- World Bank president Zoellick: "Markets heading to new danger zone" (Reuters)
- Treasury yields testing bank limits (FT)
- Three steps to resolving the eurozone crisis (FT)
- Singapore Prime Minister: Global Recession Is 'A Possibility' (WSJ)
- A helpless SNB leaks even more disinformation: CHF should be linked to € (Manager Magazin)
- Japan’s GDP shrinks less than expected (FT)
- SNB, Swiss Government in Talks Over Franc Target, SonntagsZeitung Reports (Bloomberg)
- Japan’s Noda Warns of Further Intervention as Yen Again Nears Postwar High (Bloomberg)
The same robots that accelerated the selloff yesterday, are in charge of the buying this morning, as the mean reversion signals kick in, potentially with a helping hand from the Citadel/FRBNY JV. Yet the "all clear" is nowhere to be found, and in fact confidence continues to evaporate.Today, investors and risk managers have once again shifted their attention across the Atlantic, where the epicenter of this morning's unease is to be found once again in the form of European funding concerns. Exhibit A is the Euribor/OIS spread which at +5.4 bps, and rising, is now at 46.8 bps, the highest since June 2009 (see chart below). Add to this yet another day of unprecedented strength in the Swiss Franc which has now undone all SNB intervention from last week, courtesy of ongoing bank runs across Europe which will be disclosed to the broader public only once it is too late, and we are fairly confident that absent very encouraging language from the Fed, the market's focus will once again shift to Europe and its ridiculously insolvent bad bank, the ECB, at which point the algos will have no chance against yet another onslaught of global selling.
- Rogoff: Fed Will Embark on QE3, Act ‘Decisively’ (Bloomberg)
- China Inflation Quickens to 6.5%, Limits Policy Response to Global Crisis (Bloomberg)
- ECB Puts Pressure on Italy (WSJ)
- Chinese Fault Beijing Over Foreign Reserves (NYT)
- Senate to probe S&P downgrade (FT)
- Cameron Back to U.K. for Emergency Meeting on Riots (Bloomberg)
- Trichet Turns ‘President of Europe’ as Debt Crisis Stuns Political Leaders (Bloomberg)
- Hong Kong Sells Land 33% Below Surveyors’ Estimates Amid Market Turmoil (Bloomberg)
And how did Treasury paper do following Standard & Poor’s bombshell downgrade of U.S. debt? Why, T-Bonds, Bills and Notes came through unscathed, thank you. Actually, they did much better than that, rallying so sharply yesterday that one might have inferred the U.S. was the last citadel against the panic, confusion and fear that rein elsewhere in the world.
But at least the vacuum tube mindless buying into the close prevented 9 straight down days. We hope they managed to dump to Citadel aka the New York Fed in the last print or else a few more math Ph.D's will be joining next week's Initial Claims ranks.
After pillaging the G Fund and Civil Service Retirement and Disability Fund (CSRDF), aka the Government retirement funds, Tim Geithner was just forced to resort to the final debt ceiling extension measure: suspending reinvestment in the Exchange Stabilization Fund, better known as the mechanism by which the Treasury manipulates the stock, bond and FX markets, often times indirectly (thank you Brian Sack and Citadel fat pipe) and on occasion with CIA assistance. What this means is that FX vol will likely hit unseen levels in the next several weeks as the Treasury's manipulative ways are strongly curtailed.
As of 30 minutes ago, the ramp in stocks which came out of nowehere, on now news, but is certainly going to generate a whole lot of FRBNY trade tickets over at Citadel, has managed to do absolutely nothing to restore confidence in the average man that the economy is not heading into redepression, but been very successful at causing the risk spread to surge to day wides. Historically the spread has closed promptly on high correlation days, although today's market action is so abnormally surreal it may be best to just step back and observe.
The Japanese Plunge Protection Team Exposed: The BOJ's "1% Rule", Or The "Shirakawa Put" In PracticeSubmitted by Tyler Durden on 06/20/2011 00:58 -0400
One of the most conspiratorial topics in all of fringe finance has been the existence of the plunge protection team, which while widely known to exist and intervene during major drops in the US capital markets, has never been actually seen in action (thank you Citadel trade ticket shredders). And while the US PPT has increasing grown irrelevant now that the Fed's open market intervention is no longer the source of folklore courtesy of Bernanke's self-professed third mandate vis-a-vis the Russell 2000, it does provide the tinfoil crowd with immense satisfaction to know that virtually always it ends up being proven in the long run not only when it comes to the big picture, but the nuances as well. Enter Nikkei's report (subscription required) on the BOJ's 1% Rule which is "propping up the Nikkei."
By unanimous vote, the ISDA determinations committee (which also includes such hedge funds as DE Shaw, Citadel and BlueMountain...and Goldman Sachs) has agreed that Allied Irish Banks PLC has officially experienced a Restructuring Event. CDS settlement to proceed next. And yes, thanks to daily variation margin on CDS this means absolutely nothing, and should the cash/physical settlement auction clear tight of prevailing prices depending on where CTD bonds trade, it means CDS sellers will (gasp) receive daily margin cash at the end of the day. Yes, contrary to AIG-related stigma, selling CDS on an entity does not mean an automatic default for the sellers of protection. But that won't prevent those who have no idea how the CDS market operates to spread more BS stories, especially as relates to Greek, then all other PIIGS, CDS.
Billion Dollar Fund Managers Agree: The Government Never Fixed the Underlying Economic Problems, So We'll Have Another CrashSubmitted by George Washington on 05/31/2011 14:54 -0400
What the smart money is saying ...
Following the previously reported news that Germany is sacrificing its political leadership, not to mention credibility, to bailout its banks, futures are currently ripping. As the chart below indicates, ES is surging right now, even as the broader risk basket is left far behind, since the markt realizes the "Brian Sack" pod at Citadel will be double taxpayers doubletime.
Increasingly more people are starting to outwit the Fed at its own game, which appears to have run out of sufficient capital to manipulate all risk assets (troubles at Citadel?), and thus is forced to focus exclusively on the E-mini. While not pointed out explicitly today, those who were following the trade were presented with an amazing opportunity to pick several basis points when ES once again ramped away from the risk basket (AUDJPY, EURUSD, 10 year, 2s10s30s, Oil and Gold) following the more than obvious buy program attempt to triggers stops, only to slam back with a vengeance and close the gap at close. Like clockwork. The trade continues to be an ideal play for everyone who wishes to remain bull/bear agnostic, and merely trade against Brian Sack's increasingly desperate and underfunded attempts at risk manipulation.
More spying on elite funds like Paulson & Co., Soros Fund Management, SAC Capital Advisors, Citadel Advisors, Renaissance Technologies and Baupost Group...
And so the broader risk basket of AUDJPY, EURJPY, 10Y, 2s10s30s, gold, and oil once again rapidly diverges from the ES, which must mean that Citadel is busy processing FRBNY trade tickets on a FIFO basis. Expect the spread to close (buy the basket in a pro rata basis for an intraday correlation catch up), or not: all depends on just how aggressive Brian Sack is to indicate that life is good, wealth effect is wonderful, and the rapture is overblown. Bottom line: either play both legs outright in a pair combo, or sell ES for a FV 4 points lower.
Remember the other most hyped up re-IPO ever, AIG (after that other Marxist-inspired, union-lubricating, channel-stuffing debacle GM)? The same company that nearly brought down the system, that insured more disaster prone garbage than even Berkshire Hathaway, which is 92% owned by the government because it wouldn't look cool if the government fully nationalized everyone after Lehman was left to die, and was subsequently eagerly attempting to buy back its toxic filth at half off prices from Goldman's Bill Dudley who just so happens works at 33 Liberty now? Well, you can kiss that goodbye: the FT reports that "AIG and the US Treasury are discussing whether to shelve or scale back plans for a large public offering this month because of the lacklustre performance of the insurer’s shares in recent weeks, people close to the situation said." You can also kiss the Treasury's boasts of a break even on its AIG "investment" - this despite 2 years of endless market levitation, forced short squeeze, margin hikes, several wars, $4 trillion in monetary and fiscal stimuli, and most certainly, the kitchen sink. "People involved said the most likely outcome of the deliberations would be for the offering to proceed at a smaller size and closer to the Treasury’s break-even point. This would allow the restructured company to provide a longer record to the market before a larger sale later this year. Shares in AIG have fallen more than 30 per cent since January 20, hitting $29.62 on Tuesday and jeopardising taxpayers’ profits on the share sale. Treasury’s break-even level is $28.73 a share and officials have been reluctant to approve an offering below that price." This likely also means that any follow on equity capital raises by AIG will be relegated to CDO issuance and other "silly paper" that will be bought only with other people's money.