Month: July 2014

It appears the faithful are losing belief… Gallup reports that Democrats economic confidence has faded to its lowest since January (less than half the levels of confidence when President Obama unleashed his 2nd term).

Despite exuberance conference board (government sponsored) surveys of confidence (and seasonally adjusted happiness in PMIs and ISMs), Gallup notes U.S. Economic Confidence Index remained flat in June having hovered at this lower level for most of the year (with no post-weather rebound).

 

The outlook also remains dismal – hovering at its lowest since Dec 2013 with only 39% of Americans saying the economy is getting better and 56% saying it is getting worse.

As Gallup concludes,

The party differences in economic confidence could become especially important as midterm elections approach in November. As a whole, Americans still appear to be wary about the economy, and it may take more consistently good economic news for their economic confidence to grow.

via Zero Hedge http://ift.tt/V9rtBe Tyler Durden

It appears the faithful are losing belief… Gallup reports that Democrats economic confidence has faded to its lowest since January (less than half the levels of confidence when President Obama unleashed his 2nd term).

Despite exuberance conference board (government sponsored) surveys of confidence (and seasonally adjusted happiness in PMIs and ISMs), Gallup notes U.S. Economic Confidence Index remained flat in June having hovered at this lower level for most of the year (with no post-weather rebound).

 

The outlook also remains dismal – hovering at its lowest since Dec 2013 with only 39% of Americans saying the economy is getting better and 56% saying it is getting worse.

As Gallup concludes,

The party differences in economic confidence could become especially important as midterm elections approach in November. As a whole, Americans still appear to be wary about the economy, and it may take more consistently good economic news for their economic confidence to grow.

via Zero Hedge http://ift.tt/1kbxumu Tyler Durden

While the new quarter has started with a bang for the capital markets and those 1% who actually benefit from one after another record high courtesy of the Fed’s “fairy dust“, July 1 is an important date for another group of Americans: students. However, instead of more wealth, America’s aspiring intelligentsia has something far less pleasant to look forward to, namely more debt, because today is when higher interest rates for education loans kick in. Starting July 1 all new loans for the 2013/2014 student year will increase from 3.86% to 4.66%, a 20% increase.

As a reminder, while the rate on student loans was lowered to 3.4% during the financial crisis, last summer this reduction expired which would have caused the rates to double to 6.8% had it not been for a last minute deal linking loan rates to US Treasurys, which luckily for students, are at historic lows for now.

Yet while the 80 bps increase per annum may seem like a lot when starting from a sub-4% base, according to Bloomberg calculations “the average monthly payment would go up about $10 a month—an amount that won’t make or break many borrowers. Over 10 years, the increase could add about $1,350 in interest expenses.”

This math is based on the assumption that the average graduate with debt, which would be 7 out of every 10, had on average some $29,400 in loans. Of course, since the rate hike affects future debt incurrence, that calculation is wrong. As for the trend, it is not a US student’s friend:

The national share of seniors graduating with loans rose in recent years, from 68 percent in 2008 to 71 percent in 2012, while their debt at graduation increased by an average of six percent per year. Even though the financial crisis caused a substantial decline in private education lending while these borrowers were in school, about one-fifth (20%) of their debt is comprised of private loans, which are typically more costly and provide fewer consumer protections and repayment options than safer federal loans.

In other words, a far greater issue for students is not the interest on the debt, but the debt itself, which in a time of ZIRP has become equivalent to money (it isn’t) and students have had little reluctance to borrow every possible loan they could find resulting in a student loan bubble of epic, $1.1+ trillion proportions. Will today’s rate hike – modest as it may be – be the pin that pops it?

As for the rate hike, Bloomberg has some soothing words:

In recent years, the increased income graduates earn has generally kept up with rising student loan payments. Borrowers whose monthly loan expenses are out of whack with what they earn also have additional back-up repayment options. Whether the overall affordability will hold up depends on a number things, including how much and how quickly rates rise. Congress’s cap on undergrad student loans stands at 8.25 percent. Given the average debt in the example above, rates at that level would add about $65 a month in payments—almost $14,000 over a loan’s duration.

Of course, this too is based on a flawed assumption: that college graduates can find work. Unfortunately, as the following chart showing the labor participation rate of Americans aged 20-24, or those graduating from college, the labor force is increasingly more devoid of recent college grads. The result: an overabundance of those who “earn” zero income. It is here that even the smallest increase in rates will be felt most as there is no income to offset any interest payments with, let alone increasing interest.

 

Finally, and as we have shown repeatedly before, those students who are angry that they are saddled with tens of thousands in debt and nobody is willing to hire them, perhaps they can take it up with their parents: that particular age pool (55 and over) has practically never had it better when it comes to work opportunities also known as “retirement as a Wal-Mart greeter.”

 

Finally, those curious what the average student debt breakdown is by state as well as the proportion of students with loans in the most recently reported Class of 2012, here is the full data:

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Having declared a caliphate, the terrorist group formerly known as ISIS (or ISIL) has decided a rebranding is in order. Since the group no longer recognizes the political distinction between Iraq and Syria, it has dropped the “Iraq” and “Levant” from its name, making it only the “Islamic State”. The leader of the extremist group is looking to build his presence, as AP reports, Abu Bakr al-Baghdadi released a 19-minute tape demanding, “Muslims, rush to your state. Yes, it is your state.”

As AP reports,

The leader of the extremist group that has swept over much of northern Syria and Iraq has called on Muslims to come to the territory his group has seized to help build an Islamic state.

 

Abu Bakr al-Baghdadi, head of the Islamic State of Iraq and the Levant, says in a 19-minute audiotape released on line Tuesday: “Muslims, rush to your state. Yes, it is your state.”

 

He makes a special call to scholars, judges, doctors, engineers and people with military and administrative expertise to come “answer the dire need of the Muslims for them.”

And Stratfor notes,

On June 29, a spokesman for the militant group the Islamic State in Iraq and the Levant announced that the group had established a caliphate, a political institution to govern the global Muslim community, stretching from Diyala province, Iraq, to Aleppo, Syria. Since the group no longer recognizes the political distinction between Iraq and Syria, it has dropped the “Iraq” and “Levant” from its name, making it only the Islamic State.

The trouble with the announcement is that the Islamic State does not have a caliphate and probably never will. The new moniker will not change the fact that geography, political ideology, and religious, cultural and ethnic differences will prevent the emergence of a singular polity capable of ruling the greater Middle East. Even the Islamic State, which has made impressive territorial gains quickly, has only an emirate, which encompasses a far smaller geographic area than a caliphate. Establishing an emirate is not terribly remarkable. Similar groups have established emirates before: The Taliban ruled more than 90 percent of Afghanistan prior to 9/11, and al Qaeda franchise groups oversaw short-lived emirates in Yemen and Mali.

Still, the Islamic State’s announcement represents the first serious attempt to re-establish the caliphate since the Turkish Republic abolished the institution in 1924. During the past 90 years, there have been a few other attempts to revive the caliphate, but none were particularly successful.

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More non-boots-on-the-ground?

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VIX was monkey-hammered lower once again today, lifting stocks vertically to Russell 2000 record highs and The Dow within a point of 17,000. The question is who (or what) is doing it. Nanex appears to have found out who…It appears the un-visible hand of VIX manipulation (that we have shown previously) has been forced into the open public markets as Barclays goes dark. Simply put, massive bursts of 1-lot TVIX orders flood and delay the markets enabling HFTs to manipulate the tail that inevitably wags the market (via VXX, SPX options, and leverage) and now that the dark pools are disappearing, we see it all in real-time.

We have previously noted the odd 'dark pool' manipulation we suspected was occurring in VIX derivatives… Through massive VXX selling in dark pools…

Is someone (cough Fed via Citadel) using dark pools to manage their volatility suppression – which implicitly spooks the actual markets in implied vol and thus in a "tail wags the dog" manner, juices the entire US equity market… but we do not find out about it until after hours as the dark pool unleashes its volume at VWAP pricing…

 

Makes us wonder if this is the fingerprints of the NY Fed's Kevin Henry hard at work managing perceptions via dark pools with as much leverage as possible via the vol markets.

just like he did here the week of The Fed Minutes

 

As he did this week…

 

And now Nanex exposes the "odd-lot" algo that appears to have been forced into the light…

There is a new High Frequency Trading  (HFT) Algo afoot, probably designed to measure, or cause system latency. This algo sends extreme bursts of 1-share orders in a symbol to two different exchanges: Nasdaq and BATS. The result is a system-impacting surge of quote updates, similar to quote stuffing, but accompanied by an extremely high number of 1-share trade executions. These trade executions often consume the entire SIP output line, as indicated by continuous sequence numbers with no gaps.

Other observations:

• The algo seems to prefer low, to very low priced stocks.
• The price executed at both Nasdaq and BATS is always the same – this isn't from arbitrage.
• There are always a large number of quotes accompanying this burst of trades.
• The table below shows a list events we detected on July 1, 2014. Take a look at the event outlined in red. This event involved the symbol TVIX which traded at $2.89. At 12:09:49, over a 2 second period, there were 6,986 trades in TVIX: 3,493 executed on Nasdaq, and 3,493 executed on BATS. Every one of these trades was for a single share which cost $2.89 each.

Now take a look at the graph below…

 

It plots these events as colored bubbles, with each bubble sized according to the number of trades during the event. Extreme events show up as large bubbles – such as the TVIX event which is the largest bubble. The vertical axis shows the time of day, and each day's events are plotted along a vertical line. This helps to see if the algo runs at certain times of the trading day.

The bubbles are color-coded depending on which combination of exchanges are involved – in this close-up of 4 days, only one other exchange combination appeared – Phil and BATZ (green).

The bubble labeled GLUU was the most extreme of these events, until it was superceded by TVIX, which happened while we were writing this paper.

 

If we expand the chart and look further back in time, we find that the NQ+BATZ combination is new. The columns of large orange bubbles make a significant appearance on June 26, 2014, which is, coincidentally or not, is the first trading day after the New York Attorney General announced it was suing the Barclay's Dark Pool (this is a must read). We aren't sure if the two are related, but it's possible. Maybe a HFT got kicked out of a dark pool and it's figuring out a new way to game the system.

And here's the rigging algo in action…

TVIX Trades on July 1, 2014 over about 30 minutes of time, including the event at 12:09:49. 

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The Bottom Line…

1) On days when the VIX has been slammed notably lower, we have seen more than coincidentally massive after-hours volume spikes in VXX and TVIX (where manipulators can hide their actions)

 

2) This is the footprint of dark pools flushing their orders to the public markets

 

3) Since June 26th (when Barclays was hit by the Dark pool probe), a 'new' algo has appeared in TVIX

 

4) Today's major algo manipulation (above) and plunge in VIX suggest the dark pool rigging is in the open more transparent public markets now…

So we know how they do it… will anyone see it as front-running of 'riggedness' and do something about it?

via Zero Hedge http://ift.tt/1lwVYXd Tyler Durden