Archive - 2013

There are plenty of valid criticisms of Bitcoin, and a clear and thoughtful expression of those criticisms can only help the marketplace improve free-market crypto currencies in the future. Yet the irrational, ramblings of a statist who clearly hasn’t taken two minutes to objectively analyze Bitcoin is of no use to anyone and a disgrace to a supposedly highbrow newspaper like the New York Times.

While global currency wars have esclataed over the last 4 years (as we noted here), the potential return to fund outflows triggered by the Fed taper, combined with higher demand for funds ahead of Chinese New Year, means there will be continued pressure for China’s money market rates to stay high heading into January. With China's reform and rate liberalization plans, it seems 2014 may be the year of the Taper Wars.

This morning's incredible 6-month-range busting, 11-sigma, so-called "fat finger" in Treasury futures markets was brushed under the carpet by most of the mainstream media since it had no effect on what is important - US equities. However, as the following detailed charts from Nanex show, it looks like anything but an 'accidental' fat finger and merely highlights just how fragile the world's largest (and supposedly most liquid) markets have become. Still, with Virtu's CEO doing so well, how will it ever stop?

Everyone knows that the most parasitic form of trading, that would be high frequency trading for those who may not have followed this website since 2009, is very profitable. Well, it is certainly profitable for those who operate the momentum-igniting, quote churning, HFT firms in control of what's left of the "market", if not so much for anyone else. Just how profitable is it? Judging by the house that Vincent Viola, head of Virtu Financial, one of the largest high frequency electronic trading and market making firms, which according to Cifu accounts for more than 5% of US equities volume and over 10% of the of the average daily volume of MSFT, and which tried to expand even more aggressively with a failed bid for Knight Capital last year, has just put on the block.

As students vie for 2014 internships, Bloomberg finds a fraternity-based network whose Wall Street alumni guide resumes to the tops of stacks, reveal interview questions with recommended answers, offer applicants secret mottoes and support chapters facing crackdowns. Despite apparent crackdowns on cronyism, nepotism, and fraternism; it seems nothing has changed as "secret handshakes" and the fraternity pipeline helps undergraduates beat odds three times steeper than Princeton University’s record-low acceptance rate... "People like people who are like themselves," notes one recruiter, seemingly proven by the fact that JPMorgan employs 140 Sigma Phi Epsilon members with BofA and Wells Fargo even more.

The technology sector has been one of the hottest plays for investors in 2013, and right now there is one tech firm that has the market’s full attention.

"The new year should be very exciting for EURUSD bears," BofAML's Macneil Curry explains. Historically, January is the worst month of the year for the currency pair. Since 1971 (interpolated data pre-1999) it has averaged a return of -1.27% (excluding carry) and fallen 62% of the time. With EURUSD having just confirmed a top and bearish turn in trend, this January should be no exception to the historical norm. EURUSD bears should be salivating for the start of the new year.

Here's a question-- if you're in the Land of the Free, do you think those green pieces of paper in your wallet are dollars?

They're not. A US dollar was defined by the Coinage Act of 1792 as 416 grains of standard silver. No, those green pieces of paper are Federal Reserve notes. "Notes" in this case meaning liabilities to the central bank of the United States. That makes you, me, and anyone else holding those green pieces of paper essentially creditors of the Federal Reserve, whether we signed up for it or not.

New 52-week highs reached 2-month highs (and lows at 1-month lows) as stocks ruged to new record-er highs once again today. Aided by AAPL, the NASDAQ outperformed but the ridiculousness was not limited as TWTR continues its exponential rise (up over 59% in the last 2 weeks). Today's range was small in stocks (except for a strange - likely rebalancing related - 6% rise in the Russell at the open) and volume barely above the lowest of the year. Bonds sold off modestly with 7s and 10s worse at +3.5bps following ths morning's un-fat-finger idiocy in Treasury Futures markets. VIX was banged lower (with a late flourish) to 1-month lows. The USD slipped modestly lower on the day but rallied from the US open but correlations to JPY crossesd were not great for stocks once again. Commodities were quiet with Silver up and gold down (back under $1200).

While the full impact of CMHC on the Canadian housing and banking sector remains debatable, one thing can be said: next to the Bank of Canada, it is perhaps the most critical entity in preserving the nation's financial stability. And with a key player responsible for the perpetuation of the status quo having departed Canada recently, namely Goldman's Mark Carney leaving the BOC and heading to the Bank of England, some were wondering just who would supervise thing up north if and when things turned sour. Those questions were answered on Friday, when Canada named the next chief executive officer of the government-owned housing agency. His name is Evan Siddall, and, what we assume will came as a surprise to nobody, he was formerly a banker at, drumroll, Goldman Sachs.

While tapering in the US has had only good consequences (so far); in China it has crushed money markets. Of course, some might argue this is merely a coincidence, but since both the US and China appears to have launched their tapering together, the question is what will break to force China to pull back, since for the Fed it is all roses.

December 23rd, 1913 is a date which will live in infamy.  That was the day when the Federal Reserve Act was pushed through Congress.  Many members of Congress were absent that day, and the general public was distracted with holiday preparations.  Now we have reached the 100th anniversary of the Federal Reserve, and most Americans still don't know what it actually is or how it functions.  But understanding the Federal Reserve is absolutely critical, because the Fed is at the very heart of our economic problems. Since the Federal Reserve was created, there have been 18 recessions or depressions, the value of the U.S. dollar has declined by 98 percent, and the U.S. national debt has gotten more than 5000 times larger.  This insidious debt-based financial system has literally made debt slaves out of all of us, and it is systematically destroying the bright future that our children and our grandchildren were supposed to have. The truth is that we do not have to have a Federal Reserve.  The greatest period of economic growth in U.S. history was when we did not have a central bank.  If we are ever going to turn this nation around economically, we are going to have to get rid of this debt-based financial system that is centered around the Federal Reserve.  On the path that we are on now, there is no hope.

Gross:Part 1of 2: We live not in a new gilded age but a bitcoin age where artificial money (from central banks) creates temporary prosperity

— PIMCO (@PIMCO) December 23, 2013

It was nearly three months ago when we warned that Ackman's latest strategy of converting 40% of his Herbalife short exposure into puts would massively backfire, first because he still have major short squeeze potential left on his books, and second because now he is subject to theta or a time horizon, for his thesis to play out. Ackman's (il)logic was summarized as follows: "The explanation of being forced out of nearly half of his position is amusing: "we minimize the risk of so-called short squeezes or other technical attempts by market manipulators to force us to cover our position." So Ackman is forced out by his Prime Brokers so as not to be forced out by market manipulators? That's an interesting explanation for what is a far simple situation: booking your paper losses." Just under three months later HLF hit its all time highs, and Ackman's puts (not to mention his stock short) have generated material losses. Back then we concluded that "with trades like this, which has now become an ideological obsession and moved beyond and semblance of rational investing (any normal person would have pulled the plug on the nearly half a billion dollar losing trade long ago) and is rapidly morphing into a replica of Pershing Square IV, said career may not be too long." Today, the embattled so-called retail expert pours more fuel in the futre, and provides a 7-page update on what his plans for Herbalife are. In short: it really does seem that Ackman is prepared to take his HLF short until the end of the world...  or its LBO. Whichever comes first.

In a world in which the Chief Risk Officer of the formerly free capital markets, Ben Bernanke, has made any downside hedges obsolete (and as a result hedge funds have posted 5 years of returns without outperforming the S&P500), the first casualty has emerged: fund of funds. These parasitic, fee-soaking institutions, which merely collect a fee on top of the fees already charged by hedge funds, are rapidly on their way to extinction as the following charts from Eurekahedge prove conclusively. Naturally, the FOF industry which generates massive fees for its "value adding" managers, will not go down without a fight. And as Pensions and Investment reports, the FOFs have found a way to strike back: convert hedge funds into long only, idiot money, and we do enjoy the irony that in this centrally-planned market the idiot money is outperforming the smart, nimble asset managers by orders of magnitude.