Archive - Nov 23, 2010 - Story

Not just hedge funds any more. Insider trading probe moves to mutual funds.

And yes, hedge and mutual funds are perfectly happy to pay $1,000/hour for information that is completely public and totally accessible to everyone...

"In the currency markets one of the best indicators of stress is EUR/CHF as the crossrate reflects money from the Eurozone flowing in and out of Switzerland. The cycles argued the crossrate would strengthen into next week before peaking and that it could trade as high as 1.3725, but the upmove reversed on Monday. Although the short cycles call for weakness, if the upmove remains intact, it will hold above the support at 1.3380 and will make a final upmove into the middle of next week. It now appears the resistance at 1.3650 will hold and if risk does survive here, this level should be a good place to sell as the crossrate should then turn lower and begin a downtrend lasting into May. A close below 1.3380 signals it is headed lower into the middle of December and our initial target will become 1.3100 and the 1.2000 area could be seen by May. " FX Concepts

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 23/11/10

After it became fashionable to say one was short the dollar at cocktail parties, the net result was a surge in CFTC-reported spec USD gross short positions and a plunge in net USD exposure. And since options traders are nothing but momentum chasing lemmings the theater is now fully on fire. Granted, while some of the recent spike in short interest has been covered, there are still just over a whopping 7.5k contract shorts that need to be covered before a reversion to the recent trendline. This is why we are currently seeing a massive unwind in the dollar short carry trade, and why once again rumors that macro funds are slowly and quietly receiving billions in margin calls behind the scenes.

Today's viagra-deficient POMO is now over, monetizing just $1.6 billion in TIPS. The Submitted to Accepted ratio is 5.3x, indicating cash shortage at the PDs who are now stuck with useless paper. Most notably, someone wanted to dump $210 million of CUSIP 912828NM8 which was the 9 year 8 month TIPS auction from November 4: so much for inflation "protection." Surprisingly, the MY3 4.5 year CUSIP which is the legendary October TIPS auction which closed at a negative high yield saw no interest in monetization. If we had to guess, investors, contrary to all expectations, are happy with an inflationary bet through the 5 year horizon, then expect deflation after (thus the putback to the FRBNY). How that makes sense is beyond us.

Even as economics has taken to back seat a geopolitics and a market uncharacteristically lacking in euphoria, Rosie once again provides the daily dose of must read economic summary sans the Kool Aid.

As we speculated two weeks ago, the key word that will be regurgitated by all pundits through the end of the year is "contagion". Sure enough, the bond vigilantes who are now fully awake and stretching have brought a mauling to Spanish bonds, where 10 Year yields are now at lifetime highs. The chart below shows what will happen to US bond prices sooner or later. Should the 10 Year experience such a move in a comparable time frame, the Federal Reserve's $56.3 billion in total capital will be exhausted about 4 times over, and Ben Bernanke will be presiding over an insolvent central bank, begging for intelligent life from Proxima Centauri to have departed about 4.27 years ago in direction earth, bringing with it an extra $1 quadrillion in Terra backstop capital.

While CNBC (well, Erin Burnett) is looking at the Kospi and is amazed how the index did not move after it had closed before the military exchange last night, the latest from Yonhap is that the tension in Korea is far from diffused: "North Korea threatened to continue "merciless" strikes on South Korea on Tuesday after the communist state launched a deadly artillery attack across their western sea border. In a statement carried by the official Korean Central News Agency, the North's top military command accused the South Korean military of initiating the exchange by shooting toward its side." Of course, South Korea refuses to demonstrate that it continues to be utterly toothless and issues the following statement: "President Lee Myung-bak ordered his military Tuesday to strike North
Korea's missile base around its coastline artillery positions if it
shows signs of additional provocation, his spokeswoman said." Luckily, Jim Cramer is now expecting both Koreas to sit down for a friendly turkey dinner in a few days in the mine field in the middle of the DMZ, and diffuse the situation.

It's amazing what a little reminder that an ever more fragile ponzi system is constantly on the verge of total collapse will do to the price of tungsten (or closest equivalent) flight to safety.

Some may recall how the very contentious topic of Greek deposit bank runs was arguably the key catalyst to push Greece (and its banks) to accept a bailout from Europe, after the country realized it had little cash left (and the associated SNAFU in which RBS proved it really has no clue about anything). Well, it is now Ireland turn, and as the below chart shows, the Irish bank run has already commenced, with locals not even bothering to wait until the December 7 coordinated "pull your money" pan-European D (for default)-Day. Bank of America brings attention to this issue, which will likely be the last liquidity event before not only a full bailout of Ireland has to be implemented, full terms be damned, but becomes the catalyst for ongoing CHF strength as European deposits once again rush to the relative safety of the last remaining relatively stable European currency (and of course gold). The result will be an ongoing squeeze in Switzerland, which we now believe may be one of the first countries from the core to feel the vigilantes' wrath shortly after Spain is bailed out, some time in Q1 2011.

• Goodbye reserve currency: Yuan begins trading against the rouble (China Daily) this is big news
• US has no good options over North Korean clash (FT)
• South Korea Prepared to Implement Market-Stability Measures After Shelling (Bloomberg)
• Focus Shifts to China as North Korea Tensions Escalate (Reuters)
• China Inflation `Volcano' May Prove Too Hot for Controls After Cash Surge (Bloomberg)
• Growth in Thailand, Malaysia Slows, Heralding Caution in Asian Rate Moves (Bloomberg)
• Irish PM Defiant as Coalition Cracks (FT)
• IMF urges cuts in Irish minimum wage and dole payments (Irish Times)

While running and hiding is easy for carbon-form based hedge funds, it may be a little more difficult for collocated servers: they tend to be welded to the ground. Yet running and hiding may be precisely what they need to do soon. After Manhattan US Attorney Preet Bharara is done disassembling SAC, his next target will be ZH's favorite topic: high frequency and prop trading. Which is sad - we may have to branch out into sports and pornography soon, as all the topics we had been covering for years are one by one tabled by the those whose job it is to fix the fraud in the markets. Joking aside, here is what the NYPost had to say: "Computer-driven trading shops and independent proprietary trading firms may be the next to feel the heat from watchdogs aiming to clean up Wall Street, source tell The Post. Federal agents, who have ratcheted up the heat on insider-trading rings linked to hedge funds and investment firms, are also are targeting firms that purport to offer individual investors specialty trading techniques employed by Wall Street powerhouses like Goldman Sachs, these sources said." We, for one, can't wait to listen to the Jon Stewart's Cash Cow upcoming interview from a NYPD holding cell.

The BEA has released its second revision to Q3 GDP: "Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.5 percent in the third quarter of 2010, (that is, from the second quarter to the third quarter), according to the "second" estimate released by the Bureau of Economic Analysis.  In the second quarter, real GDP increased 1.7 percent." Expectation was of 2.4%. The reason: inventories, inventories, inventories. "The acceleration in real GDP in the third quarter primarily reflected a sharp deceleration in imports and accelerations in private inventory investment and in PCE that were partly  offset by a downturn in residential fixed investment and decelerations in nonresidential fixed investment and in exports." As noted previously the $40-50 billion upcoming Q4 decline in inventories will likely push Q4 GDP flat to negative. In other news, US PCE Core (Q3 S) Q/Q 0.8% vs. Exp. 0.8% (Prev. 0.8%), while US Personal Consumption (Q3 S) Q/Q 2.8% vs. Exp. 2.5% (Prev. 2.6%).

Even as the world wakes up to a stunner out of Korea, things in Europe are getting worse. Here is a brief summary of all the events in the increasingly troubled continent.

• Asian shares traded down amid nervousness China may introduce further tightening.
• Billionaire Carlos Slim acquires stake in New York money Mmanager BlackRock
• BMW &Mercedes cut back on Christmas breaks as demand for new models booms
• China allows yuan to start trading against ruble.
• Eurozone consumer confidence improves to -9.5 in Nov from revised -10.9 in Oct.
• Irish PM said the government will resign after passing the country’s budget.
• SKorea scrambled fighter jets and returned fire after NKorea lobbed shells into its territory.