Archive - Apr 19, 2011 - Story

The NYSE has released its monthly margin debt update for March. Not surprisingly, with everyone, and yes EVERYONE, chasing nothing but levered beta, margin debt surged to a fresh 3 year high at $315.7 billion, the highest since February 2008. But far more troubling is that when netting out positive margin balances such as Free Credit Cash Accounts and Credit Balances in Margin Accounts, the investor net worth, or alternatively net leverage, as it is defined, plunged by $18.2 billion to ($75.2) billion. This is the second highest net leverage ever seen on on the NYSE, only lower compared to the $79 billion hit at the absolute peak of the credit bubble in June 2007. We all know what followed after. Ironically, when this kind of mass hysteria happens in commodities the CME can't wait to hike margins to cool those evil, evil speculators. It is only natural that the Globex will hike ES margins in 5....4....3.....

Gold futures just passed $1,500. Nobody could have possibly seen this coming (certainly not the shorts). Time for CNBC to break out the "$1,500" hats.

Exactly one week ago, we commented on what many said was a "strong" 3 Year auction primarily courtesy of a 57.4% primary dealer takedown. We also said: "Keep an eye on CUSIP QC7: it will be the most monetized 3 year paper by the Fed over the next 2 weeks." Today was the first POMO operation since last week's auction focusing on 3 year paper. We present the results of the $6.678 billion POMO below. They, and the 28% flip of the entire PD take down, speak for themselves. Bottom line - not so covert monetization continues in broad daylight, with Primary Dealers naturally getting their tip value for allowing the ponzi to continue, as everyone else praises the low interest rates on Treasurys, and says just how easy it will be for the Treasury to find Treasury buyers once Qe2 is over. One thing is certain: had PDs known they would have to hold on to these bonds instead of just collecting a hefty fee for flipping them back to the Fed, they would still have submitted bid...at far higher interest rates.

Following two revolutions, one civil war, a massive earthquake, a tsunami and a nuclear catastrophe, the world now appears to be a oblivious to geopolitical news of any nature. And yet geopolitics continue to matter. The latest example comes from Bahrain where The National reports that "there is no state of emergency in Bahrain, the nation's foreign minister said yesterday, but rather a "national safety situation" due to interference from Iran." Well, with Saudi troops and the US 5th fleet solidly still landed in the kingdom, it appears that this is nothing but another preemption of a Wag the Dog type scenario. "Khalid bin Ahmed al Khalifa told reporters on the sidelines of an anti-piracy conference in Dubai that the Gulf Peninsula Shield Force was needed to counter Iran's effect on his country." And just in case it was unclear how much of a "threat" Iran is, he added: "We have never seen a sustained campaign from Iran on Bahrain and the Gulf like we've seen in the last two months." Naturally, Iran was delighted to be blamed for what is a crackdown by the Bahrain government against its own people: "Meanwhile, Iran's foreign ministry has said the allegations of interference in Bahrain, where Shiites form the majority, targeted "Muslim unity", according to the state television website." In the meantime Brent continues trading at a price, and will continue trading at a price, that continues to take out several percentage points from US and European GDP. But this is so obvious it will take Hatzius at least a few more weeks before he downgrades his full year outlook.

Another day, another set of prepared remarks on deficit reduction, another lesson in the proper grammatical usage of the future tense from the president. Watch it live here.

This is what our equity markets are starting to become. Nobody is willing to display orders when an OTC market maker can simply match their price or beat it by a few sub-pennies at the moment their order is about to be executed. As more and more displayed liquidity providers become discouraged from this lack of execution, they place less passive limit orders. With less passive limit orders we become susceptible to liquidity crises like we had on May 6th. So perhaps we shouldn't jump at the conclusion that the trade-at rule would harm the retail investor. Perhaps the hurdles to impose such a rule aren't as high as some commenters (with serious conflicts of interest) would like us to believe. Perhaps we should explore this rule that would give execution priority back to the NBBO, putting it on a first-come, first-served basis. I always thought auctions worked best when the item went to a participant who actually participated in the auction. Is that really bad for the retail investor?

Just to set the record straight following various spurious and less than credible reports floated in the peripheral media this morning, El-Erian sets the record straight on a Bloomberg radio interview.

• Pimco's El-Erian says Pimco not buying US treasuries

So simple pretty much a caveman can understand it.

Nobody could have expected this. Certainly not the 112 hedge funds which hold GM stock on expectations the government, the Fed and GETCO would never let "that company" plunge this far. Next up: a congressional hearing for GETCO regarding charges of ponzi maintenance dereliction. As for the much touted "breakeven" on GM by the US government, the WSJ summarizes it best: "To break even, the U.S. Treasury would need to sell its remaining
stake—about 500 million shares—at $53 apiece. GM closed off 27 cents a
share at $29.97 in 4 p.m. trading Monday on the New York Stock Exchange,
hitting a new low since its $33-a-share November initial public
offering." Good luck with that: not even State Street can institute a short squeeze of such epic proportions.

Feeling like the daily dose of objective "truth" from Tim Geithner's latest media circuit has got you down? Fear not: here is MarketWatch's Paul Farrell summarizing the 10 ways in which the very system is destroying America, to lift your spirits up. To wit: "Doomsday Capitalism? Capitalism is killing America? Yes, that’s the message in my tenth book. “Doomsday Capitalism, 10 Self-Destructive Trends.” But you’ll never see it in print. No one, even book publishers want to read this truth: Capitalism is destroying America. Why? Super-Rich Capitalists get rich off these macro trends. They want happy talk. Back in 2007 Vanguard founder Jack Bogle called my warnings “prescient.” But that didn’t stop the meltdown. Next time financial historians warn of a bigger meltdown; a total collapse has been the destiny of every nation for eight centuries. This time, capitalism is the saboteur." Cheerful stuff.

To put it simply, America is nearing a checkmate scenario. Like the final torrid maneuvers of a rigged chess match, we have been pressed, manipulated, and attacked into the last remaining corner of the “grand global chessboard” left to us; centralized control of all social and economic power into the hands of an unworthy elite. If we continue playing the game by their rules, we will lose. There is no doubt. There have been many solutions presented to us in the past to combat this development, but nearly all of them function within the constraints of Federal politics. Working within the system has earned us no quarter, and frankly, no results. Our only recourse (and, frankly, the best recourse all along) is to STOP relying on the rules of their game, and to walk away from the chess board completely. Globalization is essentially just another word for centralization, and the key to centralizing any system is to remove all options until the masses are completely and utterly dependent upon a single dominant paradigm. Globalists have deceived many Americans into believing that centralization is a “natural” process - that their game is indeed the only one in town. The widespread acceptance of the fiat monetary system is a perfect example of the average person’s unfortunate lack of economic flexibility. Only recently, in the face of dollar devaluation and complete financial collapse have many finally begun to question the legitimacy of a single brittle and corrupt economic structure. American politics are no different.

Following last month's second lowest housing starts number ever of 479,000, March came at 549K, on expectations of 520K. Incidentally last month's number was revised to 512K from 479K. This likely accounts for what many have attributed to a weather related plunge in starts. The biggest swing factor in the March number was in units started at 5 units or more, which came at 117 or about 15% higher than February's 102. On the other side of the starts number was the housing completions, which at 509K was the lowest number ever, even worse than January's 510. Of note is the completions number in one unit structures which came at what is probably a record low 374k. But since nobody cares about the actual final outcome, and merely about the first dig, Housing Permits came at 594K on expectations of 540K. Once again this number was rescued by multi-unit housing, as the structures with 5 units or more came in at 173k compared to 135k previously, and was the highest number in over a year. Anything to fudge the number.

• Bernanke May Sustain Stimulus to Avoid ‘Cold Turkey’ End to Aid (Bloomberg) -  a plan that will be woefully insufficient as discussed extensively before
• Asia voices confidence in U.S. debt after S&P jolt (Reuters)
• Americans Shun Cheapest Homes in 40 Years as Owning Loses Appeal (Bloomberg)
• Funds accuse banks of Libor manipulation (FT)
• Deutsche Bank’s $4 Billion Las Vegas Bet (NYT)
• Obama Embarks on Tour to Sell Debt Plan, Not Dwell on S&P (Bloomberg)
• Greek bond fears intensify debt debate (FT)
• With much at stake, Asia voices confidence in US debt after S&P jolt (Reuters)
• Deutsche Bank Algo Cribs HFT Strategies (Traders Magazine)

Goldman has released earnings which appear to be substantially better than Street forecasts of $0.81 in EPS and $10.21 billion in revenue. The firm reported earnings of $1.56 (though this is still a sizable drom from the $5.59 a year earlier. Revenues came at $11.894 billion beating expectations but less than the $12.775 billion a year prior. The GS EPS was impacted by $1.64 billion in Berkshire dividend related charges, absent which EPS would have been $4.38. Goldman reported $5.233 billion in operating expenses, on total staff of 35,400 (a drop of 300 from last quarter). Annualizing the firm's Compensation and benefits line of $5,233 implies Goldman is runrating to pay its employees an average of $591,299/employee. Lastly, and perhaps just as importantly, the bank notes it lowered its total VaR from 120 to 113 sequentially (and down from 161 a year prior). Equity VaR in particular was curious as it plunged by nearly half from a year earlier: from 88 to 49. Oddly, as most other banks are relevering their risk taking activities, Goldman is actively curbing them.

A surprise out of the Bank Of Canada, which just announced that despite expectations for CPI coming at a modest 0.6% and 0.2% for the core, inflation was a blistering 1.1%, and 0.7% ex-non core items. Has the inflation genie finally come out of the bottle in the northern neighbor? While Goldman attempts to talk down this "ugly report", attributing the spike to a short-lived commodity spike (that's that temporary word again), the currency market was not as easily fooled: USDCAD moved a good 50 pips from 0.963 to 0.958 in seconds, giving the dollar another push in the race to the global currency bottom.