Archive - Sep 2010 - Story

The company that determines the market, AAPL, by accounting for 20% of Nasdaq weighing, just gave the nearly 200 hedge fund managers who own it a heart attack. While the early swoon in the stock by $15 is not (yet) attributed to some fat finger, or flash crash, the move wiped out billions in market cap. The reason, according to FOTW, is that the COO may move to HPQ (up 2% on the day), or some such narrative which seeks to explain why the world's most overvalued company may dare to have a down day. Either way, this has now solidly broken the +/- 2 std dev upchannel seen for pretty much one full month. The entire market is now down as a result of one stock being responsible for overall direction and momentum. The issue is that who knows how many HFTs are now underwater on their daily cost averaging in the name, which may potentially spark a material selloff. Watch for comparable action in the four horsemen of the tech apocalypse: AMZN, NFLX and BIDU.

All is fair in love and central bank war. Which is why we see the following headlines from England, showing just how important it is in the global game theory, which has now turned to outright war, how important it is to defect first.

• BOE's Posen: I think further monetary easing should be undertaken in UK, subject to debate
• BOE's Posen: If QE does not work, then time for further fiscal stimulus, corporate debt purchases
• BOE's Posen: Additional monetary stimulus should begin in the form of addition QE gilt buying

As argued over the past few weeks and first introduced in my piece "Catfight: it's on!" central banks are now engaged in modern monetary warfare. This was acknowledged just about that bluntly by the Brazilian central bank yesterday. There are two ways to play the game. The Swiss way, meaning traders front-run the central bank when their favorite FX dealer tells them the SNB is checking offers in EURCHF at which point you buy ahead of them and sell 2 hours later, leaving sell stops below the indicated support level the SNB is defending to get short when they give up. That's the easy one. What will the BCB be like? Should people buy 1.7050 banking on them being tenacious and waiting for a return of risk aversion to squeeze the shorts? Should they leave stop sells at 1.6900 to get short on a break? Probably a bit of both. As for the BOJ I reiterate my conviction that it should not be messed with at this point and I would much rather play alongside their bid. Indeed they have not only committed to an open period of intervention and have quite a few bullets left, but more importantly they have not sterilized their interventions. That to me means business: they print and they buy, they make the rules, don't challenge them under those conditions. In that environment, my belief is that relative monetary policies will drive FX moves. Currently there is 98% dollar bears based on the assumption the Fed will print at will. That to me is a simplistic view and I will be looking for mispricing to take the other side of the bet. The reason is that this argument does not factor in what other central banks are doing. Sellers beware: there is more to the picture than just selling the USD to play the Fed. I will send out a detailed analysis of my findings as I make progress in this domain. - Nic Lenoir

July's three month backward looking, and thus irrelevant, Case Shiller Composite-20 index came at 147.81 SA (0.3% increase), and 148.91 NSA (up 0.6%). The Y/Y change was 3.18%, in line with expectations of 3.10%. From the report: "Data through July 2010, released today by Standard & Poor’s for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, show that the annual growth rates in 16 of the 20 MSAs and the 10- and 20-City Composites slowed in July compared to June 2010. The 10-City Composite is up 4.1% and the 20-City Composite is up 3.2% from where they were in July 2009. For June they were reported as +5.0% and +4.2%, respectively. Although home prices increased in most markets in July versus June, 15 MSAs and both Composites saw these monthly rates moderate in July." The Y/Y rate of change has now peaked and is declining: last month the change was revised to 4.21%, and as the chart below shows, there is only downside in store. And from the report: "While we could still see some residual support from the homebuyers’ tax credit, which covers purchases closing through September 30th, anyone looking for home price to return to the lofty 2005-2006 might be disappointed."

Some very troubling observations from Bill Gross. In summary: "What the U.S. economy needs to do in order to return to the “old” normal is to recreate nominal GDP growth of 5%, the majority of which likely comes from inflation. Inflation is the classic “coin shaving” technique of government since the Roman Empire. In modern parlance, you print money faster than required, pray that the private sector will spend it to generate investment and consumption, and then worry about the consequences in a later decade. Ditto for deficits and fiscal policy. It’s that prayer, however, which the financial markets are now doubting, resembling circumstances which in part are reminiscent of the lost decades in Japan since the early 1990s. If the private sector – through undue caution and braking demographic influences –refuses to take the bait, the reflationary trap will never snap shut. Investors will likely not know whether the mouse has grabbed for the cheese for several years forward...The most likely consequence of stimulative government policies that strain to get us there will be a declining dollar and a lower standard of living. Stan Druckenmiller is leaving, and with good reason. A future of low investment returns, and a heap of trouble for those expecting more, is what lies ahead."

• Anglo Irish Cost May Exceed 35 Billion Euros, S&P Says (Bloomberg)
• Ireland, Portugal Stir European Fears (WSJ)
• Mundell Says U.S. Action on Yuan Rate Would Be a 'Disaster' (Bloomberg)
• Ambrose Evans-Pritchard: Shut Down the Fed, Part II (Telegraph)
• Is the Fed Mulling 'Qualitative' Easing? (Barrons)
• Have no fear - the next leg up in US GDP and the stock market comes in June 2011: Apple May Unveil Next iPad by June 2011, Goldman Says (Bloomberg), in other news, Apple fanatics may delay purchase by a few weeks to get next, next iPad
• China, Japan Take New Jabs at Each Other (WSJ)
• Medvedev Fires Moscow Mayor, icon Yuri Luzhkov (WSJ)
• Kan Asks to Meet Wen in Belgium to Repair Strained China Ties (Bloomberg) Kyodo denies
• Kudlow: TARP II: Banks and Business Don't Want It (RCM)

• ADB raises Asia ex-Japan growth f'cast for this year to 8.2% vs. July view of 7.9%.
• ADB says Asia must refrain from tightening 'too quickly'.
• Asian stocks fall on European debt concerns, Metal prices drops.
• Fed weighs a more open-ended, smaller-scale bond purchase program.
• German consumer confidence f'casts 4.9 pts for Oct, a rise from rev 4.3 pts in Sept.
• AIG's Asian unit gauges demand for its Hong Kong listing; plans to raise $10-15B.
• China Airlines plead guilty to fixing prices on air-cargo shipments, pay $40M fine.
• Exelon Corp. to sell $900M of debt to fund its purchase of a Deere's wind-power unit.

Key events dominating today are Case Shiller, Confidence (both Conference Board and ABC) and Richmond Fed.

RANsquawk European Morning Briefing - Stocks, Bonds, FX – 28/09/10

Just because it was less than half a year ago, and just because it is certain to occur again, and just because so many have already forgotten what that "end of the world" feeling was like and are back to collecting pennies in front of an out of control rollercoaster, here is, once again, the historic CNBC footage from May 6, in the minutes leading to the 1,000 point drop on the Dow Jones, when the Fed lost all control. Hopefully this will remind all those who are supposed to fix the market, yet continue to merely enforce the interests of those who brought the market to this pathetic state, just how many tens of trillions of dollars are at stake.

The following is Part I to David DeGraw’s new book, “The Road Through 2012: Revolution or World War III.” This is the second installment to a new seven-part series that we will be posting throughout the next few weeks. You can read the introduction to the book here. To be notified via email of new postings from this series, subscribe here.

Our friends at Nanex have completed a full forensic analysis of the flash crash, on a tick for tick basis, between the fateful times of 14:42pm and 14:52pm on May 6. Under permission directly from Nanex, we present to you a fascinating and fully interactive chart, which is the bast to date analysis of everything that transpired during the flash crash. On the chart below (after the jump), every underlined component is a hyperlinked module with extensive detail associated to any one individual fragment of the flash crash. As Nanex, demonstrates, the key catalysts commence at 14:42:43.600 with a bout of quote saturation, move on promptly to heavy selling in the ES, and concludes at 14:42:44.100 with heavy selling of the SPY, QQQQ and all ETFs immediately following. It is all downhill from there.

Barry Ritholtz is once again in Zero Hedge-marketing mode, which is probably not too surprising: this marks only the second time in under a week in which Mr. Ritholtz has exhibited a fascination with Zero Hedge, previously demonstrating a borderline obsession by actually scouring through tweet mentions of our humble blog. And humble we are - we have paid Barry exactly zero for this ongoing free advertising fest. That said, we are confident Barry will be happy with us reposting his entire post for our readers because he does bring up some valid questions, to which we provide our own brief perspective.

Well, if there is anything the SEC is actually capable of doing, it is to market its worthless and corrupt old self. According to Reuters "the upcoming flash crash report will show that regulators have a "very deep understanding" of the marketplace, giving the public a measure of confidence, the head of the U.S. Securities and Exchange Commission said on Monday. "It will paint a very clear picture of how the markets operated on that day," SEC Chairman Mary Schapiro said in an interview, adding she expects regulators will issue the report "in the next several days." Well thank fucking god that the regulators will at least have an "understanding" of how $1.5 trillion in market cap was lost in the span of 15 seconds, and was immediately found again, courtesy of the New York Fed, and that we will once and for all know that HFT is nothing but a ravenous cancer deeply embedded in everything market related, that should have been chemo'ed years ago, when that hyperventilating fringe blog started discussing it (luckily, in less than 100 paragraph rambling and somnolent streams of consciousness). But no, the SEC decided to wait until 20 weeks of fund outflows have put a nail in the coffin of investor confidence. And, by the way, the SEC report will do absolutely nothing to change the public's perception of the market, as nothing at all will change. Because if it did, it would cause roughly $50 billion in annual revenue to evaporate, and the market lobby will simply not allow that. On the other hand, hanging HFT out to dry, will confirm that the SEC actually had a very "non-existent" understanding of the marketplace, for allowing HFT encroachment for so long. In retrospect, we take that back. The only thing the SEC can do to begin the act of restoring confidence in the marketplace is for everyone at the world's most worthless organization, from Mary Schapiro to the lowliest analyst, to hand in their resignation effective 2 years ago, when the greatest experiment in market manipulation began in earnest.

Sources in the Gulf region report that Iran is preparing for a possible attack by Israel and/or the United States on one or more of its nuclear production units by stockpiling arms and munitions with its proxy militias in Kuwait and Bahrain. This comes as Bahrain arrests 23 opposition leaders accused of terrorism offenses and hints that Iran is behind an alleged plot to overthrow the government. Bahrain's attempted coup reports should be taken seriously, as Iran knows that its best chance of fighting the US and/or Israel is by proxy. Hitting Bahrain hard would greatly upset the overall security situation in the Middle East and Gulf region.