Archive - 2010

December 29th

How "Killer B" and "Deadly D" Strategies Allow Companies To Repatriate Billions And Find Higher IRR Alternatives To Hiring

One of Zero Hedge's greater contributions to society in 2010 was finally putting the "cash on the sidelines" BS that was every emptyheaded pundit's go-to line when cornered and with nothing else to retort, in the trash bin of intellectual sophistry where it belonged. What surprised us is that it took as long as it did before someone dared to point out the flagrantly obvious. That said, today Bloomberg has released a terrific piece of investigative reporting, that may very well refute much of what we said, since it appears that contrary to legal permissions, companies have been very busy using the gray area in the tax code (the same that gets ordinary citizens in lots of trouble with the IRS but not mega corporations, never mega corporations) to repatriate tens, if not hundreds of billions in the past few years. Meet the "Killer B” and “the Deadly D" just two of the strategies that have allowed the following to happen: Merck & Co. bringing more than $9 billion from abroad without paying any U.S. tax to help finance its acquisition of Schering-Plough Corp.; Pfizer Inc. importing more than $30 billion from offshore in connection with its acquisition of Wyeth and taking steps to minimize the tax hit on its publicly reported profits; Eli Lilly & Co. carrying out many of the steps for a tax-free importation of foreign cash after its roughly $6.5 billion purchase of ImClone Systems Inc. in 2008. In other words, despite America's deplorable budget condition, where every dollar in organic revenue is matched by one dollar of debt issuance, companies are doing more than ever to avoid paying any taxes... anywhere.

In Last 2010 POMO, Fed Buys Back $2.4 Billion Of Just Auctioned Off 2 Year Bond, $5.4 Billion In Total

And like that, Brian Sack's market manipulation for 2010 is over. Then again, with practically no trading days left, and no volume to speak of, it was to be expected. Of today's $5.4 billion POMO, which brings the Fed's Treasury holdings ever higher in the trillion club, $2.4 billion went to buy back the PV6 which were auctioned off barely a month ago. This means that 15% of the Primary Dealer allottment of that particular auction ($16.4 billion) has already been sold back to the Fed at a decent profit. And so the shell game continues. What is ore surprising is why the PW4s auctioned off on Monday were neither in the inclusion, nor exclusion lists for today's POMO. After all, there is nothing the PDs would love more than a last minute taxpayer gift to the tune of a few hundred million in a quick two day flip to pad that third private island sinking fund with that little extra in risk free compensation.

Pivotfarm's picture

The retail traders that form the bulk of our survey have made dramatic shifts to the long side in their positioning over the holiday season. In this time all the pairs in the strong short and short zone have consistently continued lower, while retail traders remain longs with 70+% strength! Recent action in the USDCAD, USDJPY, GBPJPY, USDCHF and EURCHF is worth noting.

NYSE November Margin Debt Rises To Fresh Post-Lehman High

After we recently disclosed that surging NYSE margin debt is the latest indication of record euphoria (which presumably was sufficiently interesting that it made Alan Abelson's latest column), after it hit a post-Lehman high of $269 billion, we are happy to announce that as we expected, November margin credit grew by another $5 billion to $274 billion, which implies that investors continue to purchase stocks increasingly on margin, i.e., on credit, which is fantastic when stocks levitate, but leads to a circular sell off when sell offs generate collateral calls, forcing more sell offs, etc. And looking at net cash, it was flat M/M at ($34) billion meaning that there was no incremental real cash going into cash accounts, and the entire November outperformance was achieved as net cash remained flat, and every incremental point in gains was financed by net crediting. As before, we expect no change to this trend when December data is announced.

S&P Withdraws Bank of America Short-Term Counterparty Rating At Firm's Request

Just headlines for now. We are confident this firm-solicited action to eliminated BAC's counterparty credit rating is purely in the interest of shareholders and taxpayers, or both as the two tend to be equivalent, and purely for the benefit of transparency and openness. It most certainly has nothing to do with recent allegations that the bank has been fraudulently misrepresenting hundreds of billions of mortgages it sold to third parties.

BlackRock Seeks To Become The Same Monopolistic Trade Internalizer For Stocks, As Goldman Is For Derivatives

In what is the latest death knell for the traditional Wall Street non-monopolistic sell-side business, last night we read in the FT, with little surprise, that ETF behemoth (following its purchase of Barclays Global) and arguably the world's largest asset manager, bigger even that Pimco, Blackrock is launching an internal trading platform which will compete with the traditional wall street institutional sales and trading model. In essence, courtesy of its massive internal stock inventory, BlackRock will be able to internalize buyer and seller order flow, allowing for much cheaper transaction costs, and create an open "dark pool" to paying customers, which will soon become the go to marketplace for all. And thanks to the cheap transactions costs, BlackRock will be able to pull even more order flow from traditional trading venues, creating an economy of scale borne out of its increasingly greater monopoly status in stocks. In essence, Wall Street is about to see yet another monopoly power stretch its wings and become the go-to flow trader for equities. And this should work quite well: after all it is none other than Goldman who already cornered the derivatives and fixed income markets, courtesy of the first monopolistic land grab, which just so happens, involved the insolvency of Bear and Lehman.

Reggie Middleton's picture

It is not inconceivable to fantasize about crucial city services that save lives getting more of that multi-trillion federal assistance than bondholders behind failed and fraudulent banking practices, no? As for the anticipation that this will resolve itself by next year…

Themis Trading's 5 Best Themes Of 2010

Despite our relatively light coverage on the subject recently, we haven't forgotten that the US stock marketplace is broken beyond what some say, any chance of fixing. Unfortunately, it has become painfully obvious that between the corrupt SEC and CFTC, there will be no proactive regulation, no actual changes to a broken market structure, until the next, and far more serious flash crash takes place, and destroys the last trace of market credibility. In the meantime, looking back at 2010 market developments, aside form the one event that punctuated just how broken the market is, namely the May 6th flash crash, there were other notable events. Below we present Themis Trading's five best market structure themes of 2010.

Frontrunning: December 29

  • China Cuts Export Quotas for Rare Earths by 35% in First Round of Permits (Bloomberg)
  • China Likely to Set Up Rare Earth Trade Body (China Daily)
  • Austerity May Not Be Enough to Save the EU's Weakest Links (Independent)
  • European Borrowing Costs Eclipse US (FT)
  • A Fed-Induced Speculative Blowoff (Hussman)
  • To Dow 16,000...Then 6,000? (WSJ)
  • As in Sex, WikiLeaks Founder Tests Press Limits (Bloomberg)
  • BP Investor Lawsuit to Be Led by New York, Ohio Pension Funds (Bloomberg)
  • Dollar Trades Near 6-Week Low on Signs U.S. Recovery Is Uneven (Bloomberg)

One Minute Macro Update

The key events out of the US, Europe and Asia, pushing stocks where else but higher.

Daily Highlights: 12.29.2010

  • Beijing city to raise minimum wage 21%; Second move in 6 months amid inflation concerns.
  • Brazil raises duties on China-made baby dolls as Real gains hurt toymakers.
  • China cuts rare earths export quota for 2011.
  • Chinese CEOs reduces support for a stronger yuan as they criticize U.S. monetary easing
  • Euro marks higher after disappointing US economic data, buys at $1.3151.
  • Housing Starts seen rising to three-year high with belated US jobs boost.
  • Oct. Case-Shiller home price down 0.8%; Non-adjusted house prices down 1.3%.
  • Oil trades near 26-month high on Retail sales, supply forecast.
  • Taiwan may increase interest rate to damp prices after countering inflows.