smartknowledgeu's picture

Scared by PM Volatility? Identify Severe Undervaluation Points in Gold & Silver v. Trying to Call Perfect Bottoms

For a new investor in gold and silver, here is the most lucid piece of advice I can offer. Identifying severe undervaluation points in gold and silver, buying gold and silver assets during these times, and not worrying about interim short-term volatility, even if the immediate volatility is downward, is much more likely to impact your accumulation of wealth in a positive manner than trying to perfectly time market tops and bottoms in the highly manipulated gold and silver game.

Tyler Durden's picture

Frontrunning: January 24

  • Fears Mount That Portugal Will Need a Second Bailout (WSJ)
  • EU to Have No Deadline for End of Greek Talks (Bloomberg)
  • Japan economy predicted to shrink in 2011 (AFP)
  • Japan’s Fiscal Pressure Intensifies as Tax-Boost Plan Insufficent: Economy (Bloomberg)
  • Berlin ready to see stronger ‘firewall’ (FT)
  • Obama Speech to Embrace U.S. Manufacturing Rebirth, Energy for Job Growth (Bloomberg)
  • EU Hits Iran With Oil Ban, Bank Asset Freeze in Bid to Halt Nuclear Plan (Bloomberg)
  • China's Oil Imports from Iran Jump (WSJ)
  • Croatians vote Yes to join EU (FT)
  • Japan’s $130 Billion Fund Unused in Biggest M&A Year in More Than Decade (Bloomberg)
  • Buffett Blames Congress for Romney’s 15% Rate (Bloomberg)
Tyler Durden's picture

The CDS Market And Anti-Trust Considerations

The CDS index market remains one of the most liquid sources of hedges and positioning available (despite occasional waxing and waning in volumes) and is often used by us as indications of relative flows and sophisticated investor risk appetite. However, as Kamakura Corporation has so diligently quantified, the broad CDS market (specifically including single-names) remains massively concentrated. This concentration, evidenced by the Honolulu-based credit guru's findings that three institutions: JPMorgan Chase, Bank of America, and Citibank National Association, have market shares in excess of 19% each has shown little to no reduction (i.e. the market remains as closed as ever) and they warn that this dramatically increases the probability of collusion and monopoly pricing power. We have long argued that the CDS market is valuable (and outright bans are non-sensical and will end badly) as it offers a more liquid (than bonds) market to express a view or more simply hedge efficiently. However, we do feel strongly that CDS (indices especially) should be exchange traded (more straightforward than ever given standardization, electronic trading increases, and clearing) and perhaps Kamakura's work here will be enough to force regulators and the DoJ to finally turn over the rock (as they did in Libor and Muni markets) and do what should have been done in late 2008 when the banks had little to no chips to bargain with on keeping their high margin CDS trading desks in house (though the exchanges would also obviously have to step up to the plate unlike in 2008).

Tyler Durden's picture

Fed Back To Its Secretive Ways, Sells $7 Billion In Maiden Lane Assets Directly To Credit Suisse Without Public Auction

Instead of opting for a publicly transparent BWIC in the disposition of its Maiden Lane II assets, the Fed has once again gone opaque - long a critique of the Fed's practices which have required repeated FOIAs in the past to get some clarity on its secret bailouts and transactions - and proceeded with a private sale, without any clarity on the deal terms, in which it sold $7 billion in face amount of Maiden Lane II assets direct to Credit Suisse. The alternative of course would be the same snarling of the MBS and broadly fixed income market that we saw in June of last year. In other words, the Fed looked at the options: transparency and risk of grinding credit demand to a halt, or doing what it does best, which is to transact in the shadows, and avoid capital markets risk. It opted for the latter. As to why the Fed decided to go ahead with a deal shrouded in secrecy? "The New York Fed decided to move forward with the transaction only after determining that the winning bid represented good value for the public." "I am pleased with the strength of the bids and the level of market interest in these assets," said William C. Dudley, President of the New York Fed. Because if there is one thing Bill Dudley and the Fed knows is gauging what is in the best interest of the public... and the callorie content of the iPad of course.

Tyler Durden's picture

The Spread Between "Schrodinger's Goose" - Merrill, And Bank Of America Soars To 2009 Highs

Following the recent surge in blue light special asset dispositions courtesy of Bank of America's precarious liquidity conditions, many have speculated that the bank will be forced to sell none other than Schrodinger's Goose: Merrill Lynch, which is at the same time both dead (pre bailout) and golden (due to some legacy reputation it has as a fabled Wall Street firm, now mostly based on intangible value). Nowhere else is this more evident than in the CDS spread between the two entities. After trading at close to convergence for about a year, the CDS levels between the two entities have seen a dramatic dispersion in recent days, soaring to over 50 bps (BAC CDS at 340, ML at 394). This is the widest the spread has been since early 2009 when the world was ending and everyone was buying whatever CDS they could get their hands on. The only comparable widening was in May 2010 when Europe blew up for the first time. So what should one do here? A divergence trade would mean that BAC is going to deteriorate so much it will have no choice but to dump Merrill, an outcome which will likely see both spreads blow out to 2008 wides, only to be followed by the need to nationalize CFC which will likely mean a collapse in Countrywide Home Loans spread (as we hypothesized two weeks ago). As if that was not confusing enough, the likely future of standalone BAC CDS post this event will likely be a tightening as the bank spins off its most toxic division, but then widens as the realization that America's biggest depository is no longer TBTF and spin offs are imminent. That... or the divergence collapses as the BAC blow out continues while investors speculate that upon its sale Merrill will have less risk than its old parent. In either case, keep an eye on this spread as it could be the canary in the coalmine for what BAC management plans to do w/r/t the Schrodinger Goose, CFC, and overall future business as a going concern expectations.

Tyler Durden's picture

Quote Of The Day: BofA's Sally Krawchek Says "Merrill's Bull Travels Well Globally"


Tyler Durden's picture

Merrill's Harley Bassman On Why This Is The "BIG ONE" And Its Implications

Must read observations from Merrill's Harley Bassman, formerly head of the RateLab: "Maybe I am showing my age, but I can assure you that as World Political events go, what is happening in the Middle East is actually the BIG ONE...The reason there is no "Flight to Quality" bid for USTreasuries is that USTs are no longer the "Quality" asset. Since the FED has turned on the printing presses, the "value" of the dollar has steadily declined. This is why the "Flight to Quality" is happening in Gold, Oil, Copper, Cotton, etc...Attention all you non-inflationists (and you know who you are), what more evidence do you need that the Govt's Plan "A" (inflation) is well underway?"

Tyler Durden's picture

Merrill Lynch Note To Clients: "Buy The Dip"

This has to be some sick joke...

Tyler Durden's picture

Merrill Finds That Money Manager Confidence In Stocks At All Time Record High

And the latest confirmation that nothing will ever go wrong again, since if it does it will mean everyone will be TBTF, being on the same side of the sinking ship, comes courtesy of the formerly insolvent bank known as Merrill (and now as taxpayer bailed out Bank of Countrywide Lynch), whose survey of money managers has just found that more are bullish on global stocks than at any time in the history of the survey. As in "ever." "A net 67 percent of respondents, who together manage $569 billion, had an “overweight” position on global equities, the highest level since the survey first asked the question in April 2001. That compares with 55 percent in January and 40 percent in December. Meanwhile, a net 9 percent is “underweight” cash, the lowest allocation since January 2002." Translation: everyone is long stocks. Every "balls to the wall" one. The Bernanke Put has succeeded in eliminating every last drop of risk from the stock market.

Tyler Durden's picture

Merrill Gets $10 Million Fee For Commingling Prop And Flow Traders And Frontrunning Clients

Ever since Zero Hedge's advent just over two years ago, one of the most improper things we claimed happened routinely on Wall Street, was that the big banks' prop traders would consistently, and completely against regulations, populate their massive trading floors with both flow and prop traders, who often sat side by side, within earshot and front run the big clients' orders. Some may recall that point #8 of our follow up query to Goldman's Lucas van Praag in December 2009 was precisely a request to get the seating chart together with assigned responsibilities of all Goldman traders. To wit: "we are still hoping to get a seating chart of Goldman's trading floor (via legitimate channels) which clearly discloses flow and prop traders' seats in order to disclose to the general public that flow and prop traders do not share the same information flow, especially that emanating from core clients who tend to move markets the second they announce their trading axes to Goldman's flow traders." The reason we bring it up is that once again we seem to have been just a year ahead of the curve. In a just announced settlement, the SEC has fined Merrill, and supposedly its insolvent Bank of Calcutta taxpayer funded holdco, $10 million for doing precisely this! From Bloomberg: "The SEC found that Merrill operated a proprietary trading desk from 2003 to 2005 on the firm’s main equity-trading floor in New York, where market makers received and executed customer orders. While Merrill told clients their order information would be used on a need-to-know basis, proprietary traders got information and used it to place trades on Merrill’s behalf after executing the customer orders, according to the statement"...... So, does everyone finally understand how Goldman's (et al) prop group has no trading loss day (at near 50% margins) every single day year after year now?

Tyler Durden's picture

Observations In Progress On The Fed Data Dump (In Which We Learn That Merrill Pledged Up To 77% Of A Fed Loan With Equity Collateral)

As we are going through the excel sheets from the Fed dump, we will share our key findings. Keep in mind this is very raw data and will need far more processing before conclusions can be derived.

Tyler Durden's picture

EURUSD Rich To DXY, Pair Trade Opportunity Per Merrill

Merrill's Mary Ann Bartels looks at a slew of technicals today, and focuses on the most relevant one for the day: the EURUSD, although she focuses on the dollar basket DXY. According to her Fibonacci analysis, the EURUSD has a 50% retracement target of 81.49, which "would correlate to a move in the euro to 1.3124." As the EURUSD is trading inside of 1.31 now, this means that purely based on the EUR contribution to the DXY, there is a short-term arb opportunity of going long the DXY which is at 80.90 and selling the EURUSD. Then again, with a firesale in everything EUR related a short leg may not even be required, especially with complete lack of liquidity in the market, and a total lack of appreciation that the US will have to print far more before all this is over.

Tyler Durden's picture

Merrill Online Trading Portal Down

Too many buy orders will do that to even the best html code taxpayer money can buy. Contrarian indicator? In the meantime, US clients are advised to twiddle thumbs.

Tyler Durden's picture

Merrill Lynch Denies It Has Raised Prime Brokerage Margins

Earlier we disclosed market rumors that BofA/ML has raised PB margins. Bank of America has hit our tip box providing the following denial that PB margins have increased. We are happy that BofA/ML has seen it as sufficiently important to its business to refute rumors posted on a blog.

In response to earlier chatter this morning, please post the company statement below.  Please confirm receipt and call with any questions.

“Bank of America Merrill Lynch has not raised its prime brokerage margins in any product including equity, credit, rates, FX, etc.”

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