Archive - 2011 - Story

While Netflix has quite often been in the news these days, typically in connection with some spurious take out rumor or another, most likely spread by infamous flip flopping longs largely underwater on the name, there could be other, more sinister news lurking underneath the surface. As Disclosure Insight, an organization that among other activities submits FOIA requests to various regulators and compiles the data to expose companies that may have undisclosed regulatory proceedings against them, the SEC just may be investigating the fallen from grace and zero barrier of entry video steaming company (for which the imminent USPS bankruptcy will be merely the finally nail in the coffin).

As noted two weeks ago when predicting the efficiency and duration of the latest global coordinated USD liquidity injection, we had a sinking feeling the Fed action would have a very brief time span. Sure enough, judging by the action in two critical FX liquidity indicators - the 3M and 1 Y basis swap indicators, the dollar shortage is baaaaack... only this time, very paradoxically, with implied infinite backstopping from the Fed: if even that factor no longer has an influence on the market's perception of liquidity risk we are in very deep trouble. Which of course is to be expected: the gross synthetic dollar short back in 2007 was $6.5 trillion. Add a few years of ZIRP to this, where the USD is also the funding currency of the world, and one can see why the global USD short position currently is in the double digit trillions. So just how will the Fed backstop $10+ trillion in explicit USD shorts? We can't wait to find out.

It is only December 14th. We are all so exhausted it may feel later than that, but the reality is it is only December 14th. The market is providing liquidity like it is 3 pm on December 31st. So no, it is not normal. It also seems that the new spread is adopted by all the dealers. As far as I can tell, there is no entrepreneurial trader out there trying to make a name for him or herself by providing tighter execution levels. That would be typical. So no, this isn’t a normal behavior for this time of year. If CDX Indices were cleared, or better yet, exchange traded, they could continue to trade with tight bid/offer spreads. S&P futures continue to trade actively and e-minis had an exceptionally busy day yesterday. It is at times like this, that the failure to get CDX indices on exchanges (or even properly cleared) is most felt by the market.

• A well-received Schatz auction from Germany rendered support to Bund futures
• ECB allotted USD 5.122bln in its 7-day USD operation - a much higher allotment than usual
• ECB's Weidmann said Bundesbank is only willing to provide fresh funds to the IMF if conditions on other countries' involvement are met, adding that losing AAA rating is not the end of the world
• Market talk that S&P may downgrade France, however the talk remains unconfirmed

• Austrian Banks Face Hungary ‘Debt Slave’ Revolt (Bloomberg)
• Steve Cohen calls insider trading rules "vague" (Reuters)
• ‘Haircut’ dispute risks delaying Greek rescue (FT)
• Reid Says He Will Block Republican Tax Cut (Bloomberg)
• Bernanke Signals Europe Risk Keeps Fed Ready to Ease Further (Bloomberg)
• Euro Crisis Shows Dutch Converge With Germany (Bloomberg)
• Obama raises stakes over $200bn stimulus renewal (FT)
• EU treaty hopes come under strain (FT)
• Beijing urged to bolster house sales (FT)

As has been demonstrated time and time again, anyone wishing to make money should allign themselves with Goldman's flow desk, which by definition does the opposite of what Goldman's clients are doing. The most recent indication of this came last Friday when Goldman told clients to sell buy European banks to entertaining results. Today, we get the latest Stolpering, following Goldman's all too glaringly obvious initiaition of Groupon with a "buy" and a $29 price target. From the reprt: "We are initiating coverage on Groupon with a Buy rating and a $29 12-month target. We view Groupon as the key to unlocking the massive local advertising market with which the Internet has long struggled. We believe the size of the addressable market (conservatively the $100 bn local advertising market, but potentially over $10 trillion in global advertising, goods, and services markets), new business models like Groupon Now! in mobile, and the advantages of scale more than offset the considerable risks from competition, margin pressure, and deal fatigue." That's sufficient, we get it...

And so the inevitable has happened: the European currency finally fell below that strange attrractor level of 1.3000 following an Italian 5 year auction that despite the "technical" clarification that it would be of Off The Run bonds, still ended up being the highest rate ever paid for a 5 Year piece of Italian paper. As Reuters explains, the euro slipped versus the dollar on Wednesday after Italy paid a euro era record yield of 6.47 percent to sell five-year debt, adding to concerns that an EU summit last week had made little progress in tackling the region's debt crisis. More: "Italy paid a euro era record yield of 6.47 percent to sell five-year paper at its first auction of longer-term debt after the EU moved towards greater fiscal integration at last week's summit, but failed to convince markets it can solve the debt crisis. The average yield at Wednesday's sale compares with an auction rate of 6.29 percent Italy paid a month ago, which was also a euro lifetime record high. Rome sold 3 billion euros of the Sept. 2016 BTP bond, the top of an unusually small range of 2 billion to 3 billion euros for the sale. Italy has trimmed the size of its auctions in reaction to market pressure but it will have to step up issuance in coming months if it is to meet a gross funding goal of around 440 billion euros next year." And result: EURUSD < 1.3000 which means bad things for the record high correlated stock market... and the Christmas Rally.

It is often useful to learn from one's mistakes, or in some cases from one's successes, and as they prepare for their 2012 Blueprint, Deutsche's FX research team focuses in on lessons they learned from the travails of an asset class that was at times chaotic and at others baffling in its stagnation. Digressing from the high levels of uncertainty accompanied by strange periods of low volatility to a recognition that emerging markets did not decouple and there are no more safe havens, the five key insights offer practical views on what worked and what didn't and critically going forward to focus on the flows emanating from the Euro-zone as opposed to monetary policy.

We in the United States have lived free from a tyrannical government for over two hundred years. It becomes easy, therefore, to succumb to the notion that government is benevolent and can do us no harm. But the founders of our nation knew otherwise, as do millions of people today who have come here from countries that do not have our basic freedoms. It is easy to slide insidiously into repression. Just ask Jews who lived in Germany in the early 1930s. Over the years, novelists have warned of the consequences of an expanded and centralized government. Dystopian novels like Alduos Huxley’s Brave New World, Fahrenheit 451 by Ray Bradbury and A Clockwork Orange by Anthony Burgess, among others, have dealt with a future in which dehumanized people led lives fearful of an all-knowing and all-powerful government. Technology and surveillance systems today have rendered such possibilities as probabilities. The fear of terrorism has made us more willing to tolerate increased government intrusion. Predator drones attack our enemies without putting our soldiers at physical risk, seemingly inconsistent with their job description. There is no halting technological development, nor should there be. Nevertheless, the risk of an unscrupulous person gaining power exists. Our democracy is based on a system of checks and balances. However, since 1933, the executive branch of our government has assumed increasing powers – today manifested in the 38 “czars” working in the Obama Administration – 33 of whom function without Senate confirmation. In the wake of Communism in Russia and Nazis in Germany, Sinclair Lewis titled his 1935 novel, It Can’t Happen Here. So far it hasn’t, but that is no reason to let down our guard.

In what can only be described as completely unsurprising, Larry Yun of the National Association of Realtors (NAR) has admitted, according to CNNMoney, that maybe possibly they overstated, purely by accident, the number of existing homes sales statistic that has formed the cornerstone of his constant corner-turning commentary over the past few years. We have unequivocally challenged the Ph.D.'s claims as fudged and fabricated this year and even the Wall Street Journal, back in February of 2011, saw 'challenges' in the NAR's data when compared to other unbiased sources of the same reality. We can only assume that when Yun explains, in true Baghdad-Bob-style, the adjustments (when they are released on December 21st) that they will be either a signal that the bottom is in for home sales or that from such a low base, things can only get better. From our perspective, the NAR data remain irrelevant and untrustworthy with the CoreLogic data seemingly always less naturally biased to an organization desperate for a foothold on the glimmering slope back to the American Dream. Yun emphasized that the revisions will have no impact on consumers because median home price data will not be revised - all good then!

Today, in advance of their sworn testimony, each witness to the Senate Agricultural Committee's MF Global hearing was requested to disclose what their prepared remarks would be. Sure enough, CME executive chairman Terry Duffy did that, and his prepared testimony can be found here. In and of itself there was nothing unexpected about said speech, the relevant section of which has been transcribed below. Where things got very ugly for Corzine, is when Duffy literally veered from the script, and added three unexpected sentences, catching everyone in the committee off guard (including those who had given up on the testimony which came just after Corzine's) and which according to most news wires could have buried Corzine's defense strategy, exposing him for a liar under oath, and potentially costing him his freedom. The video of the relevant 2 minutes is attached below.

Derivatives, unlike stocks where the equation has always been murky, are for the most part zero-sum products: one's gain is someone else's loss (net of commissions) unless of course the entire system collapses in a daisylinked chain reaction (think AIG). And MF Global's bankruptcy, by dint of being a derivatives broker, and the resulting massive losses to both shareholders and clients, means that some entity, on the other side of all these failed bets, made off like a bandit. Which bring us to a rather disturbing theory proposed by Walter Burien of CAFR1.com who has floated the rather the chilling idea, and what some may call an outright conspiracy theory, that by scuttling MF, Corzine effectively helped some shell company (or companies) which were controlled by a "cabal" of his closest confidants (we will let readers come up with their own theories who the former CEO of Goldman Sachs may have been close with) to make the offsetting profit that resulted from the accelerated and massive losses borne by MF's stakeholders in the vicious liquidation. As Burien says: "A government and media cover up would just focus on MFG's loss. A true and open investigation would be focused on "who" took the other side of the coin; the profit." And now that we know that Corzine allegedly lied to the Senate, just how much deeper does his transgression go, and did his really hand over the company on a silver platter to some anonymous "Hold Co" by taking on massive risks he knew were going to blow up in his face, albeit knowing the "other" side of the trade would compensate him for it? After all, Corzine's legacy may have been forever tarnished, but if there was one thing the man knew after all those mostly successful years at Goldman, it was risk. So did he really blow up MF on a idiotic risk miscalculation bet within two years of joining, purely by mistake, or is there something more?

Earlier today, DoubleLine's Jeff Gundlach's held another of his comprehensive overview webcasts, which unfortunately we missed due to the excitement in the Senate Ag Committee where Duffy "let one slip", however for the benefit of our readers we wanted to share the complete 72 page presentation as it covers diverse and critical topics in every aspect of the domestic and global economy.

Following another boring day of hemming and hewing, during which Corzine repeatedly exhibited unbearable amnesia and said he had no knowledge of virtually anything until Sunday night, here comes the CME Executive Chairman Terry Duffy, under oath, with what Roberts said "is a bomb" statement which basically says that Corzine lied under oath. Specifically, according to Duffy's remarks during the Q&A, an MF Global employee, a woman, advised the CME that Corzine had been aware of a $175 million loan made to Euro affiliates just days prior to the bankruptcy: a loan which effectively was that of commingled customer accounts, and more importantly a refutation of previous statement under oath by the man who was "financial advisor" to none other than the vice president of the United States who said he did not know about this until late on Sunday. This was not in his prepared testimony. What was is that "Transfers of customer funds for the benefit of the firm constitute serious violations of our rules and of the Commodity Exchange Act." And now we know that according to the Chairman of the CME, the MF Global head lied about the timing of the disclosure. And where it gets worse, is that MF Global was well aware of this, it told the CME to it knew about the segregated account money, and most importantly, it told the CME to stop looking for the segregated account money! Because being the firm of Obama's handler apparently makes you equivalent with the law.

Continue watching the hearing here as it is i) getting interesting and ii) the first perp walk of an ex-Goldman criminal may finally be approaching - link