Archive - May 2011

Jobs, jobs, jobs. A miss will mean QE3 is certain and send the market flying. A beat means the economy is sturdy and will send the market flying.

A snapshot of the European Morning Briefing covering Stocks, Bonds, FX, etc.
Market Recaps to help improve your Trading and Global knowledge

Following all the recent busts of former SAC and related portfolio managers, it was only a matter of time before prosecutors zeroed in on the guy at the top. The WSJ writes: Prosecutors are examining trades made in an account overseen by hedge-fund titan Steven Cohen that were suggested by two of his former fund managers who have pleaded guilty to insider trading. The development surfaced in court filings submitted in connection with a sweeping insider-trading investigation, which focuses on ways traders can receive nonpublic information from experts connected to industries or firms. At issue is trading in a $3 billion stock portfolio personally overseen by Mr. Cohen at SAC Capital Advisors and referred to by the government in the filings as the "Cohen Account" and internally at SAC as "The Big Book." SAC portfolio managers funnel their best trading ideas to Mr. Cohen for this account and are paid a bonus if they generate big returns for Mr. Cohen, according to people familiar with the matter." As a silo-based hedge fund, where every PM is given freedom to win or lose small amounts of money on their own, but make big amounts of money on the high conviction ideas, or, in other words, those in which the PM has a lot of inside information, it was only a matter of time before prosecutors realized that even teflon Stevie would eventually have commingled insider-information based trades. The only question now is how he weasles his way out. And unless the government totally screws up its case, it may be not that easy any more.

Over lunch and wine with a former boss and still friend of mine, we got talking on all sorts of topics, including corporate governance and what we value most in life...

"Just about anything you buy, rather than paper, is better. You’re bound to come out ahead, in the long pull. If you don’t like gold, use silver, or diamonds or copper, but something. Any damn fool can run a printing press." - Nelson Bunker Hunt

Away from the chaos that was the commodities sector today, recent themes in credit, equity, and vol contexts continued to gnaw away at the bullishness of every talking head. Shifts in CMBX tranches point to growing fears of systemic concerns in MBS markets and the up-in-quality trade (or up in capital structure) is in full force.

First we had this: JPM's Mortgage Unit Sued To Disclose Loan Quality Data, Following Allegations It Misrepresented Over 70% Of Loan Portfolio

then this: JP Morgan Sold Investors MBS Covered By "SACK OF SHIT" Loans... Then Shorted All Those With Exposure: A Goldman-AIG Redux

and lastly, this: Here Comes Abacus V 2011: Former Head Of JPM's Structured Products Desk To Be Charged With Securities Fraud For CDO Transactions

All of which combined or seperately lead to this:

• JPMORGAN SAID TO BE SUBPOENAED BY SEC FOR MORTGAGE DEBT RECORDS

As for questions of whether there will be any prison sentences to come out of any of this, save them for comedy hour. At best, we will get another Credit Suisse disclose-and-settle standby case.

At this rate, tomorrow, for the first time, we will see a 32 handle in Comex registered silver ounces, where apparently despite the massive drubbing in paper silver, demand for physical inexplicably persists.Speculators to be blamed for this in 5...4...3...

Some believe the recent general commodities pullback was triggered by the series of CME margin hikes on silver within the past week, after the recent exponential run-up in silver prices. Whether or not that is true, holders of leveraged long commodities positions should have warily watched the action in the silver market. Some silver speculators may not have seen the margin hike as a constraint on lending, but it should have been a red flag for any speculator with a leveraged long position. Moreover, after silver markets closed, silver prices were getting “banged” lower in what looked like suspicious market manipulation.

The economy is hanging by a thread. Loan demand is weak, wages are flat, and markets are on a knife-edge.

"I feel completely blessed to be alive right now. To be a witness and participant in a moment in human history that will be written about and passed down in tales for as long as humanity remains on this planet. We are currently observing the evaporation of what Nazis referred to as “The Big Lie.” In very basic terms the concept of The Big Lie is that if you are going to lie you may as well lie big. So big in fact that the majority of well meaning citizenry could never imagine anyone lying on such a grand scale (particularly not their government “officials”) so that they don’t even question the basis of their own reality. In the case of the United States the Big Lie is that we have a free market capitalist economy. Instead we have a corporatist/fascist economy that enriches three main groups. Wall street financiers, the military industrial complex and large multi-national corporations that don’t pay taxes. So that begs the question, how can the American people be so brainwashed into thinking they live in this false reality? It’s very easy. It’s all about the money." Mike Krieger

The administration which is unable to release a photo of the biggest "success" in the fight on terrorism, could not contain its excitement in releasing more info that will certainly get US society to get even more Kafka-fied. As ABC reports: "An early read of the materials seized from Osama bin Laden's compound has not yet produced evidence of a specific, imminent terror plot against the U.S., but does show the group continues to have murderous aspirations, according to U.S. officials and to documents obtained by ABC News." And yes, we are confident we will get full blueprints of this particular data set imminently: after all America needs its daily diversion.

As part of today's subpoena of Credit Suisse over mortgages (which is yet another reason why when this is all said and done MBIA CDS will be back to trading spread from points), we encountered the following stunner. We won't bore you with details, so here is the gist: in a series of emails, represented below, we discover the beyond ridiculous story of a Charlotte stripper who had a Stated Income Loan with Credit Suisse, and when the Swiss bank decided to start backing into her actual income, which goalseeked to $12,000 a month (read the analysis on how this was achieved), which apparently raised some internal flags, and demanded that the loan be investigated, the broker claimed that the stripper's never formally disclosed income is credible and her loan should remain Stated. The last email in the thread: "Someone needs to go to jail on this one." And yet, nobody, not even Angelo Mozillo has, courtesy of the SEC. If there is one email thread that encapsulates all the excesses in the housing bubble, this is it. As for the rhetorical question at the end, we are confident that absolutely nobody will ever go to jail "on this one" or any other one for that matter.

As the market enjoys (and we use the term loosely) this brief lapse back into deflation, which given the economic contraction, so long anticipated at least by Zero Hedge, has finally materialized and put the ball straight back into Bernanke's monetary policy court, here is a brief reminder of reality: i) total debt subject to the ceiling increased by $2 billion overnight to $14,282,174, less than $12 billion away from a breach, and ii) more importantly, total securities held by the Fed increased by $27.3 billion in the past week to $2.5 trillion, an all time record. And yes, i) and ii) go hand in hand. Especially once the $2 trillion debt ceiling hike is announced.

Bin Bernanke ...