Archive - Feb 18, 2011

The report is out. Click here to read the 14 page report. The Joint CFTC/SEC committee makes 14 recommendations which they intend to focus on to ensure the integrity of our connected market place. We would like to highlight the 3 recommendations that we think are “news” today, and that we have particularly expressed concern about over recent years: Recommendations 10, 11, and 12, which deal with order cancellation fees, internalization, and trade-at rules. Missing in the report, however, is any discussion of proprietary exchange data feeds, the proliferation of exchanges, or minimum order life. Also, this report is a stark contrast to the September 30th report, which focused more extensively on an algorithm trading eMini futures from a large money manager. The HFT community, at that time, focused on that aspect of the report extensively. This report is an improvement, as it does begin to examine structural inefficiencies and risks in our current market structure.

Don't be jiving us with Fedspeak Bro!

As what is rapidly becoming the biggest wave of revolutionary discontent since 1989 Eastern Europe spreads to every less than wealthy country and region, the next regime to topple may be that of smallish Ethiopia and Somalia neighbor Djibouti. The tiny country, with a population of less than a million, known only for being situated at the horn of Africa, has just seen a major (relatively speaking) protest, calling for President Ismael Omar Guelleh to step down. And while the country is completely insignificant geopolitically, it is merely a stepping stone as the African dominoes spread south: are Ethiopia and Somalia next to go? And after them all of central, and then southern Africa? So here's a thought - should the unrest reach Congo, and eventually South Africa, what will happen to the price of diamonds? While De Beers will be giddy to see a plunge in already artificially low supply, the story will be of course that no more shiny pure carbon crystals are made. And as the natural market for diamonds tends to be the rather affluent portion of society which is the only one to have benefited from loose liquidity, passing on diamond prices may not be perceived as all that difficult?

I had been planning an article based on the Green Day song – Static Age - about the propaganda, lies and misinformation that are endlessly directed at the American people by the government, the mainstream corporate media, and the wealthy elite that control the levers of our society. Then Barack Obama presented his 2012 Budget proposal, including his 10 year projection for our country. I know you’ve heard the term Peak Oil, but the term that came to my mind when I saw Obama’s budget was Peak Bullshit. I thought that would be a great article name, but some sites wouldn’t like the foul language. I was in a quandary until the Elvis Costello song Pump It Up came on the radio while I was driving to work. Down in the pleasure center of Washington DC, the propaganda, slander and most blatant lies are spoken without a hint of guilt or even the faintest whiff of shame. The politicians in Washington DC on both sides of the aisle believe the American people are stupid, gullible, apathetic and easily manipulated. They may be right, but there are a few people out there who can cut through their bullshit and find the truth.

After the USD has confirmed it is no longer a flight to safety currency, and stocks can only go up (91 days until we pass the all time highs at the current rate of no volume HFT-inspired, Primary Dealer facilitated and Fed funded levitation), suddenly we see a dramatic pick up in bond buying, for no reason, aside from the fact that full blown war may join the revolutions in the Middle East. And since nobody will ever sell one share of stock (if they did there will be an immediate congressional hearing to establish whether selling should be, in fact, made illegal) the only way to protect capital is to jump into the 10 Year. That this ongoing divergence makes no sense is irrelevant: such is life under Chairsatan Vissarionovich Jr.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 18/02/11

Meanwhile, not letting any parabolic blow off in silver crisis go to waste, the Criminal Reserve and the Criminal Dealers engaged in another gang rape of whatever is left of the US middle class. Today's POMO, which closed with $6.688 billion of 3 year bonds getting monetized (at a whopping 5.6x Submitted/Accepted ratio), basically consisted of just two cusips: the 912828PQ7 and the 912828QH6. Of these two, QH6 represented $5.285 billion or 80% of the entire POMO. Why is this interesting? Because this CUSIP was auctioned off ten days ago, with an actual issuance date of February 15. That's Tuesday. The Fed just monetized bonds that were eligible for trading for a whopping 3 days! The daylight robbery, and the PD fringe benefits, continue as nobody apparently has the guts or half the brain to understand just how criminal this set up is. Luckily, everyone will magically, and very retroactively "know" just how ominous this now daily occurrence was after the next and last crash.

And dare I say -even in the great bull run of 2010/ 2011- this is a headwind for higher equity prices.

We apologize for this most recent silver update, but it is rather exhilarating to watch the main Tri-Party repo clearer, and Fed's pet bank squirm. Silver is now above $32.70 as the unleashed squeeze is claiming victims left and right, and the metal is up 7% from yesterday's low. Jamie: it may be time to shelve those dividend plans for a year or two but at least you got your bonus you sly dog, you. As a reminder, margin calls in silver, and they will be, ahem, sizable, commence at 3pm Eastern.

Crude go whoosh. And just in case it is unclear where this is going, the WSJ reports that according to "diplomats" Iran is redoubling efforts to enrich Uranium by installing faster centrifuges, as it is supposedly seeking to overcome setback to nuclear program believed caused by the Stuxnet virus. Unclear how much information was fabricated in the creation of this latest war provocation (see Iraq WMD).

Presented without nominal (and certainly not real) commentary.

We thank Sean Corrigan of Diapason Securities for bringing our attention to the MIT Billion Price real time inflation Index (first reported here) who points out that based on the ongoing surge in prices, which have increased by 1.25% in the last 45 days (December 31, 2010: 101.085, February 14, 2011: 102.353), a simple annualization indicates a 10.6% increase in prices in 2011! With all undue respect to the Chairsatan (and other "disinflationists") it is time to bring Volcker out of the freezer once again. Look for the 30 Year to pass 5% in a few weeks. Oh yes, M2 surged to all new time highs again.

Can the ECB outspend the Bond Markets? Is Portugal truly Insolvent? Will they default? What happens to rate sensitive assets that are already at depression levels, such as real estate, when rates spike world wide? Why am I asking questions that everybody already knows the answer to???? Well, just in case, here go those answers anyway.

The situation in Bahrain is now critical, with live fire raining (literally: the army is shooting from helicopters on citizens and journalists) on protesters, resulting in dozens killed, even as Libya (9th largest crude reserves in the world) is rumored to be in a comparable situation. The countdown on Saudi Arabia is now on. Watch the latest development at Al Jazeera which is now broadcasting live from Manama.

If we are going to get hit on the head with a meteor (or solar flares) there is not much we can do about it, so why worry?