Capital Markets

Frontrunning: January 14

  • House Unveils $1.01 Trillion Measure to Fund Government (BBG)
  • Credit Suisse Tells Junior Bankers to Take Saturdays Off (BBG)
  • Spot the odd word out: ECB Sees Bad-Debt Rules as Threat to Credible Bank Review (BBG)
  • Insert laugh track here: Spain GDP grows at fastest pace in almost six years (FT)
  • Scandinavian Debt Crisis Waiting to Happen Puzzles Krugman (BBG)
  • Fed Said to Release Plan to Limit Banks’ Commodities Activities (BBG)
  • Thai Protesters Extend Blockade After Rejecting Poll Talks (BBG)
  • China provinces set lower growth goals for 2014 (BBG)

How A High Freak Algo Halted Bond Trading For 5 Seconds During Friday's Payrolls Release

It's just sad now: with every passing day bringing new (and previously unseen) cases of high frequency trading algo-generated market halts or crashes, that none of the regulators are willing to take a stand against this market scourge that we have written about for nearly 5 years now, is a clear indication that the HFT lobby is firmly in control of what were once "capital markets" and that the retail investor is once again, the sacrificial lamb. But while it was one thing for the high freak thugs to control marginal price action through momentum ignition, quote stuffing, hide not slide, flash trades, and all the other well-known manipulative techniques which seemingly are too complicated for the SEC to figure out, in equities where things get really bad is when HFTs start crashing, or at least halting, the bond market at key market inflection points such as during the most important monthly data release, the payrolls release. This is precisely what happened on Friday, when as Nanex clearly shows, a momentum ignition algo sent the ZF (5 Year T-Note future) soaring and resulting in a 5 second - an eternity in today's nanosecond age - trading halt during the actual release of the BLS report.

An Outlook For 2014 - From An Austrian Economist's Perspective

When it comes to forecasts and outlooks for 2014 (or 2013, or 2012, or 2011, etc), there is no way one can't be tired of the endless Keynesian drivel which the sellside bombards its gullible client base, which can be summarized as follows: "this is the year when the central bank strategies, which have failed to boost the global economy for the past 5 years, will finally work and the economy picks up - yes, this time will be different, we promise. Oh, and 'if' we are wrong (again), well just blame it on cold weather in the winter, or warm weather in the summer and if need be, delay the 'recovery" to the following year, while blaming the lack of insufficient stimulus - because $1 trillion in balance sheet expansion per year is obviously not enough." Rinse. Repeat. One would think spinning the same yarn year after year, they would get it right purely by luck at this point. Alas, they haven't. So for everyone tired of listening to the same old broken record, here is a completely different "Austrian" perspective, one shared by Scotiabank's Guy Haselmann.

Forget BRICs & PIIGS; Meet The Fragile 5 Emerging Markets

Despite an apparent belief among the US mainstream media that 'taper' is priced in, Saxo Capital Markets warns that Emerging Market countries with large current account deficits like Brazil, India, South Africa, Indonesia, and Turkey face increasing problems. As the following chart shows (and highlghted most recently by Brazil's highest FX outflows since 2002!) could see their currencies weaken even further if the Fed's taper plans result in a deterioration of global risk appetite.

Phoenix Capital Research's picture

These men are masters of the capital markets. They are voting with their feet and pulling their capital out of them. Given that their personal compensation is closely linked to assets under management and profit sharing, this decision is akin to the choice to forego additional wealth that could be made quite easily (none of these individuals would have trouble raising several billion more in capital) rather than trying to find opportunities in a challenging market.

Hedge Fund Slams Portuguese Bonds With 64 Page Slideshow

Traditionally, hedge fund managers that go public with multi-page slideshows bashing this or that asset, usually end up in tears (see Bill Ackman) as long as said asset is not some microcap, illiquid stock. That, however, has not stopped David Salanic of Tortus Capital Management to not only mass distribute a presentation highlighting his latest and greatest short idea but to create a website that implicitly highlights his investment thesis. The site in question is called http://rehabilitatingportugal.com/, and the asset that Salanic is bearish to quite bearish on, are Portuguese bonds.

FOMC Minutes Day Market Summary

Some better than expected economic news out of Europe, Greek 10 Year yields dropping to 7.65% or the lowest since May 2010, and futures are... red? Alas, such is life in a world in which the S&P500, aka the E-mini, is simply a derivative of the Yen funding currency pairs, where the USDJPY touched on 105 after a straight line diagonal move only to sell off in recent trading. Heading into the North American open, stocks in Europe are seen mixed, with peripheral stock indices outperforming, buoyed by the prospect of Portugal echoing yesterday’s Irish NTMA return to capital markets with its 10y bond syndication. As such, despite the cautious sentiment, financials led the move higher, with Italian banks gaining for 4th session as IT/GE 10y spread narrowed to its tightest level since early July 2011. Of note, FTSE-100 index underperformed its peers since the get-go, with retailers and tobacco names under pressure. In spite of opening higher by over 3%, Sainsbury's shares have since reversed and are seen lower by almost 2% after co. CFO said that he expects FY LFL sales to be just below 1% and expects Q4 to be similar to Q3. Elsewhere, tobacco names came under selling pressure following reports that China is planning a ban on smoking in public by year's end.

JPMorgan, Madoff, And Why No One Dared Ask "The Cult" Any "Serious Questions As Long As The Performance Is Good"

JPMorgan: "[t]here are various elements in the story that could make us nervous," including the fund managers "apparent fear of Madoff, where no one dares to ask any serious questions as long as the performance is good.... personnel at one feeder fund seem[ed] very defensive and almost scared of Madoff... They seem unwilling to ask him any difficult questions and seem to be considering his 'interests' before those of the investors. It's almost a cult he seems to have fostered."

SocGen Initiaties Coverage On Goldman With "Sell" Rating, $138 Price Target

Moments ago shots were fired when a (French) bank broke the unspoken Omerta code among sellside bankers: it downgraded another bank in a time when the S&P is just shy its all time highs (downgrading banks when the market is tumbling is usually a-ok). The note came from SocGen's Andrew Lim, whse thesis is rather simple: "Valuation too expensive in light of regulatory and revenue challenges."

Italian 2Y Yields Drop Below 1% - Record Low

With record high unemployment at 12.3%, a banking system on life support, and a teetering-on-the-brink-of-recession GDP print; it only makes sense that on the heels of this morning's trip to the capital markets by Ireland, the other peripheral bond markets in Europe are well bid. But in context, at 99.6bps, Italian 2Y yields are now at all-time record lows - is everyone in the world front-running an ECB QE? EURUSD is back under 1.3600 and even Turkish 2Y notes tumble to a mere 10.02%.

Frontrunning: January 7

  • Yellen’s Record-Low Senate Support Reflects Fed’s Politicization (BBG)
  • Euro-Zone Inflation Rate Falls in December, even further below ECB's target (WSJ)
  • Zambia politician charged for calling president a potato (AFP)
  • Blame gold: India Savings Deposit Scam Collapse Leaves Thousands Penniless (BBG)
  • Hedge Funds Raise Gold Wagers as Yamada Sees $1,000 (BBG)
  • George Osborne limits cuts options with pensions promise (FT)
  • Vietnam Raises Foreign Bank Ownership Caps to Aid System (BBG)
  • But they said buy a year ago... Goldman to JPMorgan Say Sell Emerging Markets After Slide (BBG)
  • SAC Trial Seen by Probe Convict as Latest Abusive Tactic (BBG)

Deep Freeze Day Market Summary

Heading into the North American open, stocks in Europe are seen broadly higher, with peripheral EU stock indices outperforming after Ireland successfully returned to capital markets with its 10y syndication that attracted over EUR 10bln. Financials benefited the most from the consequent credit and bond yield spreads tightening, with smaller Italian and Spanish banks gaining around 4%. Following the successful placement, IR/GE 10y bond yield spread was seen at its tightest level since April 2010, while PO/GE 10y spread also tightened in reaction to premarket reports by Diario Economico citing sources that Portuguese govt and debt agency IGCP consider that the current level of yields already allows Portugal to go ahead with a bond sale. Looking elsewhere, the release of better than expected macroeconomic data from Germany, together with an in line Eurozone CPI, supported EUR which gradually moved into positive territory. In addition to that, smaller MRO allotment by the ECB resulted in bear steepening of the Euribor curve and also buoyed EONIA 1y1y rates. The Spanish and Italian markets are the best-performing larger bourses, Swedish the worst. The euro is stronger against the dollar. Japanese 10yr bond yields fall; Spanish yields decline. Commodities gain, with wheat, silver underperforming and Brent crude outperforming. U.S. trade balance data released later.

Guest Post: Adaptive Investing - What's Your Market DNA?

Evolutionary theory as a perspective for understanding human behavior within capital markets is a more useful perspective than what economic theory has become... a cloistered, brittle theology that day after day becomes more abstract in its formation and more narrow in its application. The first and most basic lesson of an evolutionary perspective properly applied: we are well served as investors to jettison the superiority complex that comes with living in the present and looking back on what naturally seems a benighted past. The notions of liberal progress and evolution-as-hierarchy are so deeply ingrained that we assume that whatever behaviors are new or modern, including modern investment management practices or modern investment strategies (or modern monetary policy), must be part and parcel of some advancement over what existed in the past. In truth there is no up-and-to-the-right arrow associated with evolution; there is no intelligent design pushing us “forward”.