Fin/Inv

Credit underperformed equities this week as single-name tighteners edged wideners by four-to-three leaving indices (especially HY) underperforming intrinsics in general. CONSumer and ENRG names underperformed as TMT and FINLs were best with INDUstrials mixed. Financials outperformed non-financials but the strength in the former was more at the tails of the distribution while the weakness in the latter was more broad-based.

The go-go stock names such as AIG were among the best performers in IG with AIG and CIT near the top along with TXT, HIG, and ILFC). On the other end some sense of reality hit as the higher beta retailers widened with M, JCP, JWN, KSS, and KR the worst performers. Thank to the tail names, high beta credits managed to outperform on the week but the distribution is very wide as low beta names were on average wider by over 1%. ExHVOL was the worst performing index with a 4.5bps shift wider to over 70bps. HY skew widened notably on the week as we sense a lack of liquidity in single-names (and some protection selling on the overly hiked names such as FST and CHK) combined with flows into HY-IG decompression pulled HY away (rightly in our opinion).

IG12's index curve steepened as it widened while 5s7s intrinsics actually flattened/inverted further. HVOL index and intrinsics tracked each other closely this week, both falling (and outperforming) as we sense the 'closeness' of the higher beta retailers to the spread level of HVOL provides some clear evidence of why HVOL rallied (carry cover on the shorts).

IG saw on-the-runs underperforming off-the-runs with IG6-9 all significantly tighter as it appears the whole curve steepened up helped by the tail compression in AIG as much as anything else (where close maturities gapped tighter dramatically). HY was more mixed but tended to agree with IG11-12 underperforming HY6-9.

Over the week ABX and CMBX prices were higher on average by a smidge with CMBX outperforming as we note REITs tighter on the week but builders more mixed as low spread names underperformed wider names by quite a chunk.

Financials were mostly tighter on the week but not by much with SLM and ABK the exceptions and we note that MS and GS underperformed the rest of the majors. Insurers were more mixed.

The week's range was very low for both IG and HY (the lowest since the same week last year) but indices traded more regularly than gappy providing some reality for market watchers. HY-XOver decompressed over 30bps as we noted that LCDX-HY compressed 5bps on the week despite the last few days widening. HY-IG over XOver-Main continues to trend our way (+28bps this week) as we see XOver actually tighter on the week (but closed as equities were high this morning). Notably, given some of the technicals, we like looking at the HY-IG differential relative to stocks as a guide for relative performance and while the S&P managed a small gain, credit deteriorated notably even as TSY yields fell over 11bps (in 10Y) which tends to indicate the reach-for-yield corporate bond demand from a deflationary low-rate outlook which has been a driver is perhaps running out of steam.

Across all the asset classes, HY was one of the weakest while everything pretty much stuck there, gold up a smidge, oil down a buck, the dollar up a little, and VIX down a tad. The only other thing that had a decent nove was equity implied correlation which rose almost 3pts (which in the face of VIX contraction and equity flatness in notable). We said it in the dailies but the HY-IG and implied correlation moves provide us with some anxiety that sophisticated players are starting to try to position (subtly) for a break (down).

As a teaser for Monday's month end update, some stats from 7/31: SPX is +4.3%, VIX is -1.2pts, Dollar is a smidge weaker, Oil and Gold are up, and TSY yields are modestly lower...BUT...IG is over 5bps wider, HY is 56bps wider, ExHVOL is 13bps wider, wideners outpaced tighteners by almost five-to-one, CONS and TMT have significantly underperformed, the crazy distressed names (AIG/ILFC/CIT/TXT) provided dramatic help for IG and HVOL, the top 5 performers in IG provided around 8bps of tightening in the index while the bottom 40 performers widened IG by 8bps - if that tail hadn't compressed (helped by the squeeze in stocks) we would be significantly wider. Financial spreads have significantly (GS for example) underperformed Financial stocks as senior-subs have decompressed on the month.

Commentary compliments of www.creditresearch.com

Index/Intrinsics Changes
CDR LQD 50 NAIG -1.16bps to 98.1 (23 wider - 25 tighter <> 22 steeper - 27 flatter).
CDX12 IG +1bps to 116 ($-0.02 to $99.34) (FV -1.73bps to 125.88) (61 wider - 58 tighter <> 68 steeper - 56 flatter) - No Trend.
CDX12 HVOL -9.38bps to 260 (FV -9.19bps to 314.5) (7 wider - 20 tighter <> 23 steeper - 7 flatter) - No Trend.
CDX12 ExHVOL +4.28bps to 70.53 (FV +0.46bps to 72.56) (54 wider - 41 tighter <> 50 steeper - 45 flatter).
CDX11 XO +2.3bps to 306.8 (FV +1.79bps to 350.3) (18 wider - 14 tighter <> 16 steeper - 18 flatter) - Trend Wider.
CDX12 HY (30% recovery) Px $-0.75 to $88.38 / +23.5bps to 828.5 (FV -19.89bps to 738.14) (26 wider - 63 tighter <> 49 steeper - 43 flatter) - Trend Wider.
LCDX12 (65% recovery) Px $-0.73 to $93.35 / +28.13bps to 726.94 - Trend Wider.
MCDX12 -17bps to 123bps. - Trend Tighter.
CDR Counterparty Risk Index fell 6.41bps (-5.21%) to 116.5bps (1 wider - 13 tighter).
CDR Government Risk Index fell 2.57bps (-5.63%) to 43.04bps..
DXY strengthened 0.32% to 78.3.
Oil fell $1.13 to $72.76.
Gold rose $1.85 to $955.7.
VIX fell 0.25pts to 24.76%.
10Y US Treasury yields fell 12bps to 3.45%.
S&P500 Futures gained 0.21% to 1027.4.

Market Summary
Spreads were mixed in the US with IG worse, HVOL improving, ExHVOL weaker, XO wider, and HY selling off. Indices typically underperformed single-names with skews mostly narrower as IG underperformed but narrowed the skew, HVOL outperformed but widened the skew, ExHVOL intrinsics beat and narrowed the skew, XO underperformed but compressed the skew, and HY's skew widened as it underperformed.

Only 8.8% of names in IG moved more than their historical vol would imply as higher vol names outperformed lower vol names by -0.56% to 1.93%. IG's vol is around 9.79% per one-week period, which leaves 98 names higher vol and 27 lower vol than the index.

The names having the largest impact on IG are American International Group, Inc. (-153.26bps) pushing IG 0.96bps tighter, and Macy's, Inc. (+21.52bps) adding 0.16bps to IG. HVOL is more sensitive with American International Group, Inc. pushing it 4.23bps tighter, and Macy's, Inc. contributing 0.7bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Viacom Inc. (-16bps) pushing the index 0.17bps tighter, and Constellation Energy Group Inc. (+19.69bps) adding 0.19bps to ExHVOL.

The price of investment grade credit fell 0.02% to around 99.34% of par, while the price of high yield credits fell 0.75% to around 88.38% of par. ABX market prices are higher (improving) by 0.09% of par or in absolute terms, 0.67%. Broadly speaking, CMBX market prices are higher (improving) by 1.52% of par or in absolute terms, 0.44%. Volatility (VIX) is down -0.25pts to 24.76%, with 10Y TSY rallying (yield falling) 12bps to 3.45% and the 2s10s curve flattened by 4.6bps, as the cost of protection on US Treasuries fell 1bps to 23bps. 2Y swap spreads tightened 7.6bps to 36.06bps, as the TED Spread tightened by 2.6bps to 0.21% and Libor-OIS improved 3.3bps to 17bps.

The Dollar strengthened with DXY rising 0.32% to 78.296, Oil falling $1.13 to $72.76 (underperforming the dollar as the value of Oil (rebased to the value of gold) fell by 1.72% today (a 1.21% drop in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $1.85 to $955.7 as the S&P rallies (1027.4 0.21%) outperforming IG credits (116bps -0.02%) while IG, which opened the week tighter at 112.5bps, outperformed HY credits. IG11 and XOver11 are +5.5bps and -6.82bps respectively while ITRX11 is -1.19bps to 91bps.

The majority of credit curves steepened as the vol term structure steepened with VIX/VIXV decreasing implying a more bearish/more volatile short-term outlook (normally indicative of short-term spread decompression expectations), and additionally the ratio has dropped below 0.9x which is exceptionally bearish for stocks and spreads.

Dispersion fell -6.3bps in IG. Broad market dispersion is a little greater than historically expected given current spread levels, indicating more general discrimination among credits than on average over the past year, and dispersion decreasing more than expected this week indicating a less systemic and more idiosyncratic narrowing of the distribution of spreads.

46% of IG credits are shifting by more than 3bps and 33% of the CDX universe are also shifting significantly (less than the 5 day average of 36%). The number of names wider than the index decreased by 1 to 44 as the week's range fell to 6.5bps (average over 10bps), between low bid at 111 and high offer at 117.5 and higher beta credits (-2.17%) outperformed lower beta credits (1.03%).

In IG, wideners outpaced tighteners by around 5-to-4, with 61 credits wider. By sector, CONS saw 81% names wider, ENRGs 56% names wider, FINLs 24% names wider, INDUs 54% names wider, and TMTs 9% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) outperformed US (IG12 exFINLs) with the former trading at 92.23bps and the latter at 96.24bps.

Cross Market, we are seeing the HY-XOver spread decompressing to 231bps from 200.72bps, and remains above the short-term average of 215.53bps, with the HY/XOver ratio rising to 1.39x, above its 5-day mean of 1.36x. The IG-Main spread decompressed to 25bps from 22.81bps, and remains above the short-term average of 24.11bps, with the IG/Main ratio rising to 1.27x, above its 5-day mean of 1.27x.

In the US, non-financials underperformed financials as IG ExFINLs are tighter by 0bps to 96.2bps, with 44 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 6.41bps to 116.5bps, with Brokers (worst) tighter by 2.19bps to 145.26bps, Finance names (best) tighter by 15.88bps to 887.55bps, and Banks tighter by 3.71bps to 151.9bps. Monolines are trading wider on average by 182.9bps (0.84%) to 4056.46bps.

In IG, FINLs outperformed non-FINLs (3.63% tighter to 0.04% tighter respectively), with the former (IG FINLs) tighter by 10.6bps to 280.9bps, with 14 of the 21 names tighter. The IG CDS market (as per CDX) is 25.6bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (90.45bps), with the bond ETFs underperforming the IG CDS market by around 0.43bps.

In Europe, ITRX Main ex-FINLs (underperforming FINLs) rallied 0.29bps to 92.23bps (with ITRX FINLs -trading sideways- better by 4.79 to 86.08bps) and is currently trading in the middle of the week's range at 67.64%, between 93.45 to 89.68bps, and is trading sideways. Main LoVOL (sideways trading) is currently trading in the middle of the week's range at 42.68%, between 65.79 to 64.32bps. ExHVOL underperformed LoVOL as the differential decompressed to 5.58bps from 0.52bps, and remains above the short-term average of 3.08bps. The Main exFINLS to IG ExHVOL differential compressed to 21.7bps from 26.27bps, and remains below the short-term average of 23.71bps.

The Emerging Market index is 3.5% less risky (11.3bps tighter) to 310.4bps. EM10 (Trend Tighter) is currently trading tight to its week's range at -0.24%, between 321.7 to 310.4bps. The HY-EM spread decompressed to 518.13bps from 483.32bps, and remains above the short-term average of 495.08bps, with the HY/EM ratio rising to 2.67x, above its 5-day mean of 2.57x.

Index Internals
Within the 240 name CDX Index Universe, sentiment is more bullish, with 96 (42%) wideners to 126 (56%) tighteners and 124 (55%) steepeners to 106 (47%) flatteners (1.3 tighteners for every widener). Among this universe, there are 18 credits with a bullish trend, and 8 with a bearish trend (based on the previous five days trading action). The market's general sentiment is evident as we note that 41 credits are at the widest in their 5-day range currently, and 65 are at their tightest.

Notably, from the 240 name index universe, there are 128 (~53%) credits that have inverted curves, with an average inversion of 24% of 5Y CDS. Within the IG universe, dispersion overall has fallen -6.3bps to 255bps, as the wings of the distribution (10-90%) decreased less than the centre (25-75%) of the distribution. The distribution shifted non-linearly as the 10th percentile increased the most (1.3bps /4%) to 34.5bps, and the 90th percentile increased the least (-4.6bps /-1.88%) to 243bps.

IG Sector Moves and Betas
In IG, CONS (the worst sector) under-performed IG, moving (on average) 3.8bps (5.64%) wider to an average of 93.7bps. ENRG (the second weakest sector) under-performed IG, moving (on average) 2.2bps (1.32%) wider to an average of 107.2bps. INDU (the median sector) out-performed IG, moving (on average) 2.2bps (0.54%) tighter to an average of 105bps. FINL (the second best sector) out-performed IG, moving (on average) 12.2bps (2.14%) tighter to an average of 348.4bps. TMT (the best sector) out-performed IG, moving (on average) 5.2bps (7.47%) tighter to an average of 90.7bps.

From the top-down, index capital structure changes were divergent as equity beats credit. The sectors were mixed with CONS (divergent as equity beats credit), ENRG (both weaker with credit outperforming equity), FINL (improving with credit outpacing equity), INDU (divergent as credit beats equity), and TMT (improving with credit outpacing equity).

CDX-based regression betas indicate that FINL (1.98x) have the highest beta and CONS (0.72x) the lowest, with INDU (1.2x), TMT (0.86x), and ENRG (0.75x) in between. Comparing the regression betas to current level betas we see that INDU (0.38x rich) is the richest sector, while FINL (-1.28x cheap) is the cheapest, with TMT (0.31x rich), CONS (0.21x rich), and ENRG (0.1x rich) trading more in line.

Focusing on intra-sector movements within IG, we notice dispersion increasing the most in ENRG which shifted 4.89% to 74.6bps, and the least in INDU which shifted -6.72% to 99.8bps.

Index Relative-Value and Key Levels
Across index credit quality, we saw HVOL move against its trend wider relative to IG from a ratio of 2.31x to 2.24x, and HVOL also moved closer to IG and further from IG as it trades against its lack of trend now at 75.5% of the XO-IG difference, down from 77.6%. ExHVOL12 is currently trading at the wides of the week's range at 99.91%, between 70.53 to 66.25bps.HY shifted wider relative to IG, with its trend wider, now at 7.14x, up from 7.1x yesterday.

The HY-LCDX spread compressed to 101.57bps from 106.24bps, but remains above the short-term average of 91.2bps, with the HY/LCDX ratio falling to 1.14x, above its 5-day mean of 1.13x. The IG-MCDX differential decompressed to -7bps from -25bps, and remains above the short-term average of -14.94bps, with the IG/MCDX ratio rising to 0.94x, above its 5-day mean of 0.89x. The HY-IG differential decompressed to 712.5bps from 690.04bps, and remains above the short-term average of 694.67bps, with the HY/IG ratio rising to 7.14x, above its 5-day mean of 7.03x.

Both IG and HY are above (wider than) their opening levels of the week with HY's range of 70bps below the week's average range multiple of 9.2x IG's range, at 8.87x. HY12 is currently trading in the middle of the week's range at 71.74%, between 848.34 to 778.15bps. IG12 is currently trading in the middle of the week's range at 50%, between 121 to 111bps.

Our pivot point analysis suggests intraday support at 114.9bps in IG, and breaking support at 112.78bps or resistance at 116.78bps as significant, with the index trend undetermined (based on pivot point moving average changes), shifting tighter by 0.04bps per day over the last few days. On a short-term basis (based on the last 5 days trading), we see 114.88bps as a critical pivot point with 118.76bps, 124.88bps, and 131bps as important resistance levels, and 108.76bps, 104.88bps, and 98.76bps as important support levels. The short-term 'protection' relative strength indicator on IG moved from strongly oversold to stable at 64.3%.

Our pivot point analysis suggests intraday resistance at 812.02bps in HY, and breaking support at 812.27bps or resistance at 833.82bps as significant, with the index trend very bearish (based on pivot point moving average changes), shifting wider by 5.32bps per day over the last few days. On a short-term basis (based on the last 5 days trading), we see 813.6bps as a critical pivot point for HY with 849.05bps, 883.79bps, and 918.53bps as important resistance levels, and 778.86bps, 743.41bps, and 708.67bps as important support levels.On a short-term basis (based on the last 5 days trading), we see 813.6bps as a critical pivot point for HY with 849.05bps, 883.79bps, and 918.53bps as important resistance levels, and 778.86bps, 743.41bps, and 708.67bps as important support levels.

Single-Name Movers
This week's biggest absolute movers in IG were Macy's, Inc. (+21.52bps), Constellation Energy Group Inc. (+19.69bps), and Pfizer Inc. (+15.33bps) in the wideners, and American International Group, Inc. (-153.26bps), Textron Financial Corp (-46.65bps), and Hartford Financial Services Group (-45bps) in the tighteners. This week's biggest percentage movers in IG were Pfizer Inc. (+44.86%), Autozone Inc. (+16.91%), and Kroger Co (+12.42%) in the wideners, and AT&T Mobility LLC (-26.07%), Dell Inc. (-20.13%), and American International Group, Inc. (-14.94%) in the tighteners.

In the more financial-heavy CDR NAIG LQD 50 index, sentiment is very bullish with 23 wider to 25 tighter, and 22 steeper to 27 flatter as 24 of the 50 credits have inverted curves. The biggest absolute movers were Nordstrom Inc. (+11.02bps), Autozone Inc. (+8.39bps), and Kohl's Corporation (+8.06bps) in the wideners, and HSBC Finance Corporation (-22.5bps), Dell Inc. (-15.25bps), and American Express Company (-11bps) in the tighteners. The biggest percentage movers in the CDR NAIG LQD 50 were VF Corporation (+20.1%), Autozone Inc. (+16.91%), and Kraft Foods Inc. (+12.27%) in the wideners, and Dell Inc. (-20.13%), Time Warner Inc. (-13.74%), and Cisco Systems Inc. (-13.12%) in the tighteners.

In XO11, this week's biggest percentage movers were Pulte Homes Inc (+17.09%), Sears Roebuck Acceptance Corp. (+8.88%), and KB Home (+7.46%) in the wideners, and Centex Corp (-20%), L-3 Communications Corp. (-10.16%), and Sun Microsystems Inc. (-6.67%) in the tighteners. The largest absolute movers in XO11 were Smithfield Foods Inc (+44.63bps), Sears Roebuck Acceptance Corp. (+28.42bps), and MGM Mirage Inc (+24.51bps) in the wideners, and Royal Caribbean Cruises Ltd (-27.83bps), Centex Corp (-20bps), and L-3 Communications Corp. (-19.79bps) in the tighteners.

In the names of the HY index, this week's biggest percentage movers were Fairfax Financial Holdings Limited (+36.66%), Iron Mountain Incorporated (+22.26%), and Limited Brands, Inc. (+8.46%) in the wideners, and Eastman Kodak Co. (-22.21%), Advanced Micro Devices Inc (-16.3%), and Louisiana-Pacific Corp (-14.36%) in the tighteners. The largest absolute movers in HY were Fairfax Financial Holdings Limited (+91.22bps), Iron Mountain Incorporated (+70.09bps), and AMR Corp (+61.32bps) in the wideners, and Eastman Kodak Co. (-381.18bps), Advanced Micro Devices Inc (-262.07bps), and Realogy Corporation (-202.75bps) in the tighteners.

The CDR Counterparty Risk Index Series 2 (of brokers and banks) fell -6.41bps (or -5.21%) to 116.5bps. Morgan Stanley (0bps) is the worst (absolute) performer among the banks/brokers of the CDR Counterparty Index, whilst Morgan Stanley (0%) is the worst (relative) performer. Royal Bank of Scotland Group Plc (-13.18bps) is the best (absolute) performer among the banks/brokers of the CDR Counterparty Index, and Barclays Bank Plc (-11.65%) is the best (relative) performer.

The CDR Aussie Index fell -7.95bps (or -7.07%) to 104.54bps. Crown Limited (1.6bps) is the worst (absolute) performer, whilst Crown Limited (1.31%) is the worst (relative) performer. Woodside Petroleum Limited (-20.88bps) is the best (absolute) performer

The CDR Asian Index fell -7.85bps (or -6.6%) to 111.02bps. IDBI Bank Limited (5.14bps) is the worst (absolute) performer, whilst Cathay Financial Holding Co Ltd (5.37%) is the worst (relative) performer. Promise Co Ltd (-78.15bps) is the best (absolute) performer, and Toyota Motor Corporation (-29.77%) is the best (relative) performer.

Der heutige monatliche Bericht des U.S. Department of Commerce, Bureau of Economic Analysis zu den persönlichen Einkommen und Ausgaben (Personal Income and Outlays), weist weiter einen gewaltigen Einbruch bei den Löhnen und Gehältern in der privaten US-Wirtschaft von -7,04% zum Vorjahresmonat aus. Dies zeugt von einer gigantischen Fehlallokation von Kapital bei den staatlichen Kredit- und Liquiditätshilfen! Es wurden mit dem Einsatz von Billionen an Dollar, keine neuen Jobs und Einkommen generiert und damit auch kein selbsttragender Aufschwung geschaffen, sondern nur unhaltbare Strukturen im US-Finanzsektor stabilisiert.

Einkommen durch Kredit zu ersetzen - war eines der Kennzeichen der angelsächsischen Voodoo-Ökonomie. Statt für Wertschöpfung, Jobs und Einkommen zu sorgen wird auch jetzt wieder versucht das Rad der unhaltbaren Kreditvermehrung weiterzudrehen.

Keines des unsäglichen Finanzinstrumente die diesem Schneeballsystem dienten sind aus dem Verkehr gezogen worden, wirkliche Reformen des Finanzsystems sind unterblieben. Die Basis jedoch, auf der sich jegliche Spekulation und ihre Erträge bewegen können, ist die reale Wirtschaft! Diese ist jedoch bereits tiefgreifend erodiert und deren Talfahrt wurde nur durch exzessive Neuverschuldung des Staates vorläufig gestoppt.

> Alle verwendeten Daten sind SAAR- seasonally adjusted at annual rates, saisonbereinigt und auf das Jahr hochgerechnet! Die Löhne und Gehälter im größten und wichtigsten Bereich, in der privaten US-Wirtschaft, fallen im Juli 2009 um -7,04% bzw. um saisonbereinigte und auf das Jahr hochgerechnete -380,9 Mrd. Dollar im Vergleich zum Vorjahresmonat auf 5,0317 Billionen Dollar nach 5,4126 Billionen Dollar im Juli 2008! Da hilft auch ein Anstieg von +0,13% zum Vormonat bzw. um +6,7 Mrd. Dollar nur bedingt! Die Löhne und Gehälter im staatlichen Sektor stiegen dagegen um +3,9% bzw. +45,4 Mrd. Dollar zum Vorjahresmonat auf 1,1906 Billionen Dollar. Deshalb fielen die gesamten US-Löhne und Gehälter "nur" um -5,11% zum Vorjahresmonat auf 6,2223 Billionen Dollar (SAAR)! Die alle Einkommensarten umfassenden Personal Income fielen im Juli um -2,4% bzw. um -297,4 Mrd. Dollar zum Vorjahresmonat auf 11,9574 Billionen Dollar (SAAR)! Über die sinkenden gesamten privaten Einkommen und dessen Auswirkungen kann auch der zarte Anstieg zum Vormonat von +0,1% bzw. um +3,8 Mrd. Dollar nicht hinwegtäuschen. <

Der Anteil der gesamtem Löhne und Gehälter (private industries, government) am Gesamteinkommen beträgt nur 52%, der Anteil der Löhne und Gehälter aus der privaten Wirtschaft sogar nur 42%. Die Einkommen aus den Vermögen (nur Zinsen und Dividenden) betragen 1,7715 Billionen Dollar bzw. 14,82% der Einkommen. Zusätzlich wird zum limitierenden Faktor einer positiven wirtschaftlichen Entwicklung die extrem ungleiche Verteilung der Einkommen. Das oberste ein Prozent hatte nach den Daten der Universität von Kalifornien, die sich auf die zentralen Steuerdaten aus dem Jahr 2007 beziehen, einen Anteil am Gesamteinkommen der USA von 23,5%! Der Einkommensanteil der obersten 0,01 Prozent der Bevölkerung betrug sogar 6,04%! Das vereinnahmte Einkommen der 0,001% entspricht dem Einkommen der unteren 20%! Steigende Produktivität einhergehend mit potentiell höheren Output erfordert Massenkonsumtion. Sinkende Einkommen und eine extreme Ungleichheit der Verteilung stehen dem klar entgegen!

> Auch die privaten Konsumentenausgaben sehen im Jahresvergleich weiter schwach aus. Die Personal Consumption Expenditures (PCE) fielen im Juli im Vergleich zum Vorjahresmonat um -1,6% bzw. um -165,1 Mrd. Dollar (SAAR). Der Langfristchart seit 1960 zeigt, dass es sich um eine deutliche Zeitenwende handelt. So signifikant sind die privaten Konsumausgaben im Jahresvergleich noch nie gesunken. <

> Die private Sparrate sinkt im Juli wieder leicht auf 4,2% bzw. auf 458,5 Mrd. Dollar (SAAR) <

Der kumulierte Stellenabbau in den USA von gewaltigen 6,664 Millionen verlorene Jobs seit Januar 2008 hinterlässt weiter seine tiefen Spuren!

Quellen Daten: FED stlouisfed.org, PDF Personal Income and Outlays July 2009

Querschuesse-Forum

Kontakt: info.querschuss@yahoo.de

                                                              Sure is hot today!

I am an avid follower of the stock markets in general.  I am also keen to what I perceive to be undervalued stocks. For any new visitors to this Blog site you will note that of late I have been keen on a junior gold exploration company called Explor Resources.  I don’t profess to be a stock market analyst or an economic or financial advisor.  Far from it.  I am an investor who has a passion for

Liz Claman: Let me ask you, when the review comes in, what will you be looking for, because she may find that so far, the markets are relatively fair and we have a level playing field.

Ted Kaufman: I am absolutely convinced that when you look at it, and when you talk to enough people you know, people know it's not. My job is to suggest concerns that I have in my oversight capacity as a U.S. senator, and send them over to Mary Schapiro. Now it's up to Mary and the other commissioners to come back with a proposal and I will deal with it when it comes back.

Video courtesy of Fox Business Network

 

Bloomberg's chart of the day comes courtesy of proud "TARP 4eva" badgeholder Bank Of America. Basically it says to expect another 40% rally in the markets (yes on top of the 50% witnessed already) simply because America is now the same basket case economy that Japan was in the 1990s (and continues to be today), even though as everyone will attest the connection between economic reality and market stupidity ended long ago. 

According to Bloomberg:

A “melt-up” rally in the U.S. may be triggered by central bankers keeping interest rates near record lows, an economic recovery or an undervalued dollar, Bank of America strategists wrote in an Aug. 26 report.

“Even in economies overcoming credit booms, rallies can be powerful and last much longer than you think,” Bank of America’s Sadiq Currimbhoy, Arik Reiss and Jacky Tang wrote. Should the similarity between the U.S. and Japan persist, the S&P 500 will keep rising, partly because of gains in the dollar, the Hong Kong-based strategists said.

“If there is one persistent similarity between Japan and the U.S., it is they both seem to be fighting a debt problem by producing more debt,” they added. “So, for equity investors, if these relationships were to repeat themselves, the risk for the U.S. market is that like Japan, the stock market ends up with big rallies and then sell-offs.”

Granted the fact that the Nikkei subsequently tumbled to new lows is somehow lost, but courtesy of HAL9000 which only cares for reading and replicating charts, the possibility of the fabled melt up will likely soon become a self perpetuating truth, as everyone starts expecting, nay demanding, another 40% run up in stocks just so that the HFT can extract their last several hundred million for providing liquidity in 4 financial stocks, then call it a day and buy that much needed 8th summer villa in Monaco.

Despite his erudication and spellingtude, the chairman of Cerberus Int'l (former vice presidentoe Dan Quayle) was unable to save the three headed titanic. Farewell Steve Feinberg, we won't miss you and your usurious second liens.

From the WSJ:

Cerberus Capital Management's investors overwhelmingly want out of the firm's core hedge funds, asking for the return of more than $5.5 billion, or almost 71% of the fund assets, according to people familiar with the matter.

 

Mr. Feinberg has personally called Cerberus clients over the past two weeks to discuss his firm's plans to retool the Cerberus Partners hedge funds, which make up about one-third of the firm's total assets. The hedge funds hold roughly $7.7 billion in assets in two side-by-side vehicles, one domestic and one offshore.

 

Cerberus in recent days has tried to convince investors -- called limited partners in the private fund business -- to transfer assets to the new follow-on fund, called Cerberus Partners II. Since December, Cerberus has declined to pay out cash, saying that weak market conditions would mean low prices if it sold holdings.

 

"Unfortunately a number of our LPs have indicated that they cannot invest in Cerberus Partners II LP without quarterly liquidity," Mr. Feinberg wrote in the most recent letter. "In our view, given the current general illiquidity in the distressed markets, it would be practically impossible for a distressed investment fund to provide quarterly liquidity for 100% of its capital."

Alas Cerberus was not quite as big or stupid as CIT to end up on the Fed's dinner plate. One doubts too many tears will be shed for the company that always was the last ditch rescue financing provider due to its tendencies to extract three pounds of flesh with any $20 million L+2000 first lien.

 

While we wait for the first bank failure of the day, here is the Problem Bank List (Unofficial) Aug 28, 2009 .

And a few interesting notes ...

From the WSJ: Cerberus Holders Elect to Leave Core Funds

Cerberus Capital Management's investors overwhelmingly want out of the firm's core hedge funds, asking for the return of more than $5.5 billion, or almost 71% of the fund assets, according to people familiar with the matter.

"We have been surprised by this response," Cerberus chief Stephen Feinberg and co-founder William Richter wrote in a letter delivered to clients late Thursday.

And see Tanta's first post on CR in 2006: Tanta: Let Slip the Dogs of Hell (T wrote under her own byline soon after).

I still haven’t gotten over the fact that there’s a “capital management” group out there having named itself “Cerberus”. Those of you who were not asleep in Miss Buttkicker’s Intro to Western Civ will recognize Cerberus; the rest of you may have picked up the mythological fix from its reprise as “Fluffy” in the first Harry Potter novel. Wherever you get your culture, Cerberus is the three-headed dog who guards the gates of Hell. It takes three heads to do that, of course, because it’s never clear, in theology or finance, whether the idea is to keep the righteous from falling into the pit or the demons from escaping out of it (the third head is busy meeting with the regulators). Cerberus is relevant not just because it supplies me with today’s metaphor, but because it was the Biggest Dog of three (including Citigroup and Aozora, a Japanese bank) who in April bought a 51% stake in GMAC’s mega-mortgage operation, GM having, of course, once been renowned as one of the Big Three Automakers until it became one of the Big Three Financing Outfits With A Sideline In Cars. I tried to find a link for you to Aozora Bank’s announcement of the purchase, but the only press release I could find for that day involved the loss of customer data. They must have been so busy letting GMAC into the underworld that the dog head keeping the deposit tickets from getting out got distracted.
...
I bring all this up not just to stick it to Citicorp, but because we’ve all been asking the question lately of who will be the bagholder when the exotic/subprime mortgage problem finds a home. We have noted in our discussions that credit risk can move in two directions: the wholesaler takes it off the originator and the bond investor takes it off the wholesaler/issuer with the helpful assistance of protection sellers in the hedge fund credit-swap market, but when the “DETOUR” signs pop up, the bond investor can work really hard on forcing it back to the wholesaler/issuer, who can try to put it back to the originator, who gets to try to recover something in a foreclosure sale. If the originator has any financial strength left to buy loans back with, that is; see the sad stories of Ownit, Option One, Fremont, New Century, etc.
[CR: remember T wrote this in 2006]
...
If you thought the only thing that would stop the circle jerk of risk was putting some credit and pricing discipline into the game, I guess you’re just a weenie like me. Anyone who can make sense of this is free to set me straight. And if the answer has “sorting socks” in it, don’t bother. I’ve tried that.

Read the entire post ... Tanta wouldn't have been "surprised" by the "response" of Cerberus' investors. BTW, Tanta and I first started talking about bagholders in early 2005 - and we both agreed it would largely be the U.S. taxpayer.

Click on graph for larger image in new window.

And a market graph from Doug Short.

This matches up the market bottoms for four crashes (with an interim bottom for the Great Depression).

Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

And a flipper in 2006 (ht Yal). I believe this is her house today on Zillow, around $650K:

You want to earn your $1 billion budget? Start by explaning why a bankrupt company is the proxy for the S&P500!

And for those who believe that all securities following AIG is the new normal, I present the historical AIG-SPY correlation chart. At 0.1848, R² those correlation trades really make tons of sense.

Courtesy of Fox Business News, a transcript of Liz Claman's interview with Mary Schapiro.

LIZ CLAMAN, ANCHOR, FOX BUSINESS NETWORK:  Mary Schapiro I want to thank you so much for joining us on FOX Business.

MARY SCHAPIRO,   It's my pleasure.  Thank you.

CLAMAN:  You arrived at the SEC in late January and you hit the ground running.  You have been filing more than -what - 530 cases?  You are handing out fines of all sorts.  It feels like a new and different, more aggressive, SEC.  What do you want the image of the SEC to be today?

SCHAPIRO:  I'd love for the image of the SEC to be one of pure investor advocate.  The agency that is there enforcing the rules and requirements, ensuring a level playing field for investors when they are involved in the securities markets.  An agency that is thinking ahead and around the corner about issues that could impact investors over time and dealing with those issues proactively so that we're putting people in sort of the strongest possible position, to interact with the securities markets and with financial intermediaries.

CLAMAN:  But you're dealing with the business world, the investor community, Congress, the president, you're getting pulled in a lot of different directions.  Whom do you serve first?

SCHAPIRO:  We serve investors first.  And that's clearly the orientation the SEC has had historically, and must maintain going forward.  Over 75 years there has been one agency of the federal government solely dedicated to protecting investors, that's the SEC.  And that's got to be our true north.  I'm committed to maintaining that.

CLAMAN:  But right now I'm looking at an SEC emergency room, and every seat is filled with patients like financial crisis victims, insider trading, Ponzi-type schemes, do you perform triage with the cases that were caused by the financial crisis?  Or do you do the insider trading, or the Madoff-type Ponzi schemes?  Or do you start to attack just who should have the most oversight power?  Which is first? (ph)

SCHAPIRO:  Well, it's a hard question.  And it's one we wrestle with everyday.  How do I allocate our resources?  Because the agency is not as big as it needs to be.  We don't have all the tools that we would like to have.  We have shut down about three times as many Ponzi schemes in the first half of this year, as we did last year.  We have brought some big financial crisis cases, look forward to do that.  It is important to continue insider trading.  It goes right to the integrity of the marketplace and the fairness for people who are dealing in the markets.

CLAMAN:  So it sounds like -

SCHAPIRO:  We need to try to do it all.

CLAMAN:  doing everything.

SCHAPIRO:  We can't do every single thing, so we need to prioritize.  I say cases coming out of the financial crisis are particularly important to our ability to restore investor confidence in the agency and in the economy.

CLAMAN:  Senator Ted Kaufman sent you a letter on Monday.  He is demanding an entire review of the markets and how fair they are, or not.  Will you agree to do that?

SCHAPIRO:  We are going to do that.  In fact, we had already begun the process of looking at market structure.  The SEC has always done a very good job, I think, of keeping up with market structure changes.  But just in the last couple of years we see enormous advances in technology, high frequency trading, and a wide variety of issues associated with that.  So we are planning to do sort of a big concept release, ask a lot of questions about market structure, have the rules and regulations kept up?  What should we be focused on?  How do we ensure a level playing field for investors?  How do we deal with some of the information asymmetries that exist in the market today?  How do we keep abreast of the technology?  So we're going to do something very similar to what he is asking.

CLAMAN:  How do you keep up?  I mean, pro-actively.  I'm not talking about enforcement of the rules already in place.  But pro-actively, what is this SEC doing to keep that playing field level and fair for the investor.

SCHAPIRO:  I think it is really important that we have a very, very big focus on the risks.  And one of the things we're going to do is to really bolster the risk assessments capabilities within the agency.  And bolster our capabilities to do robust economic analysis.  So that we're in a position to understand new trading strategies and products, the implications of unregistered entities in the marketplace; build more effectively on an international basis with new products, and new strategies.  So, we're in the process of building that capability in, I think, a very fundamental way.  And perhaps for the first time for the SEC, really to have some of the skills sets that it needs to keep up that we haven't historically had.

CLAMAN:  Does that mean you'll have to hire more traders?  More MBAs?
More financial insiders and experts.  You know, I think of IT companies hiring former hackers, to try and figure out the backdoor, sneaky way that these guys pull off some tricks.  Is that something that is a priority for you?  And do you have enough money in the budget to do that?  Or do you need more money?

SCHAPIRO:  Well, it is a priority.  We have to bring in people who understand financial analysis, who understand derivatives, who understand trading strategies and new products.  Some of the kind of rocket scientists who designed some of the products that have been let loose on Wall Street.  So we are trying to recruit those kinds of people right now.  And we're getting tremendous response to the positions that we've posted, looking for those new skill sets.  We don't have enough of those positions, at this point.  But they're working very hard to increase the size of our budget and have the ability to bring in people, directly off the Street, who really understand the business in a very up-to-the-minute kind of way.

CLAMAN:  Percentages?  How much, as a percentage more, of a budget do you needed?

SCHAPIRO:  Well, I there are 3,600 people at the SEC.  We regulate about 35,000 industries.  That's a pretty bad ratio.  We could be multiple times larger than we are.  We can't grow that fast, that big, that fast.  So over the next several years I'd like to see the agency expand very significantly.

CLAMAN:  How much money do you really need?

SCHAPIRO:  We need significantly more money, I think, than we have at the moment.  I will say the administration has been tremendously supportive of our budget requests.  And Congress has been very supportive.  So, I actually feel pretty good that we'll be able to get the resources that we need over time.

Hard for me to give you an exact number.  But I would say we need to grow pretty significantly.  Let me give a rough example.  We have about
425 examiners, who are responsible for 8,000 mutual funds, where most Americans have their wealth, and 11,000 investment advisors.  Those aren't good numbers.

CLAMAN:  We need more.

Let's talk about specific trading.  Attempts, and different things that have hit the markets. High frequency and flash trading, this is in the crosshairs right now.  Some people say that it really puts the retail or little-guy investor at a total disadvantage, this super-fast trading.  Will you move to either curb or ban high frequency and/or flash trading?

SCHAPIRO:  We are certainly going to look in the short term at flash trading.  I've asked the staff to make a recommendation to me for how we might eliminate the inequities that are created by flash trading.  With respect to high frequency trading that will be part of this broader review we're doing of the markets to include dark pools, co-location, high-frequency trading and some of the other really recent innovations in the marketplace that have created this asymmetry of information and access for retail investors versus institutional investors.  At the same time, we don't want to squelch innovation.  We don't want to slow markets down in appropriately.  But we want to make sure that we have a handle on all of these different innovations.

CLAMAN:  People, and some would argue you, because you gave a speech in the '90s that said similar things about derivatives.  Saying we don't want to squelch innovation.  And frankly, it was the unwinding, disastrous unwinding of derivatives in September that really caused the financial crisis, or much of it.  How do you strike that balance between oh, we want to keep it an innovating force, to come on, we've got regulate here and make sure that things don't implode in our face?

SCHAPIRO:  Well, we clearly have to regulate.  We have vast swathes of marketplace, like credit default swaps, and other over the counter derivatives, that are unregulated.  Hedge funds are unregulated.  Those kind of institutional products must be brought under the regulatory umbrella.

CLAMAN:  Hedge funds?  You want to regulate hedge funds?

SCHAPIRO:  I think it's necessary to regulate hedge funds.  I think they are too big a part of the marketplace for the SEC and the federal government not to have a handle on the impact they're having on the market, the strategy they're employing.  It's time for that.

CLAMAN:  How would you regulate a hedge fund?

SCHAPIRO:  First of all, we need to have them registered, so we understand who is in the space and what they're doing.  We need information so that, to the extent they could be engaging in manipulative activities, insider trading, we can constrict.  Reconstruct trading practices and patterns so that we can bring those cases and enforce the rules against manipulation and insider trading.

So we really need reporting.  We need registration.  We need the ability to examining their books and records, and understand how they're conducting business.

CLAMAN:  The market genetically mutates.  You know this.  You shut one door, they find a way to come in a different window.  How can you be ahead of the curve when it comes to what -- you called it innovation?

SCHAPIRO:  Well, I think it's building the right skill sets here at the SEC to understand what it is that the rocket sciences are designing on Wall Street and how those other products and strategies are being employed.  That means a much greater focus on risk and looking around the corners than we've really had here before.

The agency is so focused on the day to day reviewing of public companies, bringing enforcement cases, writing the rules that govern how money market funds are going to be made more resilient after the economic crisis.  On a day to day basis, we're dealing with so much, we need a dedicated group of people who are thinking about how the world is changing, connecting the dots, and then helping us prepare a regulatory response in virtually real time.  Maybe we'll never get to real time, but be much more on top of things as they are happening in the industry.

CLAMAN:  Naked short selling; I had a fund manager ask me yesterday, when is the SEC going to start enforcing the rules to prevent people from abusing naked short selling?  I know there are rules in place, but enforcement.

SCHAPIRO:  We actually did some cases in the last couple of weeks.

CLAMAN:  How many?

SCHAPIRO:  Oh god, probably just two cases that I can think of off the top of my head in the last couple of weeks.  We are going to enforce those rules, as we're going to enforce all of our rules in a more aggressive way.  Of course, we've proposed some regulatory responses.

We made final in the last month on rules with respect to the failure to deliver on short positions.  Those rules have been credited with really bringing down failed to deliver by about 56 percent.  So those are tremendous positive steps.

We've also proposed some market-wide price caps that would slow the decent of the market caused by short selling, or some circuit breakers, as an alternative, where an individual stock declines by more than a certain percentage on a day.  A circuit breaker would kick in and no more short selling would be permitted in that stock.

CLAMAN:  Why not just reinstate the uptick rule?

SCHAPIRO:  We proposed that as an alternative and asked for comment on that.  We've got thousands of comment letters on all of these multiple proposals that we've put out.  There's a concern about whether -- in this new market environment, whether the old uptick rule really can work.  We want to put into place something that's going to be effective, not something that just sounds good because it existed in the past.

So that's why we have proposed multiple different approaches to dealing with short selling.  Over 4,000 comment letters about this point.  And we're working through them to see what the right approach will be.

CLAMAN:  Will institute margin and capital requirements for these exotic derivatives?  I mean, if somebody wants to buy stock long, they've got to have a margin.  It's unbelievable to a lot of people that there aren't margin requirements.  Yet others dig their heels in and say, that's the worst thing they could do.

SCHAPIRO:  My view is that if Congress passes legislation similar to what was proposed by the administration to regulate over-the-counter derivatives, a hugely important component of that is regulating the derivative dealers.  That means capital requirements and margin requirements to collateralize those positions.  Yes.

CLAMAN:  Let me go back to high frequency trading.  Co-locating, when people a lot of money to participate in fast, high speed trading; are you going to look to maybe crimp that a bit?

SCHAPIRO:  We're going to look at co-location, certainly.  There's a fundamental requirement in security laws about fair access to the market.  Co-location brings to mind that kind of question.  We will be looking at co-location in the context of this broader market structure that we're dealing with.

CLAMAN:  Because you've got the New York Stock Exchange building some behemoth out in New Jersey, 400,000 square foot floor, just to compete in this high frequency trading atmosphere.  There is a portion set aside for co-locators.

SCHAPIRO:  Right, definitely.

CLAMAN:  Does that worry you?

SCHAPIRO:  Sure.  That's a reason why we want to look at this very carefully and assure that there is fair access.

CLAMAN:  But isn't it the free market at work?

SCHAPIRO:  That's the balance.  This is a regulators lot in life, is to balance the need for innovation, because there has been a lot of phenomenally good innovation.  (INAUDIBLE) great financial innovation of the last century.  There are lots of important financial innovations.
We don't want to squelch those.

But, at the same time, I think there's been a lot of innovation that hasn't served anybody at all, except the people who created it and then were able to charge fees to offer it generally to the public.  So we have got to find the right balance.  That's a lot of what we do.  That's why we put our rules out for comment before we make them final.  We want to hear both sides of this.

But we have to err on the side, at the SEC, of market integrity, protecting investors.  That may mean that not all innovation is going to be good.

CLAMAN:  The proxy access rule, corporate government -- this is a rule that would let share holder groups put their candidates for boards onto the company's proxies at the company's expense.  With your support and your vote, this thing could pass.  Will you pass it?

SCHAPIRO:  I don't know if we'll pass it.  Again, out for comment at the moment.  Comment period closed last week.  Last time I checked, there were over 500 incredibly thoughtful comment letters on this issue broadly, and also on the specifics of how the SEC structured the proposal.  So we're working our way through those, and we'll see where the commission lands.

I personally am committed to facilitating share holder access to proxies.

CLAMAN:  Companies take this though -- they say, you let every Tom, Dick and Harry in here make their comment about who should sit on the board and you're going to trip up commerce.

SCHAPIRO:  Well, I don't think our proposal would let, in fact, every Tom, Dick and Harry have access to the proxy.  But if you take a step back and remember who owns these corporations, it is the share holders.
And the share holder franchise is a really important part of how corporations are overseen and run.  Access and having a meaningful vote about who serves on the board is important.  That's our goal.

Whether we've got it exactly right in the mechanics of how we've done it, that's what the commentators will tell us.  And we'll go forward.

CLAMAN:  Let's talk about oversight.  Treasury Secretary Tim Geithner really pushing to have the Fed be, as the "Wall Street Journal" calls it, the financial super-cop.  You've made it clear you don't think that's the greatest idea.  Is that still your stance?

SCHAPIRO:  I have a kind of nuanced idea.  We actually support a systemic risk regulator.  I'm comfortable with that being the Fed. What I would like to see that is slightly different from the Administration's proposal is that the counsel be a bit more empowered.

I think the diversity of perspective and view and expertise that we will get from having a counsel, FDIC, the Fed, the SEC, the CFTC, the OCC, participating on it will be a very important part of understanding the math of projection risks that exist. So I would like to see the counsel stronger that was proposed in the Administration's plan. But we also support, in addition to a strong counsel, a systemic risk regulator.

CLAMAN:  Okay, we all heard about the meeting in early August where barnyard epithets were flying, and that Tim Geithner apparently got very hyped up and, frankly, aggressive with you and other organizers and saying, come on, let's just get this at this power. Is he trying to emasculate the SEC?

SCHAPIRO:  I don't think so. I actually think that there is a lot more agreement about how to go forward on systemic risk, on consumer protection, on resolution, on all of the major issues playing out on regulatory reform than there is disagreement.

And I think it is frustrating, obviously, to have lots of differences of opinion on specific issues, but I feel the process is about to my way of thinking. That is why we have had so many Congressional hearings. That is why we have robust debate. But at the end of the day, I think there is far more agreement among the regulatory community than there is disagreement.

CLAMAN:  Do you think the CFTC and SEC should merge? You have said it before.

SCHAPIRO:  Well, I have said before that I think there is a real logic and efficiency that could be achieved by a merge of the two agencies. I don't think that is in the cards anytime soon, so the CFTC Chairman and I are very committed to working together to close the regulatory gaps and to harmonize the risks as possible, our two regulatory regimes. And to that end, next week we are holding joint hearings where we will hear from market participants and others what they think the issues are between the two separate regulators that we should tackle.

CLAMAN:  You are being diplomatic, as I hear it, and you are saying there is more agreement than disagreement about giving the Fed more power, but this thing is getting held up. We have not seen the Fed get that full power granted to it. How long will you hold out before you get what you feel is right and that is that other entity that is able to have more power than just a recommendation type of role?

SCHAPIRO:  Well, I think, obviously, at the end of the day it is going to be up to the Congress how to structure the regulatory system. And I think what you hear from members is a deep appreciation that we must have better controls over the risks in our system, and appreciation that all of the regulators bring a different perspective and something important to the table, an understanding of the institutions of the regulate or the products that are offered by the institutions of the regulate.

And I think Congress is in the process, much as well all are, trying to get the balance right. And you have to go back to what I said earlier, getting the balance right is really what it is all about in regulation.

CLAMAN:  How is that relationship with Tim Geithner now? Is there tension?

SCHAPIRO:  No. It is just fine. It is very positive. We have a great working relationship.

CLAMAN:  Okay, let's get to Bernie Madoff. You were not running the SEC when whistleblower Harry Markopolos came out and gave about 50 different hints about exactly how to find this problem and to shut it down.

You have said, though, back in February, that you would give Congress a full account of what happened at the end of the summer. We are getting close to the end of the summer. When do they get that account?

SCHAPIRO:  Well, they will get that account. The Inspector General of the SEC has done a very thorough review, and that review will be made public in the next several weeks and provided to Congress.

But it is very important that while we waited for this review that we have not waited for this review in order to make some pretty fundamental changes in the Securities and Exchange Commission as a result of what we understand to have happened with respect to Madoff. So we have proposed new rules to try to protect the assets of customers much more thoroughly than they were protected under the old regime.

We have brought in the Center for Enterprise Modernization to help us develop a system to better manage those almost 1.5 million tips that this agency gets every year. We have brought in new leadership enforcement in the other parts of the organization.

We have restructured the enforcement division in a much greater focus on bringing cases faster and bringing the higher impact cases. We have engaged in lots of new training for our employees so that they can stop fraud much more quickly, raise the red flag earlier, pursue those cases more aggressively. Everything we have thought to do, we have done to try to respond to the fallout from Madoff, and hopefully, prevent something like that from ever happening again.

CLAMAN:  A lot of people hope that. We have only got a few more minutes, so I want to get to fines. A Federal Judge has just, in essence, smacked down your Bank of America $33 million fine that was involved -- the Federal Judge just smacked down the $33 million fine that the SEC handed to Bank of America for misleading investors about the Merrill deal. His issue is that you did not name individual names that you just went with the company, let's move on. Why didn't you name names?

SCHAPIRO:  Well, let me speak generally to this issue, because it is always a fact that circumstance is kind of analysis that we do, in every single case. Some cases we name individuals. Some cases we only name corporations. Some cases we only name individuals.

It really depends on the facts and circumstances of that matter and evidence that we have that allows us to go ahead and pursue, because we start with every investigation on the assumption that we won't have a settlement that we will actually have to litigate the case. And that is the kind of inquiry that was done with respect to Bank of America, Merrill, and it was with respect only to the bonus payments and whether they were adequately disclosed in the company's proxy on the transaction.

CLAMAN:  If the judge were to agree to this fine, is the investigation over? Is that all there is?

SCHAPIRO:  Well, I won't comment on what kind of other investigations we may have ongoing.

CLAMAN:  With Bank of American and Merrill Lynch.

SCHAPIRO:  Right. I won't, I can't comment on that.

CLAMAN:  In just half a year you have squeezed about $6.5 billion in fines out of entities and individuals. Fortune Magazine actually called that peanuts. They say you got $50 million out of General Electric. It is a $150 billion company, $15 million from Hank Greenberg, formerly of AIG. He's a billionaire. What do you say to that?

SCHAPIRO:  What I would say to that is that the size of the company is a relevant matter for us to inquire about, but our fine has to be based on the conduct that violated the securities laws. So, in the General Electric case, it was an accounting fraud issue and the fine has to be measured by the violation of the law, by the conduct.

So it is a little bit unfair, I think, to say that it is a huge company, therefore the fine should be huge. That is not really how the inquiry and the analysis is done. I think we have shown an enormous amount of aggressiveness in both the kinds of cases we are bringing, the numbers of cases, and the penalties that at the end of the day we are earning in those cases.

CLAMAN:  Your legacy may very well be how you looked inward and not necessarily outward at the markets, how you looked at the SEC, and that how could the gaping hole that allowed Bernie Madoff to walk through when there were so many warnings. How could that have happened and how will you change it? What is the legacy you want?

SCHAPIRO:  I would to bring the SEC at the end of my term with a deep dash, a real driving commitment to protecting investors, which exists in this agency already. It just needed to be unleashed a little bit. With a very solid regulatory regime, that covers those parts of the marketplace that have been exempt from legislation historically.

I want to unleash the capability that I know is here.  I want to augment it with some new skill sets, new technology that allows us to keep up with the marketplace.  I want to walk out with people, investors believing there is an SEC on the watch; there is an entity that's out to protect their interests, and to be their advocate.

That's our historical roots.  That's what we have to return to.  We need to do it through our enforcement, through our rule making, through our examination programs.  It's got to inform everything we do.

CLAMAN:  Should the businesses and markets be scared of you?

SCHAPIRO:  They shouldn't be scared, but they should be respectful of the Securities and Exchange Commission's role in enforcing the law and protecting the marketplace from fraud and other abuse.

CLAMAN:  Chairwoman Schapiro, thank you very much for joining us.

By Janet Tavakoli of Tavakoli Structured Finance

American International Group Inc.’s equity is currently worth zero, whatever manic depressive Mr. Market may say today.  It is likely to remain zero based on AIG’s own analysis of its future over the next few years.  In fact, its obligations to the U.S. Treasury would trade at a discount today.  The only reason AIG’s stock should trade above zero today is if you believe crony capitalism will fund the birth of an AIG clone—in other words if you believe AIG’s future will be a rigged game.
 
Today’s Wall Street Journal reported that AIG has changed its timetable for selling assets.  That was to be expected, because if it sold its assets quickly, shareholders would get nothing, and the government would not get paid in full.  It is also AIG’s probable future scenario, albeit the losses may be mitigated.
 
AIG’s new Chief Executive Robert Benmosche “is willing to wait as long as three years to spin off stakes in two multibillion-dollar foreign units.”  He’s waiting for a “fair” price, and he admits that if he sells to soon (or doesn’t get a “fair” price), there will be losers all around.
 
Benmosche’s own analysis shows AIG “wouldn’t be able to repay the government even if it sold everything.”  His strategy is loss mitigation, not a return to AIG’s salad days.
 
Even the U.S. Treasury, not known for its transparency or candor during this crisis, wrote that its AIG investment is highly speculative.

AIG seems disappointed that its Asia focused life insurance unit,  American International Assurance Co. (“AIA”), might only raise more than $5 billion as estimated last spring, especially since AIG valued it at $20-$40 billion in February 2009.  AIG is also disappointed with valuations for American Life Insurance Co (“Alico”).
 
As Mr. Benmosche pointed out: “If the U.S. government doesn’t continue to support AIG, we will fail. We have no right to use the government funding to make a profit; that is inappropriate.”
 
If the government’s new policy is to be long-term distressed private equity investors in entities like AIG, then the U.S. Treasury should get a share of the profits. The same goes for some former investment banks—now banks—with which we are long-term business partners.  We support them with cheap funding and low borrowing costs due to our guarantees and ongoing liquidity support.  We should ask for a large share of the profits, if any.  

While there has been a lot of discussion recently regarding how most of the market's volume has been in just a handful of stocks, we are seeing a similar trend with regards to short interest. Below we highlight the five stocks in the S&P 500 with the highest short interest. Collectively, these five names account for over 16% of the...

This is an unofficial list of Problem Banks.

The list is compiled from regulator press releases or from public news sources (see Enforcement Action Type link for source). The FDIC data is released monthly with a delay (the FDIC July Enforcement Actions were released today). The Fed and OTC data is more timely, and the OCC a little lagged. Credit: surferdude808.

Changes and comments from surferdude808:

The “unofficial Problem Bank list” underwent substantial changes since last week because of failures; new additions, especially from the OCC and FDIC as they released a number of actions for July; and an identification of unassisted mergers during Q2.

This week there are 412 institutions on the “unofficial Problem Bank list” with assets of $252.2 billion compared with 391 institutions with assets of $256.5 billion last week. The failure of Guaranty Bank with assets of $14.4 billion was responsible for the great majority of the asset decline. Another 10 institutions with assets of $2.5 billion were removed because of failure or unassisted merger and there was one action that was terminated.

Additions during the week are 32 institutions with assets of $15.7 billion. Most notable of these additions are the ShoreBank, Chicago, IL with assets of $2.7 billion and three subsidiaries of First National of Nebraska, Inc. (ticker symbol FINN) with assets of $4.5 billion.

Since the FDIC released the latest quarterly data, we were able to update assets for all institutions as of Q2. For the 381 institutions that were on the “unofficial Problem Bank list” at Q1 and Q2, assets declined by $3.3 billion.

With the FDIC Q2 release, we can see how well the “unofficial Problem Bank list” compares with the FDIC’s official Problem Bank list. The FDIC list includes 416 institutions with assets of $299.8 billion at Q2 while for a comparable period the “unofficial Problem Bank list” had 392 institutions with assets of $280 billion; thus, the unofficial list is a reasonable approximation with an acceptable tracking error.

See description below table for Class and Cert (and a link to FDIC ID system).

For a full screen version of the table click here.

The table is wide - use scroll bars to see all information!

NOTE: Columns are sortable - click on column header (Assets, State, Bank Name, Date, etc.)





Class: from FDIC

The FDIC assigns classification codes indicating an institution's charter type (commercial bank, savings bank, or savings association), its chartering agent (state or federal government), its Federal Reserve membership status (member or nonmember), and its primary federal regulator (state-chartered institutions are subject to both federal and state supervision). These codes are:

N National chartered commercial bank supervised by the Office of the Comptroller of the Currency

SM State charter Fed member commercial bank supervised by the Federal Reserve

NM State charter Fed nonmember commercial bank supervised by the FDIC

SA State or federal charter savings association supervised by the Office of Thrift Supervision

SB State charter savings bank supervised by the FDIC

Cert: This is the certificate number assigned by the FDIC used to identify institutions and for the issuance of insurance certificates. Click on the number and the Institution Directory (ID) system "will provide the last demographic and financial data filed by the selected institution".

As my "what I learned" post late last night mentioned, I regretted not getting into a counter-portfolio trade yesterday (tinted in yellow). They're not going to do this to me again, though. I bought 20 /ES at 1023 earlier (tinted in blue). If the market plunges, so be it, because that's good for the rest of what I hold. But if it surges, at least I've got some serious action on this /ES to salve the wound.

Ask anybody to chart the trajectory of the S&P500 over the past 10 years and you will get this chart. And while the tech boom of the late 1990's was driven by some very real secular shifts caused by unique technological innovation which, aside from the exuberance associated with some of the dot com names, brought a marked benefit to the global economy, how does one explain the subsequent ramp up as the credit bubble was being inflated and subsequently imploded? Simple - it was all liquidity driven. The best way to visualize it is to take the SPX and to divide it by the sum of domestic reserves and foreign custodial holdings (a topic discussed on Zero Hedge previously here). The result is that represented on this relative basis, the underlying market did absolutely nothing for the duration of the entire credit bubble. This should come as no surprise to anyone who has been following the theme of the Fed's balance sheet expansion and why the market has been ramping up markedly even, or specifically because of, the Fed's balance sheet growing over the past decade and recently hitting unprecedented levels in the $2 trillion+ range. One can play with the denominator and add other money aggregates such as MZM, but the result would not change materially. And the scariest part of the chart is the tail end: even with the unleashed dam of liquidity, the market still has a massive retracement ahead of it before it can recover the adjusted losses it has suffered since the last credit bubble. Ironically a 50% run up in the S&P has not been enough to offset on an apples-to-apples basis the unprecedented liquidity efforts let lose by Chairman Ben. The bottom line is that when viewed from the perspective of liquidity fueling the market, the S&P 500 has never been in a worse situation. And alas, as the Fed's balance sheet climbs to $4 trillion +, absent a multi-year parabolic rise in stocks, liquidity will increasingly lose its power to sustain markets to historical overbloated levels. But Ben Bernanke will go down in flames, and take down America with him, trying to disprove this hypothesis. h/t Philidor

2:10 PM CT - I've added the Market Delta chart above to show how we are building volume at lower price levels during the afternoon, accepting value below the day's VWAP. As long as that remains the case, I'd be looking for an eventual test of the Thursday lows. I have a small pioneer short position in the S&P that I'll be blogging about later.

The bulls just aren't feelin' it. I show that we've made about 1000 new 20-day highs across the NYSE, NASDAQ, and ASE on a day where ES (chart above) moved to marginal bull highs. The rally just keeps thinning out in terms of participation: non-confirmations, from emerging markets to commodities, continue to abound.

We sold off sharply following the early strength and, since then, volume at the market bid (bottom histogram) has swamped volume at the offer. We've also moved convincingly below VWAP (red line) and the volume bulge around 1030 (side histogram).

This sets us up in a very distinctive range between the lows that we rejected yesterday and the highs that we've rejected today. The weakening participation concerns me; I'm a seller on strength as long as bounces cannot take/keep us above VWAP and that 1030 level.
.

No major commentary needed... Ironically support now at yesterday's VWAP...for now - wait for the breach. Thank god for liquidity providing algos.

 

It is sometimes argued that recessions benefit the economy by allowing the destruction of old, inefficient economic structures so that newer, better ones can be created to replace them. On the surface, this story might seem to apply to the recent recession: ostensibly, a lot of useless jobs in finance, real estate, and construction were destroyed, as well as perhaps old manufacturing jobs that hadn’t caught up with the latest technology, and jobs in retail trade that needed to be replaced by the Internet, and so on. But there’s one problem with that point of view: overall (at least during the first four quarters of the recession, up through the end of 2008, for which we have the relevant data), there weren’t an unusually large number of total jobs being destroyed.

But...but...but...haven’t we been hearing about large numbers of job losses month after month since the recession began? Sort of. We’ve been hearing about large numbers of net job losses. That is, the number of jobs that have been lost has been a lot more than the number that have been created. And a lot of job losers have ended up collecting unemployment insurance for a long time, sending the figures for continuing claims up to records, instead of getting new jobs. But the gross number of jobs being destroyed has not been unusually large. In fact, relative to the overall level of employment, job destruction was happening at a faster rate during the boom of the late 1990s than it was during the last quarter of 2008.

How can that be? For one thing, when you take out the business cycle, there seems to have been a general downward trend in the rate of job destruction over the past 10 years. More important, the rate of job creation also had a downward trend, and it dropped to new lows during the recession of 2008. If you lost a job in 1999, you weren’t actually all that atypical, but it wasn’t a big problem, because typically, you could find a new job fairly easily. If you lost a job in 2008, you were (typically) out of luck.




source: Business Employment Dynamics data from the Bureau of Labor Statistics



The fact is, job creation and job destruction take place during booms at rates that are not dramatically different from the rates during recessions. It’s just the difference between the two that changes. In a typical boom quarter, about 7 million jobs are destroyed, and about 8 million are created. In a typical recession quarter, about 8 million are destroyed and about 7 million are created. There just isn’t much support for the idea that recessions give us a special ability to reallocate resources more intensely than we do during a boom or a period of normal growth. “Creative destruction” is a dynamic process that continues all the time, not one that occurs in separate phases of creation and destruction.

And the most salient feature of the current episode is that there has been unusually little creation. From the 1990’s to the 2000’s, the quarterly job creation rate fell from about 8% to about 7%. Since 2006, it has fallen to about 6%.

Some might argue that this type of slowdown in job creation is inevitable during times of structural change and that it is useless to try to oppose it with monetary and fiscal policy. It takes a long time (Arnold Kling, for example, would argue) for the economy to come up with ideas for new, productive uses of resources when the old uses are no longer productive. Monetary and fiscal policies can’t do much to speed up this process. They can’t make entrepreneurs more creative.

I’m skeptical of that view: entrepreneurs were plenty creative during the 90’s, once the booming stock market gave them a reason to apply their creativity. Monetary policy really did help speed up the process of finding new uses for resources: low interest rates led to high equity prices, which made it easy to raise capital and thereby made it advantageous to find new ways of using capital. Some would say the process went too fast in the end, with a large fraction of the uses proving ultimately unproductive, but statistics show aggregate productivity rising rapidly and continuing to rise during the subsequent years, even (atypically) during the recession that immediately followed the boom. There may have been a lot of froth, but there was plenty of good beer underneath, and monetary policy is what opened the tap.

In any case, even if I were to concede that monetary and fiscal policies don’t help speed up the adjustment process, they do help us get the most out of the economy in the mean time. With nearly 10 percent of the labor force unemployed, there are a lot of resources being wasted – people spending their time looking for jobs that many of them just aren’t going to find until we get a lot more economic activity. There are plenty of useful things that those people could be doing in the mean time.

Perhaps more important, monetary and fiscal policies help us reduce the risk that a weak economy – too weak for too long – will fall into a deflationary spiral. As long as job creation remains weak, employers have little incentive to raise wages, and competition will tend to push down prices. Even an “artificial” stimulus, one that doesn’t accelerate the structural adjustment process, will create a demand for labor and force employers to compete somewhat for workers. That competition, in turn, will prevent them from competing too aggressively in product markets and keep prices reasonably stable.

There is, of course (in theory, at least), the risk that policies will go too far and not just prevent deflation but produce excessive inflation. As I have argued before, we are nowhere near that point right now. I made the case against inflation using mostly the unemployment rate, but the case becomes even stronger when you consider the job creation statistics. This unemployment is specifically being induced by a slowdown in job creation. Job creation is specifically what leads to inflation: it’s when companies want to hire aggressively that they start raising wages excessively and competition becomes unable to keep prices in check. If unemployment – which arguably has a more tenuous relationship to inflation – is far, far away from the danger point, job creation – which has a direct relationship to inflation – is even further away.




DISCLOSURE: Through my investment and management role in a Treasury directional pooled investment vehicle and through my role as Chief Economist at Atlantic Asset Management, which generally manages fixed income portfolios for its clients, I have direct or indirect interests in various fixed income instruments, which may be impacted by the issues discussed herein. The views expressed herein are entirely my own opinions and may not represent the views of Atlantic Asset Management.

Henry Blodget writes an interesting piece over at Businessinsider in which he cites Paul Kasriel of Northern Trust:

Today, we have federal deposit insurance Therefore, the probabilities and magnitude of depositor runs on banks are much reduced compared with 1933. Yet, we can see “runs” by stockholders and other creditors of banks if there is a suspicion of financial problems. If the Fed is required to  publish the names of financial institutions to which it has extended credit and this publication induces financial institutions to refrain from borrowing from the Fed, one can only speculate if this would be the tinder for another liquidity conflagration in the coming months.

How about a little honesty from commentators in the mainstream media?

"Liquidity conflagrations" happen when people discover they have been lied to.

Anyone remember Bear Stearns?  "We're well capitalized" on CNBC?  "Everything is fine"?  Cramer's pumping of them on his show as "safe"?

Market participants in fact knew everything was not fine.  There were statements flying around (that turned out to be true) that some counter-parties had begun refusing to novate deals with Bear. 

It was the discovery of the lie that caused the run on Bear Stearns and its ultimate collapse.

Likewise with Lehman.  Remember Dick Fuld's "I'm gonna burn the shorts" comment, again, on CNBC and elsewhere in the National Media?

The truth got out: they were having liquidity problems.  Once again, as soon as people discerned that they were being lied to, Lehman's fate was sealed.

The problem The Fed has is that as the supposed "risk regulator" for the American Banking System it has absolutely refused to do its job of prudential regulation and still is. Instead of demanding that its member banks hold capital against all unsecured lending it has "blessed" models rather than markets.  But at the same time it has declared "haircuts" against collateral that make clear that so-called "face value", or "par", is a farce.

The Fed is supporting institutionalized lying - that is, the intentional mis-marking of assets.  If The Fed was an honest regulator and monitor of market risk it would insist that no bank carry an asset at a value materially higher than its "haircut" off par at the window.  After all, the penalty rate for discount window use already discourages banks from coming there; the "haircuts" must (and I argue do) reflect what The Fed actually believes about the quality of these alleged "baskets" of asset classifications.

If The Fed believes that these asset classes have this sort of haircut from face value in the market how does it justify allowing any bank under its jurisdiction holding such "assets" at a higher value on their balance sheet?

The claim that people shouldn't worry about a bank that needs an emergency loan at a penalty rate and with a haircut that in some cases is 30% or more below declared "balance sheet value" is criminal idiocy, and any argument that such emergency facilities should be kept secret so that the public does not know when such an extreme emergency exists is, I would argue, an act in furtherance of racketeering. 

After all The Fed isn't lending with its own money - those are our dollars that are being lent out and their actions confer obligation on the taxpayer.  The Fed's legitimacy and backstop are predicated on the back of the American Taxpayer - a privilege, not a right.  That privilege comes with the responsibility to justify in each and every case, in a transparent, fully-disclosed fashion, their actions.

The discount window exists as an emergency facility.  That's made clear not only by the fact that its use has a penalty rate, but that there are also haircuts on assets "deposited" there as collateral that dramatically exceed where these assets are being carried on bank balance sheets.  You only go there and take your haircut and pay the penalty rate if you can't borrow in the interbank and other ordinary commercial markets - an event that occurs because your book of credit has deteriorated to the point that you're on the edge of outright failure.

When your house is on fire it's too late to argue that we should not let any of your neighbors see the fire trucks. The correct question to ask is why you were playing with both matches and gasoline in your living room an hour ago!

Bloomberg's FOIA is spot on and the District Court's decision is exactly correct.  The brief filed in defense of The Fed by The Clearinghouse Association reads like something you'd expect out of Tony Soprano's family - specifically:

"The Clearing House believes, based on the experiences of its members, that publicly releasing information about a financial institution's participation in the Emergency Programs can cause significant competitive harm.  It is difficult to imagine information that is more competitively sensitive or harmful to a financial institution than information that it has lost the independent ability to fund itself fully in the marketplace."

Yes, and it is difficult to imagine a piece of information that more-fully fills the requirements for the immediate filing of an 8-K of "significant events" as well, wouldn't you agree?

Let's see what we find there....

1. Item 1.01 Entry into a Material Definitive Agreement

a. Filing of Exhibits

b. Considerations Regarding Business Combinations

Isn't a discount window loan (or participation in these "facilities") a material definitive agreement?  If, without their use, the firm would be at risk of collapse, the answer is obviously YES.

6. Item 2.03 Creation of a Direct Financial Obligation or an Obligation Under an Off-Balance Sheet Arrangement of a Registrant

Uh, that one's pretty obvious.  A direct financial obligation clearly exists once you go to the window, right?  A new obligation under an emergency "rescue" facility that did not exist before.  It is quite clear that under the law this requires an 8-K.

7. Item 2.04 Triggering Events That Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement

You mean like the imposition of night mark-to-market requirements on that collateral by The NY Fed that didn't exist before you tendered it, and which constitute an "extraordinary" or "emergency" action (per the Clearinghouse's own brief!)  Another 8-K requirement.

9. Item 2.06 Material Impairments

That's a big 10-4; what do you call a 30% haircut off your booked value on a given "asset"?  I call that very material.

14. Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review

That might apply too.

Looks to me like this "disclosure" being complained about is more akin to an attempt to cover up outrageous and repeated failures to comply with US Securities laws.

Or do those laws only apply to "little people" like Martha Stewart?

The decade-long record of Fed secrecy must end and those who have refused to follow the law and file public disclosures as required by existing law must be held to account.

Bloomberg has a lengthy article on the state of the international container shipping industry.

It features the loss at COSCO (The largest Chinese shipping company).

Here are some of the highlights.

China Cosco’s container-shipping business, the nation’s biggest, had a 4.32 billion yuan ($632 million) operating loss as U.S. and European consumers pared spending on Asian-made goods, hammering rates. Its commodity-ship operations, the world’s largest, posted a loss after sales tumbled 72 percent on overcapacity in the global fleet.

Container lines “will still be under pressure in the second half as rates won’t cover costs,” said Johnson Leung, a Hong Kong-based analyst at Tufton Oceanic Ltd., the world’s largest shipping hedge-fund group. “The rate increase for the peak season may only be sustainable for a couple of months.”
..............................
All 10 of the world’s largest listed container-shipping companies have posted losses this year, triggering industrywide efforts to raise rates through coordinated increases and capacity cuts.
................................
Attempts to increase rates have stumbled amid excess capacity caused by plunging demand and the launch of new vessels ordered during a trade boom that ended last year. Maersk, the world’s largest container line, is ready to slash rates if rivals attempt to win market share by undercutting prices, Danish newspaper Dagbladet Borsen said earlier this week, citing Chief Executive Officer Nils Smedegaard Andersen.

UBS expects container rates to get stuck at just above a zero profit margin as anything more than this will persuade shipping lines to return idled vessels into service.

click here for link to complete article

I must be losing it, because I thought I posted this earlier, but I don't see it. If I did post it, well - - call me Goofy.

I literally despise my job as an accountant, & I want to trade FT.  It all comes down to what I feel passionate about, & I'm passionate about analyzing charts & markets, developing ideas, acting on those ideas, & constantly learning.
 
Accounting/audit is just not for me.  I know this.  I think 3/4 of the problem is the nature of the firm I'm at & the client base (we have some nightmare clients).
 
How the heck to I go about transitioning fields?  My one thought is to just p--- off & start trading my own capital - I've got about $50K.  However, this is not the best idea at present as I've got 2 kids (one 2 & 1/2 yr old & one infant), & I need some security to put food on the table, which is why a job in public accounting is more than ideal from a security standpoint.
 
What about working for a CTA or a small boutique money management firm (I'm located in Toronto), who might need an analyst or an apprentice/junior trader?  
 
I'm not even sure if or where these types of positions might exist.  I also know that it's often who you know in life, not what you know.

I read this today and felt compelled to share it with you all as it pretty much sums up my sentiment.  In an open letter to the Guardian newspaper, Nassim Nicholas Taleb, author of the NY Times bestseller, The Black Swan, ( a book I read and loved), said this: “We are financing today those who got us here, with tax hikes on those who do the right thing, and larger tax break for those who blew

A new page in the fight between HFTs and everyone else was turned recently, after Adair Turner, Chairman of Britain's Financial Services Authority, said that he would consider the implementation of a "Tobin tax" on banking transactions. As a reminder, James Tobin introduced the idea of the Tobin tax in 1971, as a tax on cross-border currency trade, which at its core was meant to moderate short-term speculation in currency trading. Its latest incarnation, however, would strike at the heart of the speculative bubble that has gripped global markets.

And here is where the HFT angle comes into play. According to Avinash Persaud:

Financial institutions naturally concentrate on the most lucrative activities, and those are ones that involve extensive trading; consequently, the financial system is biased toward heavy trading and churning and has less interest in developing products that are fit for a long-term purpose but aren’t traded so often.

That’s why great attention is devoted to hedge funds involved in high-frequency trading and less to buy-and-hold pension funds.

With the daytrading bonanza that the stock market has become, while all regulators continuing to turn a blind eye to the ridiculous churning in such penny stocks as Citi, FNM, FRE and AIG, Persaud likely has a point.

And already the litany of protests against this form of short-term speculation curbing has proven to be fierce. To quote the BBA:

"If we introduce the wrong kind of regulation or the wrong kind of taxes we could so easily lose that position by driving business abroad . . . On so many occasions in the past the country has lost chunks of industry through making the wrong decisions. Let's not do that again."

And the criticism has spread across the Atlantic as well:

US bankers were equally hostile to the idea of a global transaction tax. "We vigorously oppose a tax on the industry," said Scott Talbott, head of government affairs at the Financial Services Roundtable, which represents the top 97 US institutions. "The financial services industry is a leading sector around the world in producing jobs and providing people with goods and services they demand. A punitive tax would unnecessarily restrict the industry, harm shareholders, and ultimately weaken a key segment in the world economy."

 

One big bank chief economist described the suggestion internally as "a stupid idea", while a senior executive at one European bank said: "Global taxes don't happen. Unless next month's G20 meeting can suddenly pull something out of the hat, this will be largely ignored."

Such a pervasive outpouring of anger likely indicates that a Tobin tax introduction would likely impair many parties' revenue-stream interests.

Plus how would firms like GETCO continue earning $400-$800 million a year on providing 10% of the intraday "liquidity" in the market during volatile days (one wonders if between GETCO and the other top 10 HFT entities out there, whether anyone else was trading at all in the violent days of last fall, and actually continuing all the way to today).

Then again, if this idea does get traction in the UK, a cash starved US administration may promptly follow suit as it vigorously scratches its head on how to generate some revenue for its ballooning budget deficit. And while Wall Stree firms are now armed with substantial NOL carryforwards courtesy of the billions in 2008 writedowns, thus likely not having to pay State or Federal tax for years, this could be one avenue in which Obama can reap some of the benefits of the 50% market run-up driven exclusively by speculation and potentially abusive trading practices which control 70% of the market volume/churn.

Fujisan here.

I slept in with too much margaritas and buffalo wings last night… and it looks like I missed a great short opportunity.

After all, today is going to be another doji day.  I would have to say that the market has been very precisely closing right around 1030 level for the past 5 days, and I’m expecting the same type of price action for another week before it finally rolls over, as I discussed in my posting yesterday.

In the mean time, the market gives us an opportunity to make money in both directions with a wide daily range, so let’s make some money!  We are getting very close to the top!

Here is a chart that I posted back in July and it looks like this pattern is working out quite well, so here is my updated three drives pattern.

Good luck to you all!

11:40am EDT: Mole here - I actually woke up early down here in San Diego and added more puts right at the top. Then I went back to bed for and just woke up to nice green shoots in my account - perfect

As Dave Kansas points out in his recent article, stock dividends do make a difference, particularly when other forms of yield--such as Treasuries--are offering paltry returns. Dave makes the excellent point that dividends are typically taxed at lower rates than bond income, which could help support the prices of higher-yielding equities.

Of the sectors tracked by FinViz (click above), utilities show up with the highest yields. While they may not be sexy for their beta (they're up around 30% for the past six months vs. 50% for many of the other sectors), they may find nice floors as those nearing retirement seek relatively safe yield.
.

The failure by HSKAX and HFRXEMN indices to generate any profits YTD indicates that traditional market neutral players are in peril of being markedly redeemed, or are currently in process. Who steps in to fill in the void is anybody's guess although some assumptions can be made.