This is the first installment in a series of HFT War Stories, submitted anonymously by high frequency and algorithmic traders highlighting the perils of their profession. Today we look at a $2 Billion near miss that never made the news. The public only hears about these types of SNAFUs if they blow up a firm. Hundreds more go unnoticed by anyone but the traders who lived through them.
When Calpers buys an international asset for its investors, is it intervening in the forex market on behalf of the US?
Roughly a month ago, we exposed CYNK Technology Corp. The CYNK bubble was, of course, the result of carefully planned deceit and clever promotion by a handful of people who stood to make a lot of money on the trade. But when you think about it, CYNK’s stock wasn’t really any dumber than owning US Treasuries. In the case of CYNK, it only took about a month for the bubble to inflate and burst. The Treasury bubble, on the other hand, was built on credibility earned over decades; but while previous generations earned the world’s trust, modern day politicians have blown through it. Now all they have left is their snake oil sales pitch. And a mountain of obligations that closed July 2014 at a record high $17.69 trillion.
Back in the summer of 2011 during the debt ceiling debacle, S&P did the unthinkable: it dared to speak the truth when it downgraded the US from its pristine AAA rating, setting off a stock market selloff and paradoxically sending bonds to record low yields. This resulted in a vindictive Tim Geithner promptly warning the Chairman of McGraw-Hill the US would retaliate (which it did), the termination of then CEO Devan Sharma (and his replacement with the all too friendly COO of Citibank), and most importantly, a still ongoing legal fight in which the DOJ sued S&P (and only S&P, not Moody's, not Fitch) allegedly for rating improprieties during the first housing bubble, but even 5 year olds knew it was just to teach S&P a lesson. Today we learn just what the cost is for anyone who dares to downgrade the US. The answer: $1,000,000,000. That is the amount that S&P has decided it will agree to pay in a settlement with the DOJ to put all this "truthiness" unpleasantness behind it.
Now that Eric Cantor is history, crushed by an unexpected Tea Party "David" (literally and metaphorically) as the US population finally begins to say no to an artifical "two-party" system which is quite united in only serving its Wall Street masters, it is time for that other republican, none other than the consummate folding lawn chair John Boehner, to scramble fearing for his own political career. And since the only way the GOP knows to challenge the implosion of the US republic is by making loud noises and providing hours of hollow theatrical entertainment, here comes Boehner with the biggest soap opera he could muster: moments ago the speaker announced he plans to sue Obama "on behalf of the House over his frequent use of executive actions that Republicans believe are beyond his authority."
While one may opine if today's 2 Year auction was weak or strong, one thing is indisputable: at a pricing high yield of 0.511% (even if 0.4 bps through the When Issued), this was the highest closing yield for 2 Year paper since May 2011 when it priced at 0.56% just before the US debt ceiling debacle and US downgrade firmly reset the bond market far lower. As for the other components of today's auction, the Bid To Cover came at 3.231, below the 3.519 from May, if just below the TTM average of 3.34. The internals were unimpressive, with Direct and Indirects splitting the post almost equally, getting just over 23% of the auction each, while Dealers were left holding 54.6% of the final allottment.
It's possible to describe Rep.Eric Cantor as a serial sell-out. But that would be giving an unprincipled politician driven by an unalloyed ambition to climb the greasy pole of Washington power too much credit. In truth, Cantor never campaigned for any recognizable principle; he merely maneuvered his way to the top of the House GOP hierarchy by following in the tawdry footsteps of modern GOP bagmen like Tom DeLay and Roy Blunt. Eric Cantor made a career of milking the Warfare State and pandering to Wall Street. This brought him nearly to the top of the Washington heap. But in the end, it did not fool his constituents. And most certainly it set back the conservative cause immeasurably.
The 21st century is still young, but it has already presented the United States with a series of internal and external challenges. History tells us that when one hegemon is in decline, international relations become more complex and uncertainties increase the risks. We may be in such a period today.
The hedge fund slaughter continued for a second week in a row, and now we know at least one of the parties that was liquidating - curious which hedge fund is unwinding (the first of many)? Here is the answer: "On an investor call Thursday, Mr. Citrone said Discovery had reduced the amount of risk it was taking and that he remained confident that U.S. growth was accelerating." More importantly, for those curious where the pain will continue to be focused as the HF unwind accelerates, here are the most held long hedge fund positions which if indeed the unwind has begun, will be slaughtered in the coming days.
Last week in the markets was all about what was happening below the calm surface waters, which saw the DJIA post a tiny increase and the S&P dip just a fraction. If one was going off merely by the two main indices, one would certainly have missed the drubbing that tech and specifically biotech stocks suffered. However, nowhere was it worse than in the "hedge fund hotel" basket of names most near and dear to the hearts of hedge funds, and respectively those most hated, one which Goldman defines as the long Very Important Positions <GSTHHVIP> vs. short Very Important Shorts <GSTHVISP>. It was here that P&Ls saw one of the worst weekly losses for hedge fund positions since 2001.
Former HUD Assistant Housing Secretary and investment advisor Catherine Austin Fitts reveals her thoughts on the ever-rising debt ceiling... what Obamacare is really about (and that’s not socialized healthcare)... why over $4 trillion missing from federal programs may not be incompetence, but a covert strategy... how to protect yourself from the constant devaluation of the US dollar... and what exactly the Popsicle Index measures and why it matters... "are we going to create a society where one hundred percent of everything is digitized and under central control?”
While it is unclear why it happened, in the most recent week of Fed data, February 19, Primary Dealer holdings of Coupon securities tumbled by $21 billion, to just $2.3 billion. As the chart below show this is curious because the last time PD holdings of coupon securities was this low was in September of 2011, suggesting that in the middle of the month dealers were dumping coupon paper aggressively even though this did not impact the prevailing price of the various maturity buckets, considering the bond complex continues to grind higher in 2014 despite panicked warnings by the punditry that all Treasury holdings must be sold.
Take your pick of which "confidence" measure you choose to watch to confirm your previous "common knowledge" meme. Unsurprisingly, the government's own Conference Board indicator provides the highest level of confidence relative to recent months but today's beat by UMich (81.2 flat from last month but above 80.2 expectations) is the highest overall level among the indices. It seems not even the weather can dampen the enthusiasm of the US consumer (who is retail spending at a dismally low level?) Hardly surprising is the fact that the tumble in the current conditions index was entirely dissolved by the hope for the economic outlook which stands at 6 month highs! Short-dated inflation expectations also ticked up. Of course what really matters is keeping the dream alive that multiple-expanding confidence will cover up any and all missed expectations in macro and micro data.
- Comcast Agrees to Buy Time Warner Cable for $45.2 Billion (BBG)
- Italian leadership squabble weighs as shares halt hot run (Reuters)
- Russia says Syria aid draft could open door to military action (Reuters)
- China trust assets rise 46% in 2013 (WSJ), China Trust Assets Surge to $1.8 Trillion Amid Default Risks (BBG)
- Australian Unemployment Jumps to 10-Year High (BBG)
- Tea Party Scorns Republicans as House Lifts Debt Ceiling (BBG)
- Peso plunge forces Argentine soya hoarding (FT)
- BNP Paribas Net Falls After $1.1 Billion U.S. Legal Charge (BBG)
- Hacking Joins Curriculum as Businesses Seek Cyber Skills (BBG)
- Android's 'Open' System Has Limits (WSJ)
- Blackstone-Fueled Single-Family Home Boom Lifts Chicago (BBG)
After initially sending the all important USDJPY carry pair - and thus all risk assets - into rally mode, the initial euphoria over manipulated Chinese trade data (see China Trade Puzzle Revived as Hong Kong Data Diverge), has all but fizzled and at last check the USDJPY was sliding to its LOD, approaching 102 from the wrong side. That, and a statement by the ECB's Coeure that the ECB is "very seriously" considering a negative deposit rate (and that the OMT is ready to be used even though it obviously isn't following the latest brewhaha from the German top court) have so far defined the overnight session, the latter having sent the EUR sliding across all major pairs.