September 16th, 2011
Whether it is due to the general investing public finally realizing that the market is neither fair nor efficient, that the scales are tipped against the common man from the moment the 'Buy' (or, more rarely, 'Short') button is pressed, or that as the past two years have shown the market is dominated by insider trading, "expert networks" and big legacy investors surviving only due to the government's intervention on their behalf at critical times, is unknown, but Finra is now officially and finally drowning in a barrage of complaints about market manipulation. And to be sure such glaring reminders as 30 year-old UBS traders being singlehandedly responsible (of course, nobody noticed anything over the months and months of creeping illegal trades) for massive cumulative losses that amount to more than the entire net income for the bank (an odd and convenient scapegoat that), will surely not make Finra's life any easier. As Reuters reports: "A Wall Street regulator said industry complaints about market manipulation and trade reporting have spiked this year, raising questions about the adequacy of banks' internal controls over their traders. FINRA has received complaints this year about banks' audit systems, canceled orders, and brokers misrepresenting whether orders were on behalf of customers. "These are areas that for a long time we were not receiving complaints in, and all of a sudden this past year it's really spiked up," DeMaio, senior vice president in FINRA's market regulation unit, told a FIA options industry conference." That's great: so US investors can sleep soundly knowing full well fiascoes such as UBS' Delta One implosion will be confined to the UK (where, incidentally, the director of market at the local regulator, FSA, just resigned - it is unclear if he will follow a recent previous FSA departure straight into the willing clutches of such a non-market manipulative entity as JP Morgan), and that manipulation is being rooted out in the US at its core at a brisk pace.
Geithner gets smacked down, and Germany might be threatened by a populist movement to exit the E.U. For the first time ever, a clear majority of Germans no longer sees any benefits to being part of the Eurozone.
Despite all the negative news, markets are hanging tough. Why? I believe financial markets continue to have a "Moral Hazard" premium priced-in. The idea that governments will step in to save the day remains entrenched in the minds' of investors. There are signs, however, that this premium may soon be re-priced. Indeed, this week's rally has left much to be desired. Copper, nor the credit markets, have confirmed the move higher in equity markets. Breadth has lagged as well. These are signs that this latest rally isn't healthy. Should government authorities fail to come through and Eurozone contagion takes hold, financial markets would begin to compress this premium. A strong break of 1120 would signal that a re-pricing is ongoing. Overall, the global economy is at a crossroads. Until the Eurozone issues are structurally taken care of, I remain very cautious. Capital preservation remains the name of the game.
Moody's Continues Review Of Italy's Aa2 Ratings For Possible Downgrade, To Conclude Review Within Next MonthSubmitted by Tyler Durden on 09/16/2011 17:08 -0400
"In light of the increasingly challenging economic and financial environment and fluid political developments in the euro area, Moody's is continuing to evaluate Italy's local and foreign currency bond ratings in the context of the risks identified. Moody's will strive to conclude the review within the next month."
Looks like SocGen pulled a TGIF today and in response to its Corporate Market Alert, in which it asked the rhetorical question, "Fed QE '2.5': gold and equities to take off again?" it answers itself quickly and to the point in just 6 simple charts. Here they are...
COFFEE AND HOPE DONUTS STRICTLY PROHIBITED...
We discussed earlier how various non-US-equity asset classes were differing in their opinions on the likely events going forward. Even more short-termist, it seemed a large number of people really didn't want European financials exposure. Well, this afternoon has seen volumes dry up in ES and limp higher as IG and HY credit spreads have moved wider and wider quite comfortably. While we can never be sure, it seems credit professionals are not so comfortable being long and unhedged into the weekend.
For those seeking an oversold security, look no further than the EUR, which in the week ended Sept. 13, was the biggest FX loser, as non-commercial exposure rose 50% to a net short of -54,459 from -36,443 contracts the week before. This is the most bearish net exposure in the EUR since July 2010, and positions the currency for a short squeeze, although if history is any guide it still has a ways to go: the 2010 trough was -114k net contracts hit in May of 2010, just after it became apparent that Europe is falling apart. Also, despite speculation that traders have left the safe-haven status of the CHF following last week's SNB intervention, the Swiss Franc retained its bullishness, with net exposure remaining long, although declining modestly from 7,549 to 5,493 contracts. Also not surprising is that bullish bets in the JPY rose from 32,787 to 34,955 after declining past week. It seems that Yoda will be watching, watching, watching his Bberg terminal very closely in the coming days.
As we have been pointing out since the beginning of the week, the one defining feature of the past 5 days has been a relentless short covering rally. And while the mechanics were obvious, one thing was missing: the reason. Well, courtesy of David Rosenberg's latest, we may now know what it is. Bottom line: for all who think that Bernanke is about to serve just Operation Twist next week... you ain't seen nothing yet. "The consensus view that the Fed is going to stop at 'Operation Twist' may be in for a surprise. It may end up doing much, much more." Rosie continues: "Look, we are talking about the same man who, on October 2, 2003, delivered a speech titled Monetary Policy and the Stock Market: Some Empirical Results. I kid you not. This is someone who clearly sees the stock market as a transmission mechanism from Fed policy to the rest of the economy. In other words, if Bernanke wants to juice the stock market, then he must do something to surprise the market. 'Operation Twist' is already baked in, which means he has to do that and a lot more to generate the positive surprise he clearly desires (this is exactly what he did on August 9th with the mid-2013 on- hold commitment). It seems that Bernanke, if he wants the market to rally, is going to have to come out with a surprise next Wednesday." In other words, stocks are now pricing in not just OT 2, and a reduction in the IOER, but also an LSAP of a few hundred billion. There is, however, naturally a flipside, to Bernanke's priced in announcement: "If he doesn't, then expect a big selloff." In everything, mind you, stocks, bonds, and certainly precious metals. And, of course, vice versa.
Europe's Response To Geithner's Advice: "I'd Like To Hear How The United States Will Reduce Its Deficits ... And Its Debts"Submitted by Tyler Durden on 09/16/2011 14:16 -0400
Two years after being laughed out by a bunch of Chinese students, Tim Geithner realized that his hypocrisy may pass muster in the Beltway, but the crowd is tougher across the Atlantic. As Reuters reports, the much anticipated meeting between Geithner and the euro FinMins in Wroclaw, Poland, lasted all of thirty minutes and if nothing else managed to unite the Europeans... in their ridicule and derision of the man that has become a global muppet caricature. The litany of quotes needs no explanation: "I found it peculiar that even though the Americans have significantly worse fundamental data than the euro zone that they tell us what we should do and when we make a suggestion ... that they say no straight away," Maria Fekter, [Austria's Finance Minister] told reporters afterwards, recalling a difference of opinion between Geithner and German Finance Minister Wolfgang Schaeuble on how to reinvigorate the euro zone and tax financial deals." And the kicker came from Belgian Finance Minister Didier Reynders, who responded 'tartly' that "We can always discuss with our American colleagues. I'd like to hear how the United States will reduce its deficits ... and its debts." Alas, as Tim has found the hard way, being one of the biggest offendors when it comes to collapsed economies does take away from his credibility. So if we may suggest, Timmy should i) focus on fixing the US economy, and since he has repeatedly failed at that ii) to immediately resign.
It has been a while since JP Morgan has been sued for silver manipulation. Well, that changed on September 12, after JPM was served with its most recent lawsuit alleging silver manipulation, which we have no doubt will promptly move from JPM's Inbox straight to the trash can. Since this is a class action, virtually everyone who has ever traded silver and lost on the trade appears to be on the list of plaintiffs (we jest, although the list of impaired parties a through x is rather, well, dillutive of the purpose). It is unfortunate that the John Doe defendants are not named as the general media will merely see this as just another lawsuit which serves simply to remind us that the CFTC still has to investigate any of the allegations against JPM and HSBC for silver manipulation. And while a lot of the content in the filing is regurgitated filler, it does provide some suggested details (with price/volume - probably a first in a legal filing) on JPM's specific manipulation techniques, which makes for some engaging reading. There is substantially more, which at time reads like a diary of a conspiracy nutjob, and unfortunately that is how the conflicted legal system will see it. Because after all it is the CFTC's dute to monitor its member firms, and as long as the regulator is one of the alleged manipulators, nothing will change. That said, we certainly wish the plaintiffs lots of luck to at least get their case heard. That said, and going beyond the purvey of this lawsuit, we ask ourselves: why all the endless sound and fury over this purported ongoing price manipulation. Surely, the plaintiffs are smart enough to realize that every market intervention (such as the alleged JPM silver manipulation) always ends with price discovery in the end, i.e., silver, gold, spam, what have you, reaching its fair value. As such, should the litigants not be thanking JPM for allowing them to buy silver at lower than fair value prices? We wonder...
Austria will soon meet the limelight of international attention again. On Thursday the ruling coalition tried to set a date for the necessary vote on change of Austria's constitution that would allow the Eurozone to proceed on the ill-fated way of Eurobond issuance. Due to the opposition from the Green Party and the two xenophobic parties FPÖ and BZÖ the vote did not reach the obligator 2/3 majority in the upper house. The Green party had already issued a warning to the bank-controlled coalition in June, threatening to boycott a pro-Eurobond vote as long as Austria does not ensure that money lent to the PIIGS will be repaid absent the factor of pure hope. The Greens got unexpected support from conservative hardliner and finance minister Maria Fekter. on Friday In an interview with Austrian press agency APA she said Austria will reject a top-up of the €780 billion European Financial Stability Fund (EFSF). She also addressed US Treasury Secretary Tim Geithner and advised him to put his own house in order before handing out fiscal advice to the Eurozone. Austria's coalition is getting shattered day after day by new scandals alleging corruption involving a string of partly state-owned companies like Telekom Austria, public railways, the purchase of 12 Eurofighter jets (only 2 are operable during daylight hours), alleged kickbacks in the privatization of the country's real estate holdings. Scandals have so far centered on the conservative ÖVP and their former xenophobic coalition partners. But since Thursday allegations about current social democrat chancellor Werner Faymann concerning advertising of public companies in preferred media begin to make bigger and bigger headlines.
Right now, dumpster diving is cute and fun and an interesting way to save money, but in the future there will be millions of Americans digging around in trash cans if we don't get this economy turned around.