Archive - Aug 7, 2009 - Story

We figured we would warm you up a bit for Radio Zero this weekend. So, first, "Upward," an encore presentation of Radio Zero from a few weeks ago. 11:45 ET. Sharp (by which, I mean "fashionably late.") Then, later tonight (or early this morning), Radio Zero goes live again! Start with us now...


http://cdo.zerohedge.com:8000/listen.pls

...and we'll see you for more later.

Later has arrived! Chat the DJ up.

Goldman Sachs Electronic Trading's own George Sofianos (ironically caught here providing advice on shortfall costs for limit orders) providing his objective view on PT and volatility from the days when he was merely a member of the largely unaffiliated New York Stock Exchange.

4 sigma event transpiring over the past few days. One can hope the recent Flash developments have nothing to do with this drop.

Spreads were mostly tighter this week with ExHVOL the only index that widened (thanks to HVOL's significant outperformance) as HY outperformed IG (While corporates were mostly tighter, Major Sovereign CDS were notably weaker on the week). Indices typically underperformed single-names (but intrinsics had been leading indices tighter all week) with skews mostly narrower as IG underperformed but narrowed the skew, HVOL underperformed but narrowed the skew, ExHVOL's skew widened as it underperformed, XO underperformed but compressed the skew, and HY's skew widened as it underperformed.

"All that being said, I'm pretty proud of my own 100-day accomplishments. So how have things changed? Before I joined the Division in March, the Dow was struggling around 6500 points. Now the Dow is over 9200. So am I really responsible for a 41% increase in the Dow? I am, and I'd explain it, but it's very complicated. It involves algorithms, and calculus, and a black box and other … stuff. Now, when I ran this speech by my wife, she looked (kind of like some of you out there) a little incredulous. She said, "you're not claiming credit for the stock market, are you? While you're at it, are you also taking credit for the mild hurricane season or the sharp decrease in lethal shark attacks world-wide." Well I am, and I'd explain it, but it's very complicated. It involves algorithms, and calculus, and a black box and other … stuff." - Robert Khuzami, Director Of Enforcement, SEC.

After having purchased over $243 billion in treasuries to date via a the QE bond buyback program announced in March, in some cases buying the bonds form primary dealers just days after an auction's completion, the Fed is now expected to wind down its $300 billion Treasury-buying program. As Bloomberg reported recently, "The FOMC “is unlikely to extend the life of these
programs, unless, of course, either the economy or the financial
markets take a significant turn for the worse,” Meyer, vice
chairman of St. Louis-based Macroeconomic Advisers LLC, wrote in
a report released yesterday. “We therefore expect the FOMC to
announce at its upcoming meeting that it will allow the Treasury
purchase program to expire in mid-September."

Market participants are treating stocks like blind dates on Match.com or Plentyoffish.com. The candidates are self-described as "A Few Extra Pounds" or "Curvy" but when you meet them they are "better than expected".

Consumer credit (revolving and non-revolving) dropped at a 4.9% annualized rate in June, double the expected pace, indicating consumers continue retrenching and saving, especially after May was expected to be an inflection month, declining by "just" -2.6%.Total outstanding consumer credit in June was $2,485billion, $70 billion less than the $2,556 billion in June of 2008.

A cursory glance at Colonial's most recent balance sheet indicates $26.4 billion in assets, and $20.2 billion in total deposits. There goes the FDIC's Deposit Insurance Fund. But at least the 247,000 people who are no longer employed are buying up any and all related stocks.

Some afternoon technicals

The confidence game in turbo boost mode. The market is oblivious of the underlying data behind today's "better than expected" BLS computer model output. Yet for the few remaining who do care about the increasingly irrelevant fundamentals, we provide some observations.

Wait, didn't the Fed just buy $160 billion in agencies in the last two weeks?

Answer - yes.

The June 1 ISM to June 5 NFP high to higher high was +10. The idea was that the Aug 3 ISM to Aug 7 NFP higher high would be roughly +10. If so, it would target 1013. That is precisely what has happened. Notably, the stock market sold off 32 points by the following Monday June 8 before setting a retrace high on Thursday June 11’s retail sales report that were goosed by automaker incentives of $6900 in rebates. Expecting July retail sales to be goosed by similar cash for clunker incentives, we expect the stock market to rally into Thursday’s Aug 13 retail sales report. In short, a rolling top similar to June’s is expected in the first half of August.

"Tudor said the 47 percent gain in the Standard & Poor’s 500 Index of the largest U.S. companies since March 9, when it fell to a 12-year low, is a “bear-market rally.” The index topped 1,000 for the first time in nine months this week after companies reported better-than-expected profits."

Courtesy of Finviz, the ratio of insider buying to selling transactions is 5 to 145. Total transaction value: Buys: $13.4 million; Sells: $1,042 million. At least insiders are feeling the new bull market.