Archive - May 20, 2013 - Story

Do not panic, but it seems the flood of liquidity and central bank largesse can only do so much. The much-discussed issuance of 10 year Rwanda debt at a 7% yield earlier in the month made more than a few of even the most die-hard momo junkies look up from their 'Buy' keyboards for a brief second. In the past few days, something rather disturbing has occurred in this ultimate arbiter of risk-on demand... Rwanda bonds are selling off... now up 15bps in yield since issuance. Have no fear though as we are sure Abe, Bernanke, or Draghi will be along shortly with a plan to help SME lending in Rwanda... or will promise to do 'whatever it takes' to ensure Rwanda yields are not manipulated by speculators...

Behold the definition of a "revolving door" - Judd Gregg: from US Senator, to Goldman Sachs advisor, to SIFMA head, all in under two years.

We commented as it happened that last night's jawbone-inspired flash-smash in USDJPY which triggered what was evidently a major liquidation in gold and silver at the margin was a buying opportunity for the precious metals and sure enough, gold has recovered all of its losses and silver is close.

"Preservation of Capital," has reached epic seriousness in a world with interest rates at unsustainable lows and underlying economic fundamentals that cannot support today's yields. The irrational game goes on based upon one thing and one thing only which is the creation of capital by all of the world's central banks. The money must go somewhere and so it does but the disconnect between the equity markets and bond yields from the real world is frightening. Nowhere on the planet is it scarier than in Europe.

As has been rumored for months, and known for days, the official purchase of Tumblr by Yahoo is now in the books. For $1.1 billion, Yahoo is the proud owner of a whole lot of user-generated porn sites if not that much (read any) revenue. We cant wait to see how it monetizes them. And in a press release, apparently aimed squarely at hipsters, Yahoo promises "not to screw it up." It's cool to be hip and edgy: surely it's worth at least 15% in stock premium. As for profits... ah, it's an Amazon world after all.

In the absence of major data releases, the focal point of the week for markets becomes the release of the minutes of the May FOMC meeting. The most notable change in the statement was the inclusion of the new language: “the Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.” In the May meeting minutes, the market will be looking for any clarification of the motivation behind this change as well as any evidence that the committee members may be becoming less comfortable with the unemployment rate threshold or more specific about tapering timelines and dates.

• Obama's Counsel Was Told of IRS Audit Findings Weeks Ago (WSJ)
• North Korea fires sixth missile in three days (Reuters)
• Enron No Lesson to Traders as EU Probes Oil-Price Manipulation (BBG)
• Don't cry for me, Eurozone: Thinking the Unthinkable - Quitting a Currency (WSJ)
• H-1B Models Strut Into U.S. as Programmers Pray for Help (BBG)
• Gold Bear Bets Reach Record as Soros Cuts Holdings (BBG)
• Yahoo has agreed to pay $1.1 billion for Tumblr (WSJ)
• JPMorgan Holders Led by Chairmen-CEOs to Vote on Dimon (BBG)
• Apple faces grilling over US tax rate (FT)
• Nissan to Sell First Joint Minicar to Expand in Japan Market (BBG)
• Fierce battle for corporate loans sparks US bank risk concerns (FT)
• Microsoft Updates Xbox as Apple to Facebook Gain in Games (BBG)

The longest ongoing government "sting" operation against a hedge fund, possibly in all of history, that which absolutely everyone has known about for years now i.e., against Steve Cohen's SAC and its Bernie Madoff-esque series of profitable years (at least until recently that is, when "expert networks" no longer accept any calls originating out of Connecticut or New York), may be coming to an end, following what the WSJ reports may be an imminent filing of criminal charges against the hedge fund. "U.S. prosecutors are considering possible criminal charges against SAC Capital Advisors LP as a result of the government's insider-trading investigation of the hedge-fund firm, according to people familiar with the matter.  It isn't clear what led prosecutors to warn the Stamford, Conn., hedge-fund operator that it could be charged criminally. But the move is the strongest sign yet that prosecutors and the Federal Bureau of Investigation are trying to ratchet up the pressure as a five-year deadline looms to file the most serious charges related to trading that allegedly involved Mr. Cohen."

A quiet day unfolding with just Chicago Fed permadove on the wires today at 1pm, following some early pre-Japan market fireworks in the USDJPY and the silver complex, where a cascade of USDJPY margin calls, sent silver to its lowest in years as someone got carted out feet first following a forced liquidation. This however did not stop the Friday ramp higher in the USDJPY from sending the Nikkei225, in a delayed response, to a level surpassing the Dow Jones Industrial Average for the first time in years. Quiet, however, may be just how the traders at 72 Cummings Point Road like it just in case they can hear the paddy wagons approach, following news that things between the government and SAC Capital are turning from bad to worse and that Stevie Cohen, responsible for up to 10-15% of daily NYSE volume, may be testifying before a grand jury soon. The news itself sent S&P futures briefly lower when it hit last night, showing just how influential the CT hedge fund is for overall market liquidity in a world in which the bulk of market "volume" is algos collecting liquidity rebates and churning liquid stocks back and forth to one another.