Following last night's revelation that FX trading is the latest addition to the "rigged" column, here is a summary of the known market manipulation scandals (because it can be problematic keeping track of all by now):
- Libor - interest rates (link)
- ISDAfix - swaps (link)
- Platts - oil prices (link)
- WM/Reuters - FX (link)
- High-Frequency Trading - equities (link)
We also know that the Fed and world central banks are engaged in a full blown (and unprecedented) Treasury curve modeling exercise courtesy of both ZIRP (short-end) and QE (long-end), and that courtesy of some $12 trillion in extra liquidity in the past 5 years, stocks are at an artificial "weath effect" sugar high. We can therefore deduce that, following the process of elimination, gold and silver are the only markets that are unmanipulated and where transparent price discovery is allowed to take place without intervention from key players.
Five Eurozone countries now have loans for half a trillion Euros. These members of the Euro currency union are receiving loans from the one of two bailout funds which are financed by the other 12 Eurozone members. Eurozone members receiving assistance from the two European rescue funds do not pay into it. That means the higher the assistance, the higher the obligations of the healthier countries. Germany already guarantees 27 percent of the loans, France 20 percent and Italy 18 percent. The rescue funds borrow capital, guaranteed by nations of the European Union, in the financial markets and then hand the money to the indebted countries. In doing this they engage in a kind of Quantitative Easing where money is printed based upon the various guarantees. None of these guarantees are counted against the liabilities of any country when the debt to GDP ratios are made public. There is a new scheme underway where bondholders would have to pay for the vast amount of any losses with the money of depositors also in question. There is no agreement yet on this plan. What can be said is that the playing field is being tilted with much more risk now placed in the hands of bond owners and depositors.
The biggest news out of Greece is that the events in the 24 hours have pushed the depressed country right back into crisis mode, with political bickering front and center (the opposition leader called the uncoordinated move "a coup" even as coalition partners blasted the broadcaster shutdown while Europe washed it hands), while the economic contraction is set to accelerate once more following what is certain to be another escalation in daily protests and riots. And who can blame them - with that last civilizational "premium" - free TV for all - gone, what else is there to do?
Employees have been front-running client orders and rigging WM/Reuters rates by pushing through trades before and during the 60-second windows when the benchmarks are set, said five current and former traders, who requested anonymity because the practice is controversial. Dealers colluded with counterparts to boost chances of moving the rates, said two of the people, who worked in the industry for a total of more than 20 years. The behavior occurred daily in the spot foreign-exchange market and has been going on for at least a decade, affecting the value of funds and derivatives and all investments. The Financial Conduct Authority, Britain’s markets supervisor, is considering opening a probe into potential manipulation of the rates, according to a person briefed on the matter. Informed observers have long warned that the global $4.7-trillion-a-day foreign exchange market, the biggest in the financial system has all the hallmarks of a casino. The inherent conflict banks face between executing client orders and profiting from their own trades is exacerbated because most currency trading takes place away from exchanges.
- Pimco Sees 60% Chance of Global Recession in Five Years (BBG)
- Global Tumult Grips Markets (WSJ)
- NSA Secrecy Prompts a Pushback (WSJ)
- ANA Scraps 787 Dreamliner Flight as Engine Fails to Start (BBG) - one of these days, though, it shall fly
- Kuroda’s April-Was-Enough Message Faces Markets Wanting More (BBG)
- S&P warns top US banks are still ‘too big to fail’ (FT)
- Democracy for $500 per plate (Reuters)
- Iran, the United States and 'the cup of poison' (Reuters)
- Japan grapples with lack of entrepreneurs (FT)
- Greece First Developed Market Cut to Emerging at MSCI (BBG)
- Asia's ticking time bonds; time to cut and run? (Reuters)
- Sony Outduels Microsoft in First PS4-Xbox One Skirmish (BBG)
Would you be willing to give up what Edward Snowden has given up? He has given up his high paying job, his home, his girlfriend, his family, his future and his freedom just to expose the monolithic spy machinery that the U.S. government has been secretly building to the world. He says that he does not want to live in a world where there isn't any privacy. He says that he does not want to live in a world where everything that he says and does is recorded. Thanks to Snowden, we now know that the U.S. government has been spying on us to a degree that most people would have never even dared to imagine. Up until now, the general public has known very little about the U.S. government spy grid that knows almost everything about us. But making this information public is going to cost Edward Snowden everything. The following are 27 quotes from Edward Snowden about U.S. government spying that should send a chill up your spine...
Wednesday may be the new Tuesday (which halted its relentless and statistically impossible streak of 20 out of 20 up DJIA days last week), if only in terms of the overnight no news stock futures ramp, which today is back with a vengeance. In a session that was devoid of any news, the e-Mini is up enough to practically erase all of yesterday's losses. Whether this is due to a relatively calm Nikkei trading session, to no further surge (or collapse) in the USDJPY, or to the 10 Year trading flat inside 2.20% is unclear. What is clear is that the bipolar market swings from extreme to extreme on speculation about the largely irrelevant topic of whether the Fed will taper (because if it does, it will be very promptly followed by an untapering once risk assets around the world implode.)
There are three words that come to mind when we think of Ron Paul; principles, credibility and consistency. Not only is the video below great because we get to see Dr. Paul speak on the Congressional floor thirty years younger, but also because he was adamantly criticizing civil liberties threats in the context of a Republican President, Ronald Reagan. He warned us about what the NSA and other intelligence agencies are currently doing well before the internet became widespread.
We first discussed the possibility of state and local governments using eminent domain to 'save us' from further housing issues a year ago but now the NY Fed has gone one step further with an academic-based justification for why this process is not a "zero-sum-game" and will render all stakeholders better off. We can hear echoes of "trust us" in this commentary as the authors explain how multiple valuation methods will be used to ascertain "fair-value" - which has always worked so well in the past - and that we have "little to fear" from the resultant long-term contraction in liquidity or credit as bubbles can only inflate during times of easy credit availability (and that will never happen!) Paying for all this? Don't worry - resources to fund purchases of loans/liens can be raised from public, private sources or a combination of the two. It seems to us that MBS holders will not be happy, consumers hurt as mortgage costs would rise (this 'risk' has to be priced in), and taxpayers unhappy as this is yet another transfer payment scheme to bailout underwater loans.
A smorgasbord of secondary Japanese data missed expectations this evening and while all appears relatively calm if you just look at USDJPY, it is anything but in the stock and bond markets which have both lost significant ground already. Nomura launched the largest IPO of the year (Nomura REIT) and it is down 4.8% out of the gate (at least they didn't pull the 'market conditions' trick so many US companies fall back on) but the broad TOPIX index is down 2.4% and unable to find any dip-buyers to encourage. Financials (-3.4%) and Consumer stocks (-2.5%) are the worst with Utilities modestly bid (+0.3%) for now. JGBs were following the 'open down, rally gently higher for the rest of the day' pattern of the last three days but soon after the BoJ announced its buying program at 9ET, the selling escalated. All-in-all, it is more of the same from the US day-session but with JPY oddly quiet for now as the JGB market remains mildly out of control...
In America today there is a great rushing storm, a swirling hurricane of clashing opinions and ideologies that defy coherent organization and classification. This social tempest has been triggered by certain revelations among the general public on issues which we in the Liberty Movement have long been aware. The fact that our government is bought and paid for by international corporate interests, the fact that our government has positioned itself to spy on ALL Americans without warrant and without probable cause, the fact that our government is instituting policy initiatives that target common citizens as enemy combatants, the fact that every one of our Constitutional rights is being deliberately torn away; these things are not news to us, but to many once ignorant people, they are a shock to the system. Open corruption on the part of a criminal establishment has a funny way of politicizing everyone, even those people who go out of their way to avoid the bigger picture. In the end, no man or woman gets a pass. Whether you like it or not, one day soon, you will have to choose a side; freedom or tyranny. There is no middle ground.
On the two-year anniversary of our most in-depth explanation of how all stimulus globally is fungible, CNBC's Rick Santelli took up the mission of explaining how the never-ending rush of global central bank provided liquidity flows any and everywhere fungibly around the world in an instant. Furthermore, as we explained to Rick's colleague Mr. Liesman, not only is the stimulus fungible but it means all global leverage is 'shared', and available for use in any and every risk-asset-funding. In other words, as Rick so eloquently points out, thanks to the fungibility of stimulus, the speed of modern finance, and the shared leverage of global banks and hedge funds seeking (to enter and exit) the same leveraged carry trades wherever they are in the world, even a small 'David' of a Taper by the Fed is instantly transformed (3% swings in JPY, 800 point swings in Nikkei, 8bp ranges in IG credit, 10% drops in GGB prices, limit down breaks in European banks, 12% collapses in EM stocks) into a 'Goliath' of global deleveraging and, "you will hear a flush."
We now know that 'muddle through' is over, and just as we noted here "there may only be painful ways out of this crisis" as we evidenced by Europe's attack on Cypriot depositors. With the pillars of Abenomics starting to crumble, it seems plans are afoot to prepare for the bank failures that will come from a BoJ-inspired out-of-control bond market. As Nikkei reports, Japan's Financial Services Agency will enact new rules that will forced failed bank losses on investors, if needed, via a mechanism known as a "bail-in." The FSA report also notes that Mitsubishi UFJ (MTU), Mizuho Financial (MFG) and Sumitomo Mitsui (SMFG) are among those proposing amendments to allow them to issue the types of preferred shares or subordinated bonds that would be used in such cases. So not only will Japanese banks suffer VaR shock-driven needs to reduce JGB holdings but a weaker deposit base will further exacerbate the deleveraging.
First it was the conspiracy theory that Li(e)bor traders were manipulating the entire rates market which a year ago became conspiracy fact. Then it was commodities with an emphasis on the energy market (but not gold - gold is never, ever manipulated) with even such luminaries as JPMorgan's Blythe Masters, subsequently implicated. And moments ago, via Bloomberg, to absolutely nobody's surprise, we learn that that final market which so far had not been exposed as the "wild west" of manipulators, the FX market, is part of the conspiracy "fact" too. According to Bloomberg, "employees have been front-running client orders and rigging WM/Reuters rates by pushing through trades before and during the 60-second windows when the benchmarks are set, said the current and former traders, who requested anonymity because the practice is controversial. Dealers colluded with counterparts to boost chances of moving the rates, said two of the people, who worked in the industry for a total of more than 20 years."
Both Keynesians and monetarists believe that increased government spending, or more money injected into the economy, is sometimes necessary. The intervention is in the form of unfunded government spending, artificially low interest rates to boost demand for money and bank credit, or a drive to make the currency “competitive” by lowering it. These methods have been tried unsuccessfully time and again, and they must be denounced if we are to understand our true economic condition. The reason they don’t work can be summarized as both an oversight and a fallacy.