity rebates and from pushing NBBOs around from all that bid stuffing. It is something else for big, macro funds to advertise that their asset exposure is of the most liquid variety. While reading an investor letter from just such an asset manager, the following data from caught our attention: the fund advertises that 100% of its assets have a sub-1 day liquidity.
Record Commercial Real Estate Deterioration In June As CMBS Investors Pray For 50% Recoveries
Submitted by Tyler Durden on 08/01/2010 01:54 -0500
In continuing with the trivial approach of actually caring bout fundamentals instead of merely generous (and endless) Fed liquidity, we peruse the most recent RealPoint June 2010 CMBS Delinquency report. The result: total delinquent unpaid balance for CMBS increased by $3.1 billion to $60.5 billion, 111% higher than the $28.6 billion from a year ago, after deteriorations in 30, 90+ Day, Foreclosure and REO inventory. This represents a record 7.7% of total outstanding CMBS exposure. Even worse, total Special Servicing exposure by unpaid balance has taken another major leg for the worse, jumping to $88.6 billion, or 11.3%, up 0.7% from the month before. And even as cumulative losses show no sign of abating, average loss severity on CMBS continues being sky high: June average losses came to 49.1%, a slight decline from the 53.6% in May, but well higher from the 39.6% a year earlier. Amusingly, several properties reported loss % of 100%, and in some cases the loss came as high as 132.4% (presumably this accounts for unpaid accrued interest, and is not indicative of creditors actually owning another 32.4% at liquidation to the debtor in addition to the total loss, which would be quite hilarious to watch all those preaching the V-shaped recovery explain away. Of course containerboard prices are higher so all must be well in the world). Putting all this together leads RealPoint to reevaluate their year end forecast substantially lower: "With the combined potential for large-loan delinquency in the coming months and the recently experienced average growth month-over-month, Realpoint projects the delinquent unpaid CMBS balance to continue along its current trend and potentially grow to between $80 and $90 billion by year-end 2010. Based on an updated trend analysis, we now project the delinquency percentage to potentially grow to 11% to 12% under more heavily stressed scenarios through the year-end 2010." In other words, the debt backed by CRE is getting increasingly more worthless, even as REIT equity valuation go for fresh all time highs, valuations are substantiated by nothing than antigravity and futile prayers that cap rates will hit 6% before they first hit 10%.



