Most Buy Side managers have no idea about the disparate business models of the four largest US banks by assets.
The Father Of High Speed Trading Speaks: "The Market We Created Is A Casino; A Complete Mess; A Rigged Game"Submitted by Tyler Durden on 04/07/2014 18:42 -0400
"I must confess to you that I was an ardent proponent of bringing technology to trading and brokerage. Unfortunately, I only saw the good sides. I saw how electronic trading and record-keeping could be used to force people to be more honest, to make the process more efficient, to lower transaction costs and to bring liquidity to the markets. I did not see the forces of fragmentation and the opportunity for people to use technology to keep to the letter but avoid the spirit of the rules -- creating the current crisis.... Technology, market structure, and new products have evolved more quickly than our capacity to understand or control them. ... To the public the financial markets may increasingly seem like a casino, except that the casino is more transparent and simpler to understand.... The result has been a series of crises over the past few years that have caused many investors to lose confidence or to think that the whole system is a rigged game."
One of the evils of massive over-financialization is that it enables Wall Street to scalp vast “rents” from the Main Street economy. These zero sum extractions not only bloat the paper wealth of the 1% but also fund a parasitic bubble finance infrastructure that would largely not exist in a world of free market finance and honest money. The infrastructure of bubble finance can be likened to the illegal drug cartels. In that dystopic world, the immense revenue “surplus” from the 1000-fold elevation of drug prices owing to government enforced scarcity finances a giant but uneconomic apparatus of sourcing, transportation, wholesaling, distribution, corruption, coercion, murder and mayhem that would not even exist in a free market. The latter would only need LTL trucking lines and $900 vending machines. In this context, the sprawling empire known as Bloomberg LP is the Juarez Cartel of bubble finance.
Nowhere is the 'get-rich-quick', 'fundamentals-are-for-suckers', new normal 'idiot' market more apparent than in the "mistakes" investors have made in Twitter's IPO (TWTRQ), Google's NEST acquisition (NEST), and now Facebook's Oculus purchase (OCLS & OVZT). Peak stupidity?
While every other asset class in the world has now been found to be subject to some form of manipulation (from LIBOR rates to FX fixes and from commodity warehousing to HFT equity front-running), the stakes in a COMEX silver/gold/copper manipulation lawsuit are staggering. Not only is market manipulation the most serious market crime possible, the markets that have been manipulated and the number of those injured are enormous. It is likely not an exaggeration to say that any finding that JPMorgan and the COMEX did manipulate prices as we contend could very well result in the highest damage awards in history. That’s no small thing considering the tens of billions of dollars that JPMorgan has coughed up recently for infractions in just about every line of their business. Our point is that no legal case could be potentially more lucrative or attention getting than this one. It is clear the CFTC will never act and so class-action lawsuits may just be the only way the data is du into deep enough to uncover the truth.
The Fed and the other major central banks have been planting time bombs all over the global financial system for years, but especially since their post-crisis money printing spree incepted in the fall of 2008. Now comes a new leader to the Eccles Building who is not only bubble-blind like her two predecessors, but is also apparently bubble-mute. Janet Yellen is pleased to speak of financial bubbles as a “misalignment of asset prices,” and professes not to espy any on the horizon. Actually, the Fed’s bubble blindness stems from even worse than servility. The problem is an irredeemably flawed monetary doctrine that tracks, targets and aims to goose Keynesian GDP flows using the crude tools of central banking. Not surprisingly, therefore, our monetary central planners are always, well, surprised, when financial fire storms break-out. Even now, after more than a half-dozen collapses since the Greenspan era of Bubble Finance incepted in 1987, they don’t recognize that it is they who are carrying what amounts to monetary gas cans.
Wall Street Trader: "My Lying Is Part Of Making Deals Although I Generally Consider Myself A Truthful Person"Submitted by Tyler Durden on 02/25/2014 12:13 -0400
The story of former Jefferies MBS trader Jesse Litvak, who is currently on trial in New Haven federal court accused of defrauding investors of $2 million by lying on trades of mortgage-backed securities, is well known to regular readers: it was summarized previously in "We Are Doneski Gorgeous!" - How Bond Trading On Wall Street Really Works. In that article we showed, more than just an isolated case of alleged fraud, that when it comes to OTC trades which do not transact on an exchange but instead take place over the phone between a salesman and a buyer, it is all a game of lies, fraud and misinformation... however one which both it is a game of lies, fraud and misinformation. Today, Mr. Litvak confirmed as much when he said, quoting Bloomberg, "My lying is part” of making deals, he said, “although I generally consider myself a truthful person."
The Chinese Gold & Silver Exchange Society is prepared to spend at least HK$ 1 billion to set up a gold vaulting warehouse in mainland China that will be able to store a massive 1,500 tonnes of gold. Owning gold directly and in a fully allocated, fully segregated account and with an ability to take delivery remains vital.
2014 has been an unusual year so far. The worst start for stocks in decades stunned many but has been saved by the best rally in a few years' asset-gatherers proclaim it was the dip to be bought but volume never came back to buy that dip (despite its exuberant surge). So where is all the volume in 2014? Nanex has the answer... investors have been geting 'high' by weeding-out OTC stocks...
The Primary-dealer intermediated US Treasury issuance model is well-known to virtually everyone (and if it isn't, today the TBAC has released a convenient presentation explaining all the nuances for those who may not be familiar with all the aspects of just how the US Treasury auctions off bonds). But how does the rest of the developed world fund its budgeting needs? The following table from the TBAC presentation provides all the answers.
So far in 2013, Bank of America lost money on 9 trading days out of a total 188. Statistically, this result is absolutely ridiculous when one considers that the bulk of bank trading revenues are still in the form of prop positions disguised as "flow" trading to evade Volcker which means the only way a bank could make money with near uniform perfection is if it either i) consistently has inside information that it trades on or ii) it consistently front-runs its clients (the latter incidentally was a topic we covered back in 2009 relating to Goldman Sachs, and which the bank sternly rejected). We now know that when it comes to Bank of America at least one of the two happened.
When it comes to the opinions of financial pundits and "experts", most can be chucked into the garbage heap of groupthink and consensus. However, one person whose opinion stands out is Elliott Management's Paul Singer. One of the most successful hedge fund managers has consistently stood against the grain of conventional wisdom over the past three decades and been handsomely reward, which is why his opinion is certainly one worth noting. Singer, together with Martin Wolf and several other panelists will be speaking at 45 minutes past the hour on a panel discussing one of the most pressing topics nearly 6 years after the Bear Stearns collapse: "Are Markets Safer Now." Watch their thoughts on the matter in the session live below.
When Google bought Nest (for its smart, intrusive thermostat technology that gives the NSA a front-row seat into the heating requirements of Americans), little did it know that it was purchasing an OTC penny stock with the ticker NEST and a market cap of a few hundred thousand. Or maybe, Google knew very well what it paid $3 billion for, and it was the increasingly prevalent idiots that make up the stock market that were confused. Either way, just like TWTRQ was TWTR for a few short days, so NEST (not to be confused with the GOOG acquisition target if even that is precisely what happened) is now the second coming of the unmitigated idiocy that defines the "market" NEST was up 4900% at its peak yesterday on massive volume.
Non-GAAP EPS, sure. But non-GAAP revenues? Up until today one would think that kind of accounting gimmickry is solely reserved for the profitless one-hit wonders of the world, i.e. Tesla, but moments ago we just saw JPM report two sets of revenues: one which was the firm's GAAP revenue, and which was $23.156 billion, and another, far higher number, which was $24.112 billion which JPM described as revenue on a "managed basis" or also known as non-GAAP, and largely made up as they go along. So continuing with the other fudges, JPM also reported Net Income of $5.3 billion, or EPS of $1.30, once again on a pseudo-GAAP basis. However, this wouldn't be JPM if it didn't have a boat load of adjustments, and sure enough it did as per the waterfall schedule below. As can be seen, the biggest benefit aside from the $0.32 DVA & FVA (yes, blowing out your CDS is profitable once more), was the $0.27 in litigation charges. Of course, for these to be an addback, they have to be non-recurring instead of repeated, guaranteed every quarter, but once again, who cares. And since we choose to stick with GAAP, the bottom line is that JPM revenues dropped from $23.7 billion in Q4 2012 to $23.2 billion this quarter, while EPS dropped from $1.39 to $1.31. Oh, and yes: for the purists, here is the bottom line: of that $5.3 billion in "earnings", $1.3 billion or double the expected (at least from Barclays) $616MM, came from loan loss reserve releases. Accounting magic wins again.
Nearly a year ago, we predicted that the party for bond traders was over. The reason: MBS bond trader Jesse Litvak, formerly of mid-tier, perpetual aspirational bulge bracket, and the place where every fired UBS banker has a safety cubicle, Jefferies, got not only too greedy (that's ok, everyone on Wall Street is), but what's worse, got caught, and as we said at the time, ended the party for Wall Street's bond trading cash bonanza. Little did we know how correct we would be, because not only did the former MBS trader, who "proceeded to rip virtually all of his clients on seemingly every single trade he executed for the three years he was employed at Jefferies, lying to everyone in the process: both clients and in house colleagues, generating some $2.7 million in additional revenue for Jefferies for the duration of his tenure, and who knows how much in personal bonuses", end the party, but it appears he unleashed the next big regulatory crack down on Wall Street. And one which may just cost perennial Department of Justice favorite JPMorgan another several billion in "litigation reserves."