While reading Advanced Trading today we stumbled across the following curious excerpt:
Advanced Trading: You mentioned regulators and politicians are ignorant ...
[ITG's Jamie] Selway: I would say that their knowledge is incomplete.
Advanced Trading: Is this causing HFT to be scape-goated?
[ITG'S Jamie] Selway: Yes, there's a mixture of that. I am fond of saying I am not a huge regulations guy but I am a fan of regulations at an appropriate level that boosts confidence. I for one would prefer to be regulated by the SEC and not by ZeroHedge. So we have a team of experts and multiple agencies that are expert in regulations and know the markets and have the resources.
Here is our response.
Could Sweden or Finland be the scene of the next European financial crisis? It is actually far likelier than most people realize. While the world has been laser-focused on the woes of the heavily-indebted PIIGS nations for the last couple of years, property markets in Northern and Western European countries have been bubbling up to dizzying new heights in a repeat performance of the very property bubbles that caused the global financial crisis in the first place. Nordic and Western European countries such as Norway and Switzerland have attracted strong investment inflows due to their perceived economic safe-haven statuses, serving to further inflate these countries’ preexisting property bubbles that had expanded from the mid-1990s until 2008. With their overheated economies and ballooning property bubbles, today’s safe-haven European countries may very well be tomorrow’s Greeces and Italys.
A few days ago, before the definitive Greek PSI term sheet was available, we presented the complete preliminary BNP PariBas decision which despite having some assumptions was almost spot on in its flow chartness of Greek next steps. Today, to avoid any confusion on the matter, here is Bank of America with its take on the finalized Greek PSI Terms and the final final (until changed yet again) Greek decision tree.
Americans can handle soaring rent, gas, and even food prices (all those thing that the Fed conveniently ignores) with the stoic patience of a Greek who welcomes 160 German tax collectors on his rehypothecated front porch. But if there is one thing that is sure to kindle the revolutionary spirits it is the soaring price of booze. As it just so happens, ships are parked in the Boston harbor with crates of Grey Goose prepped for tossage overboard as we speak. As the following chart of alcoholic beverage inflation indicates, courtesy of John Lohman, January saw the biggest month over month spike in booze inflation in 20 years. In other words, about 90% of all traders alive today have never seen a bigger jump in liquor inflation in their lives. Then again, with nobody trading any more, and since the new venue du jour of most of said now ex-traders is the local watering hole, perhaps we are seeing demand pull inflation in at least one item. Needless to say, there is something very ironic that surging alcohol inflation is the only thing that is resilient to the central banks (un)sterilized liquidity explosion. The good news: there is distinct relative deflation in the cost of ammunition. At least for the time being...
Banking privacy is dead. Completely, totally dead. Murdered, really. The US government is the assailant, and FATCA is the murder weapon. We’ve talked about this a few times before– FATCA is the heinously insidiously piece of legislation that the Honorable Barrack Hussein Obama passed into law in 2010 as part of the “Hiring Incentives to Restore Employment Act”. There were no hiring incentives, and there was no restoration of employment. But any vestiges of banking privacy were destroyed. In brief, FATCA has two key concepts. First, it requires an additional (and completely unnecessary) layer of reporting from all US taxpayers who have ‘foreign financial accounts’ at ‘foreign financial institutions.’ Though as we have discussed before, both of these critical terms are ridiculously and flagrantly ambiguous, putting the onus entirely on the taxpayer. The second key issue is that FATCA puts a burden on ALL foreign financial institutions worldwide to enter into an information-sharing agreement with the IRS; this essentially obliges every bank on the planet to submit reports and customers’ private data to the IRS. Such provisions are absolutely, 100% impossible. And it’s becoming clear that FATCA was passed with no intention of being enforceable. It’s inconceivable that every institution on the planet could enter into an agreement. And it’s inconceivable that every institution on the planet could possibly know whether every other institution has entered into the agreement. The only thing FATCA has accomplished is scaring the living daylights out of non-US banks. So much so that foreign banks have approached their governments to ask for help.
Time and left at 3pm after trying to ramp it up then. Weird day. The morning drop seemed overdone based on "fears" of a German vote against the ECB/Bank bailout using Greece as a conduit for the money. The vote was strongly in favor which made markets happy, though someday maybe someone will present an argument other than "give them money or plunge the world into chaos". The lack of news out of the IMF wasn't good, but it keeps the ability to create rumors of new money alive and well, which is probably far more useful on a day to day basis in this market.
Today was another tale of two worlds as stocks outperformed everything as broadly speaking risk assets leaked notably lower post Europe's close and accelerated post Nowotny. Financials led the exuberance (in stocks not credit) on a day when volume was certainly not terrible and credit market indices tracked stocks (ES) almost tick for tick (which along with desk chatter suggested little activity in credit today as credit dealers reracked along with futures movements). HYG dipped significantly into the close - after a decent drop in the middle of the day that was saved - only to be held up by its VWAP. For the second day in a row, VIX closed higher on a higher S&P close and implied correlation is sending those trend fade warnings once again but it was the broad-based disregard for any and every other asset class today (by stocks) - as Treasuries remained near their low yields of the day, Crude, Gold and the commodity complex all sold off, FX carry reverted back to risk-off after Europe closed, and apart from a minor leak higher in the last hour bond curves were notably flatter - that was surprising (and unusual in recent weeks/months). In the medium-term, credit remains considerably less sanguine than stocks here and the late day disappointment from Nowotny ahead of LTRO2 may have just taken the jam out of the equity market's doughnut for now.
From S&P: "We lowered our sovereign credit ratings on Greece to 'SD' following the Greek government's retroactive insertion of collective action clauses (CACs) in the documentation of certain series of its sovereign debt on Feb. 23, 2012....We do not generally view CACs (to the extent that they are included in an original issuance) as changing a government's incentive to pay its obligations in full and on time. However, we believe that the retroactive insertion of CACs will diminish bondholders' bargaining power in an upcoming debt exchange. Indeed, Greece launched such an exchange offer on Feb. 24, 2012." Translation: Greece better have that PSI in the bag or else the "Selective" goes away and "Greece would face an imminent outright payment default." Our question for former Goldmanite and current ECB head Mario Dragi: does the ECB allow defaulted bonds to be pledged as collateral within the Euro System?
It was quite a day for retirement planners everywhere as the decisions to show up to work or not tomorrow have been on-again, off-again no less than 22 times today as the all-important Dow 13,000 maginot line was criss-crossed frequently only to end on a disappointingly negative note - washing away all those glorious gains in the last 30 seconds.
Earlier today, we presented a Top-Down analysis via SocGen of Wednesday's ECB massive extended Discount Window operation, also known as the second 3 Year LTRO operation (whereby we once again remember that unlike the Fed, the ECB is fully unaware of the adverse consequences of the stigma associated with borrowing last ditch liquidity, but when all else has failed, one has to do what one has to do). And while we will conclude our LTRO preview series with LTRO 2 103: Bottoms-Up, as a courtesy fo those who are fine-tuning their LTRO stigma trade (long banks that will not participate in the upcoming LTRO, short banks that will) SocGen's prediction of which banks will take down LTRO 2 funding, and how much. Draghi said there is no stigma trade. We proved him wrong, at least in the interim. LTRO 2 will finally decide who is right and who is wrong.
It should come as no surprise to readers as it has been long pointed out that the need (and expectation) for all "transitory" measures to become permanent and exponentially larger to maintain this mirage of sustainability, but comments from ECB's Nowotny just took the shine off the day as Gold, Oil, Financials, ES, and AAPL all dropped notably (pulling back to TSY's outperformance) as he strongly suggested this is it (via Bloomberg)...
- *NOWOTNY SAYS SMP IS MORE OR LESS ON HOLD
- *NOWOTNY SAYS 3-YEAR LOANS WILL NOT BECOME A REGULAR FEATURE
- *NOWOTNY SAYS NOT `CONVINCED' ABOUT CASE FOR HIGHER FIREWALL
- *NOWOTNY SAYS ECB HAS PROBLEM OF ADDICTED BANKS
We have repeatedly voiced our views on Buffett's relentless bashing of the only asset that is a guaranteed protection against now exponential currency debasement and central planner, and other PhD economist, stupidity, most recently here. We are happy that other, more politically correct asset managers, have decided to share how they fell, and take the crony capitalist to task. The first (of many we are sure), are Lee Quaintance and Paul Brodsky of QBAMCO who have just penned "Golden Boy" or the much needed "high society" response to the old man from Omaha: "Buffett may be a sage, a wizard, and an oracle when it comes to nominal relative value pricing of financial assets, but it is well worth noting that Buffett’s proclamations are not necessarily worthy of being considered “fact” in matters unrelated to finance, just as the legendary Joe Paterno’s judgment seems to have been sorely lacking when it came to sorting out matters unrelated to a winning football program....We must assume his aggressive gold comments have been meant to force the price of gold lower. (We do not know why he is so interested in doing so though we do have a reasonable theory, for another time). We strongly disagree with Mr. Buffett’s views and we thought it would be best to explore his comments and provide our counter-arguments."
As the financials ETF, XLF, jumps from down 1.25% to up over 0.75% today, we note that credit markets for the major US banks are anything but exuberant. In the short-term, US bank credit remains significantly weaker, having broken its trend on February 9th, than the broad ETF or individual bank stocks would suggest. We have seen European credit spreads for banks come back off their worst levels - and at the same time, bank stock prices revert downwards to meet that depressed credit perspective. In the US, stocks remain euphoric and credit has not staged any comeback yet inferring a 5-6% drop in XLF (or rally in credit of course). Perhaps the USD-denominated nature of stocks is 'mispriced' relative to the risk-denominated nature of credit spreads as liquidity floats all risk assets on hope of LTRO2 et al.