Archive - Dec 2013

What is $55 trillion between friends? Very little according to the CFTC. In perhaps the biggest under the radar news of the day - to be expected with every watercooler occupied by taper experts - the WSJ reports that the Commodity Futures Trading Commission said Wednesday that technical errors at two so-called swaps data repositories, which collect and supply regulators with transaction data, have led the CFTC to misreport the overall size of the swaps market by undercounting its size. Isn't it curious how all these "glitches" always work out in the favor of preserving market calm and confidence and away from spooking investors and speculators? Either way, a better question is how big was the so called undercounting? The answer: as large as $55 trillion!

If yesterday's price action in the moments following (and preceding) the FOMC announcement was just a little suspicious, with a seemingly endless supply of VIX selling originating as if from nowhere (or perhaps the 9th floor of Liberty 33) the morning after has so far been a snoozer. Perhaps this is to be expected following the third biggest one-day surge in the stock market in the year (1st =  Jan 2nd, 2nd = October 10th), or perhaps the market is finally focusing on Bernanke's tongue in cheek suggestion that the taper may be lowered by $10 billion per month (we disagree as described previously). Or perhaps the creep higher in 10 Year yields, at 2.915% at last check and just shy of the 3.00% psychological level, is finally being noticed. Or perhaps the fact that China, very surprisingly, is also tapering concurrently is finally being appreciated as is the fact that despite all talk of preparedness, developing economies were hardly left unscathed following yesterday's development. Whatever the reason, the euphoria this morning has "tapered."

We think not as increasing signs of corporate distress in China will weigh on emerging market growth.

The history books will not look kindly on this neglect.

• Traders Seek an Edge With High-Tech Snooping (WSJ)
• Gold Drops Below $1,200 an Ounce for First Time Since June (Bloomberg)
• SAC Manager Guilty as Insider Focus Turns to Martoma (Bloomberg)
• Why Ukraine spurned the EU and embraced Russia (Reuters)
• Target confirms major card data theft during Thanksgiving (Reuters)
• Zuckerberg is no suckerberg: Company to Sell 27 Million Class A Shares While CEO Will Offer 41.4 Million (WSJ)
• Facebook, Zuckerberg, banks must face IPO lawsuit (Reuters)
• Swiss Christmas Trees Feel Chill as Franc Helps Rivals (BBG)
• Iran, six powers to resume nuclear talks after snag (Reuters)
• Dolphins Suffering From Lung Disease Due to Gulf Oil Spill, Study Says (WSJ)

Strategists were largely wrong about the yes taper in September, and then they were just as largely wrong about the no taper in December, and yet their opinion is just as largely gospel and people continue to listen to them (what else is there to be distracted by in a still very much centrally-planned market and economy). Which is why the below summary by Bloomberg of what global financial strategists and investors, also known as "they", are saying about how to trade assets in the post-taper world, should probably be taken, largely, with a grain of salt.

Official White House Spying Panel Implies that It Might Be …

One truly unenlightened NSA official seemed to hold the press in particular disregard and stated: 

“I have some reforms for the First Amendment.”  

We're quite certain he has some reforms in mind for the 4th Amendment as well... Once again we ask, if they hold the U.S. Constitution and civil rights in such disdain; what exactly are they protecting us from?

... we learned what the difference between $85 billion and $75 billion is in the grand scheme of things. Or, in case we haven’t, here is a chart showing just how “vast” the impact of today’s announcement will be on the Fed’s balance sheet at December 31, 2014 when instead of printing well over $5 trillion at its old monetization pace, the Fed’s balance sheet will be only $4.9 trillion.

Negative divergences are popping up on key price charts.

Capitalism means failure if you screw up. But under Bernanke’s watch, “capitalism” meant giving trillions in taxpayer money to those who screwed up.

Negative divergences are popping up on key price charts.

Last time it was trading faster than the speed of light in gold and stocks. This time, 50 seconds before the FOMC statement was officially released to the great unwashed, Nanex notes that the market exploded with activity reaching levels higher than during the actual FOMC news release. As they show in the charts below, approximately $106 Million of SPY and 3,700 eMini Futures contracts traded in 1 second. Gold - while less voluminous - was just as berserko in the minutes and seconds leading up the news release. What is going on here?

There are those who would blame the people who have chosen to live far beyond their means. They have a point. The financialization of America; where Wall Street con artists,shysters and swindlers rake in billions for shuffling paper and making risky casino bets; mega-corporations ship blue collar middle class jobs to Asia in an all out effort to increase quarterly profits; politicians spend future generations into the poor house in order to get re-elected; and the Federal Reserve purposefully creates monetary inflation to prop up the corrupt system; has systematically destroyed the working middle class and created generations of debt slaves. The American people have been foolish, infantile, and easily duped. But it is clear to me who the real culprits in our long downward spiral have been. Lord Acton stated the obvious, many years ago:

 “The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.”

? John Emerich Edward Dalberg-Acton

As the US equity market embraces the suck of taper, the Chinese interest rate market seems a little upset. 1-Year rate swap just spiked their most in 5 months (16bps) to an all-time high 5.065% (above the June Taper Tantrum levels). Following its enforcement actions on Bitcoin last night (and coincident DDoS attack on its website), the PBOC has decided not to inject liquidity into Chinese banks today

*PBOC WON'T LIKELY CONDUCT REPO OPERATIONS TODAY: TRADER

Add to that the fact that the Indonesia Rupiah just dropped to its lowest in 5 years and we suspect more than little turmoiling this evening as the rest of the world figures out why taper is risk-on.