Archive - Jan 13, 2010 - Story

Since Congress, the Senate and the president are all powerless to prevent the looting of the middle-class, it is only fitting that Jon Stewart will give it a try. When common sense, logic and reasoning all fail to make a dent in the status quo of immaculate corruption, maybe at least humor will have some success.

Most relevantly, Jon asks the $64k question: "Are our banks made of balsa wood held together by baby tears."

What happened at 12:03pm Eastern Time? There were no reports out, the 10-YR Note auction wasn’t until 12pm, and the S&P500 was a bit stonewalled just under 1137.00 after a rally from the day’s low. As the market advanced slowly through the congestion it hit: a MASSIVE order, or series of orders, lifted the offer in the e-minis. But it wasn’t your garden variety large order of 2,000 mini’s – I’m talking about 114 times that size.

Courtesy of reader vertek7, we find out that today's crowning moment of S&P manipulation was purely a function of yet another fat finger. We say manipulation, because while according to the CME the two 200,000 ESH0 block trades allegedly offset each other, the market ended up shooting higher as a result, which was likely driven purely from favorable robotic interpretations of the volume spike. This market is so broken, and so upward biased, the mere observation of abnormal volume activity is sufficient to gun it higher. Also, can someone please explain how 200,000 e-mini contracts can possibly trade without soaking up all of the advertisied bid and offer side on the NBBO? HFT - meet e-minis. We hope the SEC is reading and comprehending (albeit ever so slowly) all of this, while it solicits public commentary to find out just how fucked up this market is.

In an extremely intriguing development today Google threatened to close down its China operations after unearthing a highly sophisticated attack aimed at accessing gmail accounts of Chinese human-rights activists. According to Google the attacks originated in China and included accounts of U.S. and E.U. based activists. Google made the announcement today in its blog-post titled "A New Approach to China".

The recent focus on the dangers of HFT algos gone wild was validated earlier today when the NYSE slapped Credit Suisse with a massive $150,000 fee for "failing to adequately supervise development, deployment and operation of proprietary algorithm, including failure to implement procedures to monitor certain modifications made to algorithm." The action involved Credit Suisse algorithm known as SmartWB, implemented by the Swiss firm in 2007, whose function is to "examine the closing imbalances of various exchanges and to attempt to trade profitably based on the algorithm’s assessment of the imbalances and other market data." Yet on November 14, 2007, something went wrong... In fact quite a few somethings...

Following up on the popular Global Tactical Asset Allocation report posted yesterday, we present Damien Cleusix' deep dive in equities: the GTAA - Equities version. "Valuations are now above levels where performance going forward will not please the buy & hold crowd, even if we go back to the good old days, the credit bubble stops deflating, growth reaches pre-2007 level in a sustainable manner .... At 1200 on the S&P 500 will be priced more expensively than all of the structural tops pre-2000 (well 1997-2000) except the final tail of the 1929 move ... This does not imply that the market will fall in the short or even the medium term but that a further rise will only have speculative and no investment merit if bought. Our base assumption remains that we will fall to significantly undervalued levels before a new secular bull market can start (in the developed world as you know we believe that we are in a secular bull market in emerging markets). This currently implies a sub-530 level on the S&P 500 going up by 5-6% a year."

Spreads were broadly wider in the US as all the indices deteriorated. IG trades 14.3bps tight (rich) to its 50d moving average, which is a Z-Score of -1.5s.d.. At 79.25bps, IG has closed tighter on only 5 days so far this year (268 trading days). The last five days have seen IG flat to its 50d moving average.

Indices generally outperformed intrinsics with skews widening in general as IG's skew decompressed as the index beat intrinsics, HVOL outperformed but widened the skew, ExHVOL outperformed but narrowed the skew, HY outperformed but narrowed the skew.

The investment world has been bombarded with leveraged ETF products. These products are specifically designed for use as short term trading vehicles...they are not meant to be held for long periods of time as the inherent decay factor will eat away at your principal (some levered ETF's decay faster than others, but they all decay). All too often folks write about these products without properly warning investors of the built in dangers. In this example, I'd like to mathematically show how the 2x levered short treasury ETF (TBT) stacks up over time.

The following are the items demanded by Edolphus Towns and the House Committee on Oversight and Government Reform from the Federal Reserve. We, for one, can not wait to see what ends up being dug up, seeing how the New York Fed has blatantly "forgotten" about our FOIA request for release of precisely the same data.

"In summary, the banking industry has been on the equivalent of steroids. Performance was
enhanced by excessive loan growth, loan risk, securities yields, bank leverage, and consumer
leverage, and conducted by bankers, accountants, regulators, government, and consumers.
Side effects were ignored and there was little short-term financial incentive to slow down the
process despite longer-term risks." - Mike Mayo

Since the SEC is beyond incompetent, and all it knows is how to place its employees at major Wall Street firms, the regulator is appealing to you, dear reader, to inform Mary Schapiro just how busted up the current equity market truly is, and to provide ideas on how to fix it, and to explain why "the current highly automated, high-speed market structure" is fundamentally unfair for investors.

Why we are likely hours away from S&P 1,150: Commentary from RBS Derivatives (alternatively, just more book pushing by the Scottish bank which has about 4 traders left)

Another day to mark down. How many times have we seen this happen? Where key "leading" sectors are shanked one day then cranked the next day during expiration week? Fear and greed is now oscillating between extremes on a daily basis, as bewildered and confused fund managers are getting whipsawed by the Prop Desk traders.

OUTLOOK: The negative outlook reflects our concerns about the large structural projected budget deficits facing the state and their implications for the state's cash position. Following a year in which the state grappled with a more than $60 billion deficit, we think the current deficit of approximately $19 billion could be more difficult to resolve given the state's extensive reliance on nonrecurring measures in the prior budget cycle. We believe indications of economic stabilization suggest that a recovery, if underway, remains precarious. Furthermore, if economic or revenue trends substantially falter, we could lower the state rating during the next six to 12 months.

The December budget numbers are out and they are ugly. December was the record 15th straight budget deficit in a row with -$91.9 billion more in outflows than inflows, compared to a $51.8 billion deficit in December of 2008. Fiscal 2010 budget deficit so far is -$388.5 billion, and $1.47 trillion for the trailing twelve months.