We'll give you a hint, says Nanex: fantaseconds. Fantaseconds, everywhere. This is how High Frequency Trading (HFT) practically minted money during the financial crisis. With no regulators in sight, HFT robbed investors and other traders blind. With very little effort, Nanex has created numerous charts to illustrate the absurdity that markets functioned well during the financial meltdown. Many of the short term oscillations shown in these charts were created by HFT algos to induce a lag and create latency arbitrage opportunities. And yet the regulators could not spot a single one. Even after spending millions on MIDAS.
Bipartisan Proposal Would Substantially Reduce Budget Crisis
Today 3:00 pm nomination by Obama of Janet Yellen as the next Fed chair was hardly news (certainly wasn't news to stocks which briefly dipped below their 200 DMA) in the aftermath of Larry Summers' self-elimination, but nonetheless the sellside brigade was quick to praise her now official nomination for one simple reason: it means more of the same Bernanke policies that have done nothing to benefit broad America, but more importantly have resulted in year after year of near-record Wall Street bonuses, and unprecedented asset bubbles. Why shouldn't the banks then be giddy with excitement that the status quo will not only continue, but the monthly $85 billion in liquidity may in fact increase in time? Below is a selection, courtesy of Bloomberg, of the most vocal praises sung on behalf of the former San Fran Fed president byt the numerous banks that currently exist only thanks to the Fed's actions in 2008.
David Stockman, author of The Great Deformation, summarizes the last quarter century thus: What has been growing is the wealth of the rich, the remit of the state, the girth of Wall Street, the debt burden of the people, the prosperity of the beltway and the sway of the three great branches of government - that is, the warfare state, the welfare state and the central bank...
What is flailing is the vast expanse of the Main Street economy where the great majority have experienced stagnant living standards, rising job insecurity, failure to accumulate material savings, rapidly approach old age and the certainty of a Hobbesian future where, inexorably, taxes will rise and social benefits will be cut...
He calls this condition "Sundown in America".
Don't Blame Free Market Capitalism ... We Haven't Had It for a While
Confirming, once again, that without fail Wall Street executives tend to have irreconcilable sociopathic tendencies in addition to delusions of grandure, AIG's Bob Benmosche found himself promptly under fire from all sides following his interview with the WSJ (reported here) in which he said that outrage over banker bonuses "was intended to stir public anger, to get everybody out there with their pitch forks and their hangman nooses, and all that - sort of like what we did in the Deep South. And I think it was just as bad and just as wrong." There were two main differences: this time around, to pretty much everyone's disappointment, there were no actual lynchings or even anyone going to prison. But more importantly, racial hatred and lynchings in the "deep south" were generally irrational and without reason, which is certainly more than can be said about a banker uberclass that would not exist if it wasn't for taxpayers saving their ungrateful offshore bank accounts. In other words, the hatred at the likes of Benmosche is certainly warranted. Which, together with Elijah Cummings promptly demanding his resignation, is why in less than a day the CEO found himself apologizing for a "poor choice of words."
There is a reason why every fiat currency in the history of the world has eventually failed. At some point, those issuing fiat currencies always find themselves giving in to the temptation to wildly print more money. Today, the Fed finds itself faced with a scenario that is very similar to what the Weimar Republic was facing nearly 100 years ago. Like then, the U.S. economy is struggling and like the Weimar Republic, the U.S. government is absolutely drowning in debt. Unfortunately, the Fed has decided to adopt the same solution that the Weimar Republic chose. The Fed is recklessly printing money out of thin air, and in the short-term some 'positive things' have come out of it. But quantitative easing worked for the Weimar Republic for a little while too.
72% of the poor and 71% of the middle-class believe government policies (fiscal and monetary) have done little or nothing to help them. Of course, this will be eschewed by the academics (as Santelli recently exclaimed regarding the arrogance of the intellectuals) because "the people" just don't get it. But when 69% of all Americans, according a new Pew study, say large banks and financial institutions have benefited the most from post-recession government policies; communications policies are going badly awry. Despite a surging stock market, exploding home prices, and low rates spurring all kinds of subprime auto loan exuberance, there has been little change in these perceptions since July 2010.
Having crossed the $1,000 Maginot Line, Priceline.com became the first company in the S&P 500's 56-year history to trade at that level. As WSJ reports, the company reached a high of $1,001, before settling at $995.09, up 2.6%. It's up 60% so far this year. 25 of the 30 analysts that cover the stock still have this firm as "Buy" with a target of $1,112 trading at a P/E of 32. Priceline's shares have flirted with $1,000 before. During the dot-com bubble, it topped out split-adjusted closing high of $974.25 in April 1999. The stock had a meltdown in the years that followed, closing below $7 a share in October 2002. Of course, it's different this time...
- Bernanke Resets Policy by Doing Nothing as Markets Soar (BBG)
- Stocks Jump to Five-Year High as Metals Rally on Fed (BBG)
- Centre-left bigwig says hard to stay allied with Berlusconi (ANSA)
- J.P. Morgan 'Whale' Fine Put at Over $900 Million (WSJ)
- Banks’ $10 Billion Sweet Spot Sets Off Buying Spree for Lenders (BBG)
- Time to taper? Not if you look at bank loans (Reuters)
- Mortgage Lending Reaches 5-Year High (WSJ) ... and then plunges as Fed gives "all clear" for a few months
- Yellen Chances Grow as Obama Aides Test Senate Support (BBG)
A decisive tipping point in the evolution of American capitalism and democracy - the triumph of crony capitalism - took place on October 3, 2008. That was the day of the forced march approval on Capitol Hill of the $700 billion TARP (Troubled Asset Relief Program) bill to bail out Wall Street. This spasm of financial market intervention, including multi-trillion-dollar support lines provided to the big banks and financial companies by the Federal Reserve, was but the latest brick in the foundation of a fundamentally anti-capitalist régime known as “Too Big to Fail” (TBTF). It had been under construction for many decades, but now there was no turning back. The Wall Street bailouts of 2008 shattered what little remained of the old-time fiscal rules. There was no longer any pretense that the free market should determine winners and losers and that tapping the public treasury requires proof of compelling societal benefit.
Oh, and a Typhoon Is about to Hit Fukushima
New SEC Chair May Jo White's motto "you have to be tough" and plans to toss out the SEC enforcement policy that allowed almost all defendants to settle cases without admitting wrongdoing sound great; but the reality is, as the WSJ reports, the policy shift comes as the SEC turns the page on its financial crisis work. New investigations into misconduct linked to the meltdown have slowed to a trickle. And a statute-of-limitations deadline that generally restricts the sanctions the SEC can get for conduct more than five years old is looming for many cases. The SEC's crisis-related actions are producing diminishing financial returns as the following charts suggest... As one law professor noted, "they've not had the big case that everybody wanted to see... a major player being held really accountable." Perhaps more reading and less porn would be a start?
Just three weeks ago, Goldman Sachs cried 'uncle' when their market-making options algo-machine exploded in a fit of guilt causing the firm to face hundreds of millions of dollars losses (should the exchange not have DK'd the deals). Nanex has investigated the rogue algo and here are the findings... "As soon as option quotes in the affected symbols began exceeding theoretic economic values by some threshold, quotes (and therefore liquidity) on other options exchanges for those contracts would immediately disappear - bid/ask prices would go to zero at other exchanges. Within 10 seconds of starting, one algo, in effect, completely destroyed the concept of the National Market System and obliterated liquidity..." As they sadly conclude, what was the fine for shutting down an options exchange, and destroying liquidity in hundreds if not thousands of options contracts? There was no fine. Worse, they were able to get the trades busted. As in, pretend we didn't just do that. Pretty shocking. Until there are financial consequences for firms that turn on market disrupting algos, the markets, will continue to be disrupted.
There is also consensus among the people inhabiting the real world -the one that is found outside the ivory towers of the economics departments of all US and global Tier 1, 2 and 3 universities - that the only reason the world is currently in its sad, deplorable and deteriorating economic state (which however keeps making the rich richer), is precisely due to these same economists, whose tinkering and experimentation with DSGE models, differential equations, curved lines, and all such things all of which have no real world equivalent, and specifically due to economists like Greenspan and Bernanke. These two men, both of whom barely have seen the real world for what it is or held a real job outside of their academic outposts, who surround themselves with brownnosing sycophants and who do the bidding of Wall Street, are the primary reason for the current centrally-planned quagmire. Which is why we wonder: is the fact that some 313 economists (and counting) have signed a petition pushing for Janet Yellen (aka Freudian slip "he" if you are the president), and against Larry Summers, sufficient grounds to actually like the outspoken former Harvard head?