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A Modest Counter-Proposal
A prominent financial professional who wishes to remain anonymous submits the following:
What happened today? The stock market cratered because Obama, like Louis in Casablanca, just discovered that there’s gambling going on in the back room.
Recently there’s been a lot of speculation that the Federal Reserve or the Treasury was the sole buyer of S&P 500 futures thereby boosting the market since March. Imagine a scenario where someone at the Obama administration just discovered after checking that it wasn’t the Fed doing the buying, rather an “informal” group of the top dogs at the prop trading desks at the top three brokerage firms were going long stock futures and short fed funds.
That would explain Obama’s pissed off news conference.
That would also explain why stocks sold off. Imagine what will happen if indeed the buyer were the prop trading desks particularly since leverage works both ways, the good and bad.
If correct, Obama's rhetoric will indeed be much more than mere posturing, and the duel between D.C. and Wall Street should provide for a memorable spectacle for months; alternatively we hear the bulk of AIG folk who were supposed to refund their taxes from last year's March witch hunts still have not done so. Or, much simpler, Perhaps Obama is just worried that American Idol is slipping in its ratings.
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Time to load up on ultra-short financial ETFs (FAS and SKF)?
um maybe but make sure you type in "faz" if you're trying to do that. then again, 50/50 odds that "fas" will work out just as well. good luck
Oh, crap!
Yeah ... good call, Chicken.
Careful with those levered ETF's. Sufficient volatility can kill you position even if the market goes your way. For a bearish position short FAS (or short FAZ for a bullish) so you will pick up the gains on the volatility decay. Think of it as betting with the house (Direxion). Take a look at a long term chart of these levered ETF pairs over the long term (or just do the math in your head) and you'll see exactly what I mean.
Why Short Sector ETFs Aren't So Smart
Inherent daily reverse compounding risk. Look at both SRS [the 2 for 1 short] & URE [the 2 for 1 long] over any intermediate period of time. They are both down extraordinarily. Regardless of whether commercial real estate goes up or down, shouldn't one of these ETF's be moving in the opposite direction of the other? It has hardly been the case. For the why, see:
http://www.thestreet.com/print/story/10454678.html
I appreciate the lectures re: leveraged ETFs.
calltoaccount: Leveraged ETFs are intended to be short-term speculators' tools, not long-term trading tools. Everyone should know by now that they are not intended to be held more than a few days.
It states very clearly in the Prospectus for all of these ETFs that they are short-term trading vehicles and should NOT be considered "buy and hold" investment vehicles.
Rest assured I was not being serious about buying SKF and FAZ. I don't actually trade; I have algorithms that do it for me, and they seldom stay in inverse ETFs for more than a day.
You didn't read DZ's post very well. He stated, accurately, that the "can't lose" long term strategy is to short the double/trible ETFs so that you gain no matter what the underlying does due to the immense slippage.
You profit from mathamatically guaranteed slippage. I've thought about shorting both the long and short ETFs (e.g. SRS and URE) but have opted to short URE only. Long term both shorts should be profitable and will be penny stocks.
most clearing firms charge you to short these the exact amount they slip over time. It was a nice tade while it lasted, but unless vol pops its just not there.
hey guys, thanks for the heads up!!
maybe you missed last week's posts...in case you did...
http://www.zerohedge.com/article/why-big-trade-2010-will-be-30-year-trea...
and
http://www.zerohedge.com/article/guest-post-tbts-decaylicious-existences...
This is so funny. I made a mistake than that. How about closing out of FAZ but in err doubling the position. Doh!
The REITS have been on incredible tear and are trading at stratospheric levels compared to any reasonable view of their future earning power and asset value.
If the artificial prop (no pun intended) is taken away they could fall a long long way. SRS and DRV could be good buys
Be real careful with SKF. I've been trying to make money off of it since June. It moves in very strange ways. Do not buy it if it is above $22.15. Do not hold it longer than 3 days. Once upon a time it always moved opposite the S&P. Not since about October. It jumps big and falls big. Take your eyes off of it and you lose.
Not so sure about that. Anyone following that rule would have missed a lot of the best trades on SKF in the past. Besides, the decay inherent in leveraged ETFs makes absolute price point references worthless.
I don't use my eyes to trade. I use my algorithms.
Why would this explain Obama's rhetoric? If anything, I would think it would be the opposite (ie., he knows that the market, and his presidency, are dependent upon the goodwill of the trading desks). It woud explain an escalation of rhetoric if the market continues to tank.
Obama is a stooge. The illuminati don't even clue him in anymore.
anybody remember the Soprano's series where the preacher was 'supposedly' on the side of the demonstrators, only to have them ambushed and clubbed by the mob? And, there is Tony meeting the preacher on a dark street giving the preacher his cut for all his help. Life imitates art?
If it continues to tank it matters not one whit what he says or does. He's toast.
First Dude got conned. Plain and simple. He's a campaigner and community organizer. Like....thinking he's a fukkin' Einstein about finance is a long-legged stretch.
Working the inexperienced, arrogant, greedy and street-stupid pols is a K-Street specialty.
Street guys would clean out this mess in a New York minute.
possible
Talk about one hell of a hedge... So now Obama & Co. need to worry about China and Wall Street bankers unloading assets and bursting the Bernanke bubble. Ain't that a bitch!
A whole hell of a lot of high banksters would have to not only lose their money but start rotting in jail to get the stink off him.
Parhaps Obama has visions of JFK back and left shots and is worried about his family - the next American president should be a single man who can take on these criminals
It's depressing when suicidal is the most valuable trait in a president.
How many single men have ever been elected to the presidency?
I would be surprised if there was even one.
James Buchanan Jr. (serving 1857–1861) was single (never married, engaged in 1819, fiance died).
Grover Cleveland (serving 1885–1889 and 1893–1897) was single when elected, and married while in office.
I applaud your rapid research ;)
Don't forget Andrew Jackson was widowed literally weeks before taking office. He had a son, adopted.
Though I doubt that is what gave him the balls to take on the central bank, that dude used to duel and attack dudes with his cane before becoming President. He was one tough son of a bitch.
That's why I think a guy like walstreetpro2 would be a great president.
Bill Clinton was single as America doesn't recognize gay marriage.
Only gay Prez too.
Wont happen. If anyone seriously tries as a single person you know the other side will leak the innuendo of them being gay. End of campaign. Or a quick wedding (ie Charlie Crist).
Barney Frank for President (change you can believe in)
Larry Craig!
I would like to see FOX news coverage of the President and the First Man - it would be a awesome
Which merely begs the question, how many tv news crews can fit in an airport bathroom? And would they have a sort of ticker for who the "First Man" was that hour?
(It's not that I have anything big against Craig, it's just that he's too easy to make fun of now.)
I don't buy it. I still remember Obama making a couple of speeches on March 3 and around April 13, looking into the camera and saying "Right now is a good time to buy stocks."
It's just such bizarre advice for the President to give to the public in the midst of market turmoil. And more telling that he caled the PPT induced artifical bottom to the day.
The SOB was complicit in approving the PPT/Fed/Treasury's plan to pump up the stock market:
http://www.cbsnews.com/blogs/2009/03/03/politics/politicalhotsheet/entry...
Why would he care whether the prop desks or the Fed/Treasury were doing it? If anything, he's pissed that that they made his administration look bad by paying themselves outlandish bonuses propping up the market all year.
+100
Obama pimping stocks, just a day or two before it bottomed, as if he KNEW it was going to happen, should be investigated.
There is absolutely no justification for a president telling people to go out and buy stocks. Talk about crony capitalism at its worst.
Obama did not plan to make this speach
two days ago. Two days ago, he was hoping
that the things can continue the old way.
The Massachusetts' elections forced him
to make this speach.
I was referring to his March 3rd speech when he told people that buying stocks was a good idea.
exactly. since nothing has changed since day one, when did he finally wake up that wall street doesnt give half a shit about anyone else? Either he isnt worthy of the office by being behind the ball for over a year, or he's digging into that faux outrage to try and show that he's still relevant. If it wasnt for losing Kennedy's seat it would have been exact same business today as it was last week. That's why its hard for me to believe that its anything other than an act.
Until shit passes and is signed into law, its all blah blah blah
The Manchurian Candidate was brainwashed by Ben and Lloyd. Talk about tentacles. They even pick the Potus.
I still love that movie, and even enjoy Frank Sinatra in it! Acting!!
But, I also realize that said movie capitalizes on that old bogeyman, the terrible, terrible "other side", the enemy, capable of anything, including cunning tactical "brainwashing"-as if our own country's minions (or yours, wherever you're from) isn't capable of such. Yeah, right, "we" are always the noble knights...
Also, I totally agree with your conclusion. It makes no sense that a president, who has allowed the TBTF banks to run hog-wild for the entirety of his presidency, would come out of the blue with a proposal to ban the very mechanism by which these banks have propped up the market.
The only thing that makes sense to me, is that the administration is willing to sacrifice the stock market in order to guide the flow of money to what is always considered the safe-haven: Treasuries.
Absolutely, I still believe it was the Fed, I have zero doubt.
This would be reminiscent to me of the fight with President Jackson and 2nd Bank of the United States /Nicholas Biddle.
I'm not equating President Obama with President Jackson.
Imagine a scenario where someone at the Obama administration just discovered after checking that it wasn’t the Fed doing the buying, rather an “informal” group of the top dogs at the prop trading desks at the top three brokerage firms were going long stock futures and short fed funds.
Kind of like Clinton realizing that he smoked a joint but didn't actually inhale it?
Gambling? In the casino gulag? With other peoples money? Whaaat????
Really though, he is in on the fix. This is all a show to keep the status quo confused.
Tyler, reminder on your favorite quant as you promised this week
Indeed, it's distraction. TPTB are throwing the populists a bone.
While that was my first hunch, I think this is "for real"
One of my ole faves ISRG popped $23.50 after hours, maybe some GOOG fans shifting funds there.
Even BIDU has nearly fallen back to "pre-GOOG-exiting-China" levels. Is AAPL next one to fall? (Earnings Monday, iTablet show-and-tell Wednesday...)
I wish to point out something that has bugged me for a long time and this may be an example of it.
Let say that this is true and Obama was pissed off and reacted, emotionally, to the news that the Big 3 are doing what the Big 3 does, and that is, make as much F'in money as possible. As Gomer Pyle would say: " Surprise, surprise, surprise!!"
Are you surprised? I'm not.
Obama is an narcissist egomaniac that just had his head handed to him. I believe these events are the first time in his young life that he lost and LOST BIG. (He personally lost the Kennedy seat - can it get any worse then that!!) Can he take it?? You tell me.
What would happen if Iran were to do something and Obama reacted in the same emotional way?
Obama may be losing it.
Books
Man... he is losing it.
But still 2x better than GWB on a bad day.
But he is losing it. Just shut up, get us out of those 2 wars (the right way), and work on education, technology, taxes, even healthcare. This drip, drip, drip of petty financial shit is moronic.
you mean like invading a country that had nothing to do with 9/11? Oh wait, that wasnt Obama...
Of course, staying there now is just stupid and a huge waste of money. Bring em home and if shit happens bomb the shit out of it from 50,000 feet.
let's just bring them home.
Obama's tilting pretty hard after the MA debacle. He obviously made these rules up at breakfast this morning with Michelle and the girls.
He pulled Volcker out of mothballs and even named the rules after him? What a joke.
And the bank regulations his he previously discussed were to be done in conjunction with the rest of the world. This is thrown together and to stem the political fallout.
Now he has a war with Wall Street that's probably not going to help him in the long run since they can make life miserable for him if they want.
Obama is cracking already.
Next time, can we elect someone who at least held a job at some point in his life?
He is just a political fixer without a strategic brain cell in his head which is just as well - look what happened to the last Presidents brain who thought strategically
Back and to the left back and to the left
True. The Kennedy Assassination was the major turning point for the U.S. Just shows what happens when a president tries to take the printing press away from the Federal Reserve.
Maybe something like this explains the nature of the change, though it seems a little farfetched. It clearly doesn't explain the timing though. It's quite obvious that this was planned as a post-healthcare hard pivot, which was brought forward after the Brown victory.
I don't think there has been any one rational speculating that the fed has been buying spus.... I definitely wouldn't say that there has been a lot of speculating either.
Frankly,those leveraged etfs are kinda becoming off targets. Secially the financial ones. I suspect they are used to prop up certain stocks and their underlying are constantly changed. They have already achieved what they originally invented for.And that is the transfer of huge amount of money from the "stupid,long only" retiremnt funds to the sofsticated thieves of the new melinium.One simple example:the reverse split of the FAS and FAZ that took place in Jul,just before the second big up leg to the 1000 teritotiy. Coincidently, I heard at the time, a big house was recommending shorting FAZ.And sure enough,Monday came with the famous Meridith reco of GS.Too bad I didn't take the trade.
Some nasty karma going down: in one corner its Hugo Obama and SEIU and Acorn and the Trial Lawyers, and in the other corner its most of the American People, the Constitution, and Right Wing Media. Not a good environment for risk assets.
I just saw Larry Sommers on TV , There was no correlation between Brown getting elected and Obamas announcement today. He and Geitner drew it up 1st week this year. You revenge theorists can move along now.
or
after the stunning defeat in Mass. the administration would be calling on every and any supporter including any number of " prominent financial professional(s)" to get the message out that President Obama has had the wool pulled over his eyes for the past twelve months.
could it be that someone substituted the Cranberry juice in the ZH refrigerator with Kool-Aid
Good news ! Obama is going to Nevada to campaign for Harry Reid (He's toast as well as an Obama campaign stop is the Kiss of Death).
What BO said today is just there to appease the masses with his verbal slop. There will be NO actions to back this up.
O.K. but where is the illegality in that scenario?If prop desk buy furtures then I don't see that as a problem. I think the problem (and reform)is rooted much deeper. It is about leverage,it is about MM,it is about the fact that the big guys can threaten retirements of millions of people with impunity. And I don't think that only in a positive matter. Because while many people think of the value of their investment as coming down,has any body thought that may be it shouldnt have been there in the first place?In another word,without pumping air into the bubble,may be the S&p shouldn't have gone to 1500 in the first place.
The post is moronic.
If the big financial firms have been "long stocks / short FF" .... where are the $500B in earnings?
Hey... notice stocks are 3-4% off highs? Gold is 15% off highs. Which is in correction?
It strikes me as a possible thesis but I don't understand why Obama would have a problem with it. A stronger market serves his purpose as much as it serves the fictional consortium. The only difference is that the consortium holds the Sword of Damocles over his head, although to use it would invite mutual destruction.
The consortium part is possibe but not so much the anger part. Instead, I suspect he's merely playing the populist game, relying on the consortium to maintain the status quo at current levels.
Another possible theory is that the consortium is making money more readily available for levered long speculators and using them as agents. If so, there is more levered money holding up this market than previously considered which would make this a very dicey situation.
I disagree that is simple populism. If Obama doesn't follow through on this promise, that is pretty much anti-populism. His approval ratings will drop like a stone if he pulls away from this rhetoric.
Maybe the administration wants to sacrifice the stock market in order to support the treasury market as more, and more, and more treasuries are offered further saturating an already oversupplied market? Just my two cents.
Mkk,
It can be simple populism and still fit the parameters of your expectations. I consider this populism because it comes two days after the Senate defeat where the economy/bankers were a big consideration. The timing suggests populism but I agree with you that he can't back away easily if he wanted.
Regarding tanking the market to buy Treasuries, I strongly disagree with that thesis because it would ultimately be counter productive. The strong market is the only thing maintaining the farce which is recovery. To tank the market would invite a deeper downturn which would kill tax revenues. Besides, they can take care of the Treasury offerings with either the printing press or attempts to corral excess cash funds into Treasuries.
Yes, I suppose so. The average American has a terribly short memory span when it comes to politics. All most will remember is that Obama wanted to do this, and assume that it was good as done. Few will pay attention to whether he really follows through or not. Just like when Obama promised to curb executive pay and bonuses, hardly anyone noticed when it was shot down in Congress.
However, what if the administration anticipates some kind of future disruption in the Treasuries market? Maybe they are taking pre-emptive action. The stock market is due for a big turn down after this 9+ month long rally. Why not excaberate the market downturn and direct money into Treasuries instead?
Unfortunately I doubt we'll ever know the real rationale behind this sudden rhetoric. I will agree that its timing relevant to the special election is interesting, however.
The "consortium" is the Fed purchasing CMO's from the big banks with prop desks, with a side agreement that some of the newly minted money used to pay for the CMO's be used to prop up the stock averages with futures. I thought everyone, especially BO, understood.
dudes...
A republican just took Massachusetts. People are DISGUSTED with the Obama administration, and in large part for being such a sell-out to wall street - geithner summers bernanke has offended everyone except the banksters. It is no coincidence that Obama is preaching Volcker-speak 2 days after the MA upset. All of you assholes out there who think a stock market that only goes up and up into bubblicious bullshit is "good for the economy" are fucking morons. Bubbles destroy nations. More ain't good. Time for the bubble blowing banksters to eat shit and die.
Armstrong checking in…
I have to put my two cents in on the Obama Speech this morning.
I did not hear the Obama speech on January 21, 2010 about how the banks were going to be held accountable and how there was a new sheriff in town and blah, blah, blah. Sorry folks, been there, done that. This is all political theater. This is all about trying to quell the outrage that 80% of Americans are feeling and only 5% are acting upon.
I'm going to go out on a limb here. I would bet you this is a speech written by the banks in conjunction with this administration for political purposes. This is yet another orchestrated plan to mitigate the political heat; in other words its a set up. This is about the loss of Kennedy's Democratic seat in Massachusetts and how to secure victory from the jaws of defeat. Ask yourselves, would this speech have been given if they did not lose Mass.? I think not. Nor do I believe that the PowerzdatB fear the populace sufficiently to make real change. They only care enough to orchestrate the environment in order to acquire the votes in upcoming elections. It is our duty to tell them to go take a flying leap until their actions are consistent with their words.
Will they stop manipulating gold? Will they rectify the foreclosure situation? Will they pull back the troops as promised? Will they begin to represent us in the ways we've demanded? I think not. But now is the time to make your move. Write to your congressional representatives and tell them how you feel about the bailouts, about the manipulations, about the debasement of our currency, and about the mountains of debt which will never be repaid. If there is any difficulty finding your representatives or their addresses, go to www.fedupusa.org and hit their government tab. Every representative is listed according to state, body of Congress, their names, and even the names of their dogs. In other words its a good resource. Arm yourself with pre-printed labels and SASEs for your representatives and be ready and prepared to dash off those post cards and letters by the dozens. Remember: United We Will Stand.
A rhetorical question. When in the last 75 years have the banks ever done anything that goes against their interests? Remember, Goldman Sachs is the defacto treasury of the US and there are a lot of skeletons in some very big closets.
This is political--so take the initiative and follow through. Tell everyone one of your Congress persons that you are voting them out unless they get real. The real issues of the day are jobs, money (gold and silver) and housing (foreclosures), and forever debt. Lets get out of debt.
I am posting an article called the 2010 Gift to the Gold Community wherein I address these issues.
And thanks to GATA and Bill and Chris for hanging in there for ten long years until the rest of the nation began to realize the correctness of their position. We've got a long long way to go and one canned speech is nothing to get excited about.
I am doing more than just writing. I am giving money to candidates who agree with liberty, and giving money to oppose candidates who oppose liberty.
Any Senator voting to approve Bernanke - their opponent gets my money if they are up for re-election.
Any house member who voted for TARP? Opponent will get money.
I preserved my wealth well by getting it out of USD in March, and this coming election I will spend some of it to kick some of these cockroaches out of office.
One hand washes the other. The prop desks are the FRB and the FRB is the prop desks. Who are the Reston 6? Does it matter? The FRB is owned by banks. It's by the banks and for the banks.
If GS goes private, I want my money back first!!
Don't forget the story that's been floating around about the possible forced investment of IRA's and 401(k)'s into Treasuries to assure a lifetime annuity (snicker...). Nobody would voluntarily drink that Kool-Aid if the market were flying. If this idea is to be implemented in order to prop up the Treasury, then the stock market has to be crushed, at least on a temporary basis. Think about it: the market suffers a downdraft like last year, retirement funds are blasted by 50 percent or more, and people become despondent. Along comes the gallant administration with this fabulous plan to guarantee a lifetime income. All ya gotta do is sign here to make your deal with the devil... The flip side of the bargain is that the insiders get to short the market to make even more cash off of the dupes, and then the Treasury sucks up the remains. The sheeple get totally sheared while the big guys get all of the spoils.
Logical, no?
I don't get it. Why would Obama worry about WHO is buying? After all, the only way "Fed" can do the buying is through NY Fed, which in turn does it through its semi-official "agents" of which JPM is the most prominent.
So this is probably realization on Obama's part that after the Mass. incident his political survival depends on whether he can at least pretend to be fighting TBTF.
Or, if there's something that may have pissed Obama off, it can be that TBTF are bidding the market up for all the wrong reasons. Like negotiating the best possible multi-generational shorting opportunity for themselves.