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Malaysian Province Moves To Gold And Silver-Based Currency In "Main Islamic Event Of The Last 100 Years"Submitted by Tyler Durden on 08/17/2010 23:36 -0400
More world governments are "just saying no" to the ponzi. Last week, the Malaysian government of Kelantan "said it was introducing a new monetary system featuring standardised
gold and silver coins based on the traditional dinar and dirham coins
once used by the Ottoman Empire." And as everyone who has taken game theory 101 knows, the first defector wins the most, while the last one is left with nothing. A small province in Malaysia just made the critical first defection. The question now is who will be next... and next...and next.
With Greek 2-year rates now above 10% again, it would be wrong to assume that the PIIGS debt crisis is contained. Containment is only possible through drastic budget cuts, says Saxo Bank, the trading and investment specialist, in its Half-Yearly Outlook for the global economy. Government profligate spending is crowding-out private investments and consumption and we expect markets to react negatively to the continuation of the huge imbalances in government debt markets. The reset of Option-ARM and Alt-A mortgages in 2011, 2012 and 2013 and very big budget deficits in the E-Z countries pose very uncomfortable obstacles to the stock market and we expect stocks to be very uninspiring investments well into 2011. This Half-Yearly Outlook for the global economy is a short analysis examining the global economic outlook for the forthcoming quarter. The Half-Yearly Outlook will be followed by a Q4 Outlook in October.
Spreads tightened across Europe and the US today with indices outperforming intrinsics thanks to rumors of JPY intervention and headlines proclaiming European sovereign fears over, the US recovery still in place, a 'coming' M&A boom, and the start of the Fed POMO encouraging risk-taking. The thinness of markets (given the summer slump and general lack of desire) enabled modest re-risking to move markets rapidly at the index levels across sovereigns, financials, and corporates in the US and Europe. The completion of the Irish and Spanish debt issues today seemed in and of itself enough to get everyone going (despite notably higher yields in the former and suspected 'help' from the ECB in both) and despite a major drop in German confidence, bond spreads and CDS compressed relative to Bunds with a feeling of squeeze to the move in SovX today - 9bps tighter vs 6bps intrinsics and leaving the index notably rich to intrinsics overall.
Attached is MS' most recent strategy slidepack covering European credit strategy, US rates (for those who just can't get enough of those 2s10s steepeners), credit strategy, and credit and equity derivatives. As the firm now has one the most bullish biases on Wall Street, the pack should at least provide those bearishly inclined with a sense of what not to do.
The latest development in the neverending saga of Iran, comes via the Middle East Media Research Institute (MEMRI) which states that according to the Gulf states, the military option may be the best option to deal with the Iranian nuclear program, as the contra-Iran axis is now complete. The article also reflected "the Gulf states' growing tension and concern regarding Iran's nuclear program, and mentioned their proximity to the Bushehr reactor." What is scary is that the straw man of military intervention is pretty much presented as a fait accompli, and alternatives to military intervention are not even considered as an option. The timing could not be worse: as we highlighted earlier, John Bolton believes that there is ticking clock (through the 21st) after which the option of "striking" Iran with manageable casualties becomes negligible. And lastly, and certainly not making matters any easier, was the earlier revaluation by AFP, that Iran is preparing to unveil an array of weapons next week. An impartial reader would be forgiven if left with the impression that at this point a military operation is all but granted. Yet, keeping an eye out on spot oil, indicates that the realistic chance of an incursion is still negligible, at least as judged by oil prices. We believe that is still one of the best advance warnings indicators of a geopolitical shift. Unfortunately, if the oil market is in any way comparable to stocks in its predictive ability, it just may be that oil is, for once, a reactionary indicator instead of forward looking, in which case it will be useless as a predictive force.
RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 17/08/10
We have been getting various queries lately what the best correlation pattern is for the most recent regime (as in post POMO, now that the Fed is once again actively involved in pricing risk) - all the traditional metrics have collapsed, whether it is FX carry funding (in the form of AUDJPY) or pure cash bonds in the form of the 10 Year. Well, we have an answer courtesy of credit trader. It appears the primary dealers are now funding their stock purchases by selling the Treasury butterfly trade: the 2s10s30s, a trade we discussed extensively over ther weekend, and purchasing ES with the proceeds. Note the almost congruent match between the two on an intraday basis. To be sure, this is an early attempt to gauge where the carry funding comes from in the most recent regime. We will likely want to see 2-3 days of confirmation before we recommend any specific arbitrage opportunities based on this relationship, but we urge our BBerg equipped readers to CIX this relationship and to keep a close eye on it.
Two Norwegians Face Up To 6 Years Of Prison Time For Doing What HFT Algos Do In The US Every Single DaySubmitted by Tyler Durden on 08/17/2010 15:37 -0400
In some very surprising news out Norway (thanks to all our Norwegian readers who alerted us about this), which once again condemns our own SEC for being a criminally negligent regulator, we learn that two Norwegians, Svend Egil Larsen and Peder Veiby, have been charged with market manipulation (a charge which carries up to 6 years of prison time if convicted), after succeeding to reverse engineer a stock trading algorithm used by broker Timber Hill, which is Interactive Brokers' key market maker. Allegedly, the two daytraders found a weakness in the Timber Hill algo on the Oslo Stock Exchange back in 2007 and 2008, and used it to outsmart the market maker and make a few hundred thousand NOKs in the process. The punchline is that the charge against the two is market manipulation with an intent of "using buy- and sell-orders that were not intended to be traded on, but to move the prices." The irony is that as we have demonstrated repeatedly by showing prima-facie evidence from Nanex, quote stuffing patterns by thousands of HFT algos running amok across various US exchanges, ATS and other trading venues, is precisely what happens every single day in the US - namely, algos which merely seek to push the bid or the offer in a given direction, with no intent of ever crossing a trade, all for the sole purpose of sending false indications of bulk orders coming. So when humans do it (and make peanuts compared to the billions the HFTs collect domestically), they end up going to jail; when our own system, which is geared to push stocks ever higher, does it - it is perfectly ok, and possibly even encouraged. After all, the HFTs provide liquidity, remember? Just ask Mary Schapiro. The sad conclusion is that those who wish to trade in markets that have not yet been overrun by SkyNet, or where regulation actually works, may be best served by trading on the Oslo stock exchange, and as far away from the US as possible. As for those who wish to remain in the US, here is what you can look forward for: one of Nanex' most recent crop circles, appropriately called "Robot Hunting."
With endless lies bombarding the average American from all sides seeking to instill a false sense of calm that all is good (but, but, the market is up and GM is IPOing today), it is wise to step back and consider the common sense signals that a double dip is if not here, then arriving on the next much delayed flight.
Zero Hedge fully supports this petition for the return of some semblance of normalcy to America's runaway and chaotic market structure.
Even as we collect ever more information on the computer desktops of the rich and infamous, we have managed to get our hands on this artist impression of the facebook page of the one and only Chairman. If there is one dot matrix, er, person you want as a friend in this world, Shalom is it. Why? Whereas everyone wanted to be an investment banker in the 90's, and a hedge funder in the '00s, the coolest thing now, by a quadrillion dollar margin, is to be a central banker.
Goldman Clarifies The Confusion Regarding The Recent Challenge Over Accounting Rules For European PensionsSubmitted by Tyler Durden on 08/17/2010 13:18 -0400
A few days ago, we posted a piece which sought to describe EURUSD weakness, equating it to the news of an attempt to change European pension accounting rules (which would have an impact on the all too critical deficit calculation). Oddly enough, any public mention of this development was quickly buried, as most public media venues promptly removed all mentions of this story. Luckily, in validation of our collective sanity, none other than Goldman's European Strategist Erik Nielsen takes on this issue and bring much needed light to the latest accounting fudging exercise, that could have a serious impact for European deficits, and pension systems, down the line.
In light of the entrenched way of perceiving things, especially in the U.S., it is difficult enough to convince some people that the economy is in fact not providing the security they desire, but is actually destroying their future completely. To explain to them that this is deliberate, that the economy is designed to self-destruct, that is another prospect altogether. Many people hit a proverbial wall on this issue because they simply cannot fathom that certain groups of men (globalists and central bankers) view money and economy in completely different terms than they do. The average American lives within a tiny box when it comes to the mechanics and motivations of finance. They think that their monetary desires and drives are exactly the same as a globalist’s. But, what they don’t realize is that the box they think in was BUILT by globalists. This is why the actions of big banks and the decisions of our mostly corporate establishment run government seem so insane in the face of common sense. We try to rationalize their behavior as “idiocy”, but the reality is that their goals are highly deliberate and so far outside what we have been taught to expect that some of us lack a point of reference. If you cannot see the endgame, you will not understand the steps taken to reach it until it is too late. - "Giordano Bruno"
With Long/Short Investing Dead, The Days Of LTCM Strategies Are Back As Market Plants Seeds Of Own DestructionSubmitted by Tyler Durden on 08/17/2010 12:26 -0400
We have long observed the decline and eventual death of fundamental analysis, courtesy of i) the Fed's dominance of capital markets, ii) the emergence of HFTs and technicals as key driving forces behind the stock market, and iii) the record implied correlation between all stock asset classes, meaning everything trades as one. Ironically, the result is that reasonable, long/short investment strategies no longer generate a return (alpha or whatever one calls this relic of efficient markets), and instead we are back to the good old "pennies in front of a steamroller" strategy that was so "successful" and made so popular by such spectacular implosions as LTCM. Don't take our word for it - the FT reports: "The hedge fund strategy pioneered – and made notorious – by Long Term Capital Management is returning to prominence amid one of its most successful years yet, aided in large part by the massive issuance of bonds by the UK government and other sovereigns." In other words, the market is now stuck in a mode (courtesy of central planning) which guarantees that the only way to make money, sets the seeds of the markets' own destruction. It is only a matter of time before every investment strategy follows in the flawed footsteps of John Meriwether (who unfortunately can't participate in today's market due to three prior collapses, or else he would be making mint) and soon every single asset manager (not due to their own mistakes, but basically as a function of what the market rewards now) will follow a fate which will appear like an LTCM-like supernova in which every spread convergence trade explodes to historic divergence in a span of seconds.