Apparently what is good enough for Greenlight, SAC, Citadel and Goldman, is not quite up to snuff for Och-Ziff. The 7 West 57th-based, $25.6 billion AUM, hedge fund believes that it should be exempt from responding in an ongoing investigation by the bankrupt Lehman estate, which is probing the abovementioned hedge funds whether they engaged in rumormongering that may have brought down Lehman Brothers. And Lehman is unhappy: in a filing from the Lehman bankruptcy docket, the state claims that "Och-Ziff, one of the world's largest hedge funds, was involved with, or has information that pertains to, the "short-and distort" efforts." If this is indeed true, it is not very surprising that "Och-Ziff has already begun stonewalling to attempt to prevent this information from seeing the light of day by interposing frivolous and dilatory objections to the Debtors' Rule 2004 Subpoena." As the Lehman examination has already proven to be a gold mine for illegal practices conducted by Wall Street, we would not be surprised if the most recent 2004 investigation uncovers some new and even more shocking results. To be sure, Zero Hedge has never been a fan of the "short selling raid" theory - fair value can and always will find a way to creep up to the surface, unless of course it doesn't exist in the first place, like in Lehman's case. Additionally, funds would have to be extra stupid to keep written evidence of this kind of complicit and illegal activity. Which is why Och-Ziff's response is perplexing. And if the estate had credible reason to pursue Och-Ziff, we can only imagine the same must be true about Greenlight, SAC, Citadel and Goldman. Suddenly the Lehman bankruptcy case became interesting all over again.

Today's main winning asset class was gold, with ongoing weakness across most other assets, except for bonds of course, which continues to price in concerns about deflation. The divergence we noted so frequently last week, between stocks and bonds is now a thing of the past, and has been replaced by that between gold and bonds. Yet gold rise is hardly driven on expectations of inflation as oil, another much more inflation sensitive commodity tanked. In other words, the QE lite thesis is playing out as predicted, although Goldman's prediction yesterday about a surge in gold likely also put the idiot mutual fund money in the spot bid. Technically, gold is parked at resistance at the highest level over the past 40 days. All those who have been frothing about an imminent liquidation-induced plunge like that experienced on July 16, have been silenced. Should the 1,220 resistance be breached tomorrow, the next level to keep track of will be the record highs from June.

We were pleasantly surprised yesterday when we saw news that Chuck Schumer was starting a campaign to aggressively rein in the HFT market members (which he correctly categorized as responsible for excessive volatility and the flash crash). Some reading between the lines, however, makes it appear that this action could be nothing but a red herring distraction, which attempts to actually promote the interests of the very same HFT lobby which the senator is presumably attempting to control.

Hinde Capital has expanded on an idea we have been toying around with and wish to follow up on soon (that ETFs are de facto the new CDOs, as the most actively traded products (SPY, GLD, etc) are now merely synthetic representations of underlying securities, as the actual securities are increasingly more thinly traded, thus creating a huge "tail wags the dog" paradox), by penning a presentation calling GLD "the new CDO in disguise." We don't think it is disguised - after all the two products share far too many characteristics, although having CDO-like features does not make something evil per se. The reason why implied correlation hit 0.8 yesterday as we first pointed out, is precisely due to the aggregation of products into such synthetic aggregators as ETFs, of which GLD is merely one of many. Yet Hinde's opinion focuses precisely on the disconnect between the "idea" of owning a hard asset, and the reality of merely having claims to a Cede & Co stock certificate which in turn has no liquid and direct physical collateral, in essence condemning GLD and all non-physical ETFs, by saying "we believe ETFs are a risky way to express a gold view." All this and much more on why GLD has more risks than are acceptable for any sophisticated investor in the attached Hinde Capital presentation.

The talk of a possible double dip is now common banter on TV investment programs. And indeed, deflationary forces seem to have the stronger grip right now than inflationary ones. So if deflation is the next reality we have to face, what happens to our favorite stock investments? There’s lots of data about what gold does during periods of high inflation, but less so with deflation, partly because we don’t see a true deflation all that often. But of course we’ve got the biggie we can look at, and the seriousness of the Great Depression can give us a big clue as to how gold stocks behave in a true deflationary environment. From 1929 until January 1933, the stock of Homestake Mining, the largest gold producer in the U.S., rose 474%. Dome Mines, the largest Canadian producer, advanced 558%. In spite of the gold price being fixed at the time, gold stocks rose dramatically. At the same time, the DJIA lost 73% of its value.

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 12/08/10

It is time for the weekly refi: the 30 Year Freddie cash mortgage just hit another fresh all time low. And with the 10 Year plunging and soon to drop below 2.5% as the bond bubble is becoming ever more primed, we expect the 30 Year to eventually drop as low as 4% if not further. Will this force more incremental homebuying activity? Absolutely not.