Archive - Oct 2013

Neither American political party is worth supporting. Each has interests inconsistent with those of the American public. The claimed political differences are mostly cosmetic, designed for marketing advantage. Both parties act in their self interest which does not coincide with that of the citizens or the well-being of the country. Each party behaves like a self-serving criminal gang. The quaint concept of serving the public exists no longer. The political Ponzi scheme of tax, borrow and spend has reached its limit.

Ready! Set! [bank]Run!

It would appear the momo algorithms have been set to full reverse warp speed. A combination of broker margin hikes and a high-beta to a falling market is claiming a few more "cult" stocks victims this mornings - and the volumes are huge...

As we first pointed out, yesterday's stunning, near-failure in the 4-Week Bill auction, was the straw that broke the illusion of the market stability's back and as even Goldman pointed out, led to the first true "fear-driven" drop in stocks. Today, things are getting from bad to worse, as it is not the Halloween Bill, but the October 17 issue that is getting Friendo'ed as can be seen on the chart below - the 10/17s just hit 42 bps, a nearly 20 bps move in minutes! But while disturbing, what is going on in cash is just the beginning of the story. It is what is going in the shadow markets that could really light the fireworks on fire.

In the equity asset management world, the word risk is ubiquitously interchangeable with the word "volatility" for myriad asset allocation models that promise mathematical precision way beyond the realms of possibility in a dynamic world. However, extending that definition of risk, we thought it worth pointing out that, for the last month, US Treasury bonds have become more volatile (more risky) than Italian and Spanish bonds. Something to ponder for The Fed's new head we suspect...

When on October 1, fallen billionaire Eike Batista's OGX Petroleo & Gas, missed a $45 million bond coupon payment, some were surprised but most  had seen the writing on the wall. After all, Brazil's second largest oil company after Petrobras, and the crowning jewel of Batista's EBX Group, had been under the microscope of investors and certainly creditors (and if it wasn't it certainly should have been) after oil deposits that Batista had valued at $1 trillion turned out to be commercial failures. And so the countdown to the inevitable bankruptcy filing began. Overnight, Bloomberg reports that the wait should not be long (in fact it may coincide with the default of that other insolvent mega-creditor: the United States), and will mostly certainly take place before the end of the month, following the retention of bankruptcy specialist law firm Quinn Emanuel.

Yellen is in; nothing is resolved in DC; and there's no news on the wires - so it makes perfect sense that once again as the 830ET period ticks by that commodity prices - especially gold, silver, and copper enter what many in the business call "free fall." All sarcasm aside, this is becoming far too ubiquitous - but of course with the CFTC closed for business, while the cat's away the algos will play.

"Over the last 12-24 hours the small cracks that have appeared in financial markets over the last week have started to edge open a little bit wider. On the plus side this may start to help concentrate the minds of the politicians a bit more after another day of stalemate and lack of urgency. Our thoughts are that this will get resolved when either the market forces the issue with a big sell-off or when we get closer to an as yet unspecified hard-date as to when the US runs out of money." - DB's Jim Reid

It would be comical if it wasn't so tragic, and if for some inexplicable reason Japan hadn't been awarded the 2020 Olympics as a desperate measure to boost the economy with zero regard for the human cost. Following news of yet another radioactive spill taking place at Fukushima earlier this week, the latest in what is becoming a countless series if "incidents", overnight we learned that in the latest accident involving the exploded Fukushima nuclear power plant, which is now so very much out of control that even the government is considering removing Tepco from the containment effort, at least six workers were exposed to a leak of highly radioactive water on Wednesday, "the latest in a string of mishaps the country's nuclear watchdog has attributed to carelessness, saying they could have been avoided." They could have indeed, if only Japan were to formally recognize the severity of the catastrophe instead of constantly pushing it under the rug at a time when the only thing that matters for the successful, if ultimately doomed, implementation of Abenomics is the preservation of confidence at all costs.

• Janet Yellen, a Backer of Pushing the Fed's Policy Boundaries (WSJ)
• Jos. A. Bank proposes to buy Men's Wearhouse for $2.3 billion (Reuters)
• J.P. Morgan to Cull Business Clients (WSJ)
• RBS Said to Pass Currency Trader Chats to FCA Amid Probe (BBG)
• Prosecutors give SAC settlement ultimatum (FT)
• U.S. builders hoard mineral rights under new homes (Reuters)
• Bill Comes Due for Brazil's Middle Class (WSJ)
• US expected to slash aid to Egyptian government (AP)
• Samsung launches world's first smartphone with curved screen (Reuters)
• Microsoft’s $7.2 Billion Nokia Bet Not Luring Apps (BBG)
• China raises hurdles for foreign banks (FT)

For all expectations of a big jump in US futures overnight on the largely priced in Janet Yellen nomination announcement which is due at 3 pm today, the move so far has been very much contained, as expected, with a modest 90 minute halflife, as the markets' prevailing concern continues to be whether the debt ceiling negotiation will be concluded by the October 17 deadline or if it would stretch further forcing the government to prioritize payments. There is however some hope with Bloomberg reporting that some possible paths out of the debt impasse are starting to emerge with less than a week before U.S. borrowing authority lapses after Obama said he could accept a short-term debt-limit increase without policy conditions that set the terms for future talks. Whether this materializes or just leads to more empty posturing and televized press conferences is unclear, although as Politico reports, the stakes for republicans are getting increasingly nebulous with some saying they are "losing" the fight, while the core GDP constituency is actually liking the government shutdown.

"If the American public knew what was going on in our system, half would be outraged and the other half would apply for benefits."

- Marilyn Zahm, one of the 1,500 disability judges operating in the U.S.

While early "guesswork" had estimated the sign-up rates were not 'terrific', Covered California - the Obamacare exchange - has released data on the final enrollment rates. They are not great:

• *COVERED CALIFORNIA SAYS WEBSITE GOT 987,440 UNIQUE VISITORS
• *CALIFORNIA EXCHANGE COMPLETES APPLICATIONS ON 16,311 HOUSEHOLDS

Assuming each household is a 'unique' then that is a 1.65% sign-up rate. Doesn't seem like the huge success so many have proclaimed.

UPDATE: For the 3rd time tonight 'someone' has ramped AUDJPY in a failed attempt to spark S&P futures higher

When Larry Summers stepped away from the nomination for Fed Chair, S&P 500 futures ramped vertically by over 20 points. The reaction to the nomination of Janet Yellen managed a limp 6 point surge in S&P futures. Worse still, it took 24 hours for the Summers-Out ramp to be cut in half... Yellen's 'ramp' has already given back half of her gains in 90 minutes. It seems The White House needs change of narrative - or just another bargaining chip to piss the Republicans off - and judging by the "sudden" rip higher in AUDJPY, 'someone' is trying desperately to spark some momentum ignition... but for now - it's not working. Timing is everything we guess.