Archive - 2011

Since the New York Fed's 20-some year olds who are in charge of the Open Market Operation desk have made it clear it is everyone's patriotic duty to frontrun the Fed, courtesy of their "complex" algorithms, below we present the full frontrunning cheat sheet for today's last for the current schedule $7-9 billion POMO focusing on bond due 2016-2017. Those who wish to take no risk whatsoever should merely buy the 10 Cheapest bonds as predicted by Morgan Stanley's treasury spline. Note that the November CUSIP is now cheapest to deliver and should therefore be on the Exclusions list. Also, not surprisingly the December 7 year auction is sufficiently underwater on a relative cheapness to sector basis, that if any PDs actually offer it for sale, then we know for a fact that the spreads on the bid/ask offered by the Fed are so large they more than offset capital losses on actual exit trades and should be sufficient for Ron Paul to demand a congressional inquiry into just how much the Fed pays the PDs in commission spreads in each and every POMO.

For nearly two years Zero Hedge (and others) have badgered Goldman Sachs for being purposefully opaque in its reporting structure to not allow any transparency in the split between flow and prop trading revenues, instead lumping everything into the ubiquitous "Trading and Principal Investments" segment of which FICC (fixed income, currency, commodity) has always been the dominant vertical for the taxpayer sponsored hedge fund. This is about to change. In a just released 67 page report titled Report of the Business Standards Committee, Goldman announces that going forward this key trading group will now be split into two separate segments: "Institutional Client Services" and "Investing & Lending" which will provide much more detail on how the firm determines its trading revenue, and will allow objective, third party analysts to determine just how much risk the firm takes on from both a principal (taxpayer funded) and agent (dumb mutual fund money) capacity, something which should have been the case long ago, and which we railed about for two years now. We are happy that our railing on this most important topic has been met with success.

It took just three months (and a 50% spike in price) for UBS to do a 180 on silver. In the firm's most recent Silver update from Dominic Schnider of Wealth Management Research, the author now says "Silver prices remain well supported and have been able to trade repeatedly above USD 30/oz." More importantly for those who are concerned that the recent all time high just north of $31 was a one time fluke, fear not: "Temporarily, prices could even hit USD 35/oz on physical interest in the metal due to firm economic activity." Bottom line: "Investors should make use of silver volatility for yield enhancement strategies At levels close to USD 25/oz, we are willing to pick up the metal." Then again, none of this should come as a surprise or even lead one to make investment decisions: after all it was just in September that the same person, in a report titled: "Price strength not on firm ground" said "We expect industrial demand to show some weakness and advise investors to avoid the metal" and concluded "We therefore prefer to be sellers at present levels and would reopen a position at or below 17.5/oz." Merely another confirmation that virtually every sellsider on Wall Street is merely a momentum riding, backward looking, chart monkey, and all those who seek original, contrarian thought are advised to stay very, very far from Wall Street "analysis."

These guys are like gang members, once an academic, always an academic, until the day your policies are adopted by the leading political party and they quickly lead to mass social upheaval and economic turmoil. But even then, only if you belong to the "Right" will you be so disgraced and your academic street cred withdrawn. Lefties are free to rep themselves as hardcore academics all they want, no matter how bad they screw things up. Unless you're Ben Bernanke, or Hank Paulson. Then you just spook dissenters with end-of-the-world rhetoric if you don't get your way. Or baseball bats...The son of two statisticians... I almost feel sorry for him, the poor boy never had a chance.

• NFIB Small Business Optimism comes at 92.6, misses expectations of 94.5 (NFIB)
• Short the Rumor Pays 14% on Takeovers That Don't Happen (Bloomberg)
• Could the U.S. central bank go broke? (Reuters)
• Goldman Sachs Said to Plan Disclosing More Detail on Revenue (Bloomberg)
• Fed's Fisher: Expects Fed Bond Buying Effort To Be Completed (WSJ)
• Fed's Lockhart Sees `Headwinds' for Economy as Growth Accelerates in 2011 (Bloomberg)
• China's FX Reserves Rise By Record $199 Bln to $2.85 Trln Q4 (Market News)
• Chinese Citizens Spent $48 Billion Overseas In 2010 (China Daily)
• Portuguese Bond Sale May Make Bailout `Inevitable' (Bloomberg)
• ECB Intervenes As Debt Crisis Deepens (FT)

Small business sentiment (which misses badly), wholesale inventories, JOLTS, and weakly [sic] lack of confidence…Last POMO of current schedule ends at 11 am, and new schedule is released by several 20 year olds at 2 pm.

All the news that refuses to matter when bad, and causes manic surges in the EURUSD when not bad, continues to come out of Europe. All the other global news just refuses to matter period, unless it has to do with the Fed's linen printing habits.

For all cowards who did not put their life savings in the Banlgadesh stock market after yesterday's record plunge and subsequent halt, and obviously have no clue how modern markets work, we have one acronym for you: BTFD. To everyone else, who made 15% in one day and can now close the books for 2011, congratulations. A day after Brian Sack was rumored to be seen tweaking the Bangladesh stock exchange's 3 16 MHz 286 High Frequency Trading machines, which can execute a whopping 0.5 transactions per second, and lifting all 2 offers in Level 2 when put in Designated Market Maker mode, the Bangladesh stock exchange is surging, and 1,000% margin debt-laden speculator protesters who were rioting as recently as 24 hours ago, are basking in their newly rediscovered wealth effect.

All you wanted to know about why the world is bankrupt in many pretty charts.

Europe is now literally living day to day. After last night it was announced that Japan is joining China in purchasing a substantial portion of European debt, using its FX reserves to buy up to 20% of European issuance and thus becoming simply the latest selfish trade surplus country doing all it can to keep its key export partner afloat (to the detriment of USD bond purchasing, confirming the Fed's monetization of debt will never end), today that ultimate backstop, the ECB, has for the second day in a row been purchasing Portuguese bonds to make sure there is no collapse in the sovereign debt market. The good news: Greece managed to place €1.95 billion in 6 month Bills... at the ridiculous rate of 4.9% and 3.4 Bid to Cover, which nonetheless happened to be an deterioration in both rate from the previous November 9 Bill auction, printing at 4.82%, and had a much higher 5.15 bid to cover.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 11/01/11

This hypothetical comes pretty close to the perfect definition of a TBTF FUBAR.

Retail traders are notoriously wrong at picking market direction/tops and bottoms. Most retail traders very naturally seem to adopt a counter-trend stance and this offers very accurate signals for individuals looking to trade against this group. This daily report is designed to help traders focus their efforts on higher probability pairs.

The week started off with a $7.8b POMO by the NY Fed, providing a breather for the USD’s recent rally. Risk remained muted, with the S&P closing down marginally, but with some intraday strength.

Is Florida's pension fund broke?