Archive - Jul 2009 - Story

VWAP reversion in T minus 5...4...3...

And speaking of the Fed's balance sheet (and not the public side but the $9 trillion in off-balance sheet voodoo), here is some good reading, especially with certain politicians hell bent to prevent HR1207 from occurring despite the 280 or so congressmen in support of the proposal (a very self-destructive apathy that Zero Hedge will speak more on in a few days).

It is no secret that China's economic numbers are so cooked and unreliable, that they make the constantly changing and optimistically biased economic data out of the U.S. (especially lately) have the credibility equivalent of a Harvard Ph.D. thesis. University of Texas professor James Galbraith discusses one aspect of China's "booming" economy, specifically the question of China's Trade Surplus, which as he notes has been drastically inflated since 2002 due to Chinese companies over-reporting profits on exports in order to disguise various investments by foreigners into China, so as to beat capital control restrictions.

The Fed's monetization of securities accelerates on declining Foreign purchases and an imperative to keep mortgage rates at artificially low levels

• Advance GDP: -1.0%, and here is why - Federal Spending up 11%, Q1 number revised significantly lower to -6.4% (BEA, and Bloomberg)
• Europe: widespread deflation and spiking unemployment (Bloomberg)
• Japan: widespread deflation and spiking unemployment (Bloomberg)
• Pearlstein: Wall Street is at it again (WaPo)
• Cash for clunkers done? AutoNation will be pissed by the lack of this subsidy (WSJ)

• Initial jobless claims in US increase; total rolls unexpectedly decline.
• US Treasuries fell, heading for a 4th monthly loss on speculation GDP improving.
• Japan's unemployment rate rises to a 6-yr high in June; Consumer prices fell at a record pace.
• Asian stocks rise on profit reports; MSCI Index set for fifth monthly gain.
• AK Steel announces price increase of $40/tonne for its carbon steel products.

The seemingly wildly popular program that gives an instant rebate for your old hunk of crap car, just may get crapped-out itself… Much sooner than planned.

Spreads were tighter in the US as all the indices improved (though leaking wider most of the day from a gap tight open, albeit with HY closing below 800bps). Indices typically underperformed single-names with skews mostly narrower (and this is becoming critical as IG is in mid single-digits and HY skew is very tight - perhaps signaling some room for HY-IG decompression or just single-name protection buying hedged via the index) as IG underperformed but narrowed the skew, HVOL underperformed but narrowed the skew, ExHVOL intrinsics beat and narrowed the skew, XO underperformed but compressed the skew, and HY's skew widened as it underperformed.

"Enhanced VWAP algorithm places child orders in SIGMA X without displaying them to the market. If the child order executes within SIGMA X then it is never displayed to the market ahead of the trade. If the order does not execute within SIGMA X, the algorithm routes it to the public market where it is displayed." - Goldman Sachs

"This is perhaps the most important thing I learned over my years working on Wall Street, including as a managing director at Goldman Sachs: Numbers lie."

From the creator of Citadel's HFT desk for options: "You have multiple HFT trading firms and sometimes their agendas are complementary and sometimes they’re not. There could be a time where these HFT programs unintentionally collaborate and you have a two- or three-minute period where the markets are going crazy. Then other traders respond to it and it simply gets out of control."

The SEC (the C stands for Competence right?) is miles ahead of the curve on this one. Miles.

Yet another massive Program Robot facility being built in Mahwah, NY for the high-frequency gamers. No doubt, filled with billions of dollars of supercomputers, huge boiler rooms staffed full of fast reflex teenage gamers, being supervised by 5'10" bikini-clad fembots wielding horsewhips to make sure the kids keep up with the computers.

"This is not to say that we are always willing to trade against HFT, but our job as an agency broker is to determine the right price and liquidity opportunities with which to interact in executing trades onbehalf of our clients."

A brief review is in order of the long term chart before heading to the short term daily charts. Since 1984, the 30 year has been hammering out intermediate term bottoms at key 50% retracements. See the examples from the Oct 1987 low, the Sept 1990 low, the Nov 1994 low, and the May 2004 to June 2007 lows.