Archive - 2010

On a quiet day like today, everyone is screaming and complaining about a collapsing VIX and lack of volatility. However, look beneath the surface and you will find many battles being waged between Goldman Sachs and their biggest clients who have outsized positions in specific stocks. With insane volatility.

Dear Judge Rakoff

In accordance with the Court's instruction, we respectfully submit this letter on behalf of Plaintiff Securities and Exchange Commission to seek leave, to file a Second Amended Complain. The SAC adds a count under Section 14(a) of the SEC Act of 1934, and Rule 14a-9 thereunder based on the failure of Bank of America Corporation to update the merger proxy statement, before the December 5, 2008 shareholder vote, concerning extraordinary losses that were sustained by Merrill Lynch & Co. prior to the vote

The massive squeeze in VIX has pushed the volatility index to level unseen since 2007. As the chart below indicates, a drop of a few more points will push the VIX to a level indicative not of the Great Recession but of Greenspan's Great Moderation, a time where vol was so law, it effectively killed th swaption market in CDS (green box). This is troubling as it indicates market complacency about risk is dangerously high. Yet even more troubling in terms of market positioning, is the VIX (1 month) - VXV (3 month) spread. That particular relationship has now revisited lows last seen in 2006. It appears that in addition to assuming "all clear" for the bond and inflation market, yet not so much clear down the line, the same line of thought is migrating to equities. Could near-term volatility be underrepresenting the true amount of risk on a normalized basis?

These days Primary Dealers are the new black. Being a Primary Dealer is defacto insurance that one is Too Big To Fail, even if that is hardly the case. Having unfettered access to the discount window, to the Primary Dealer Credit Facility, to various repo facilities, and all other mechanisms that Liberty 33 has come up with to make goosing the market a formality, is a guaranteed way to achieve record profits and a wet dream for many a bank CEOs. In many ways this is comparable to the rush by everything with a heartbeat to purchase a home using New Century loans back in 2005, with the Fed of course in the role of the now bankrupt subprime lender.

Today, the Fed issued new guidelines for capital requirements for the line of banks that are willing and able to join the ranks of their infinitely bigger market monopolist brethren such as Goldman Sachs, on the receiving end of the taxpayer bailout trough. And because the Fed is certainly taking this risk "seriously" it has made becoming a PD ever so much more difficult: now instead having $50 million in net capital, PD wannabes will need to show $150 million of capital to the Fed kleptocrats. Prudence defined.

With Bernanke's reconfirmation getting dangerously close to not being reality by the January 31 deadline, courtesy of a few non-Wall Street captured politicians in the Senate who are doing all they can to delay the process, a key question asked today is what will happen to the Fed Chairmanship position on February 1. The WSJ Blog provides some perspective on why this could be a destabilizing event to the tranquility that has gripped all trading desks, where conviction that the guy who is allegedly gobbling up futures without respite, may soon became scarce.

As you are no doubt by now aware, Zero Hedge is in the process of developing a number of premium features. Last month we gave you a preview of Cf., "The Journal of Irreverent Attacks on Conventional Wisdom, Entrenched Dogma and Sacred Cows." Today, we offer a sneak peak at our other premium publication, ∑TCH: "Adventures in Financial Engraving," Zero Hedge's journal of unique financial data visualizations. We hope you enjoy Volume I, Issue I: "A National Blessing," (along with the rather amazing, if we do say so ourselves, Treasury debt visualizations attached thereto).

Update: Mystery missing .pdf restored. Download it here.

Gone in 24 Seconds: An ETCH Visualization.

Chavez threatens speculators with military force, currency crises will go global, Af-Pak war for control of Central Asian energy, Secret negotiations on health care anti-democratic, China is #1 exporter, 'domestic extremism' (wtf!) team investigates Climategate, California request bailout.

Subject: File No. S7-23-09
From: William T McGonagall, III
Affiliation: Dungeon Master

November 23, 2009

I don't reckon none of them asset backed securities oughta be accounted for at alls. I reckon we ought not to mark them to market or anything. We oughta mark 'em to my butt

Sincerely,
William T. McGonagall, III

From a conference call that just ended, NY AG Cuomo is taking aim squarely at bank bonuses and is now demanding extensive info on bonus pools, bonus allocation, clawback provisions and vesting period data, from the 8 original bailout recipient banks. Did Hamptons real estate prices just drop 10%?

New year window dressing was responsible for the micro yields on bill auctions pre-New Year. Or so the theory went. So why did we just have another effectively zero bill auction? And no, the Lehman scramble for risk-free parallel is oh so very inappropriate here - after all funds have to window dress their Dec. 31 2010 results... Granted, a little early. So we ask, again, who is buying stocks when real money is willing to accept zero returns to park their cash in "risk-free" equivalents. Liberty 33 - once again, the podium is all yours.

TrimTabs' Charles Biderman makes another appearance, this time on BNN, discussing "circumstantial evidence" of the Fed's goosing of stock markets. And yes, the debate of who is buying futures consistently takes front and center position. Liberty 33 - your move: feel free to refute any and all claims presented by the TrimTabs CEO.

2010 has started off with a bang. Insiders purchased $4.5 million worth of stock (and yes, this does not include the end year transaction by such individuals as Nelson Peltz who acquired nearly 10 million shares of Legg Mason on the last day of 2009), in the period from January 4. It should, however, comes as no surprise that in the same period selling did not moderate, and insiders offloaded $281 million in shares (yes, this accounts for double counting between various corporate entities). Net result: an insider selling to buying of 62x to kick off 2010. And still the quants are chasing momentum ever higher. There is no way this will end in anything but tears.

Albert Edwards is back and spreading evil, vicious realism as usual.

RANsquawk11th January US Morning Briefing - Stocks, Bonds, FX etc.