Archive - Jul 27, 2010 - Story

Even as Yale's Shiller says he still has no idea where prices are headed, and that he is still worried about the possibility of a double dip recession (no disclosure on how he feels about the ongoing depression), here is Goldman to continue the cold water spillage process, saying that "Case-Shiller home price index rises more than expected in May, due to continued boost from homebuyer tax credit." Don't tell that to the headline reading algos which are now programmed to not only ignore all bad news, but to not read between any lines.

• EUR Libor at Highest in 11 months, hits 0.8275% (Market News)
• Hussman: Betting on a bubble, bracing for a fall (Hussman Funds)
• BP Replaces Hayward, Quickens Asset Sales on Record Loss (Bloomberg)
• Gift From Fed Stops as Profits Shrink at Banks Led by JPMorgan (Bloomberg)
• Paul Farrell: Unless women take control of Wall Street and America, 'The End' is near (MarketWatch)
• Economists Dispute Effect of US Stimulus (FT)
• Chinese Banks Face State Loans Turmoil (FT)
• Forbes: Obama's soft-core socialism (Forbes)
• "Systemic risk" theory gains in stature (WaPo)
• IMF Sees Yuan as Undervalued (WSJ)

• Chinese banks face state loans turmoil; about Rmb1,550B in questionable loans.
• Euro-zone June M3 sees 0.2% rise, private loans up.
• German consumer confidence rose to 3.9 points from 3.6 points in July.
• IMF sees Yuan as undervalued.
• India raises lending rates by 0.25 points to 5.75%.
• Japan to cap spending and new bond issuance for next fiscal year.
• Plosser says weaker data don't yet justify more Fed stimulus.
• Acuity Brands acquires LED Luminaire Company, terms undisclosed.
• Alcon's Q2 profit rises 15% on sales and margin growth. Ups full-year earnings outlook.

Euribor is again spiking by 0.4 bps overnight, from 0.889% yesterday to 0.893% today. In the context of the massive (and insolvent) European banking system, this is yet another indication that all is unwell with Europe's banks, even as the Goebbels brigade goes into overdrive.The interbank lending market does not lie, unlike every single European and American politician. And just to make things worse, the ECB withdrew another E11 billion in liquidity via a reduced 7 Day MRO. From Market News: "The European Central Bank on Tuesday allotted E189.9864 billion in its main seven-day refinancing operation at a fixed rate of 1.0%. The ECB satisfied all of the 151 bids received. Today's operation resulted in a net drain of E11.2996 billion after the ECB allotted E201.286 billion in its 7-day MRO last week."

We have long warned about the collapse in traditional market neutral trading strategies which for the past decade provided a major portion of the moderate market liquidity, and whose participants offset at least to an extent the disastrous influence of the HFT self-fulfilling prophecy that drives fractal momentum to ridiculous levels and whips the market into an irrational, lemming-like frenzy based on microvolatility, until everything snaps. Furthermore, our observations of the deplorable performance of various MN indices and funds, confirms that between liquidations and capital losses, this investment category may be doomed. The second quarter report by the Friedberg Mercantile group confirms this observation: "We continue to experience problems with our equity hedge program, a market-neutral strategy applied to U.S. stocks. For many years a successful program, earning above-average returns that were totally uncorrelated to S&P 500 returns, the program has repeatedly disappointed us in the most recent past, losing money in each of the past five quarters. This persistence of unfavourable outcomes is a totally unique event in the 19-year history of the program... Structural changes such as the proliferation of exchange-traded
funds and super-rapid computer-based bloc trading, activities that are
totally unconcerned with valuation metrics and/or long-term trends, are
still taking place and there is little or no prospect of this
development coming to an early end." There is a massive shift going on behind the scenes in market structure, and it is now far too late for the SEC or really anyone to do anything about it now. We anticipate implied correlation to approach 1 quite soon as every trading day becomes a manic-depressive bout in which the last few remaining traders and algorithms push the market up and down by a thousand points as the market becomes nothing than a sleaazy, unregulated, second rate, back-door Atlantic City illegal gambling parlor with a few stripper poles on the side for the CNBC cheerleaders. The point being anyone who tells you they can predict any movement in stocks now that valuations play no role in asset prices, is a charlatan, an idiot, is selling a subscription to a newsletter, or all three. Full must read Friedberg observations below.

In light of recent bombastic statements by priests of Keynesian fundamentalism that European banking is one big, non-dysfunctional, even healthy family, it would have been the logical thing that the Basel Committee on Banking Supervision would if not tighten terms on proposed Basel III implementation, then at least keep them as is. Why is why news that the recently proposed adjustments to Basel III which not only delayed implementation of the "regulatory" framework by many years, allowing banks sufficient time to blow themselves up under thecurrent regime, but also to soften liquidity requirements of all global banks, is merely an indication that global regulators realize that the last free for all, in which every bank is allowed to steal as much as it possibly can before all hell breaks loose, in many times with as little as a penny in the mythical risk reserve concept known as Tier 1 Capital, levered a few hundred billion times, is finally here. And yes, aside from the fact that even the existing massively lax regulatory rules of Basel II need to be toned down is irrelevant: all European banks are healthydammit, and just like in the US, bank failures will continue until credibility returns.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 27/07/10

A few days ago I posted a video of Larry Summers talking about FinReg on CNBC with Maria Bartiromo. At the time, I was content to simply post the video with some snide remarks about what a devilish doofus and utter cad the man was, leaving it up to the reader to watch the video and see how obviously arbitrary and self-serving his opinionating on the subject was. Alas, it seems that with the clarity of retrospect I see now that I misjudged the psychic value I would derive from leaving the video up without specific comment. It turns out I misjudged my future value system (insert statist/interventionist guffaw here, along with requisite claim that this situation highlights the need for a monopolist regulator who could smooth out market inefficiencies, failures and information asymmetries) and I have no choice (!!, double guffaw) but to present to you now a series of nearly verbatim (I might have blown a preposition or tense here or there) transcripts of The Sleepy One's comments to the Money Hunny, along with my very own color commentary. Let us begin