Senator Dan Coats’ Top 10 Reasons Why Russian Sanctions Suck

Having noted the ridicule with which the Russians view the sanctions barrage between the EU and US, we thought it worth reflecting, courtesy of Senator Dan Coats, on the absurd political farce that is the entirely useless (and purely public-relations-based) war of words (and not actions) that is under-way as the West realizes the Russian “boomerang” is coming any minute…



via Zero Hedge Tyler Durden

When Even Goldman Complains About HFT

For the past five years we have been complaining about the two-tiered, and broken, market resulting from the near-ubiquitous presence of HFT trading strategies, where fundamentals have been tossed into the trash, and where quote churning, packet stuffing and not to mention, momentum ignition, put on candid display just before market open today when the Emini was ramped in a vertical line straight up taking the S&P to new all time highs, have become the only trading strategies that matter. Why? Because algos were in a panic buying mode as other algos were in a panic buying mode, and so reflexively on. The SEC long ignored our complaints, even after the HFT-precipitated flash crash, which we had warned apriori would happen, in a market as broken and manipulated as the one the Fed and the algos have unleashed. This changed recently when NY AG Schneiderman finally decided to “look into things” following the release of Virtu’s ridiculous prop trading profits when the firm, in its IPO prospectus, announced it had made money on 1327 of 1328 trading days. However, when even Goldman Sachs begins complaining about HFT, it may be time to fire all those 20-some year old math PhDs who program your “trading algorithms.”

In an Op-Ed overnight, Goldman COO Gary Cohn reminds those who may have forgotten, that:

In the past year alone, multiple technology failures have occurred in the equities markets, with a severe impact on the markets’ ability to operate. Even though industry groups have met after the market disruptions to discuss responses, there has not been enough progress. Execution venues are decentralized and unable to agree on common rules. While an industry-based solution is preferable, some issues cannot be addressed by market forces alone and require a regulatory response. Innovation is critical to a healthy and competitive market structure, but not at the cost of introducing substantial risk.

Odd – we have been saying this since April 2009.

Anyway, what does Cohn suggest? Here, via the WSJ, are his four proposal for eliminating the fragmented, broken markets that have resulted from the relentless incursion of vacuum tubes, which have also driven the vast majority of carbon-based traders out.

Regulators and industry participants, including asset managers, broker-dealers, exchanges and trading firms, have all put forth ideas and reforms. We agree with a number of their concerns and propose the following four principles:


First, the equity market needs a stronger safety net of controls to reduce the magnitude and frequency of disruptions. A fragmented trading landscape, increasingly sophisticated routing algorithms, constant software updates and an explosion in electronic-order instructions have made markets more susceptible to technology failures and their consequences.


We propose that all exchanges adopt a stringent set of uniform, SEC-mandated execution controls to reduce errors. In addition to limit-up, limit-down rules that prevent trades from occurring outside a specified price band, pre-trade price and volume limits should be implemented to block problematic orders from entering the market. Mechanisms should also be introduced to halt a firm’s, market maker’s or other entity’s trading when an established threshold is breached, thus minimizing the uncontrolled accumulation of trades.


Second: Create incentives to reduce excessive market instability. The economic model of the exchanges, as shaped by regulation, is oriented around market volume. Volume generates price discovery and liquidity, which are clearly beneficial. But the industry must recognize how certain activities related to volume can place stress on a market infrastructure ill-equipped to deal with it.


Electronic-order instructions connect the objectives of buyers and sellers to actions on exchanges. These transaction messages direct the placement, cancellation and correction of orders, and in recent years they have skyrocketed. In the 2010 “flash crash,” a spike in the volume of these messages exacerbated volatility, overwhelming the market’s infrastructure.


According to industry analysis, since 2005 the flow of these order instructions sent through U.S. stock exchanges has increased more than 1000%, yet trade volume has increased by only 50%. One consequence of the enormous growth in order-message traffic is that increasingly the quote that an investor sees isn’t the price he or she can transact, as orders often get canceled at lightning-quick speeds.


Currently there is no cost to market participants who generate excessive order-message traffic. One idea would be to consider if regulatory fees applied on the basis of extreme message traffic—rather than executions alone—are appropriate and would enhance the underlying strength and resiliency of the system. Regulators in Canada and Australia have adopted this approach.


Third: Public market data should be disseminated to all market participants simultaneously. Exchanges currently disseminate prices and transaction data to the SEC-sanctioned distributor for all investors, but exchanges may also send this information directly to private subscribers. While the data leave the exchange simultaneously, the public data are delayed because they go through the intermediary’s processing infrastructure. The public aggregator should release information to all market participants at the same time.


Removing the possibility of differentiated channels for market data also reduces incentives that favor investment in the speed of one channel over the stability and resiliency of another. Instability creates and compounds market disruptions. Stable and accurate market data is one of the most important elements of market safety; it is the backbone of the market that must weather the most extreme periods.


Fourth: Give clearing members more tools to limit risk. A central clearing house with strong operational and financial integrity can reduce credit risk, increase liquidity and enhance transparency through enforced margin requirements and verified and recorded trades. But because clearing members extend credit, the associated risks must be recognized. Tools like pre-trade credit checks and being able to monitor positions and credit on an intraday basis are essential. Clearing firms use various tools like margin and capital adequacy to manage their risk, but exchanges should also provide uniform mechanisms for clearers to set credit limits and to revoke a client’s ability to trade immediately upon request, when necessary.

Once again, all suggestions we have banged the table on for the past five years to the point where we simply don’t care.

Why? Because we realize that the HFT-parasite system is so embedded in the market structure and “New Normal” levitation topology that serves the failed status quo system, that there is no hope of ever extricating the algos from the market without crashing the market outright. And the regulators know this all too well.

 Which is the definite paradox, because the only thing that will revert the market back to some semblance of normalcy, is precisely a crash that wipes out the false sentiment that things are stable, which as everyone who traded securities in the old normal, knows they are anything but.

In other words, the best thing one can do is to cheer on the increasing incursion of idiocy in stock trading, which inevitably will self-cannibalize itself. As, incidentally, will the Fed’s final attempt to centrally plan the “wealth effect” to all time highs.

So do your worst, Mr. Chairmanwoman and Virtu, we, for one, are rooting for you!


via Zero Hedge Tyler Durden

The Federal Reserve: Masters Of The Universe Or Trapped Incompetents?

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Suppose the Fed was actually little more than a collection of incompetents trapped in a broken system that is beyond repair.

For a variety of reasons, the Federal Reserve is viewed by many as the financial Master of the Universe. Given how the media hangs on every pronouncement and the visible power of the Fed's policies to move markets, this view is understandable.

But suppose rather than being masters of all things financial, the Fed was actually little more than a collection of incompetents trapped in a broken system that is beyond repair. Many reasons have been proposed to explain the Fed's policies,and most (including my own expressed here) focus on the Fed's need to protect the banking sector and the Status Quo, lest the whole rotten contraption collapses in a heap of worthless derivatives and various Ponzi schemes.

An alternative view is that the members of the Fed have been selected for incompetence by a system that fosters incompetence by its very nature, i.e. a centralized power center.

Longtime correspondent Harun I. recently offered this explanation of the incompetence of those atop the heap:

Regarding the competence of the Deep State and Federal Reserve:When one merges the Peter Principle and Pareto Principle one realizes that, not only are they incompetent, it is inevitable. Complexity does not equal competence. And because complexity is a form of leverage it does not require a majority of systems inoperable to fail.

Modern developed civilizations rest upon several inverted pyramids. How many people out of any random sampling know how to produce their own food, make their own clothing, build their shelter, or tap into their own water source? As complexity increases and the division in labor grows increasingly in areas that have nothing to do with core survival the civilization becomes increasingly incompetent.

Since a civilization is a hierarchal system, its leaders (the vital few) will eventually be incompetent. Inverted pyramids and inept leadership are a toxic mix. As history would indicate this situation eventually disintegrates then reorganizes… to be repeated.

Another key characteristic of such centralized systems is the way they trap participants, even those at the top. Analyst Catherine Austin Fitts has discussed this attribute, for example, in this interview: Catherine Austin Fitts on Wall Street's Corruption, the Austrian School and Who's 'Really' in Charge.

One way to think about this is to ask: let's say the voting members of the Fed knew that the best way to re-start sustainable growth was to normalize interest rates by ending the Fed's zero-interest rate policy (ZIRP) and quantitative easing.
Even if they knew these changes would ultimately profit the banking sector and the economy as a whole, could they withstand the pressure that would be exerted by everyone benefiting from the Status Quo?

I have long maintained that the Fed's vaunted independence is actually contingent, i.e. the Fed is a political entity and as a result it responds to political pressure like any other political entity. And like any hierarchy, it is prone to group-think and the urge to conform to norms.

This raises another question: even if the voting members of the Fed wanted to fix the nation's broken financial system, do they have the ability to do so?

I have posited that whatever consensus/group-think dominated the various factions that comprise the Deep State has eroded, and the cracks of profound disunity are opening between powerful factions in the Deep State.

Rather than Masters of the Universe, the Fed's governors are increasingly looking more like deer caught in the headlights of a transformation they cannot understand, much less control.

Is the Deep State Fracturing into Disunity? (March 14, 2014)

Why Is Our Government (and Deep State) So Incompetent? (March 6, 2014)

The Fed Has Failed (and Will Continue to Fail), Part 1 (March 11, 2014)

How The Fed Has Failed America, Part 2 (March 12, 2014)


via Zero Hedge Tyler Durden

Is The Biotech Bubble Bursting?

Having been among the best performing sectors of the stock market for so long (up around 70% alone last year), the moves of the last few days – and especially today – are extremely worrying for the ‘trend-is-your-friend’ momo-following fickle investing public. The Nasdaq Biotech index is getting monkey-hammered this morning and is now 10% off its late-Feb highs. Crucially, this sector has been a major pillar of strength for the overall Nasdaq and that means the Nasdaq is also getting crushed – now down 0.9% from the FOMC and dramatically underperforming.


The Nasdaq Biotech index is plunging today and down 10% from Feb highs…

Here are the biggest losers…


Which has smashed the Nasdaq lower and dramatically underperforming… (the Dow is rallying on the back of Visa’s surge as news that the Fed upheld debit card swipe fee caps)


And across sectors since the FOMC there is only one winner – financials – (and 2 clear losers)… with Healthcare dominated by the Biotechs… one question – if builders are dumping on higher rates (which we presume means pressure on housing) then why are financials rallying (especially given the collapse in the curve and thus lower NIMs and lower expected loan creation)


via Zero Hedge Tyler Durden

Mt.Gox “Finds” Nearly Quarter Of Bitcoins It Had Said Was Missing

The latest news out of insolvent Bitcoin exchange Mt.Gox will hardly boost confidence in the safety of the digital currency, after last night it announced that it had “found” nearly a quarter, or 199,999.99 of the bitcoin it had previously reported as missing. Mt.Gox Chief Executive Mark Karpeles said his insolvent company found the 200,000 bitcoin assumed lost in a digital wallet, or storage file, that hadn’t been used since 2011. As a reminder, when Mt.Gox filed for bankruptcy at the end of February, it reported 850,000 bitcoins were lost, mostly belonging to its customers, with Karpeles stating at the time only 2,000 bitcoin were left, blaming hackers and technical issues for the loss. It turns out there may have been more than met the eye, and one can surely accuse Karpeles of a completely lack of knowing what was truly going on at his company.

As WSJ reports, following the announcement, “some users investigated the possibility that some coins were still inside Mt. Gox, once the dominant exchange for the virtual currency. Bitcoin transactions are tracked via an online ledger, leading many users to hope that at least some bitcoins could be tracked down and recovered.”

Mr. Karpeles said in the announcement, released Thursday, that the exchange was continuing to investigate the scope of the loss, raising the specter that bitcoin that had been assumed to be stolen could be hiding out in other accounts or files the exchange had lost track of.


“We believed there were no bitcoins left in old wallets, but found 199,999.99 bitcoins on March 7,” Mr. Karpeles said in the Thursday announcement. Mt. Gox said it reported the discovery of the bitcoin to its lawyers on March 8 and moved the discovered bitcoin to offline storage between March 14 and 15.


Mt. Gox didn’t specify whether the found bitcoin were those of customers or bitcoin owned by the exchange itself.

One wonders just where said “wallet” was located: hopefully not in Mark’s back pocket, whose recent actions and disclosures certainly leave the door open for a criminal embezzlement investigation. At least the hopes of naive users of the exchange have raised that some of their lost funds will be uncovered.

“It doesn’t make me any more hopeful about more bitcoins being found, but I do think it increases the amount of money I’ll get back,” said Kolin Burges, an investor who had protested outside Mt. Gox’s Tokyo offices in the weeks leading up to the exchange’s collapse.


“I’m more hopeful than before that we will get at least some money back from Mt. Gox,” said Tetsuyuki Ooishi, a fellow at the Japan Digital Money Association. Still, he expressed disbelief that the company hadn’t realized earlier it still that amount of bitcoin. “They must have checked all the bitcoin wallets when they were filing for bankruptcy protection and 200,000 is just such a big amount.”


Shigeichiro Yamasaki, a professor of information security at Kinki University in Osaka, also called the announcement “puzzling” and said the announcement was telling how Mt. Gox was “very sloppy about managing others’ assets.”


The company couldn’t be reached for further explanation.

Alas, when it comes to recoveries for end users, we wouldn’t hold our breath, considering the contractual claims that would have be satisfied first before any customers get recoveries. This is especially true if the most recent bout of bitcoin selling, which pushed the currency to its lowest level since early March accelerates. In that case even if a few more wallets are mysteriously uncovered, it would be cold comfort to users who bought at far higher prices only to ultimately get a “currency” worth substantially less.

In the meantime, Mt.Gox has updated its login screen for users who wish to check their balances. But why, we wonder, when all one has to do is ask the NSA just where all the “coins” have ended up.


via Zero Hedge Tyler Durden

From Maid-Mauler To Money Manager; DSK Starts $2bn Hedge Fund

Three years after being accused of sexual assault, removed from an airplane in NYC, and later having the charges dismissed on an alleged out of court settlement, former IMF chief, Dominique Strauss-Kahn (DSK) is planning to leverage his status – as an expert on global finance – as well as his thick rolodex to raise a $2bn hedge fund in Asia. As WSJ reports, the fund, which is awaiting regulatory approval, will “invest based on Dominique’s analyses,” and like most global macro funds will “aim for steady capital returns” with “no leverage.” Ironically, given his new role as hedge fund marketer, DSK faces another case in France on charges of “aggravated pimping.”


Via WSJ,

A new hedge fund is planning to leverage the status of former International Monetary Fund chief Dominique Strauss-Kahn as an expert on global finances, as well as his thick rolodex, to raise $2 billion, notably in Asia.


The fund, which is awaiting regulatory approval from Luxembourg authorities…


We will invest based on Dominique’s analyses,” Mr. Leyne said in a telephone interview from Shanghai, where he and Mr. Strauss-Kahn are meeting with potential clients.


The research team of the fund will be headed by Mr. Strauss Kahn’s daughter Vanessa, who holds a Ph.D. in economics from New York University…


The fund, like most global macro funds, will aim for “steady capital returns” with “no leverage.” It will invest in a range of asset classes, including bonds, equities and foreign exchange, LSK chief executive officer Mohamad Zeidan said.

Trust your money with this guy – but not your daughter… “Naked Call Capital”


The former IMF chief, who was long seen as a presidential hopeful in France, stepped down from the IMF in May 2011 after a New York hotel maid accused him of sexual assault. Mr. Strauss-Kahn denied the accusations and the case was later dismissed by New York prosecutors.


The former IMF chief and the maid later settled a civil lawsuit out of court for an undisclosed amount.


One other case awaits him in France. Last year, French magistrates sent Mr. Strauss-Kahn to trial on a charge of aggravated pimping as part of an investigation into an alleged prostitution ring. Mr. Strauss-Kahn has said he rejected the aggravated pimping charges, and denied any wrongdoing.

“aggravated pimping” or “hedge fund marketing”?

Interesting that they claim “no leverage” will be used as we assumed the use of “naked calls” was a major part of DSK’s life.


via Zero Hedge Tyler Durden

003: The coming collapse of the international monetary system

sm003 003: The coming collapse of the international monetary system

Jim Rickards, author of one of my favorite books Currency Wars and his upcoming book “The Death of Money: The Coming Collapse of the International Monetary System”, joins me today to discuss the death of money.

You’ll hear about:

  • Why a collapse of the international monetary system is coming
  • Why it will be bigger than last time, and bigger than central banks
  • Why he thinks the Fed can’t print their way out of the next crisis
  • And why you won’t like the solution

Liked this? Subscribe on iTunes and share it with a friend below:


Quad Witching VIX Slam Sends Stocks To Record Highs

Strongly supported by a surge in AUDJPY, the S&P 500 futures rallied into the US open on this quad witching day and the cash index surged higher once the market opened – breaking to new all-time record highs at 1883.97. VIX was clubbed back below 14% to provide some further support. Nothing else is moving in this ‘jerky’ manner… gold is leaking higher, Treasuries holding flat (at high yields of week), and the USD is flat… which makes one wonder how long this spike wil hold…


AUDJPY in charge of stocks…


Which provided just the ammo to open the cash index to new record highs…


but bonds remain dead…


As VIX was slammed bacxk under 14%


Charts: Bloomberg


via Zero Hedge Tyler Durden

Petrodollar Alert: Putin Prepares To Announce “Holy Grail” Gas Deal With China

If it was the intent of the West to bring Russia and China together – one a natural resource (if “somewhat” corrupt) superpower and the other a fixed capital / labor output (if “somewhat” capital misallocating and credit bubbleicious) powerhouse – in the process marginalizing the dollar and encouraging Ruble and Renminbi bilateral trade, then things are surely “going according to plan.”

For now there have been no major developments as a result of the shift in the geopolitical axis that has seen global US influence, away from the Group of 7 (most insolvent nations) of course, decline precipitously in the aftermath of the bungled Syrian intervention attempt and the bloodless Russian annexation of Crimea, but that will soon change. Because while the west is focused on day to day developments in Ukraine, and how to halt Russian expansion through appeasement (hardly a winning tactic as events in the 1930s demonstrated), Russia is once again thinking 3 steps ahead… and quite a few steps east.

While Europe is furiously scrambling to find alternative sources of energy should Gazprom pull the plug on natgas exports to Germany and Europe (the imminent surge in Ukraine gas prices by 40% is probably the best indication of what the outcome would be), Russia is preparing the announcement of the “Holy Grail” energy deal with none other than China, a move which would send geopolitical shockwaves around the world and bind the two nations in a commodity-backed axis. One which, as some especially on these pages, have suggested would lay the groundwork for a new joint, commodity-backed reserve currency that bypasses the dollar, something which Russia implied moments ago when its finance minister Siluanov said that Russia may regain from foreign borrowing this year. Translated: bypass western purchases of Russian debt, funded by Chinese purchases of US Treasurys, and go straight to the source.

Here is what will likely happen next, as explained by Reuters:

Igor Sechin gathered media in Tokyo the next day to warn Western governments that more sanctions over Moscow’s seizure of the Black Sea peninsula from Ukraine would be counter-productive.


The underlying message from the head of Russia’s biggest oil company, Rosneft, was clear: If Europe and the United States isolate Russia, Moscow will look East for new business, energy deals, military contracts and political alliances. 


The Holy Grail for Moscow is a natural gas supply deal with China that is apparently now close after years of negotiations. If it can be signed when Putin visits China in May, he will be able to hold it up to show that global power has shifted eastwards and he does not need the West.

More details on the revelation of said “Holy Grail”:

State-owned Russian gas firm Gazprom hopes to pump 38 billion cubic meters (bcm) of natural gas per year to China from 2018 via the first pipeline between the world’s largest producer of conventional gas to the largest consumer.


“May is in our plans,” a Gazprom spokesman said, when asked about the timing of an agreement. A company source said: “It would be logical to expect the deal during Putin’s visit to China.”

Summarizing what should be and is painfully obvious to all, but apparently to the White House, which keeps prodding at Russia, is the following:

The worse Russia’s relations are with the West, the closer Russia will want to be to China. If China supports you, no one can say you’re isolated,” said Vasily Kashin, a China expert at the Analysis of Strategies and Technologies (CAST) think thank.

Bingo. And now add bilateral trade denominated in either Rubles or Renminbi (or gold), add Iran, Iraq, India, and soon the Saudis (China’s largest foreign source of crude, whose crown prince also happened to meet president Xi Jinping last week to expand trade further) and wave goodbye to the petrodollar.

As reported previoisly, China has already implicitly backed Putin without risking it relations with the West. “Last Saturday China abstained in a U.N. Security Council vote on a draft resolution declaring invalid the referendum in which Crimea went on to back union with Russia. Although China is nervous about referendums in restive regions of other countries which might serve as a precedent for Tibet and Taiwan, it has refused to criticize Moscow. The support of Beijing is vital for Putin. Not only is China a fellow permanent member of the U.N. Security Council with whom Russia thinks alike, it is also the world’s second biggest economy and it opposes the spread of Western-style democracy.”

This culminated yesterday, when as we reported last night, Putin thanked China for its “understanding over Ukraine.” China hasn’t exactly kept its feelings about closer relations with Russia under wraps either:

Chinese President Xi Jinping showed how much he values ties with Moscow, and Putin in particular, by making Russia his first foreign visit as China’s leader last year and attending the opening of the Winter Olympics in Sochi last month.


Many Western leaders did not go to the Games after criticism of Russia’s record on human rights. By contrast, when Putin and Xi discussed Ukraine by telephone on March 4, the Kremlin said their positions were “close”.

The punchline: “A strong alliance would suit both countries as a counterbalance to the United States.” An alliance that would merely be an extension of current trends in close bilateral relations, including not only infrastructure investment but also military supplies:

However, China overtook Germany as Russia’s biggest buyer of crude oil this year thanks to Rosneft securing deals to boost eastward oil supplies via the East Siberia-Pacific Ocean pipeline and another crossing Kazakhstan.


If Russia is isolated by a new round of Western sanctions – those so far affect only a few officials’ assets abroad and have not been aimed at companies – Russia and China could also step up cooperation in areas apart from energy. CAST’s Kashin said the prospects of Russia delivering Sukhoi SU-35 fighter jets to China, which has been under discussion since 2010, would grow.


China is very interested in investing in infrastructure, energy and commodities in Russia, and a decline in business with the West could force Moscow to drop some of its reservations about Chinese investment in strategic industries. “With Western sanctions, the atmosphere could change quickly in favor of China,” said Brian Zimbler Managing Partner of Morgan Lewis international law firm’s Moscow office. 


Russia-China trade turnover grew by 8.2 percent in 2013 to $8.1 billion but Russia was still only China’s seventh largest export partner in 2013, and was not in the top 10 countries for imported goods. The EU is Russia’s biggest trade partner, accounting for almost half of all its trade turnover.

And as if pushing Russia into the warm embrace of the world’s most populous nation was not enough, there is also the second most populated country in the world, India.

Putin did take time, however, to thank one other country apart from China for its understanding over Ukraine and Crimea – saying India had shown “restraint and objectivity”.


He also called Indian Prime Minister Manmohan Singh to discuss the crisis on Tuesday, suggesting there is room for Russia’s ties with traditionally non-aligned India to flourish.


Although India has become the largest export market for U.S. arms, Russia remains a key defense supplier and relations are friendly, even if lacking a strong business and trade dimension, due to a strategic partnership dating to the Soviet era.


Putin’s moves to assert Russian control over Crimea were seen very favorably in the Indian establishment, N. Ram, publisher of The Hindu newspaper, told Reuters. “Russia has legitimate interests,” he added.

To summarize: while the biggest geopolitical tectonic shift since the cold war accelerates with the inevitable firming of the “Asian axis”, the west monetizes its debt, revels in the paper wealth created from an all time high manipulated stock market while at the same time trying to explain why 6.5% unemployment is really indicative of a weak economy, blames the weather for every disappointing economic data point, and every single person is transfixed with finding a missing airplane.


via Zero Hedge Tyler Durden