Archive - Sep 2010

Grow up ...

For those who follow our periodic updates on intraday stock volume, today's article by the Wall Street Journal which focuses on the dramatic decline in activity during regular working hours will come as no surprise. In a piece looking at prop trading shop Briargate (oh so witty anagram of arbitrage), founded by several former NYSE specialists, we learn that at least one firm (and likely many more) now no longer does any trading during the hours of 11 to 2. As this creates a feedback loop of inactivity, pretty soon the core of daily stock market activity will merely be the half an hour of action at the open, and the dark pool-ETF-open exchange rebalance at the very close, with everything inbetween deemed obsolete. Of course, what this will do, is create even more volatility in trading, force an even greater decline in stock trading volumes (and pain for Wall Street firms), and a further divergence between stocks and fundamentals, as momentum trading gains an even more prominent role in determine "price discovery."

Like a rabid bulldog that refuses to let go, Goldman's Ed McKelvey has bitten on the fact that the US economy continues to deteriorate, despite the occasional data point which the feedback loopers latch on to, only to find out the data was either manipulated or "estimated", and provides a "roadmap" for how the ongoing depression will manifest itself over the next two quarters. As his economic team has been more correct than all others, investors will be paying far more attention to his estimates, than those of a now ridiculous David Greenlaw of Morgan Stanley, who after downgrading the economy three weeks ago, upgraded Q3 GDP from 2.1% to 2.4%. High Frequency Forecast adjustments anyone? According to McKevley the ongoing weakness in the economy will manifest itself along these five key verticals: consumer spending, housing start weakness, industrial activity, ongoing labor market deterioration, and deflation. Of course, this should be sufficient to get bizarro stocks higher by a few percent today. Then again, nobody gives a rat's ass what stocks do anymore.

I’ve been writing about a possibility for three weeks now that I could not have imagined writing about five weeks ago: a near-term rally in the S&P 500. The reason I couldn’t have dreamt of writing about the S&P 500 rallying is because my work starts with the long-term chart of the S&P 500 and the trend of that chart is very clearly down as is shown in the second section of this note. However, a little more than four weeks ago, I spotted what appeared to be a potentially bullish technical pattern in the S&P 500. If it had looked like the beginning of the rally we saw in July and what turned out to be a bearish Rising Wedge, I would have noted it as such and labeled this time period as another selling opportunity. But this one looked as though it had the potential to be bigger and longer. Specifically, the index appeared to be setting up for a somewhat significant move higher. Enter the unconfirmed and bullish Head and Shoulders pattern. - Peak Theories Research

• Japan Alarm Over China’s JGB Purchases (FT)
• Japan Finalizes 10.9 Bln-Dollar Stimulus to Counter Strong Yen (Xinhua)
• Geithner Says China Needs to Let Market Drive Up Yuan (Bloomberg)
• What Can Be Done to Slow High-Frequency Trading? (FT)
• German Push to Delay Basel Capital Rules Meets U.S. Opposition (Bloomberg)
• Weaning Banks Off ECB's Emergency Lending Will `Take Time' (Bloomberg)
• Regulators Agree 7% Capital Ratio for Banks (BBC)
• UK Unions to Flex Muscles Ahead of Government Cuts (Reuters)

The FDIC bank data from the 2nd quarter reveals that banks, despite extend and pretend, regulator passes, and kick the can down the road policies, are still feeling the CRE crunch. 15% of the "Construction and land development" loans are non-accrual status (dead money). Leverage that 12x to 25x (about what banks are reportedly carrying) and we are talking some pretty heavy losses. Then, of course, there the real numbers if one could just look past the extend and pretend...

Just one second-tier indicator on the docket, ahead of President Obama’s news conference on the economy later in the morning….

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 10/09/10

Markets will do whatever they have to do to screw the most people. In every election since 1950, markets rallied for six months after the midterms, setting up for a nice yearend rally. One more flush in the indexes, and a 950 SPX gives you a PE multiple of 10, the lowest it has been for years. After firing people to boost productivity and profitability, the end September earnings reports should be pretty good. (SPX), (ECH), (TF), (IDX), (EPOL).

It has been a while since the IMF sold gold directly to sovereign countries. Today that changed, as once again the IMF is either telegraphing it is happy with a gold price of $1,250 (although its sales last year did not prevent gold from surging to record highs as of two days ago), or that it is increasingly poorer (as it is now solely supporting a broke Europe, that would not be surprising). Dow Jones reports that the IMF just sold $403 million dollars, or 10 metric tons, to Bangladesh (yeah Bangladesh). As the IMF has sold 190 tons in off market transactions, and another 90 tons in the open market, the entity that has been pitching the SDR rather aggressively lately may soon hit its 400 ton quota. Although just like the US debt ceiling, that is merely a limit to be broken. Oddly enough, the direct buyers from the IMF continue to be monetary backwaters such as Mauritius, Sri Lanka and India... and now Bangladesh: at least ever more Asian countries are starting to get the gist of what is happening with the dollar. And once China is discovered to be directly or indirectly buying IMF gold, the all bets are off on the gold price hitting $1,600 in under two years.

If you had a previously incurable genetic condition and scientists came up with a treatment for it, you’d jump at the chance to take advantage. That’s a no-brainer. But what if you had the opportunity to invest in a company deeply involved in just such cutting-edge research?

Judges, get your judges ... bulk discounts available ... JUDges!

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 09/09/10

Feel free to call your broker or sell side analyst who tries to get you to buy RIMM and show him this post. If they challenge further, my contact info is available on my site. The writing is on the wall.

Zero Hedge will be out of pocket for several hours: please use this post as an open thread opportunity to discuss how honest and transparent the government economic data dissemination complex is, how efficient the stock market is, how free of monopoly the Wall Street Fixed Income trading complex is, how altruistic the Federal Reserve is, and everything else that tickles your fancy. In the meantime, here is the latest controversial, and very much must read letter from Mike Krieger: Conscious Capitalism.