Yesterday's SEC panel discussion on HFT was largely uncovered by the media, as it was for the most part a one-sided, lobbying effort of the HFT industry to make it seem that all is good with the market and to make it explicit that "once in a lifetime" events like the May 6th 1,000 point crash don't really occur and what was experienced (and will be again quite soon) was a statistical impossibility. Tell that to all those who got stopped out by the market's arbitrary 60% cut off for DK'ed trades and lost millions. For a good, clean, simplistic perspective on HFT, we present this most recent summary piece by the Daily Finance's Peter Cohan, called "What you need to know about HFT." As Cohan summarizes it, "All this so-called liquidity, which generally makes it possible for buyers and sellers to meet, suddenly disappeared because the high-frequency traders' books became too imbalanced. So the HFTs stopped trading, the liquidity dried up and the market plunged." For more sophisticated readers who wish to dig between the lines of naive explanations of industry participants whose primary goal is to escape scapegoating in this time of regulatory upheaval, here is the link to the SEC panel on HFT, which among other industry participants, includes Themis Trading's Sal Arnuk, arguably one of the most objective voices of caution when it comes to broken market structure. In the attached clip, Sal's prepared remarks begin 3 minutes into the video.
Full recap of the ideas and recommendations at yesterday's Ira Sohn conference.
If we are not there, we're pretty close.
Goldman Says Fin Reg Reform Not So Bad, Even As Market Whacks More Market Cap On Possible Prop Spin OffSubmitted by Tyler Durden on 05/17/2010 11:33 -0500
It seems these past few weeks Goldman's favorite topic to discuss is Fin Reg, which the firm pretends to support even as it dispatches an army of lobbyists to prevent it from occurring. A new piece from Goldman's Richard Ramsden attempts to quell the panic gripping financials in the wake of reports that the Volcker rule may have a green light to passing. Ramsden writes, "The argument for big banks does not rely on value alone. Consumer credit is improving, and we think there is more to come based on the underappreciated improvement in early unemployment" and he underscores that "Transfer of credit to government balance sheet [is] most pronounced in residential mortgages." Ramsden then goes on to say other irrelevant things, even as the market continue to punish Goldman in advance of the firm's likely need to spin off prop. And after all, what is the big deal. Hasn't Goldman said about 1 trillion times that prop trading is just 10% of its revenues? Why should the market punish the stock so harshly if Goldman is forced to spin off prop trading? Just cut off 10% of the firm's market cap and we are done. Too bad, the drop from $185 to $140 is more like 30% and climbing. Could Goldman, gasp, be lying?
What do you think those bankers with perfect trading days in Q1 did with all the money they made? As Eli Broad said, "No one wants paper money — they want art.” This is the Fed's gift to these bankers.
Apollo's Much Delayed Noranda Public Offering Sees 70% Price Cut, As IPO Window Prepares To Slam ShutSubmitted by Tyler Durden on 05/14/2010 07:22 -0500
One of the most delayed IPOs in the history of capital markets, that of Apollo's Noranda Aluminum, which first was allegedly coming to market in 2008, has finally priced. And it's a stunner: after preliminary expectations for raising as much as $266.7 million (16.66 million shares at $16/share), the company barely managed to attract interest for 30% of this amount, or a paltry $80 million. The 70% reduction in the price is a record for 2010 IPOs and shows that the IPO window in which the Goldman "Idiot Money" Rolodex is put to full use, is pretty much shut. Only this time it wasn't Goldman leading the underwriter brigade: GS was only fourth in the line up of managers. This IPO debacle is exclusively the work of lead manager Bank Of America, which more or less explains the fiasco. If you need a crap REIT upgraded you go with Merrill. Everything else will end in tears. And it also goes to show that if you need to find fools willing to part with their money, Goldman is and always will be the way to go. We are very much surprised Leon Black is not fully aware of this. As a result even pro forma for the IPO, Noranda is still leveraged 5x+, or more than three times its peer universe average. Dear latest money investors: our message to you is to prepare to lose your entire investment within a year.
There does not seem to pass a day anymore without Goldman having to do a daily trip to CVS to buy a barrel of KY. The NYT reports that today's criminal investigation comes courtesy of Ny AG Andrew Cuomo who is now investigating whether 8 banks provided misleading information to rating agencies in order to inflate grades of mortgage and other securities. The banks in question are Goldman Sachs, Morgan Stanley, UBS, Citigroup, Credit Suisse, Deutsche Bank, Crédit Agricole and Merrill Lynch. We are confident that unless "misleading information" is a euphemism for massive and totally unwarranted fees (and expenses), and oftentimes criminal leaks (Deep Shah comes to mind), Cuomo will find little to base an actual investigation on. Furthermore, as an escape mechanism, the rating agencies can always place the blame on Microsoft for creating a faulty Excel product whichalways # Ref'ed out whenever the agencies tried to put in anything less than infinite growth rates.
Which door will it be?
Now that we’re all honorary members of the “Halfway To Hell Club”, a group of nineteen men who seemingly fell to their deaths while constructing the Golden Gate Bridge only to be saved by a crude and rudimentary net halfway down, I present this entirely fictional account of last Thursday’s market crash. Only the names were changed to protect the guilty.
A year ago, before anyone aside from a hundred or so people had ever heard the words High Frequency Trading, Flash orders, Predatory algorithms, Sigma X, Sonar, Market topology, Liquidity providers, Supplementary Liquidity Providers, and many variations on these, Zero Hedge embarked upon a path to warn and hopefully prevent a full-blown market meltdown. On April 10, 2009, in a piece titled "The Incredibly Shrinking Market Liquidity, Or The Black Swan Of Black Swans" we cautioned "what happens in a world where the very core of the capital markets
system is gradually deleveraging to a point where maintaining a liquid
and orderly market becomes impossible: large swings on low volume,
massive bid-offer spreads, huge trading costs, inability to clear and
numerous failed trades. When the quant deleveraging finally catches up
with the market, the consequences will likely be unprecedented, with
dramatic dislocations leading the market both higher and lower on
record volatility." Today, after over a year of seemingly ceaseless heckling and jeering by numerous self-proclaimed experts and industry lobbyists, we are vindicated. We enjoy being heckled - we got a lot of it when we started discussing Goldman Sachs in early 2009. Look where that ended. Today, we have reached an apex in our quest to prevent the HFT "Black Monday" juggernaut, as absent the last minute intervention of still unknown powers, the market, for all intents and purposes, broke. Liquidity disappeared. What happened today was no fat finger, it was no panic selling by one major account: it was simply the impact of everyone in the HFT community going from port to starboard on the boat, at precisely the same time. And in doing so, these very actors, who in over a year have been complaining they are unfairly targeted because all they do is "provide liquidity", did anything but what they claim is their sworn duty. In fact, as Dennis Dick shows (see below) they were aggressive takers of liquidity at the peak of the meltdown, exacerbating the Dow drop as it slid 1000 points intraday. It is time for the SEC to do its job and not only ban flash trading as it said it would almost a year ago, but get rid of all the predatory aspects of high frequency trading, which are pretty much all of them. In 20 minutes the market showed that it is as broken as it was at the nadir of the market crash. Through its inactivity to investigate the market structure, the SEC has made things a million times worse, as HFT-trading seminars for idiots are now rampant. HFT killed over 12 months of hard fought propaganda by the likes of CNBC which has valiantly tried to restore faith in our broken capital markets. They have now failed in that task too. After today investors will have little if any faith left in the US stocks, assuming they had any to begin with. We need to purge the equity market structure of all liquidity-taking parasitic players. We must start today with High Frequency Trading.
"CNBC's house blowhard, Charlie Gasparino, laughed at the "securities fraud" line, saying, "Try proving that one." The Atlantic's online Randian cyber-shill, Megan McArdle, said Rolling Stone had "absurdly" accused Goldman of committing a crime, arguing that "Goldman's customers for CDOs are not little grannies who think a bond coupon is what you use to buy denture glue." Former Wall Street Journal reporter Heidi Moore hilariously pointed out that Goldman wasn't the only one betting against the housing market, citing the short-selling success of – you guessed it – John Paulson as evidence that Goldman shouldn't be singled out.
The truth is that what Goldman is alleged to have done in this SEC case is even worse than what all these assholes laughed at us for talking about last year." Matt Taibbi
Cut the Partisan Crap ... BOTH the Private Sector AND the Government are to Blame for the Financial CrisisSubmitted by George Washington on 05/01/2010 22:26 -0500
Don't fall for 'ye ole divide-and-conquer strategy ...
Improving California state finances make its municipal bonds a “buy.” With California in the heat of primary elections, this is good news no one seems to want to talk about. Inconvenient ties to the “vampire squid.” With taxes about to skyrocket everywhere, tax free municipal bonds are about to become more valuable. What’s this movie, "Fight Club", all about, anyway? (VCV), (NCP), (NVX).
We are going through the March 2007 prospectus, with an emphasis on the Risk Factors section. We are convinced Timberwolf will feature prominently during tomorrow's questioning of Tom Montag. Another question: will Tannin and Cioffi appear as surprise witnesses. We have yet to encounter any discussion of how and why Abacus may have been involved in this deal, or why, as Montag so eloquently put it, it was "one shitty deal."