Frontrunning: June 18

• Must read: Monsters in the market (The Atlantic)
• The "Volcker rule" provision of Wall Street reform legislation being
  finalized by Congress would put a lid on domestic mergers and
  acquisitions by the largest U.S. banks, analysts said on Thursday (Reuters)
• Yet nationalized Virkam as usual did not get the memo: Citigroup looking past Volcker, may seek $3 billion for funds (Bloomberg)
• Swaps plan seen staying in Wall Street reform bill (Reuters)
• Russian president says can not rule out collapse of euro (Bloomberg)
• A Democratic bill
  to extend jobless benefits and raise taxes on investment fund managers
  failed a key vote in the Senate on Thursday, dealing a blow to
  President Barack Obama's push to boost the economy (Reuters)
• Drywall's toxicity was known in 2006 but kept secret (Herald Tribune)
• Market concerns
  about Spain's financial health eased on Friday but doubts emerged over
  a pledge by EU leaders to disclose the results of bank "stress tests"
  seen as crucial to restoring confidence in the euro zone. (Reuters)
• Let the hedge funds run the risks (WaPo)
  
• The central bank is likely to maintain low rates for an even longer "extended period" than expected. Good news for Treasuries (Barrons)
• U.S. Fights Global Hangover: Getting Drunk in the Process? (Axel Merk)
  
• UK - Budget 2010: The days of spend now and pay back later are over. Later is now (Telegraph)
• And saving the best for last: Krugman and that 30's feeling (NYT)

Comments

[Careless Whisper]

I call bullshit on the "must read" Atlantic article.

Algorithms like Dagger can exploit the smallest inefficiencies in the market.

A market collapse in early May—in which automated-trading systems exacerbated a sell-off that drove the Dow down more than 900 points in less than an hour,

exacerbated? puhleeze. and it was 5 minutes, which i guess is technically "less than an hour"

[slovester]

The central bank is likely to maintain low rates for an even longer "extended period" than expected.

What the hell is longer than forever?

[Gunther]

The ECB report for may states that over the weekend around May 8 two banks were almost broke gauged by those banks CDS.

Edit: The situation was worse then after the Lehman disaster.

(My translation of the key point of the German article)

http://www.sueddeutsche.de/geld/dramatischer-bericht-der-ezb-apokalypse-...

[WineSorbet]

Expect another beautiful melt up today on all the good news out there.  Excuse me while I puke

[Dr. No]

I watch the intraday chart on Marketwatch main page and I notice how the S&P violently jumps up and down like a penny stock.  I see those huge candles and just laugh.  It is obvious to everyone how manipulated it is, right?

[doublethink]

Fucking Connecticut Yankees

Sen. Joe Lieberman (I-CT), along with one Republican and Democratic senator, introduced a bill late last week that would allow the President to effectively disconnect the internet by emergency decree.

The Protecting Cyberspace as a National Asset Act would allow the President to disconnect Internet networks and force private websites to comply with broad cybersecurity measures.

Future US presidents would have their Internet "kill switch" powers renewed indefinitely.

http://rawstory.com/rs/2010/0618/senators-introduce-bill-disconnect-inte...

[Jim B]

This is a Totally Crap proposal!!!!

Definitely Orwellian!

[Joe Shmoe]

That "Monsters in the Markets" article is interesting.  Thanks for posting it, Tyler.  The author's final takeaway is spot on:

These changes in trading technology raise a more fundamental question: If the majority of trades racing back and forth are simply lines of code swapping with other lines of code, moved by indicators obscure to even the mortal authors of the algorithms themselves, what exactly is the financial market?

One point I don't see made though is that, with all other volume so low, the HFT computers are not only the sole players reacting to the obscure indicators, they are moving these very indicators.  I really doubt that programmers had this effect in mind when they designed their systems.   

Also, the fact that there is a ton of cross ownership (apparently) between HFT shops, B/Ds (who own their own HFTs), the exchanges, and the lobbying interest in DC makes for one big fucked up mess that won't end pretty.   

[anynonmous]

Drywall problems known in 2006 but kept secret  

nice headlineI wonder if in 2014 we'll see a headline like this

Seafood toxicity from the 2010/11 BP oil spill known but kept secret  

[WillieG]

I was surprised to see the drywall article from my local paper in your Frontrunning post.  Not sure how you can across it but I am glad you are helping to spread the word about this issue!

[wang]

and 400 miles southeast of deepwater horizon

Naples beachfront homeowner sues BP on behalf of homeowners affected by the spill (fumes)

http://www.naplesnews.com/news/2010/jun/17/naples-realtor-sues-bp-behalf...

[Dr. No]

Seriously, is there a Lawyer ETF where a speculator can go long on law firm revenue?  I realize the expenses will be really high since they are lawyers, but I think this will be a bonanza for laywers.  A new gold rush.  Doesnt matter if win/loose/justified, layers get paid.

Edit:  no doubt once the FEDs get into the swing of things, this will be a construction worker/cleanup bonanza as well.  Think hurricane national disaster funding 1000X.

[Tarheel]

Why is EWP (Spain) gaining so much today? I dont see any headlines.

[Jim B]

I was kind of rooting for unlimited or 999 weeks of unemployment benefits.........

Krugman, what a hack!  Some minor differences from the 30's:

   1.  The USA was ascending to become the industrial power house in the 30's/40's

   2.  We had a currency with actual value and little government debt at the start of the great depression

What the hell!  Ramp up the presses and make my gold investments "Golden"