Archive - Aug 20, 2013

Just how far have our countries gone in the so-called fight against terrorism that they have been waging every single second since 9/11?

Equity, bond, and FX markets appeared to go into hibernation once Europe closed as ranges (and volume) were very low for most of the day. Stocks opened modestly green, snapped lower (on what seems to be an avalanche of 'erroneous' options trades from Goldman which were later DK'ed) then lifted (most notably the Dow - which dipped below 15,000) up to yesterday's highs until Europe closed. Sectors moved in a highly correlated manner along the same path but once 1130ET hit, the S&P 500 traded in 3-4pt range for the rest of the day.  Treasuries were similar though they rallied notably during the European day session (as EU sold off) then flat-lined in 1bps range for the rest of the day. Of course, all that changed in the final minutes of the day as all the major indices came under pressure (with Trannies and Nasdaq leading), VIX reversed higher, and the Dow closed red!

This morning's debacle in the options pit appears - just as we noted - to be due to Goldman Sachs 'erroneous' trades:

• *GOLDMAN MAY LOSE AS MUCH AS $100M ON ERRONEOUS TRADES: FT

But, as we also noted earlier, unlike Knight (which was wiped out when its market-making algos went rogue), in Goldman's case:

• *GOLDMAN SAYS 'WORKING WITH EXCHANGES' TO RESOLVE OPTIONS ISSUE

They get everything DK'ed...

During the NBC Nightly News segment last week about one of the unintended consequences of the Affordable Care Act (ACA), Lisa Myers reported speaking with "almost 20 small businesses and other entities around the country" and that "almost all said that because of the new law, they’d be cutting back hours for some employees." But the Obama administration doesn’t see why there’s such a fuss.  According to Myers: The White House dismisses these examples as “anecdotal.” The president’s top economic advisor [CEA Chair Jason Furman] told us “he sees no systematic evidence the health care law is having an adverse impact on the number of hours employees are working.” So, should we take our government’s word and dismiss the examples as anecdotal?

Germany's Angela Merkel visited the German concentration camp in Dachau - the first such visit by a sitting German Chancellor-  where one may say, she could have picked her words a tad more wisely:

• MERKEL SAYS NATIONS SHARING A CURRENCY WILL NEVER GO TO WAR
• MERKEL SAYS 'WORTH IT' TO FIGHT FOR UNITED EUROPE

US civil war counterfactual aside, the stunned European population was confused by the implication of her words: is it that Germany will keep ploughing German funds to keep a pacifist, socialist dream alive (which is really just a front to keep Deutsche Bank and its $50+ trillion in derivatives solvent) even as hours ago her own Finance Minister admitted that a third (and certainly not last) bailout of Greece is now just a matter of time...  or was it simply a warning to Greece, Cyprus and anyone else contemplating a true recovery, one which begins with their own currency, and maybe with a few Panzers crossing the border?

This isn’t just any trendline. This is THE trendline. Take it out and the 10 year will likely be yielding 5-6% in no time… which by the way is where it was for most of the ‘90s and very early ‘00s.

The Brent-WTI spread has been generally quiet between $2 and $4 for the last month or so (after its dramatic collapse back to $0 mid July). However, as soon as European markets closed today, it appears someone was decidedly negative on WTI Crude as it accelerated lower from over $107 to under $105 - all the while Brent crude pushed higher. This squeezed the Brent-WTI spread up over 100% on the day to $5.50, retracing more than half the plunge from the FOMC/Taper talk highs around $10 in early June.

It appears the market may need to resurrect the implode-o-meter as surging mortgage rates and plunging mortgage applications are (unsurprisingly) taking their toll on the mis-allocated surge in mortgage lenders that 'market' signals encouraged. The latest, as Boston.com reports, is 1-800-East-West Mortgage which has largely suspended operations and laid off its workforce. "As rates rose, a number of people just went to the sidelines," the CEO said. The market, he added, "went into a drought." And yet, homebuilders (again unsurprisingly) remain as 'hopeful' as they have been since 2005 that all will be well.

It turns out the US is unhappy with the non-coupy military leaders in Egypt for arresting the leader of the Muslim Brotherhood (whose name is Mo Badie) because, according to White House spokesman John Earnest, the action "does not reflect Egypt's commitment to an inclusive political process." Maybe the US really does believe there was no coup in Egypt, and that the current military leaders actually do care about an inclusive political process. Otherwise, this statement is about as profound as the UK government busting up the Guardian's hard disks in hopes of destroying Snowden evidence.

Here we go again.

As the cash equity markets opened in the US this morning, it appears a slew of options-based bearish bets were placed across a variety of stocks (starting with letters H to L). This slammed the Dow down into the red and to the all-important 15,000 Maginot Line. All was 'normal' until that critical indicator of 'wealth' finally broke 15,000 and almost instantly the exchanges went into "catastrophic error" mode which has resulted in trades from 0930ET to 0947ET on the CBOE being "busted". The exact time when the selling was under-way (so we can't have those sells being counted?). However, there is a rumor that what really drove it was Goldman losing millions on options trades (including JPM), and instead of the NYSE forcing the firm to eat its losses as it did with Knight, it decided to unwind 17 minutes of trades. These are the 'markets' in which investors are supposed to trade?

Do those collecting three times the median wage really need the same SSA benefits as those with no other retirement income? The conventional answer is that any means testing of Social Security would destroy its political popularity, but in reality such means-testing would likely affect only the top (higher-income) 10% of the populace. "We wuz promised" does not apply to "pay as you go" systems, which are extraordinarily exposed to current trends and realities. It's time for America to examine the social contract/Social Security in an era of declining full-time employment and widening income inequality. We as a nation need to prioritize the Social Security retirement income of those with no other pension incomes.

What is Yubi-Tepco?

Just when one though the bad news out of Fukushima would trickle down, no pun intended, if only because purely statistically it was improbable that any more bad news would leak out, here comes TEPCO which at a press conference this morning announced that "roughly 300 tonnes of radioactive water has seeped from a storage tank, marking the worst leak in more than 2½ years of efforts to contain the effects of the March 2011 earthquake and tsunami." In other words, not only is the irradiated coolant water overflowing the storage tanks, it is also leaking straight into the environment, including the surrounding soil, ocean and who knows where else.

This is one of those stories about the gold market that almost seems too wild to be true since the numbers are so extraordinary. According to a Reuters article from earlier today, Australian bank Macquarie has reported that gold is flooding out of London and into Switzerland at a mind-boggling rate. Specifically, 240 tons were exported in May alone and 797 tons during the first half of 2013. That means gold is being exported at a annualized run rate of 17x the 92 tons exported for all of 2012. That’s insane. Moreover, it seems a lot of that gold is being sent to Switzerland so that the 400oz bars can be melted down into different sizes that are more amenable to Asian sensibilities.