Archive - May 2011

Some brilliant Chicago-based exchange apparatchik just ask himself this simple question: "If it worked so well with silver, why not do it with crude?" The answer is here: the CME, as we predicted last week, just hiked initial and maintenance margins on Crude and Brent by 25%, as well as FX, and other petrochemicals. And, oh yes, this is prudent risk management, because while the CME kept margins flat when WTI was at $115, the massive spike from $97 to $102 is unbearably destabilizing. At this point one can only stand back and watch as the CME proceeds with hike after hike, in an absolute vacuum from the administration, which certainly had nothing to do with this decision. And really who cares: free capital markets died on March 18, 2009.

While DC may continue playing its debt ceiling soap opera, crunch time for the Treasury is approaching as the first of three auctions is on deck: the first one for $32 billion in 3 Year Notes. The total raised will be $72 billion without any offsets from maturities. Elsewhere, the Treasury will catch a $16 billion break after it settles $100 billion in Bill maturities offset by $84 billion in new issuance, yet still the net total of $56 billion in new debt seems to be a slight problem since as of Friday, there was just $23 billion in total capacity under the debt ceiling. Granted, the Treasury has already announced it is commencing the tapering off of other debt programs such as the State and Local Government (SLGs) which however will have at most $5-10 billion in favorable impact per month. It is also cutting its debt issuance forecast in half, likely due to an expectation of maturing old Bills without rolling these, a feat which will consume all if not more of the $108.9 billion in total cash available at the Treasury. So that's the math, and now back to the theater, where Politico reports speaker John Boehner "will call on Congress to offset a debt ceiling hike with spending cuts of a greater amount, an ambitious proposal that puts House Republicans on a collision course with Democrats who want much more modest spending restrictions attached to the vote."

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 09/05/11

Now that HFTs are scrambling to find something, anything to replace the rebate-collection piggy bank that was Citi between $4 and $5, so far unsuccessfully, we get a glimpse of just how critical to the overal market HFT non-volume has been. In the first day of Citi trading post-split, total NYSE volume has now plunged to the second lowest level of all of 2011, eclipsing even low volume semi-holidays. And since none of the Citi "volume" was real volume but merely rebate collection churn, the broader public will finally understand what a complete sham "participation" in this centrally planned market has become. And for all those looking for some surprising pick up in commission revenue for the big banks, below is a chart of the inverse.

The whole "hopey change" thing has fizzled ... time for a new (ancient) playbook.

This weekend’s not so secret meeting was the first step towards what could be a rapid end game of Greek debt restructuring. The lenders are unlikely to give Greece the exact same terms as Portugal and seem intent on demanding collateral against future loans. Greece must resist providing collateral since it now realizes it will not be able to pay back all the debt. Greece will push hard for better terms, but if collateral is required, it will be in Greece’s best interest to restructure sooner rather than later. Since the sovereign restructuring process is a negotiation without much ability to use the courts, Greece will find a way to minimize the damage to itself and its citizens while creating a debt structure that is sustainable. This will all be done while retaining the Euro as its currency. Greece may be looking at re-introducing new Drachmas, but this round of restructuring will still be in Euros.

Speaking of spending money we don't have - $23Bn of POMO money will be handed out to the IBanks in the first 3 days of the week as the Government props 'till we drop.

Liar, conniver, screwdriver...

According the official spokesperson for CME Group, which owns NYMEX, the performance bond increases are designed to address "increased risk". If this were so, however, such changes would apply only to short sellers and new long buyers who purchased up in the higher price ranges. Most of the older long buyers were sitting on huge profits from the upward movement of silver, when the new bond requirements were imposed in the $49 range. They posed no greater risk at all than they did back when they made their purchases at $18, $20, $25 per ounce, etc. Coupled with the sudden increased performance in bonds, there has been an all-out media effort to convince people that a “bubble is bursting” even though, as we will shortly explain, anyone who is worth his salt as an analyst knows it isn't true. There has NEVER been any bubble in silver in 2011, and therefore, it cannot possibly "burst”. There has simply been an unwinding of a grossly underpriced asset that has been subject to a multi-year price suppression effort. Be that as it may, this downturn provides, for the first time in a long time, more than mere gambling opportunities. Highly leveraged and undercapitalized speculators have been kicked out of their positions, and they had pushed the price of silver up very fast. It would have gone to the same levels, anyway, and beyond, but the process would have been slower and steadier if the market had been limited to cash buyers and well-capitalized investors.

And so the damage from last week's commodity crash continues. Reuters reports that the flagship commodity fund run by top Phibro trader Andrew Hall suffered a 12 percent fall last week as oil prices tumbled, a fund investor said on Monday, demonstrating how the plunge walloped some of the market's most experienced traders. "The Astenbeck II fund, which was worth an estimated $2.6 billion in late April, took the hit as oil prices plummeted and commodities saw the biggest price drop in 2-1/2 years last week. Last week's losses would have come to just over $300 million, based on those figures, and likely wiped out the year's 10 percent gains through March. Hall, who made headlines for a giant $100 million bonus while at Citigroup, now serves as the head trader of Phibro, a unit of Occidental Petroleum since 2009. He is well-known as an oil bull who often takes large directional bets on the price. The fund, part of Hall's Astenbeck Capital Management, made returns of 12 percent last year, one investor said. "All the big funds have been hit fairly hard (last week)," said the investor, "Astenbeck is down 12 percent."

When I say that much of the EU is lying about their financial prospects and Greece (among other countries) will restructure or default, you may or may not listen (quite possibly to your detriment). When the ratings agencies (who are always accurate and timely) say restructuring is on the horizon (a year after me) and the head of the Euro-zone finance ministers finance ministers outright says 'Of course we're lying', then what do you do?

At this point it appears rather safe to say that the commodity correction is over, as SocGen predicted over the weekend. As of this minute, WTI has retraced the key 38.2 Fib level from its highs, and looks set to take out the $104.6 price which would mark half the correction from the top. And, just as notably, the retracement from the Thursday algo inspired collapse, is now 61.8%. So much for that. We wonder if this means the peasantry can put Eric Holder back in the carbonite, and is it time for the CME to shift its attention from silver to WTI margin hikes? The answer, according to cramer and central planning, is a resounding yes.

And yes, this is not news.

On Friday the misinformation floated about the Greek expulsion event hit a fever pitch: while we correctly speculated that nobody would be expelled from the Eurozone, the amount of conflicting info was at an all time record, with glaring inconsistencies between various quoted authoritarians. Now, courtesy of the WSJ blog, we learn that, for the first time in history, a spokesman for Jean Claude Juncker, the PM of Luxembourg, and the head of the Eurogroup council of eurozone finance ministers, admits openly to having lied to media outlets. "In a phone call and text messages with two reporters for Dow Jones and the Wall Street Journal, Mr. Schuller repeatedly said no meeting would be held. He apparently said they same to other news outlets; at least one more moved his denials on financial newswires. Of course, there was a meeting–although not, apparently, to talk about Greece quitting the currency, which would be an extreme step to say the least. Mr. Juncker even said a few words to reporters who had hustled to Luxembourg to stake out the gathering. So why the lie? “I was told to say there was no meeting,” said Mr. Schuller, reached by telephone Monday. “We had certain necessities to consider.”  Necessities? Why yes: such as perpetuating the now open lie that is the ponzi market: "Evening in Europe is midday in the United States. “We had Wall Street open at that point in time,” Mr. Schuller said. The euro was falling on the Spiegel report, which had overhyped the meeting. “There was a very good reason to deny that the meeting was taking place.” It was, he said, “self-preservation.”" And there you have it: the Eurozone itself now admits that it will sacrifice credibility at the expense of a few FX pips and a few basis points in the ES.Everything else is smoke and mirrors. And people think that central bankers will consider the threat of inflation should the Russell 2000 ever retrace back into bear market territory...

Just a ROFL-inducing headline from Bloomberg for now:

• PORTUGAL OPENS CRIMINAL INQUIRY INTO RATING AGENCIES

Are blogs next?