Archive - Sep 4, 2009 - Story

Some stunning revelations have been disclosed in the David Kotz 477 page report on SEC's colossal (and in normal societies, terminal) blunder with Madoff. Primary among them is that everyone's favorite liquidity provider RenTec was not only an indirect investor in Madoff via its Meritage Fund of Funds, not only was fully aware based on internal correspondence that Madoff was a pyramid scheme, but that it did nothing to notify the authorities, and also decided to keep half of its investment with Bernie, even after numerous internal emails certifying the illegitimacy of the fund way back in 2003.

"This situation is economically impossible; at some point, U.S. debt would reach a level so high that creditors would stop lending us money. The question, though, is how the situation will be resolved. Will politicians confront the policy choices or delay them to the point where they will be forced upon us due to a fiscal crisis? The longer we wait to take on these issues, the worse they will get and the more painful it will be to change course." - CRFB

Relllllaaateeef Vaaaalue? What dat?

Must be so profitable to have i) an infinite array of momentum chasing quant clients and ii) an overeager ETF trading desk consisting entirely of former Tetris world champions. And after all, it makes all the sense in the world to lift consistently rising offers in a volumeless, newsless market.

Adding insult to injury- it's bad enough the American worker has the crappy 9 to 5er, the shared cube with the office loud-mouth, and the ever worsening benefits package- not only all this- his/her boss brings home considerably more. At a growing ratio of well over 300 to one!

A big picture objective perspective on the economy, compliments of Egan-Jones.

"As an aside, the Bureau of Labor Statistics also publishes a number from the Household survey that is comparable to the nonfarm survey (dubbed the population and payroll-adjusted Household number), and on this basis, employment sank — brace yourself — by over 1 million, which is unprecedented. We shall see if the nattering nabobs of positivity discuss that particularly statistic in their post-payroll assessments; we are not exactly holding our breath." - David Rosenberg

Market speculators have now officially written off inflation: the most recent survey of Fed Fund Rate expectations indicates that the percentage of people expecting a hike to 0.5% at the December 16, 2009 FOMC meeting has plunged from 58.1% in March to 1.5% currently. And the opposite of inflation is deflation: just ask Treasuries. Furthermore, while exactly 0% had expected the EOY rate to be at 0% in March, almost a third of the market now believes this is the case. And, most shockingly, a solid 0.1% actually sees the Fed as having a negative 0.25% rate: whether this is a misprint based on futures data is unclear, however, it would be a very amusing outcome and with QE gradually ending, this may be the very, very last bullet in Chairman Ben's gun in his ongoing duel with the currency that he so desparately wants dead.

Get used to it: momo quants trading only at noon and 3:30pm are here to stay. Also get used to the new carry trade, and feel free to stop trading anything except the new carry trade.

As the first chart demonstrates, the unemployment rate differential between HS grads and College grads has reached another record spread. While this will have the fringe benefit of discouraging floral experts with minimum wage and no 401(k) expectations from crossing the Rio Grande, the bigger issue is who in this economy is creating minimum wage/specialization jobs (especially with the US manufacturing complex in tatters).The US Socialist experiment will need to really pull its socks up if it hopes to succeed.

And this time it is not those nutcases over at Zero Hedge making the claim, but the reputable New York Times, a place where even more reputable Mexican billionaires go to provide rescue financing. The NYT discloses how Chicago-based traders (what is it with Chicago style [blank] - first in politics (no comment needed there), and now in every story about market manipulation) Optiver, may have been openly gaming the commodities market using HFT strategies.

Total Federal Reserve balance sheet assets for the week of September 2 of $2,070 billion

As markets digest the worse, yet somehow better, than expected 9.7% unemployment, the real state of the labor market is much worse, as indicated by the U-6 number, which has hit a recent record of 16.8% on a seasonally adjusted basis. As a reminder, the "U-6 represents total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers." In other words, in reality the U.S. labor market is likely about as bad as Spain in terms of undoctored jobless data.

"This is why the Keynesian central bankers can’t sleep at night: Their eternal demand-stimulation does not work any longer. The pent-up demand is non-existent (by historical standards) and therefore cannot be released, even if rates are aggressively cut. Total bank lending has dropped almost 6% from the top in late October 2008. That has never happened before. The picture is the same in the Eurozone and (of course) in Japan."

• Unemployment rate hits 9.7% (Bloomberg)
• Supertankers may halt oil trading as rates drop on supply glut, Frontline says (Bloomberg)
• HFTs dominate soon to be eliminated DXO ETF (Alphaville, h/t Lizzie)
• Zimbabwe to get $500 million in IMF loans (BBC)
• Milliseconds are focus in algorithmic trades (Reuters, h/t Adam)