Archive - Aug 2009 - Story

Readers may have been curious what some of the things the OTS told Citadel to do, while it suspended the firm's application to dominate 97.5% of E-Trade's order flow. Well, one of them apparently was to stop the proposed 120 million share sale that Citadel was hoping to do and offload some of its toxic holdings in exchange for front-running a substantial portion of retail traffic flow.

June 2, Tim Geithner: "The Fed is absolutely not monetizing debt"

August 31, Bill Dudley: "I don't think [the Fed] is monetizing debt to any meaningful degree"

Nuf said.

"Both China and America are addressing bubbles by creating more bubbles and we're just taking advantage of that. So we can't lose." - Lou Jiwei, Head Of China Sovereign Wealth Fund

• Bernanke, Printing and Press LLC makes $14 billion profit on $X trillion in AUM: we have still not seen the investor letter (Reuters)
• Time to get tough with AIG (Reuters)
• Wall Street stealth lobby defends $35 billion derivatives haul (Bloomberg)
• The FDIC is so generous with our money - Raft of deals for failed banks puts U.S. on hook for billions (WSJ)

• Asian stocks decline on lower China earnings, strengthening yen.
• China's stock markets fell sharply as upcoming share offering spurred concerns over increased supply.
• Chinese govt to cut frequency of fuel price adjustments to support the economy.
• Democratic Party of Japan sweeps to power, ending LDP's half-century reign.
• Economists split over whether Fed's infusion of credit will spur inflation.
• Germany to offer businesses addln €10B in govt-backed loans to ease credit crunch.

POMO liquidity? Ending. Insider buying? Non-existent. Room for USD to fall? No. Bond outflows? Gone. Where are stocks headed as we enter the traditional season of gloom for equities? My guess isn't up.

• Japan democrats win landslide in historic election (Reuters)
• As Germany's Angela Merkel poised next on the chopping block (Bloomberg)
• Must read: REITs racing to bankruptcy (Contrarian Profits)
• Alan Abelson: Sometimes a great nation (Barron's)
• World stocks controlled by a select few (Global Research)
• Russia's perspective on America: The new bourbons (Pravda)

While the capital markets debate has recently shifted to a discussion of who is right: whether equities, surging higher in expectation of something close to Zimbabwean hyperinflation, or the bond market, where yields have been declining, indicating the much more rational credit world is seeing deflation as the norm for a long time, a different perspective of this divergence can be witnessed by comparing treasury curve flattening versus commodity price movements.

Tishman Speyer's 2006 acquisition of Stuyvesant Town for $5.4 billion apparently is about to turn terminally sour. The "biggest deal for a single American property in modern times" which never managed to be profitable from day one, is on the verge of completely exhausting reserve accounts tied to $3 billion of securitized accounts.The premise - take the 11,227 rent-stabilized units apartment complex and convert them to market-rate. Alas, the timing could not have been worse due to an implosion in the NY rent market, coupled with legal difficulties - to date only 4,350 of the units have been converted to market rate, while the remaining rent-controlled units will likely increase in number due to a recent court ruling.

The US bond market is 2x bigger than the stock market (counting the value of all US bonds), and, there are less idiots running around. Since most bonds trade over the counter—obviously we have the Tbond futes—you better know what you are doing.

Late Night with Marla Singer.

Chat up the DJ/Send Tunes: via AIM here.

Pull our bits off the interweb: http://cdo.zerohedge.com:8000/listen.pls

And this is just the beginning. Chairman Ben has yet to be fully unleashed.

"JP Morgan Chase allegedly had deposits from Bernard L. Madoff totaling $5.5 billion at
one point in 2008. The Chase account was supposedly where most of the funds in his
Ponzi scheme were deposited. Any large deposit can be a considerable source of profit
to a bank. Assuming that the deposits returned the bank’s net interest margin and grew
at a random geometric rate, this paper estimates that JP Morgan Chase generated $483
million in after-tax profits from this very large account over the course of sixteen years.
With JP Morgan Chase the target of pending lawsuits relating to the Madoff fraud, this
paper’s methodology and results may be of interest to litigants, prosecutors, journalists,
and academics."

One of the key headlines these days has been the unmasking of what has been dubbed the biggest identity theft and credit card fraud case in history, allegedly spearheaded by one Albert Gonzalez, who in 2003 was involved in a comparable scheme however upon being caught, promptly became an informant for the Secret Service and turned over 30 of his hacking buddies. Six years later it is he this time who is in the hot seat, together with most of his associates, including one 25 year old Stephen Watt, who supposedly was the creator of the credit card sniffer software used to hack into over 130 million of various credit cards for merchants such as TJX, Dave And Busters and 7-Eleven, which numbers were subsequently sold for hefty sums to Eastern European purchasers. What is peculiar in all this is that apparently for the entire duration of this operation, Stephen was working in "Application infrastructure development and in house security toolkit development" at Morgan Stanley (earning $99,000 a year as a 21-23 year old programmer in 2004-2007), and subsequently took a brief position with Imagine Software, where he developed "real-time computer trading programs for financial firms." Did Stephen learn the tools of the trading game at MS, while at the same time hacking millions of credit cards, only to take what he learned from both ventures into a new operation, one that counts among its clients the Who's Who of Wall Street? Or, alternatively, did he use his packet sniffing skills at Morgan Stanley? The questions grow...

Long before Sergey Aleynikov, in the summer of 2007, a major lawsuit between two quant titans shook the shadowy world of stat arbitrage and HFT. Alexander Belopolsky and Pavel Volfbeyn, at the time residing on the 7th floor of 666 Fifth Avenue (but not for long) and reporting to Millennium's Israel Englander, were about to get the back door treatment by their employer, who had just settled multi-year litigation with their former boss - East Setauket's original quant fund - Renaissance Technologies. But they would not go quietly into the night...