Citadel

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Presenting All The US Debt That's Fit To Monetize





So far the Fed's 4 year old QEasing strategy has failed for the simple reason that the smart money instead of being "herded", has far more simply decided to just front-run the Fed thus generating risk-free returns, while the "dumb money", tired of the HFT and Fed-manipulated, and utterly broken casino market, has simply allocated residual capital either into deposits (M2 just hit a new all time record of $10.2 trillion) or into "return of capital" products such as taxable and non-taxable bonds. Alas none of the above means that the Fed will ever stop from the "strategy" it undertook nearly 4 years ago to the day with QE1. Instead, it will continue doing more of the same until the bitter end. But how much more is there? To answer this question, below we present the entire universe of marketable US debt, in one simple chart showing the average yield by product type on the Y-axis, and the total debt notional on the X.

 
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A Surge In "Market Conditions" Imminent?





While hardly a crash, today's AAPL driven market swoon is certainly not the stuff centrally-planned market confidence is built on (not to mention yet another day of various abnormal stock trading patterns in some of the more retail-heavy held stocks which will hardly break the pattern of domestic capital flowing out of equities and into bonds). And as we have seen in the past two weeks, when even green days have resulted in the infamous "market conditions" clause being triggered for companies attempting to sell equity or raise debt, today's red day, assuming of course, the fat pipe between Citadel and the FRBNY is not unclogged for the last hour of trading ramp, may mean that a surge of "market conditional" excuses by companies and underwriters is imminent. The reason: as the WSJ reports there are no less than 10 IPOs in the next 3 days. Should today's market tone persist into the close, we would be very surprised if even half of these price in a market in which the primary market bid disappears on even a -0.01% close.

 
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US Foodstamp Usage Rises To New Record High





While the 0.4% perfectly unmanipulated and totally coincidental swing in the unemployment rate in an Obama favorable direction one month before the election came at a prime time moment for the market, one hour ahead of the open, setting the market mood for the rest of the day (which despite all best efforts still closed red, valiant efforts by Simon Potter and the FRBNY's direct pipe to Citadel notwithstanding), there was one other, far more important data point released by the government's department of agriculture, sufficiently late after the market close to impact no risk assets. That data point of course was foodstamps (or the government's Supplemental Nutrition Assistance Program, aka SNAP), and we are confident that no readers will be surprised to learn that foodstamp usage for both persons and households, has jumped to a new all time record.... Finally, and putting it all into perspective, since December 2007, or the start of the Great Depression ver 2.0, the number of jobs lost is 4.5 million, while those added to foodstamps and disability rolls, has increased by a unprecedented 21 million.

 
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Where Gas Prices Are Highest





Think the US has it bad with its "soaring" gas price, which is now back to $3.75 per gallon? Think again. Here, courtesy of Bloomberg, is a list of the countries whose gasoline cost puts what Americans pay at the pump to shame. In order of descending gas prices, below are the 20 places in the world where one does not want to "fill 'er up."

 
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From Knight To Schrödinger Cat: Brokerage Scrambles Half-Alive, Half-Dead





Update via CNBC:

  • CITADEL, KRR SAID NO LONGER TO BE LOOKING AT KNIGHT
  • KNIGHT CAPITAL CLOSE TO FUNDING DEAL, CNBC'S KATE KELLY SAYS
  • KNIGHT MAY GENERATE ABOUT $400 MLN FROM INVESTORS, KELLY SAYS
  • GETCO, TD AMERITRADE LIKELY PART OF INVESTMENT GROUP: KELLY

Knight Capital is scrambling: it has a few hours to convince any potential suitors that it is worth some $300 million more alive than having its carcass picked off at a cost of $0.01 over its debt (which itself will likely be materially impaired) in a Chapter 11 Stalking Horse sale. If the Sunday before the Lehman, and MF Global, bankruptcy filings is any indication, the third time will not be the charm for the company whose 1400 employees may have no place to call work at 9am tomorrow. Sadly, in a world in which entire countries and continents have taken on the patina of Schrödingerian felinism, constantly shifting between alive and dead states depending on who is looking, we would take the under on the probability that the firm's lawyers will not be visiting 1 Bowling Green at some point in the next 16 hours.

 
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Who Is Funding The Presidential Race? A List Of The Uber-Wealthy Behind The PACs





Corporations may or may not be people, but money has always talked, and the wealthy certainly do have a lot of excess cash lying around which they would rather prefer spending in hopes of generating the highest IRR possible by influencing the outcome of the presidential race. Below is a look of the uber-rich who have contributed at least $1 million to the major PACs as disclosed to the Federal Election Commission.

 
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This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied - The Sequel





Two years ago, in January 2010, Zero Hedge wrote "This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied" which became one of our most read stories of the year. The reason? Perhaps something to do with an implicit attempt at capital controls by the government on one of the primary forms of cash aggregation available: $2.7 trillion in US money market funds. The proximal catalyst back then were new proposed regulations seeking to pull one of these three core pillars (these being no volatility, instantaneous liquidity, and redeemability) from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7. A key proposal would give money market fund managers the option to "suspend redemptions to allow for the orderly liquidation of fund assets." In other words: an attempt to prevent money market runs (the same thing that crushed Lehman when the Reserve Fund broke the buck). This idea, which previously had been implicitly backed by the all important Group of 30 which is basically the shadow central planners of the world (don't believe us? check out the roster of current members), did not get too far, and was quickly forgotten. Until today, when the New York Fed decided to bring it back from the dead by publishing "The Minimum Balance At Risk: A Proposal to Mitigate the Systemic Risks Posed by Money Market FUnds". Now it is well known that any attempt to prevent a bank runs achieves nothing but merely accelerating just that (as Europe recently learned). But this coming from central planners - who never can accurately predict a rational response - is not surprising. What is surprising is that this proposal is reincarnated now. The question becomes: why now? What does the Fed know about market liquidity conditions that it does not want to share, and more importantly, is the Fed seeing a rapid deterioration in liquidity conditions in the future, that may and/or will prompt retail investors to pull their money in another Lehman-like bank run repeat?

 
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The Dark (Pool) Truth About What Really Goes On In The Stock Market: Part 3





High-frequency trading became so competitive that on a truly level playing field no one could make money operating at high volumes. Starting in 2008, there had been a frantic rush into the high-frequency gold mine at a time when nearly every other investment strategy on Wall Street was imploding. That competition was making it very hard for the firms to make a profit without using methods that Bodek viewed as seedy at best. And so a complex system evolved to pick winners and losers. It was done through speed and exotic order types. If you didn’t know which orders to use, and when to use them, you lost nearly every time. To Bodek, it was fundamentally unfair—it was rigged. There were too many conflicts of interest, too many shared benefits between exchanges and the traders they catered to. Only the biggest, most sophisticated, connected firms in the world could win this race.

 
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Meet The New Head Of The New York Fed's Plunge Protection Team





Simon M. Potter

Brian Sack, whom we have all grown to love and loathe, and whose mysterious Citadel trade tickets seemingly out of nowhere have prevented financial meltdowns on more than one occasion, may be leaving us next Friday, but that does not mean the Plunge Protection Team will remain headless. Meet Brian's replacement: Simon Potter, who before joining the NY Fed was... assistant professor of economics at UCLA, Johns Hopkins University, New York University and Princeton University and who " has written extensively on nonlinear dynamics over the business cycles. Recent topics have included forecasting the probability of recession, large panel forecasting models, modeling structural change and inflation expectations." So now we have a Keynesian economics professor with an expertise in "modeling inflation expectations" in charge of the S&P. Swell.

 
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Not Even Goldman Understands This Market Any More





The following EOD commentary from Goldman's S&T desk pretty much summarizes how everyone feels.

 
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Has JPMorgan Already Unwound Its Losing Trade?





On Thursday night, after it became clear that JPM has lost at least $2 billion on what is most likely an IG9 Index skew (Index less Intrinsics) trade gone horribly wrong, we first predicted (and promptly were piggybacked on by other various financial blogs) that based on various factors, there is about $3 billion more in the pain trade coming in JPM's general direction, once IG9 blows out to catch up to a fair value not supported by JPM(artingale's) infinitely backstopped prop desk. Sure enough, by closing on Friday, IG9 (and the entire IG curve), had blown out wider, by a whopping 10 basis points: one of the biggest intraday moves in nearly a year. In P&L terms, by close of Friday, all else equal, JPM had lost another $2-3 billion on the same trade it had lost over $2 billion since the beginning of April. We expect to hear confirmation of this shortly. Which however brings another question: has JPM closed out its losing trade, or is the entire move in the index (and to a far less extent in the intrinsics) due to hedge funds who have piggybacked on the "crush JPM" trade? The truth is we don't know, and until we get the latest weekly DTCC data on CDS notional outstanding we won't know. However, our gut feeling is that it would have been virtually impossible for JPM to lift every single offer in unwinding a $100+ billion notional position without sending the entire IG curve multiples wider. Which is why keep a close eye on the IG9 10 Year skew - this is where, as ZH first noted, the action is. If the skew soars, it is likely that the runaway train will keep going and going, until JPM issues a formal announcement that the firm is fully out of the trade, together with a final tally of its losses, which will probably be double the reported loss as of Thursday. At which point IG9/18 will see an epic ripfest as those short risk will scramble to cover.

 
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NYSE Short Interest Rises To 2012 Highs





On the surface, the fact that NYSE short interest was just reported today to have risen to 13.1 billion shares as of April 30 could be troubling for the bears, as this just happens to be the highest short interest number of 2012. Indeed, an increase in short interest into a centrally-planned market is always disturbing, as it opens up stocks to the kinds of baseless short covering melt ups that simply have some HFT algo going on a stop hunt as their source, that we have seen in the past several weeks. Naturally, it would be far easier to be short a market in which Ben Bernanke managed to eradicate all other bears, especially when considering that a year ago the Short Interest as of April 30 was virtually identical.

 
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Blythe Masters On The Blogosphere, Silver Manipulation, Gold-Axed Clients And Doing The "Wrong" Thing





For all those who have long been curious what the precious metals "queen" thinks about allegations involving her and her fimr in gold and silver manipulation, how JPMorgan is positioned in the precious metals market, and how she views the fringe elements of media, as well as JPMorgan's ethical limitations to engaging in 'wrong' behavior, the answers are all here.

 
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