Category: zerohedge

Despite a 10% collapse in CSCO (which apparently is not a bellwhether anymore at all) – notching a mere 18 points off the Dow, Yellen's confirmation of everything we thought we knew (and bad macro data) was enough to send the S&P and Dow to new all-time highs. Treasuries rallied 2bps (5-8bps on the week) and gold lifted back to unchanged on the week. VIX limped lower. On the day, the USD closed higher (thanks to JPY weakness supporting stocks) but was lower from early highs. Credit markets rallied very modestly but remain hugely divergent in this supposed QEeen-fueled surge. And on it goes…

 

Stocks are unstoppable… credit not so much…

 

The Dow, Nasdaq totally ignored CSCO – so old school – and roared again…

 

Some context off the debt-ceiling lows…

 

and across the sectors…

 

Gold lurched begrudgingly today – back to unchanged on the week…

 

as Treasuries rallied (10Y back to 2.69%)

 

Before everyone gets too excited – we have seen this rampacious levitation 4 times this year now and each time it reached this pace – we turned lower…

 

You think this is funny… does it amuse you?

 

Charts: Bloomberg

 

Bonus Chart: It all makes sense somewhere…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/cw33tsj9-Mw/story01.htm Tyler Durden

Submitted by Simon Black of Sovereign Man blog,

“It’s a big club…. and you ain’t in it.”

 

– George Carlin

Irony: The woman who is set to become one of the most powerful people in the world begins her confirmation hearing today. And few people have ever even heard of her.

It must be a byproduct of the government-controlled education system; people still think they live in a free country with a representative democracy. It’s anything but.

Voting, elections, etc. are all just illusions to make people think that they have some influence in society.

A tiny elite orchestrates the whole system. And one of the most influential conductors is the Chairman of the Federal Reserve, a post about to be taken over by Janet Yellen.

Since most people have no idea how central banking really works, her confirmation hearing today is just a footnote.

Even people who are otherwise financially sophisticated simply trust that the men behind the curtain know what they’re doing.

This is quite strange when you consider that central bankers have nearly total control over the economy.

In their sole discretion, they are able to set interest rates, conjure money out of thin air, finance trillion-dollar government deficits, bail out commercial banks, etc.

And through these tools, they have the power to manipulate the prices of just about anything, from the Google stock to real estate in Thailand to turnips in Sri Lanka.

For the last several years, the US central bank has set the example for the rest of the world in aggressively using their policy tools.

Most significantly, they have unabashedly printed money in unprecedented quantities. And this has not been without consequence.

For some, the effects have been beneficial.

Rapid expansion of the money supply has pushed asset prices up all over the world. Stocks. Bonds. Many commodities. US Farmland. Artwork. Fine wines. Just about every asset class imaginable is near its all-time high.

People who are already wealthy have the available funds to invest in these markets. So their wealth has grown even more– exponentially.

The middle class, on the other hand, is experiencing an entirely different effect of money printing– retail price inflation.

And anyone who has been to a gas station, airport, university, doctor’s office, grocery store, etc. over the last few years understands this phenomenon very well.

A typical middle class family has little excess cash to invest after paying for rapidly increasing living expenses. Food. Fuel. Mortgage. Insurance. Etc.

And whatever wages or savings they have are being eaten away by inflation. So while the wealthy are getting wealthier exponentially, the middle class is actually getting poorer.

This explains why the wealth gap in the Land of the Free is the largest since 1929 at the start of the Great Depression.

Central bankers are responsible for much of this. In conjuring money out of thin air, they are benefitting one segment of society at the expense of another.

And with Janet Yellen at the head of the Fed, you can be sure that nothing is going to change.

Yellen has made it clear that she will continue to print unlimited quantities of money despite overwhelming data that such actions are ineffective and destructive for the the majority of the population.

Kyle Reese from the first Terminator movie sums this up rather succinctly here:

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/IbfuKyaELzc/story01.htm Tyler Durden

Submitted by Simon Black of Sovereign Man blog,

“It’s a big club…. and you ain’t in it.”

 

– George Carlin

Irony: The woman who is set to become one of the most powerful people in the world begins her confirmation hearing today. And few people have ever even heard of her.

It must be a byproduct of the government-controlled education system; people still think they live in a free country with a representative democracy. It’s anything but.

Voting, elections, etc. are all just illusions to make people think that they have some influence in society.

A tiny elite orchestrates the whole system. And one of the most influential conductors is the Chairman of the Federal Reserve, a post about to be taken over by Janet Yellen.

Since most people have no idea how central banking really works, her confirmation hearing today is just a footnote.

Even people who are otherwise financially sophisticated simply trust that the men behind the curtain know what they’re doing.

This is quite strange when you consider that central bankers have nearly total control over the economy.

In their sole discretion, they are able to set interest rates, conjure money out of thin air, finance trillion-dollar government deficits, bail out commercial banks, etc.

And through these tools, they have the power to manipulate the prices of just about anything, from the Google stock to real estate in Thailand to turnips in Sri Lanka.

For the last several years, the US central bank has set the example for the rest of the world in aggressively using their policy tools.

Most significantly, they have unabashedly printed money in unprecedented quantities. And this has not been without consequence.

For some, the effects have been beneficial.

Rapid expansion of the money supply has pushed asset prices up all over the world. Stocks. Bonds. Many commodities. US Farmland. Artwork. Fine wines. Just about every asset class imaginable is near its all-time high.

People who are already wealthy have the available funds to invest in these markets. So their wealth has grown even more– exponentially.

The middle class, on the other hand, is experiencing an entirely different effect of money printing– retail price inflation.

And anyone who has been to a gas station, airport, university, doctor’s office, grocery store, etc. over the last few years understands this phenomenon very well.

A typical middle class family has little excess cash to invest after paying for rapidly increasing living expenses. Food. Fuel. Mortgage. Insurance. Etc.

And whatever wages or savings they have are being eaten away by inflation. So while the wealthy are getting wealthier exponentially, the middle class is actually getting poorer.

This explains why the wealth gap in the Land of the Free is the largest since 1929 at the start of the Great Depression.

Central bankers are responsible for much of this. In conjuring money out of thin air, they are benefitting one segment of society at the expense of another.

And with Janet Yellen at the head of the Fed, you can be sure that nothing is going to change.

Yellen has made it clear that she will continue to print unlimited quantities of money despite overwhelming data that such actions are ineffective and destructive for the the majority of the population.

Kyle Reese from the first Terminator movie sums this up rather succinctly here:

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/IbfuKyaELzc/story01.htm Tyler Durden

Today the treasury auctioned off 16bln 30yr bonds at 1pm (ET).  This occurred during a fairly volatile backdrop.  Janet Yellen was answering questions from the Senate for much of the “setup” period.  Her testimony was fairly QE – supportive, and so the bond market rallied during her entire testimony.  Then we had a 3.5bln 10yr POMO @ 11am (ET) 2 hours before the auction.  This was the pre-auction crescendo that many day traders are familiar with.

Bonds rallied right into the 20minute period after the 10yr POMO in a crescendo of volume….and then fell back down to the overnight VWAP after the 1pm 30yr auction tailed 1.5 basis points.

(pictured are 30yr UB futures vs inverse DX futures)

I suggested selling bonds at 11:20am this morning into the crescendo of volume, and covering after the auction.  As a trader, i couldn’t really think of anything else to do.

Up until the 10yr POMO, the 10/30 curve was stable at 108 basis points.   This indicated that a concentrated short setup had not taken place.  However, after 11:20am, 30yr bonds started to underperform (both outright price and on the curve), indicating that the setup (selling bonds pre-auction) had begun.  I thought the timing of this setup selling very coincidental.

While the treasury market is still generally strong post-auction (the belly inparticular), the fact that the 30yr auction tailed indicates that the large short base pre-Yellen speech release has mostly covered and the market should be fairly stable in the current price range.

 (UST yield change on day)

Typically, the treasury market builds a concession pre-auction, and actual investors of US Treasury paper buy these auctions to get long.  Today that is a scary trade (getting long) because the market has repriced higher after Yellen’s early-release speech last night.

As a day trader, i won’t participate in that trade…but as a portfolio manager, i’m sure that many are.
 With Janet Yellen at the helm, its clear that the economy will need to clearly demonstrate deep economic strength before she will consider reducing QE…and that may be a long time away.

If you are interested in this type of bond market commentary intraday, in addition to following along with the trades that i am doing in the market, then i suggest trying out my paypal subscription twitter feed.

-GovtTrader

 

http://govttrader.blogspot.com/

https://twitter.com/GovtTrader

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/hGIJyK_2q8o/story01.htm govttrader

Today’s release of the 2013 edition of the Global Shadow Banking Monitoring Report by the Financial Stability Board doesn’t contain anything that frequent readers of this site don’t know already on a topic we have covered since 2009. It does however have a notable sidebar which explains the magic of “fractional repo banking” – a topic made popular in late 2011 following the collapse of MF Global – when it was revealed that as part of the Primary Dealer’s operating model, a core part of the business was participating in UK-based repo chains in which the collateral could be recycled effectively without limit and without a haircut, affording Jon Corzine’s organization virtually unlimited leverage starting with a modest initial margin.

Naturally, any product that can allow participants infinite leverage is something that all “sophisticated” market participants not only know about, but abuse on a regular basis. The fact that this “unfractional repo banking” is at the heart of the unregulated $71.2 trillion shadow banking system, the less the general public knows about it the better.

Which is why we were happy that the FSB was kind enough to explain in two short paragraphs and one even simpler chart, just how the aggregate leverage for the participants in even the simplest repo chain promptly becomes exponential, far above the “sum of the parts”, and approaches infinity in virtually no time.

From the FSB:

As a simple illustration of the way in which repo transactions can combine to produce adverse effects on the system that can be larger than the sum of their parts, suppose that investor A borrows cash for a short period of time from investor B and posts securities as collateral. Investor A could use some of that cash to purchase additional securities, post those as further collateral with investor B to receive more cash, and so on multiple times. The result of this series of ‘leveraging transactions’ is that investor A ends up posting more collateral in total with investor B than they initially owned outright. Consequently, small changes in the value of those securities have a larger effect on the resilience of both counterparties. In turn, investor B could undertake a similar series of financing transactions with investor C, re-using the collateral it has taken from investor A, and so on.

 

Exhibit A2-5 mechanically traces out the aggregate leverage that can arise in this example. Even with relatively conservative assumptions, some configurations of repo transactions boost aggregate leverage alongside the stock of money-like liabilities and interconnectedness in ways that might materially increase systemic risk. For example, even with a relatively high collateral haircut of 10%, a three-investor chain can achieve a leverage multiplier of roughly 2-4, which is in the same ball park as the financial leverage of the hedge fund sector globally. It is therefore imperative from a risk assessment perspective that adequate data are available. Trade repositories, as proposed by FSB Workstream 5, could be very helpful in this regard.

 

So… three participants result in 4x leverage; four: in roughly 6x, and so on. Of course, these are conservative estimates: in the real, collateral-strapped world, the amount of collateral reuse, and thus the number of participants is orders of magnitude higher. Which means that after just a few turns of rehypothecation, leverage approaches infinity. Needless to say, with infinite leverage, even the tiniest decline in asset values would result in a full wipe out of one collateral chain member, which then spreads like contagion, and destroys everyone else who has reused that particular collateral.

All of this, incidentally, explains why down days are now prohibited. Because with every risk increase, there is an additional turn of collateral re-use, and even more participants for whom the Mutual Assured Destruction of complete obliteration should the weakest link implode, becomes all too real.

That, in a nutshell, are the mechanics. As to the common sense implications of having an unregulated funding market which explicitly allows infinite leverage, we doubt we have to explain those to the non-Econ PhD readers out there.

Source

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/lEw8JkuqXPA/story01.htm Tyler Durden

Today’s release of the 2013 edition of the Global Shadow Banking Monitoring Report by the Financial Stability Board doesn’t contain anything that frequent readers of this site don’t know already on a topic we have covered since 2009. It does however have a notable sidebar which explains the magic of “fractional repo banking” – a topic made popular in late 2011 following the collapse of MF Global – when it was revealed that as part of the Primary Dealer’s operating model, a core part of the business was participating in UK-based repo chains in which the collateral could be recycled effectively without limit and without a haircut, affording Jon Corzine’s organization virtually unlimited leverage starting with a modest initial margin.

Naturally, any product that can allow participants infinite leverage is something that all “sophisticated” market participants not only know about, but abuse on a regular basis. The fact that this “unfractional repo banking” is at the heart of the unregulated $71.2 trillion shadow banking system, the less the general public knows about it the better.

Which is why we were happy that the FSB was kind enough to explain in two short paragraphs and one even simpler chart, just how the aggregate leverage for the participants in even the simplest repo chain promptly becomes exponential, far above the “sum of the parts”, and approaches infinity in virtually no time.

From the FSB:

As a simple illustration of the way in which repo transactions can combine to produce adverse effects on the system that can be larger than the sum of their parts, suppose that investor A borrows cash for a short period of time from investor B and posts securities as collateral. Investor A could use some of that cash to purchase additional securities, post those as further collateral with investor B to receive more cash, and so on multiple times. The result of this series of ‘leveraging transactions’ is that investor A ends up posting more collateral in total with investor B than they initially owned outright. Consequently, small changes in the value of those securities have a larger effect on the resilience of both counterparties. In turn, investor B could undertake a similar series of financing transactions with investor C, re-using the collateral it has taken from investor A, and so on.

 

Exhibit A2-5 mechanically traces out the aggregate leverage that can arise in this example. Even with relatively conservative assumptions, some configurations of repo transactions boost aggregate leverage alongside the stock of money-like liabilities and interconnectedness in ways that might materially increase systemic risk. For example, even with a relatively high collateral haircut of 10%, a three-investor chain can achieve a leverage multiplier of roughly 2-4, which is in the same ball park as the financial leverage of the hedge fund sector globally. It is therefore imperative from a risk assessment perspective that adequate data are available. Trade repositories, as proposed by FSB Workstream 5, could be very helpful in this regard.

 

So… three participants result in 4x leverage; four: in roughly 6x, and so on. Of course, these are conservative estimates: in the real, collateral-strapped world, the amount of collateral reuse, and thus the number of participants is orders of magnitude higher. Which means that after just a few turns of rehypothecation, leverage approaches infinity. Needless to say, with infinite leverage, even the tiniest decline in asset values would result in a full wipe out of one collateral chain member, which then spreads like contagion, and destroys everyone else who has reused that particular collateral.

All of this, incidentally, explains why down days are now prohibited. Because with every risk increase, there is an additional turn of collateral re-use, and even more participants for whom the Mutual Assured Destruction of complete obliteration should the weakest link implode, becomes all too real.

That, in a nutshell, are the mechanics. As to the common sense implications of having an unregulated funding market which explicitly allows infinite leverage, we doubt we have to explain those to the non-Econ PhD readers out there.

Source

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/lEw8JkuqXPA/story01.htm Tyler Durden

There was a lot of competition for Quote of the Day today. Between President Obama’s double-speak, a rationally exuberant Janet Yellen, and overnight idiocy from Suga and Abe, choices were numerous. But the following from Gary Gensler – still chair of the CFTC – took the provberial biscuit:

• *GENSLER: ‘I THINK MARKETS WORK BEST WHEN THEY’RE TRANSPARENT’ (but)
• *GENSLER SAYS HE ‘BENFITED FROM DARKNESS’ IN WALL STREET CAREER

Well that sums it all up.. The question is – will Massad have a CFTC-shaped floodlight fixed to the roof of the agencies’ building?

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/QEdD54zSElY/story01.htm Tyler Durden

There was a lot of competition for Quote of the Day today. Between President Obama’s double-speak, a rationally exuberant Janet Yellen, and overnight idiocy from Suga and Abe, choices were numerous. But the following from Gary Gensler – still chair of the CFTC – took the provberial biscuit:

• *GENSLER: ‘I THINK MARKETS WORK BEST WHEN THEY’RE TRANSPARENT’ (but)
• *GENSLER SAYS HE ‘BENFITED FROM DARKNESS’ IN WALL STREET CAREER

Well that sums it all up.. The question is – will Massad have a CFTC-shaped floodlight fixed to the roof of the agencies’ building?

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/QEdD54zSElY/story01.htm Tyler Durden

By Timothy Sandefur of Pacific Legal

Lawlessness: what this morning’s Obamacare announcement means

President Obama this morning announced that he would be issuing an administrative order—which requires no Congressional review—delaying the implementation of provisions of Obamacare that had led to the cancellation of a million or so insurance policies. This follows on the Administration’s similar delays of the Employer Mandate and the Individual Mandate. According to CNN, this morning’s delay is supposed to “cover millions of people who have had their insurance policies cancelled,” but the fact is that in many states, it won’t even do that—because insurance companies, anticipating the implementation of the new law, long ago decided to cancel these policies. Surprise!—except for the attentive observers who have been warning about this for years. Moreover, many states—including California—which are already going along with Obamacare are already beyond the Administration’s reach, because those insurance policies were cancelled by state agencies. This morning’s delay can’t do anything about that.

But there’s a much deeper problem at work here: the lawlessness of Obamacare, root and branch. The problems began with its initial enactment—first the Individual Mandate was supposed to be a “regulation of commerce.” That was unconstitutional, and the Supreme Court finally said no…only to rewrite the law by declaring it to be a “tax” instead. That doesn’t work either, though, because the Constitution requires that tax laws originate in the House of Representatives, and Obamacare began in the Senate. Meanwhile, the contents of the law—which members of Congress didn’t bother to read before they passed—gave away tremendous new powers to administrative agencies to write new rules to fill in crucial blank spots in the statute itself. For example, the Individual Mandate forces Americans to buy “minimum essential coverage”—but that term was left up to unelected bureaucrats in the Department of Health & Human Services to define later. And the law created a powerful new independent agency, the Independent Payment Advisory Board, and gave it power to write law about Medicare reimbursement rates without any checks and balances…and tried to make the law itself unrepealable.

Now come unilateral administrative delays on the order of the President. Keep in mind what these delays really are—they are not new laws, or amendments to the law…they are orders from the President to his subordinates to simply not enforce laws that are on the books. The Employer Mandate, for example, was “delayed” by an order that simply instructs Executive agencies not to enforce the reporting requirement. A company that fails to comply with that Mandate is still violating the law—it’s just that the President has chosen to look the other way for now.

The Constitution of the United States says that the President “shall take care that the laws be faithfully executed.” That provision was written because the Founding Fathers had experienced the arbitrariness of a government in which the British monarchy picked and chose which laws to enforce and which laws to ignore. The result of such political control over the law was, they knew, a breakdown in the rule of law—and a breakdown that allowed the powerful and politically well-connected to manipulate the system at will. As James Madison warned in the Federalist, “mutable” laws

poison[] the blessing of liberty itself. It will be of little avail to the people, that the laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood; if they be repealed or revised before they are promulgated, or undergo such incessant changes that no man, who knows what the law is to-day, can guess what it will be to-morrow. Law is defined to be a rule of action; but how can that be a rule, which is little known, and less fixed?

Unfortunately, today’s administrative state gives so much power to unelected bureaucrats—who are protected against any meaningful control by voters—that they can alter, manipulate, and change the law almost at will. The result is a breakdown in the rule of law and an arbitrary system in which the government operates, not according to predictable standards and meaningful rules, but according to political whim and in arbitrary, day-to-day, ad hoc manner.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/gab5Afd9xik/story01.htm Tyler Durden

The Forex market is the largest in the world and the least understood.  Since the late 90’s, traders and asset managers have flocked to it as an alternative to trade, compared to other common markets (Stocks, Bonds, Futures).  

But due to the fact that the market is decentralized, and unregulated, it also attracted a large amount of fraud, on many levels.  First, there was outright theft by groups such as the one led by Trevor Cook ($190 Million Ponzi scheme).  Then there were sham brokers, in the most extreme case, like One World Forex, that simply didn’t bother clearing client orders and used client funds to finance lavish lifestyles and a movie that was never released featuring Busta Rhymes.  Those in the new growing retail market on both sides of the dealing desk developed a special bond going through a unique experience that just wasn’t possible in other markets.  

It was said that this was a retail problem, that serious institutional Forex was not aparty to such nonsense.  But now the world’s largest investment banks are under investigation by the Department of Justice for Forex market rigging.  This includes names such as Goldman Sachs, Lloyds of London, JP Morgan Chase, Barclays, Citigroup, just to name a few (the full list of names has not been released).

 

– Forex nixon shock

fx concepts

forex fraud

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/KkvF30XPPNM/story01.htm globalintelhub