Archive - Nov 9, 2010 - Story

The first casualty of Goldman's new "client facing" regime, now that prop trading is presumably dead and all prop traders have shifted one seat to the left, pretending they all do flow (even as they still take massive inventory positions) is Alexandre Harfouche - a managing director and head of the firms' European block trading divions. Harfouche was sacked for "failing to make proper disclosures to the bank’s compliance department" according to the FT. And now that Goldman is spreading the lie that it no longer does prop trading even thought it, well does, block trading is basically the latest iteration in the nomenclature of what Goldman does when commingling prop and client order flow, before it proceeds to split up an order block via internalized algos, or dumping it in the market. It is thereby precisely at the level of block order aggregation that potential front-running violations can occur, which is why Zero Hedge would be very interested to find out just what were the circumstances associated with Harfouce's termination. Unfortunately, "while
Goldman did not specify the reasons for Mr Harfouche’s departure,
people close to the situation stressed that no securities law had been
violated and no client had been harmed by the events that led to his
dismissal." So he was just fired on general principle? Yeah, right. And while we were trying to access Harfouce's FSA record, we had no luck as the now defunct English regulator's website is down. Lovely.

A couple of luminaries share their perspectives on recent developments in the precious metal space. First, we have Jim Rickards sharing his thoughts on what today's Comex margin hike means for trading. And second, and just as important, is Peter Schiff, who grades WB president Robert Zoellick's call for a new gold standards, and its implications for the future. Both are as always insightful and enlightening.

In an exclusive collaboration between Nanex and Zero Hedge, we are pleased to present to our readers the first part of a multi-series project that will demonstrate the flash crashes of 2010, and subsequently, of 2009 and 2008. The concern is that since the number of mini crashes, precipitated in most part by HFT algorithms gone wild, is simply staggering, it is impossible to present all the individual events in one presentation due to size limitations. The reason - there have been 549 "flash crash" events in 2010 to date alone! We dare anyone at the SEC to go through this list and look anyone in the eye and tell them that i) the market is not broken and ii) that High Frequency Trading is not a major scourge to proper and efficiently operating markets. And while we do not want to take away from the recent uproar at ETFs, courtesy of the Kauffman foundation (and its chairman who as we presented earlier has a rather sizable conflict of interest in DST Systems, Inc) none of the presented 549 crashes are ETFs implicated: this is (mostly) all HFT, baby, all the way.

Presented without comment.

A crazy day in the markets closes, and one of the biggest non-market related stories still has no closure. As per the AP, nobody still has any clue what the "missile" sighting was. A suggestion being floated by the Pentagon is that this may have been a "private company." NORAD chimes in: "We can confirm that there is no threat to our nation, and from all indications this was not a launch by a foreign military." In other words, nobody knows nothing.

EUR fell against the USD on Tuesday amid ongoing concerns over the unsustainable debt levels in Ireland and Portugal, which are both due to tap the primary markets on Wednesday. The move lower saw the pair breach the key 76.4% Fibonacci retracement level and also consolidate below 1.3900. Position squaring ahead of the upcoming Quarterly Inflation Report by the BoE on Wednesday, as well as vague market chatter that the central bank may increase its mandated inflation target which currently stands at 2% meant that GBPUSD finished lower on Tuesday. USDJPY finished the session higher on Tuesday amid renewed strength in the USD as investors continued to fret over the implication the latest widening of the peripheral spreads will have on the PIIGS states ability to raise money in the primary markets.

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 09/11/10

Here is how the CME just changed the rules just as the Fed was losing the game. Full new margin schedule attached.

And if that doesn't work, there is always confiscation.

Is the house of cards about to topple? Major moves like these are indicative of something very ugly behind the scenes. Or is QE2 finally priced in? Hey Hilsenrath, it's time for some leaks about QE3.

Are the bond vigilantes stirring?

By now, everyone has heard about the Kauffman report on ETFs, whose sole purposes is to bash exchange traded funds, which if nothing else, are aggressively stealing market share from mutual funds. The report also tangentially makes a claim that HFTs are in fact innocent, and had no role in the flash crash. While ETFs are certainly not without fault, to say the High Frequency Trading is irrelevant for market crash purposes is naive beyond measure. Yet a more salient question is where did the anti-ETF bias arise at Kauffman, and what is the point of this hit piece out of left field. We decided to dig a little deeper, and found the following conflicts of interest.

As Mark Fisher summarized market psychology so well earlier: "parabolic up - parabolic down." The problem for the Fed now is that to kill gold, it will also have to kill stocks, which are trading lower as gold and silver get flushed. As we presented over a month ago, gold and silver are both higher beta short hedges to stocks. As stocks go up, PMs go up more, and vice versa. Alas, silver and gold here are unsustainable for the Fed, which means Bernanke has once again managed to box himself in a corner, as any gold selloff will also presuppose a stock dump. It worked last time around... for about 5 days. Then more than caught up. This time the half life, like every repeated CB intervention, will be that much shorter.

Today's must watch clip comes from Mark Fisher. Key highlights: "QE2 can't end right. Worthless paper after endless paper.... What's good for the equity markets is not necessarily good for the economy. The equity markets are not going to create jobs. If you have a paper bag full of money are you going to go out and hire workers and take risk with healthcare and all these other regulatory restrictions? No, you are going to go ahead and buy high yield, you will buy equities, you will buy risk assets. The fallacy in the whole thing is that you are not going to go ahead and create jobs just by pushing up the market by 20%, 15%. In fact, to some degree by pushing up commodity price to levels that are going to be obscene, which is what is going to happen, you are hurting everybody in mainstream America... If you have all this money coming into the system, and this money stays in the equity and commodity markets, when at some point you take this money out of the system, where is this money going to come out of? Parabolic moves have Parabolic corrections. This is going to end bad. It is not a matter of if, just a matter of when. This is going to be the ultimate bubble, this is going to make 2000 look like a cakewalk. This is going to be the bubble of all bubbles."

Today's $24 Billion 10 Year auction priced at 2.636%, a yield that just like all other auctions recently has moved higher than recent record pricings. Yet not all was well: the Bid To Cover dropped from October's 2.99 to a 9 month low of 2.80, the lowest since February's 2.67. Yet what is arguably the most interesting aspect of the auction was that Indirect participation surged to what appears to be a record high of 56.6%, pushing out the Primary Dealers (34%) and Direct bidders (9.4%). If last night's rocket launch was indeed there to send a message to Asia, it certainly succeeded. And now all the eyes turn to the 30 Year tomorrow, whose yield continues to go higher with every day, as the New York Fed will soon be forced to announce that it will be bidding up the long-end as well or risk losing all control over LT inflation expectations.