Archive - Sep 2009 - Story

Pretty boring day overall, looked as if the entire fund complex honed in on CIT to jam that stock in the last minute Hail Mary play in order to "make the quarter". Simultaneously, bond yields plunged again, to make certain that the next container ship of U.S. Treasuries is sent overseas on schedule.

The gig may be up for what was to many a sure thing. Cover a position. Get a few extra points, do a favor and make a deal. The once very lucrative area and niche player known as Securities Lending may be changed forever.

Matt Taibbi has put together a very informative piece on Goldman's lobbying attempts, specifically in the context on the upcoming discussion over naked short selling. The contention here by the majority is that naked short selling, or NSS, promotes bear raids on crippled companies which tend to feed upon each other, with CDS traders also joining in the fray. The argument is a dramatic oversimplification and has little substantiation by facts. "Bear raids" occur only and exclusively in financial stocks: why can't you have a bear raid on a firm like Coke or Johnson and Johnson, or even some leveraged behemoth like Hertz.

"We have been concerned about use of the TARP funds since the program’s enactment in October, 2008. We are deeply troubled by the lack of oversight of $700 billion in taxpayer dollars, with billons of tax payer dollars ultimately going to financial institutions without restrictions or accountability. As a result, billions have been poorly spent, used to support bonuses to failed executives, or simply gone to uses that banks cannot account for when asked by the American people.” Congressman Paul Hodes

One of the most recent statistical aberrations to be noted by Investment Research firm Oscar Gruss and subsequently referenced by Bloomberg highlights the dramatic disconnect between raw and seasonally adjusted continuing claims numbers. The divergence has manifested itself in a discrepancy of nearly 900,000 people.

Dear FINRA,

We know you are busy, we also know you are hell bent on intercepting IOI manipulation as per Mr. Jon Kroeper's recent media appearances. Which is why we kindly request that you get back to us at your earliest convenience with information on how many of the IOIs disclosed below are, in fact, "natural." We will make this a recurring topic on Zero Hedge until such time as you respond to our information request. You can contact us at outsourcefinra@zerohedge.com

We appreciate your prompt attention to the matter

Zero Hedge staff.

The monetization continues: today's $3.5 billion POMO was practically all used to repurchase CUSIP LM0, a 3 Year Note auctioned off by the treasury a whopping 20 days ago: this one. Recall that the auction had $16 billion of Primary Dealers interest accepted. Not a bad way for PD's to offload 21% of their allocation in less than three weeks. Any questions why there was $81 billion in PD bids tendered?

"[FDIC] staff estimates that both the Fund balance and the reserve ratio as of September 30, 2009, will be negative. This reflects, in part, an increase in provisioning for anticipated failures. In contrast, cash and marketable securities available to resolve failed institutions remain positive." - FDIC, September 28

"This inventory has yet to hit the market, but it will. So pundits that get excited about two or three months of Case-Shiller data are spending too much time looking out the back window. More deflation is coming in residential real estate — this bear market in housing ain’t over yet. Remember, homes that are foreclosed typically go on to the market at discounts ranging between 10% and 50%." - David Rosenberg

Big surprise in the Conf Board consumer confidence index, which posted a September reading of 53, down from 54.5 in August, and an expected reading by "economists" of 57. The market, which trades solely on macro headlines these days, takes a brief dive. Expect this not to last as window dressing time promptly regains a foothold, and bad news continues to be good news.

Irrational exuberance in High Yield shows no sign of abating: the loan-HY bond spread is down to 2009 tights: a mere 326 bps for the represented universe of credits. Last week HY bonds averaged 710 bps, while loans were are 383 bps. For rational types, now is the time to consider some long loan-short bond basis packages, at a 1.0x:1.85x ratio. Also the negative loan-HY basis in Sealy continues, now at about 500 bps: either the data there is really faulty or somehow that relationship makes sense... in some parallel universe.

• SEC weighs new rules for lending of securities (WSJ)
• GE's Immelt warns US recovery slowest in decades (AP)
• Fed may wait too long to raise rates, says Steve Hanke (Bloomberg) as if there was any doubt
• Is Paulson considering merging CIT and IndyMac, or is he still just accumulating C (NY Post)... Yes, the NY Post
• FDIC seeking to pocket years of bank advances to pretend it is not insolvent (FT)

• Asian stocks rise from two-week low; led by oil and technology companies.
• China will support mergers among `able' companies: Stocks Regulator says.
• FDIC expected to propose banking industry to prepay assessments for the next 3 years.
• The Federal Reserve decided to keep pumping $1.25 trillion of new money into the mortgage market.
• Japan consumer prices fall record 2.4%; deflation return threatens economy.
• Obama admin close to committing $35B to help state and local housing agencies.

One of Zero Hedge's recurring concerns with market abuse has been the concept of manipulated natural Indications of Interest, or IOIs, a topic which readers can catch up on here and here. And yes, absent feedback from regulators this could have added to the ever increasing list of conspiracy theories broached by Zero Hedge. Yet ironically shortly after Zero Hedge first posted on this, FINRA came out with the following regulatory notice 09-28 from May 2009, in which the regulator "reminded firms of their obligation to provide accurate information in disseminating indications of interest."

"Wall Street supplies a swinging door of jobs for its financial regulators, and—in the case of many members of Congress and our Presidents—campaign contributions. This dependence is known as “capture,” and the result is that instead of reigning in Wall Street, dependent thinking enables mayhem. In the recent Ponzi scheme only the agents—mortgage lenders, rating agencies, fund managers, securitization professionals, CFOs, CEOs, and other fee or bonus beneficiaries—prospered. Controls and risk management were undermined. The financial institutions and their shareholders, for which these agents are failed stewards, collapsed. Investors in toxic securitizations lost money. Had regulators done their jobs, they would have shut down Wall Street’s financial meth labs, and the Ponzi scheme would have quickly choked to death from lack of monetary oxygen." - Janet Tavakoli