Archive - Jul 21, 2014

The "proof" is flying back and forth from The US and Russia, with the disastrous MH17 crash polarizing the world's nations in a troubling (but BFTWWIII) manner. Following a weekend of European leaders getting behind The US, China has come out strongly supporting Russia who itself asked some awkward 'proof-laden' questions this morning. We leave it to President Obama to dictate exactly what we should all believe and just how bad things will get unless Russia gives up...

"Retirement Off" It appears the 'proof' that markets were Teflon and could shrug off the worst spate of geopolitical concerns in years... is wrong. US equity markets have given up all the gains from Friday's knee-jerk massive short-squeeze fest... as Treasury yields have tumbled lower all day long...

Since we first exposed to the world that yet another market (foreign exchange) was manipulated by nefarious traders over a year ago, the grand total of prosecutions for market rigging is... zero. As Bloomberg notes, however, more than 25 FX traders have been fired, suspended, or put on leave in that same period. While regulators appear incapable of discovering the truth, the market manipulation probes just got serious..."The [UK] Serious Fraud Office has today opened a criminal investigation into allegations of fraudulent conduct in the foreign exchange market."

In its latest Hedge Fund Monitor, BofA's Ankur Singh finds that while hedge funds are willing to be the boats that rise with the central banks' liquidity tide, nobody is willing to fight the Fed in its latest admission that a subset of stocks, mostly those that make up the Russell 2000 index, "appear to be overpriced." As a result, BofA reports that "Specs increased Russell short position to a three year high. MAA and technicals suggest we may have further increase in Russell short positions." So how are various hedge fund strategies doing? Here is the full breakdown.

They call them ‘junk bonds’ for a reason. They now constitute an offence against linguistic decency: ‘high yield’ no longer even is. “By sacrificing quality an investor can obtain a higher income return from his bonds. Long experience has demonstrated that the ordinary investor is wiser to keep away from such high- yield bonds. While, taken as a whole, they may work out somewhat better in terms of overall return than the first-quality issues, they expose the owner to too many individual risks of untoward developments, ranging from disquieting price declines to actual default.” - Ben Graham, ‘The Intelligent Investor’.

"The West has successfully put itself in a position to dictate 'political correctness' in international discourse," China exclaims via a Global Times editorial on MH17 on Monday, "those unwilling to work with Western interests will often find themselves in a tough position." China's first public statement that "The Western rush to judge Russia is not based on evidence or logic," comes on the heels of Vladimir Putin's address last night jabbing the West "no one should not have the right to use this tragedy to achieve selfish political objectives." China appears to have crossed the line, siding very clearly with Russia as they conclude, "It is yet another example of the power of Western opinion as a political tool."

The simple fact is that trading involves risk. Bad risk management happens every day to individual traders who blow up their accounts with one overly aggressive or poorly managed position, and it occasionally happens to those paid to risk other people’s money as well. When it happens to the pros, though, the enormous access they have to leverage exaggerates the effects. n the energy markets, that leverage is ever present as most trading is done via futures contracts and other derivatives. As a result, some of the most spectacular blowups in trading history have involved energy.

Who could have seen this coming? Following the US imposition of further sanctions on Russia last week, specifically the import of Kalashnikov firearms, CNN reports gun stores across the US are experiencing a run on AK-47s. Yet another unintended consequence of US foreign policy...

Your one stop to catch up on all the latest development surrounding the crash of flight MH17 and the recovery effort.

A week ago, when we commented on the latest publicly available data for Barclays' fraud-embroiled LX dark pool, whose volume as we reported had tumbled 37% in the week of the lawsuit announcement, we said that the downward volume trend "is about to get a whole lot worse for Barclays as the trickle becomes an avalanche." Sure enough, following today's reported by Finra's ATS database for the week of June 30, we find just that, and one can largely say lights out to Barclays LX operation, whose total shares traded plummeted from 197 million (and 312 million the week before) to a paltry 66.4 million, a two-week drop of 79% from its recent highs, putting it, in 12th total dark pool volume place, below ITG and above BIDS trading. So much for any ambitions of becoming America's top dark pool. Last on the other hand...

• Fighting erupts in Ukraine as crash investigators arrive (Reuters)
• Russian Billionaires in ‘Horror’ as Putin Risks Isolation (BBG)
• Israel kills militants entering from Gaza, death toll tops 500 (Reuters)
• The other Gaza: In violent weekend, at least 40 people shot in Chicago (Reuters)
• Barclays Dark Pool Drew Early Alarms (WSJ)
• Finance Industry Bonus Hit in Poll as Revenue Disappoints (BBG)
• Severstal to Sell North American Units (WSJ)
• Yum, McDonald's apologize as new China food scandal brews (Reuters)
• Yellen Wage Gauges Blurred by Boomer-Millennial Workforce Shift (BBG)
• Ukraine Offers to Hand Over Malaysia Airlines Probe to Dutch (WSJ)

In the absence of any major economic events, it will be another day tracking geopolitical headlines out of Ukraine (lots of accusations, propaganda and fingerpointing on both sides, zero actual evidence and facts - expect more European sanctions to be announced today to match last week's latest US-led round ) and Israel (where the death toll has now risen over 500, almost entirely on the Gaza side), and then promptly spinning any bad news as great news. For now, however, futures are modestly lower from the Friday close pushed down by the AUDJPY which has rebased around 95.00. We expect the momentum ignition correlation algos will promptly take of that as soon as the US market opens, a market which has now been described as bubbly by the BIS, the Fed and the IMF.

The MH-17 tragedy could mark a pivotal moment in the worst crisis between Russia and the West since the Cold War. Geopolitical risk is extremely high today. As it was in 1914. With the U.S. seeking to impose tough new sanctions on Russia, we appear to be on the verge of a new and more intense phase of currency wars and indeed of an economic war. Indeed, a millitary confronatation with all that entails cannot be ruled out ...

August gold GCQ14 and September silver SIU14 contract purchases spiked the exact moment Malaysia Airlines reported MH17 missing. Coincidence or tragedy profiteering? You decide.

The Stupid ... It Hurts