Archive - Dec 2010 - Story

At this point it appears Bank of America can't wait for the alleged Assange secret fraud trove to finally be released and put the bank out of its misery: not a week passes without someone suing the bank for gross mortgage fraud. One would almost think that if we had a functioning legal system in which perpetrators of crime, instead of those protesting it, were arrested that BofA may actually be a sell on the f#&^@!g dip. The latest reason why the best job in the world these days is to be BofA's outside counsel, is that as Reuters just reported, Arizona has sued the bank as a result of the latter "consistently misleading consumers about its home loan modification process." Perhaps a greater crime is BofA's consistently misleading the SEC into settling every single case of multi-billion bonus dispersal at or about the time the banks receives a $15 billion taxpayer funded TARP bailout. And while this latest case will also be settled promptly and quietly, to not give some other plaintiffs the idea that such a thing as equitable compensation exists, in the meantime the actual damages sought by Arizona AG Terry Goddard is $25,000 per violation. Ball park estimate of 500,000 of those countrywide (not just Arizona) , and there goes the firm's Christmas Bonus.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 17/12/10

Every massive inventory accumulation.... has an equal and opposite effect on GDP. To all those who snickered at the earlier chart of the BDIY, we recommend you read the following brief blurb from Nordea, whose implications may put everything you have heard about a surge in GDP in Q4 and Q1 (primarily from the Goldman bull brigade) in a slightly different light.

Just headlines for now, but not good for BofA: Per Reuters, the SEC has sent out a new round of subpoenas to Wall St. banks, the agency is aking harder look at securitization process; finally, the SEC is looking at role of 'master servicer' that oversees collateral in pool of loans. And here Brian Moynihan was, hoping this thing would disappear like a silent but deadly fart in the wind.

Does anybody else notice the very close correlation between the Baltic Dry and the stock market/myths of economic recovery? Neither do we. Oddly enough, the BDIY did predict the late August S&P surge by about a month. And incidentally, we are back to early August levels all over again. Just as incidentally, the market was about 15% lower back then. Then again, our advice is to pay no attention to this index which tracks nothing relevant, and has no bearing on the world economy (and certainly not markets) whatsoever. And ignore the data on the Bberg chart: the value of the BDIY as of this morning is 1,999.

After killing the db server, and suffering through domain issues to boot -- we're back up and fully functional. If you have any login problems, let us know: everything should be working. Also, all email should be directed to @zerohedge.org now, NOT zerohedge.com.

Update: We just switched over from the backup server data, which restored all the missing December posts. Unfortunately, it ended up in a loss of all comments since last night. We are confident our readers' sense of expression will not be blunted by this minor glitch.

For all those (all 6 of them) scratching their heads on how to make money daytrading when the Delta One terrorist group is selling vol using Fed funds and taxpayer money by the bushel, and the VIX is about to hit 2010 lows again, here is where all the vol went: the EURUSD has moved from 1.3360 to 1.3160 in just a few hours. This is probably the 5th time in the last 10 days we have seen a 3+ sigma move. The law of connected vessels is working perfectly: no vol in stocks, means all the vol has shifted to those instruments that just happen to be between 250 and 5000 times leveraged. Expect the CME to soon hike margins on all EUR related derivatives. In other news, this will end well, and buy the fucking dip.

Now that all recent bond auctions have settled, and with no further bond
auctions scheduled until the rest of the year, we can look at the final
tally of US total debt: the number - $13,879,785,000,000. This represents a $1.568 trillion increase in total US debt held by the public for 2010, and $4.388 trillion since the collapse of Lehman. This
is in essence the cost to US taxpayers to keep the financial system
solvent, as the US has become the biggest marginal leveraging actor in
the world, with everyone else, notably US consumers, and Europe, doing
all they can to strip as much debt as they possible can. Of course,
since this money does not have to be repaid any time soon, or ever,
nobody seems to mind, especially not the politicians in Washington. As
we have said before, and pro forma for the Obama tax deal, we expect
total debt issuance in 2011 to accelerate once again, and to hit just
under $2 trillion, putting total US debt at the end of next year at
around $16 trillion. We also fully expect the Fed to monetize the bulk
of that issuance. We can't wait to hear the positive spin on this one.

The QQQQ options table below shows what frothy, irrational exuberance in its purest form, truly looks like. The top 10 options traded currently are all calls (and yes, most on the offer side).

The QQQQ options table below shows what frothy, irrational exuberance in its purest form, truly looks like. The top 10 options traded currently are all calls (and yes, most on the offer side).

As Zero Hedge had been claiming for about two weeks now, with volatility in stocks virtually gone due to the fact that nobody trades a market that is nothing more than a policy tool, those chasing vol have had to shift elsewhere, namely FX (the vertigo-inducing EURUSD is one example) and, surprisingly, treasuries. As we speculated, the fact that the world's most "liquid" market can experience 6 sigma shifts in the 2s5s10s butterfly in the span of days (more on that later), is indicative of something very bad developing under the surface. We have a feeling that should stocks continue to be shunned as they have been, and as the MOVE index continues to creep higher, the likelihood of some major wipe out is imminent. It seems that the CME has finally agreed with our line of thinking. Late last night, the CME hiked its margin requirements across pretty much all asset classes. The different options and futures involved in this drastic action were everything from natty, to copper (cough Blythe cough), to palladium, to silver. But most notably the CME both new initial and new maintenance margins on 5,7, 10 and 30 Year IR Swaps, 5,7, 10 and 30 Year Bond Futs, and, of all thing, the 30 Day Fed Fund Futures. If it has gotten so bad that the exchange has to regulate the vol in Fed Funds (the indicator of future inflation), then certainly one or more wheels are about to fall off. As to whether this action will have its typical impact of warding of shorting is unclear. We believe it will merely make fails to delivery increase substantially.

• 2010 in Review (BusinessWeek)
• Ron Paul Appears Poised to Irk the Fed Chief (NYT)
• EMU’s Critics Will Eat Their Words Again (by Klaus Regling, Chief Executive of the European Financial Stability Facility (FT)
• EU Leaders Create Debt-Management Mechanism From 2013 (Bloomberg)
• PBOC's Zhou Indicates Global Turbulence Is Delaying Chinese Move on Rates (Bloomberg)
• Bailout Deal Fails to Quell EU Rifts (WSJ)
• Bullishness now at disturbingly high levels (MarketWatch)
• Banks Urged to Use Profits as a Buffer (FT)

As there is very little trading volume in general these days, and far less non-robotic trading volume, today's trading will likely be defined almost exclusively by Wall Street's option trading brigade. As it is option expiration day, we expect a very rigorous attempt to take out all the pins where the open interest is highest. And courtesy of Sentiment Trader, we could be in for a doozy. Based on his Equity Hedging index, we are at an all time low in terms of his just created proprietary Hedging Activity index. Which means that a record number of people are currently unhedged. Couple this with rumors of one of the highest open interests in existence, and it may get ugly soon. As for forecastability of what this means in terms of returns, it's not pretty: "When the EHI dropped below 20, during the next three months the maximum gain in the S&P 500 averaged +2.5% while the maximum decline averaged -5.9%.  Each time, any short-term upside progress was erased during a swift corrective period at best." Then again, in a bizarro market entirely dominated by the Fed's telegraphing of its equity purchase decisions, we are fairly confident that the predictive prowess of any existing indicator is largely in doubt at a time when none of the traditional market dynamics are even close to being relevant. 

Who would have thought that all it takes to be removed from that holiest of holys, the Goldman conviction buy list is a simple 12% plunge in the stock? Yet after yesterday's Fed decision on debit card interchange fees, Goldman analyst Julio C. Quinteros Jr. has validated precisely this thesis. And for all those who think being on the CL with a Buy rating does much if anything for one's stock, here is the kicker: "Since adding V to the Conviction List on July 9, 2010, the shares are down 13.2% vs. +15% for the S&P 500 (-22.8% and +12.1% over 12 months)." But luckily for those who suffered substantial losses yesterday, little else has changed: "We make no changes to our estimates or price target"... of $93/share. One wonders what happens to the other 50 some Conviction Buy companies (and one sell) should the reality of the massively stimulus-funded rally be exposed. That said, the ZH basket of shorting the firm's conviction buys, and long the conviction sell, proposed a few days back, is working out quite nicely so far.

I tend to harvest the internet for interesting stories on Apple as it has become such a bell weather for the capital markets. On a German forum I found the interesting case of Balda which I thought might be of interest.