What can we say: it would be flagrantly criminal if the most incompetent and corrupt organization in the world was allowed to be unaccountable to anyone, least of all the US citizen. Our respect to Senators Leahy, Cornyn and Kaufman and Grassley for doing what is so obviously right, we are stunned only four senators ended up sponsoring legislation proposed by the Senate Judiciary Committee to strike the FOIA exemption for the SEC. Full press release below.
- SEC Says New Financial Regulation Law Exempts it From Public Disclosure, in other words the SEC did not reply to your FOIA before, when it was busy watching porn, it surely won't reply now, when it is again busy watching porn (Fox Business)
- Fannie Mae, Freddie Mac Still Too Big to Nail (Bloomberg)
- Moody's says US needs debt plan to keep rating (Reuters)
- Niall Ferguson: Sun Could Set Suddenly on Superpower as Debt Bites (Australian)
- Europe economic confidence rises as exports benefit from record low EUR (Bloomberg), and now that the regime has changed, expect Europe to plunge again as US exports pick up, and so forth, and so forth, with the capital flow from Europe to the US becoming a daily occurrence
- Europe Follows Misguided U.S. Policy: The Stress Tests Conducted in 2009 Were a Disaster (Forbes)
- Renminbi Peg: On Again, Off Again - Cleveland Fed says depegging CNY will not help US trade deficit (Cleveland Fed)
Scientific Proof That High Frequency Trading Induces Adverse Changes In Market Microstructure And Dynamics, And Puts Market Fairness Under QuestionSubmitted by Tyler Durden on 07/12/2010 23:46 -0500
Up until recently, any debate between proponents and opponents of High Frequency Trading would typically be represented by heated debates of high conviction on either side, with discussions rapidly deteriorating into ad hominem attacks and the producer screaming 'cut to commercial' to prevent fistfights. Luckily, all this is about to change. In a research paper by Reginald Smith of the Bouchet Franklin Institute in Rochester titled "Is high-frequency trading inducing changes in market microstructure and dynamics?" the author finds that he "can clearly demonstrate that HFT is having an increasingly large impact on the microstructure of equity trading dynamics. Traded value, and by extension trading volume, fluctuations are starting to show self-similarity at increasingly shorter timescales. Values which were once only present on the orders of several hours or days are now commonplace in the timescale of seconds or minutes. It is important that the trading algorithms of HFT traders, as well as those who seek to understand, improve, or regulate HFT realize that the overall structure of trading is influenced in a measurable manner by HFT and that Gaussian noise models of short term trading volume fluctuations likely are increasingly inapplicable." In other words, the author finds ample evidence that during the past decade (on the NASDAQ) and especially since the 2005 revision of Reg NMS (on the NYSE), stock trading increasingly demonstrates "self similar" fractal patterns, resulting in volatility surges, recursive feedback loops, and a market structure which is increasingly becoming a product of the actual trading mechanism. In the process, as demonstrated by a Hurst Exponent gravitating increasingly further away from 0.5 (i.e., Brown Noise territory), the Markov Process nature of stock trading is put under question, and thus the whole premise of an efficient market has to be reevaluated. Simply said: HFT has been shown to affect the fairness of trading.
Some interesting developments in the mutual fund arena, where a trailblazer, the Appleseed Fund, has announced that beginning July 1 it will no longer invest in Too Big To Fail banks: "Given the failure of regulators to prevent the previous credit crisis
and the subsequent failure of legislators to break up the massive and
very much interconnected banks that helped to create the crisis, it is
incumbent on depositors and investors to vote with their wallets. Until
the financial system is truly restructured, the Appleseed Fund will
avoid investments in too-big-to-fail banks, choosing instead to invest
in regional banks, community banks, and credit unions which lend money
to families and businesses that operate in the productive sectors of our
The IMF has issued a less than stellar outlook of the US economy after consultations with US government authorities, in which it cautions that even as the outlook has generally improved, major downside risks remain: "On the downside, the backlog of foreclosures and high levels of negative equity, combined with elevated unemployment, pose risks of a double dip in housing; the continued deterioration in commercial real estate poses risks for smaller banks; and financing conditions remain tight, especially for smaller firms reliant on bank finance. Most recently, and tipping the balance of risks to the downside, sovereign strains in Europe have become an increasing concern, potentially impacting the United States through financial market and, in a tail risk scenario, trade links." Also notable is the fund's warning on the state of the US consumer and the perceived overvaluation of the dollar: "It follows, as also emphasized in last year’s Article IV, that the United States can no longer play the role of global consumer of last resort, underscoring the importance of measures to boost growth and demand in current account surplus countries. With the U.S. dollar now moderately overvalued from a medium term perspective, this will need to be accompanied by greater exchange rate flexibility/appreciation elsewhere."
... to Johns who have insatiable lusts.
The transatlantic smackdown is getting vicious, as Angela Merkel makes a point to demonstrate her refusal to follow Obama's policies before a business audience in Berlin. As Bloomberg reports, "Chancellor Angela Merkel championed German export strength as “the right thing” for her country, spurning President Barack Obama’s call to boost private spending as both leaders prepare for Group of 20 talks. Merkel, addressing a business audience in Berlin today, said she told Obama in a phone call that cutting government debt is “absolutely important for us,” exposing a second point of contention ahead of the June 26-27 G-20 summit in Canada." It appears Germany's chancellor is actually prudently thinking ahead after realizing that the recent bailout of Europe has massively angered potential voters, cost her parliamentary majority, and absent damage control, her career would come to a premature end. If that means openly mocking the pinnacle of Keynesian insanity these days, Washington D.C., so be it. It is strange that our own president has yet not realized his own political career will be very short unless he follows in Merkel's footsteps. Instead, he and the Fed will melt the market up to unprecedented highs in the months leading to the mid-term elections in hopes that this will presumably indicte just how strong the US economy is, even as fresh new millions in the GoM find themselves unemployed courtesy of some salt water content in the oily gulf. Perhaps Orszag is much smarter than people give him credit for: surely his pitchfork avoidance skills will come in very handy when the tide finally turns.
Members of the
House-Senate Conference Committee on financial regulation are meeting
for a third day of deliberations on the Restoring American Financial
Stability Act of 2010. As part of the offered modification language which we discussed yesterday, the Committee today will focus to do all it can to eliminate any and every Fed-unwelcome initiative as part of the audit the Fed provision in the Congressional version of the Fin Reg bill. All those who want to see how corrupt politicians destroy any chance of fair and effective financial regulation are encouraged to tune in and focus their attention on Barney Frank.
Technically there is no denying it we are breaking out, and the next resistance is at 1,150 in the S&P future. We had indicated 1.2154 as the resistance for EURUSD. We had a textbook test at 1.2152, then a break, and a retest at 1.2168 last night... It does not get much more friendly like this technically, and those who bought are now almost 2 figures in the money so they have a bit of room to hang in case of volatility. AUDUSD has also broken 0.8575. There is intermediary resistance at 0.8737 but just like EURUSD the 50-DMA seem very likely candidates for a retracement. The fact the market broke after a series of rather disappointing economic numbers and on no volume following absolutely nothing positive is precisely what worries me: people could end up chasing it and then chasing it some more because of the lack of initial participation... until another sign of the impending disaster crash creates panic again. - Nic Lenoir
When (not if) the need arises to dismantle the TBTFs, full of noncashflow producing loans, the next time around we have a Flashiest Crash, we will have no way to do so, despite the widely propagandized Obama FinReg reform. These are the words of Obama's right shoulder man Paul Volcker, who on William Isaac's program earlier noted that proposed legislation is "not going to prevent the top five banks from being saved." In that sense, the primary goal of Obama's attempt to overhaul financial regulations: the prevention of taxpayer bailouts when banks implode, is a miserable failure, yet it will not stop countless hours of self-congratulatory, teleprompterized appearances by the president, the Congressman from Fannie Mae and the Senator from Countrywide. In other news, the bankers win again, and nothing changes. Next up: how to get bank leverage to 100x all over again, without alerting the general public that next (if not this) year's bonuses will be once again fully funded by the US middle class.
Well, not really 4EVA, but the uberdovish FRBSF has just released a paper by Glenn Rudebusch, in which the author claims "that to deliver future monetary stimulus consistent with the past—and ignoring the zero lower bound—the funds rate would be negative until late 2012." In other words, a realistic outcome over the next two years will involve not only ZIRP, but additional QE to satisfy the differential to the zero limit. Furthermore, once the economy fully relapses into a double dip, which should be confirmed at the latest by September, Bernanke will have to flush even more money into a monetary stimulus rescue, as the president's fiscal hands will be tied in advance of a landslide mid-term election loss. One possibility is the passage of legislation which allows negative fed fund rates: when all else fails, US citizens will be directly penalized to save money. The recession will further push back the expiration of the "exceptional" and "extraordinary" language well past 2020, by which time all the primary dealers will have bought every single bond repoable back to the fed, gunned up stocks, paid up trillions in bonuses, and reinvested the proceeds in hard (gold) and liquid (Bordeaux) assets. And there you have your roadmap for the next decade. And just in case a prudent voice of opposition to this insane policy were to arise, the author stops it dead in its tracks with the following illogical and non-sequitur statement: "the linkage between the level of short-term interest rates and the extent of financial imbalances is quite erratic and poorly understood." And now you know.
Regime Change - Jim O'Neill, Meet Humility: Ten Reasons To Be Bearish From The World's Biggest PermabullSubmitted by Tyler Durden on 06/07/2010 06:36 -0500
A week ago Mr. BRIC O'Neill was making fun of the "grizzlies"... now, he is making fun of himself. Is humility really possible at Goldman staffers, or is this just part of the whole reverse psychology trap? Here are, stunningly, ten reasons why one should be, gasp, bearish on the market, from one of the biggest permabulls in the world.
As Egan-Jones says,the downgrade should be a "big heads up for Money Market Funds." Not to worry, we are confident that two years after the Reserve fund broke the buck, financial regulation has moved far enough to contain any potential fall out from massive redemptions. Right. Right?
A recap letter by Goldman's Dominic Wilson, Director of Goldman's Global Macro & Markets Research, is surprisingly conciliatory in its most recent view of the world. The firm notes tongue in cheek that while its Top 9 ideas for 2010 have lost its clients billions, it is still megabullish, but no longer "too dogmatic." We are not sure what that means except that Goldman prop is selling into every rally, and Goldman will still have all the >5x beta stocks on conviction buy up until it moves them to the conviction nuke list, just like JPMorgan did with its disastrous recommendations on greek banks. Nonetheless, reading between the propaganda lines, the following recap is one of the better two-sided evaluations of the world currently to come from a sell-side desk.