Forex News by TradingAdvantage
Still too Big to Fail
While the sobering news from Europe has finally started to weigh on US stocks, I thought I’d add gasoline to the fire and remind everyone of the twisted morass that’s our own domestic financial situation.
The top 5 banks in the US now account for a massively disproportionate amount of the derivative risk in the financial system. Specifically, of the $250 trillion in gross notional amount of derivative contracts outstanding (consisting of Interest Rate, FX, Equity Contracts, Commodity and CDS) among the Top 25 commercial banks (a number that swells to $333 trillion when looking at the Top 25 Bank Holding Companies), a mere 5 account for 95.9% of all derivative exposure.
The top 4 banks: JPM with $78.1 trillion in exposure, Citi with $56 trillion, Bank of America with $53 trillion and Goldman with $48 trillion, account for 94.4% of total exposure. As historically has been the case, the bulk of consolidated exposure is in Interest Rate swaps ($204.6 trillion), followed by FX ($26.5TR), CDS ($15.2 trillion), and Equity and Commodity with $1.6 and $1.4 trillion, respectively.
And that's your definition of Too Big To Fail right there: the biggest banks are not only getting bigger, but their risk exposure is now at a new all-time-high.
Good thing Backstop Ben and Congress are always ready with their catcher’s mitt.
Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banking mafia.
_______________
Larry Levin
President & Founder - TradingAdvantage
Home Builders
Greece may soon be back dealing in drachmas adrift alone in the Adriatic, JP Morgan and the other banks continue to be loosely regulated trading liabilities, and job growth continues to be anemic at best.
But fear not, the media trumpeted the headline this morning that homebuilder confidence in the U.S. rose more than estimates according to the National Association of Home Builders Index. While this NAHB release couldn’t bring the market higher on the day, the market had been in positive territory earlier in the day.
But really, who cares?
Like most of the economic that we are subjected to, not only are the numbers interpreted incorrectly, the data is mostly meaningless.
The NAHB home builder’s survey uses "a diffusion index on a scale of 0 to 100, based on a survey of builders. The index has 3 components--current sales, model home sales traffic, and builder expectations for 6 months hence rated on the basis of good, fair, or lousy. The most important of these is traffic, which reflects future sales. A reading below 50 means that more builders rate conditions as poor or very poor, rather than good or very good.
The HMI rose from 13 in June to 15 in July. That's the "good" news, but there was a catch. As bad as that was, the gain was based mostly on a big jump in the expectations component which surged from 15 to 22.
Now I ask you; how would a home builder have any clue what conditions would be like 6 months from now? Right. They don't. True, the present conditions index rose from 13 to 15, but that is not material in the overall scheme of things. The key number is still traffic, because without traffic you can't have sales, and weak traffic foreshadows weak sales.
Weak numbers on top of more weak data. The more things change, the more they stay the same.
Trade well and follow the trend, not the so-called “experts.”
Larry Levin
President & Founder - TradingAdvantage
China and the Treasury
Sorry Fraud street bankers, your friends at the Treasury may be limiting your access to the golden goose.
According to a report released by Reuters (Exclusive: U.S. lets China bypass Wall Street for Treasury orders | Reuters), China can now bypass Wall Street when buying U.S. government debt and go straight to the U.S. Treasury. This is the Treasury’s first ever direct relationship with a foreign government.
Only certain Wall Street banks can serve as primary dealers of U.S. Treasuries, which will then bid on the government’s behalf at Treasury auctions. The other central banks that are large purchasers of U.S. Treasuries, including the Bank of Japan, continue to use these designated banks as the go between.
It’s the classic example of how Wall Street plays a rigged game where they are the only player so they always win.
On one hand, by bidding directly, China stops the Fraud Street banksters from exploiting their inter-twisted relationship with the Fed. The collusive Wall Street banks can drive up the auction price with their enormous purchasing power in a given Treasury auction.
Unfortunately, giving China direct bidder status may be giving a not-so friendly foreign superpower way too much leverage, as it currently holds $1.17 trillion in U.S. Treasuries.
Food for thought.
Trade well and follow the trend, not the so-called “experts.”
Larry Levin
President & Founder - TradingAdvantage
Good News and Bad News
One of the biggest moments for the markets can come when there is a key news release or fresh fundamental data. Buyers and sellers seem to wrestle with the potential outcome, and in the case of larger announcements, volatility goes through the roof. The problem that I see some traders struggle with is knowing what news to look for, and how to trade it.
Finding news that you can actually use.
The thing that often comes up when you talk about announcements is that a lot of traders don’t understand the market reactions. A report will come out and it will appear as though it is good news, but the market will go down. The thing is that some people still try to trade on the news itself, when in reality they should be looking at what the market thinks the news will be. More than likely, those days when there was a “good” piece of data but the market went down, forecasts were calling for a better number.
The other explanation is that the report just might not have been as important to the market as it was to the observer trying to trade it. Reports and news events are lobbed into a general basket of analysis called fundamentals. Fundamental analysis focuses on the things that have the potential to impact the supply or the demand in a particular market, thus affecting the prices.
Reports that come out with some regularity, like initial unemployment claims, are unlikely to rock the S&P unless they are really, really shocking. Federal Reserve meetings, which are a rarer occurrence, tend to hold a bit more zest for traders. Monthly employment readings are also big. Producer Price Index (PPI) and Consumer Price Index (CPI) readings are key figures for inflation, which in times of economic troubles might get more attention than a decade or so ago.
Perhaps one of the best ways to weigh what kind of news is valuable to traders is to keep your eye on the stories daily.
Traders shouldn’t keep their head in the sand.
If you know what is happening in the market that week, that day, and that hour, it is better all around. You can line up the market’s movements with fundamental events. Of course, there will be big news that comes out of nowhere that can still catch you and the market off guard. However, there are plenty of economic report calendars, Federal Reserve meeting notices, and other lists that show you key data points. Most news outlets will also report results of a general survey of economists showing what the basic expectations might be. Knowing what the expectations are ahead of the report is just as important as the report itself. Good news can quickly become bad news if it falls short of what people were looking for.
A great example of this in recent news is the build-up ahead of the debt ceiling deal. In any other situation, finding a compromise or agreement would be considered a good thing and good news. The opposite was true in this case as investors and traders weighed the potential impact of continuing debt and a tarnish on the credit rating for the US. The highlighted area in the following chart shows the reaction leading up to and following the news:
Focus on the bigger picture, not just the headlines.
One of the best favors a trader can do for themselves is stay appraised of the bigger picture. There are plenty of places where you can get calendars online, and check for the stories that might impact the market. The longer you watch these fundamentals, the more likely you are to be able to distinguish which ones might bring higher volatility and potential trading opportunities. Avoid developing tunnel vision and focusing only on the things you think could be important. Watch for forecasts and estimates on reports – these are just as important as the actual news release and can be key in trying to gauge possible market direction. Good news and bad news are relative to expectations.
Best Trades to you,
__________
Larry Levin
Founder & President - Trading Advantage
Bright Side?
There’s always a bright side to things, just ask the markets.
All three headline composites of the latest Case Shiller home price index were lower for the first quarter 2012. In fact, home prices in many cities are at the lowest levels since the housing crisis began.
This “good news” combined with the other “good news,” Greece being such a gigantic financial disaster that it’s getting kicked out of the Euro, propelled the market higher.
If we are going to follow the stock investor’s lead, and be the glass-half-full kind of folks, we’ll need some help with this story.
CNBC and the New York Times reported that Trustee Irving Picard, the man responsible for recovering the stolen funds for Mr. Madoff’s investors, is billing at the rate of $850 an hour. That means that Picard and his law firm, Baker & Hostetler, have racked up a whopping $554 million in legal and other fees.
In the last several years, Picard has brought more than 1,000 cases trying to recoup more than $100 billion on behalf of victims, despite acknowledging that only about $17.3 billion had actually been invested by customers. (The entire Ponzi scheme has been estimated to be worth $65 billion, but much of that is the result of made-up profits recorded by Madoff.)
And how much have Madoff’s victims actually received from all of Picard’s cases and motions? Only $330 million. And how much does Picard estimate the total tab may run up to by 2014? A mere $1 billion.
I’m not sure that you could find a bright side in this mess even if you were standing on the sun.
Trade well and follow the trend, not the so-called “experts.”
_________
Larry Levin
President & Founder - TradingAdvantage
The B-List
It’s just another day in the new financial-bizzaro world where any little piece of data may move the markets. Forget imploding Europe or mounting debt levels, the market “reportedly” went higher on a better than expected ISM Non-Mfg number.
You may ask, what the heck is the ISM Non-Mfg number anyways? It’s a gauge of new business orders from the Institute for Supply Management. Think of it as the “B list” of economic data reports, akin to the aging celebrity who appears on the late-night cable movie… or those on The Apprentice: you’re fired!
Anyways, the non-manufacturing ISM index edged up to 53.7 in May from 53.5 in April, a touch above economists' forecast. And woo-hoo, we got a small broad market rally because of a surprise 0.2% jump, as opposed to a flat reading from the Betty White of economic data.
The real reason for the rally may be just another day of “hope springs eternal.” Until Ben or his ECB cronies make any pronouncements, we still have the prospect of LTRO3, or QE3, or some crazy combination of both on the near term economic horizon.
No worries – it’s coming.
Trade well and follow the trend, not the so-called “experts.”
__________
Larry Levin
President & Founder - TradingAdvantage
Mirrors
“Mirror, mirror on the wall; who’s the most rigged of them all?” The mirror in this fairy tale of “free markets” responds “Boxing. No wait, I’m changing my answer: global equity markets.”
Monday’s market action was a mirror image of Friday’s – the same but backward. As you know by now, Friday levitated much higher on no volume but somehow, magically, exploded even higher in the final minutes. Hopium was in the air. The market expected a bailout of Spain and went crazy into the close.
Stop and think about that. Would you put billions of dollars at risk in the closing minutes of a Friday with an impending bailout – or no bailout – of a major country on the line? You wouldn’t and neither would Fraud Street, unless it knew the outcome…unless it was rigged.
Once Fraud Street asked the mirror what the Spain bailout outcome would be and those “special banksters” got their answer – “It’s a done deal” – they drove the market much higher.
This morning, however, there was no add-on buying frenzy. Fraud Street got nervous. In its best imitation of Gordon Gekko who said “Sell it all. What the hell, so we only make ten million,” the banksters today sold Friday’s ramp-job and surely pocketed 10-times Gekko’s quote. After all, they happened to buy at just the right time – like ol’ Gordon happened to often do himself.
In addition to the simple lack of add-on and all-out buying this morning, we read the following during the trade day from Reuters:
European finance officials have discussed as a worst-case scenario limiting the size of withdrawals from ATM machines, imposing border checks and introducing capital controls in at least Greece should Athens decide to leave the euro.
EU officials have told Reuters the ideas are part of a range of contingency plans. They emphasized that the discussions were merely about being prepared for any eventuality rather than planning for something they expect to happen - no one Reuters has spoken to expects Greece to leave the single currency area.
Belgium's finance minister, Steve Vanackere, said at the end of May that it was a basic function of each euro zone member state to be prepared for problems. These discussions appear to be in that vein.
But with increased political uncertainty in Greece following the inconclusive election on May 6 and ahead of a second election on June 17, there is now an increased need to have contingencies in place, the EU sources said.
The discussions have taken place in conference calls over the past six weeks, as concerns have grown that a radical-left coalition, SYRIZA, may win the second election, increasing the risk that Greece could renege on its EU/IMF bailout and therefore move closer to abandoning the currency.
No decisions have been taken on the calls, but members of the Eurogroup Working Group, which consists of euro zone deputy finance ministers and heads of treasury departments, have discussed the options in some detail, the sources said.
As well as limiting cash withdrawals and imposing capital controls, they have discussed the possibility of suspending the Schengen agreement, which allows for visa-free travel among 26 countries, including most of the European Union.
It must take phrases like “worst case scenario” or “impending doom” to bring a reality check. Could it be that finally there’s not enough hopium left in the pipe?
Then again, Backstop-Ben will soon be looking into the mirror without asking a question. Rather, he’ll point to his reflection and say “Now it’s all up to you big guy.”
Trade well and follow the trend, not the so-called “experts.”
_________
Larry Levin
President & Founder - TradingAdvantage
Movies
In 2002 a film entered movie theatres across the country and quickly became successful for its comedic value and charm: My Big Fat Greek Wedding. What’s playing out on Fraud Street and in every political chamber of the world is not a comedy, but a tragedy.
If this tragedy had a name it would certainly be changed from time to time along with the odd circumstances and never-ending bailouts. Now, however, it might be called The Big, Fat, Greek Relief Rally.
Last week the market was told that the baddies would win the weekend election, but all would be well as the Global Central Planning Nannies would be there to take care of us by rigging the markets to do their bidding. But the baddies didn’t win; the good guys won. That is to say, those that will NOT upset the apple cart won. When told to jump, they will respond with “How high sir?”
The market initially gave back its gains from Friday, but realized the Fed will give it QE3, 4, & 5 so why worry. The ES clawed back to unchanged and then traded in a miserably narrow range into the close with a final surge to close up on the day.
And why not, right? What’s different in the economic world end game today? Absolutely nothing! As mentioned above, the New Democracy's narrow victory Sunday means that Greece will continue playing by Germany’s rules as the ECB tries to prop up the rest of Europe.
Plus, we’ve moved on to today’s drama - the Large, Chubby, Spanish Debt Dilemma. Things in Spain are worsening fast as the countries bond yields head to uncharted territory (aka they aren’t really worth anything) with yields on the 10-year notes reaching over 7%.
The only marriage that matters is the one between Ben Bernanke and the Central Banks and their vow to solve the world’s problems by trying to print more money. Yes, here in the US we’re eternally wedded to all of Europe’s debt and there’s no prospect for a divorce.
The market no longer reacts one way for very long to the minor macro-economic or political events, because we’ve all wizened up to what’s coming – The Gigantic, Morbidly Obese US Liquidity Injection…coming to a theatre near you soon, with trailers of The Gigantic Italian Liability Monster.
Trade well and follow the trend, not the so-called “experts.”
___________
Larry Levin
President & Founder - TradingAdvantage
Fraud
Occasionally the SEC and other regulators will castigate, actually punish, fraudulent events on Wall Street. Of course the real punishment is only meted out to individuals and small companies. Mega banks – the banking mafia – are largely immune.
Martha Stewart was convicted of insider trading in 2004 – a relatively small amount – and was sent to jail. It was an act of fraud alright, but it pales in comparison to the fraud of Wall Street banks.
Phil Falcone, a once high flying hedge fund manager, was just charged with fraud and it sounds like the regulators will throw him in jail for a very long time. Among other allegations, Mr. Falcone was charged with “granting favorable redemption and liquidity rights to certain strategically-important investors in exchange for those investors’ consent to restrict redemption rights of other fund investors” and “Falcone and two Harbinger investment managers through which Falcone operated manipulated the price and availability of a series of distressed high-yield bonds…”
Remember, like Martha Stewart, the government wants to throw Phil Falcone in jail and maybe he belongs there; but what about the mega banks?
Barclays was found guilty of MANIPULATION (like Falcone) and giving PREFERENTIAL TREATMENT to certain clients (like Falcone) but nobody is going to jail. Moreover, Barclay’s fraud was on a colossal scale, unlike Martha Stewart, and again I say: nobody is going to jail.
From the FSA' breakdown of Barclays traders caught in the act of manipulation:
On Friday, 10 March 2006, two US dollar Derivatives Traders made email requests for a low three month US dollar LIBOR submission for the coming Monday:
i. Trader C stated “We have an unbelievably large set on Monday (the IMM). We need a really low 3m fix, it could potentially cost a fortune. Would really appreciate any help”;
ii. Trader B explained “I really need a very very low 3m fixing on Monday – preferably we get kicked out. We have about 80 yards fixing for the desk and each 0.1 [one basis point] lower in the fix is a huge help for us. So 4.90 or lower would be fantastic”. Trader B also indicated his preference that Barclays would be kicked out of the average calculation; and
iii. On Monday, 13 March 2006, the following email exchange took place:
Trader C: “The big day arrived… My NYK are screaming at me about an unchanged 3m libor. As always, any help wd be greatly appreciated. What do you think you’ll go for 3m?”
Submitter: “I am going 90 although 91 is what I should be posting”.
Trader C: “[…] when I retire and write a book about this business your name will be written in golden letters […]”.
Submitter: “I would prefer this [to] not be in any book!”
And further…
Trader C requested low one month and three month US dollar LIBOR submissions at 10:52 am on 7 April 2006 (shortly before the submissions were due to be made); “If it’s not too late low 1m and 3m would be nice, but please feel free to say “no”... Coffees will be coming your way either way, just to say thank you for your help in the past few weeks”. A Submitter responded “Done…for you big boy”.
And further it goes…
On 6 August 2007, a Submitter even offered to submit a US dollar rate higher than that requested:
Trader F: “Pls set 3m libor as high as possible today”
Submitter: “Sure 5.37 okay?”
Trader F: “5.36 is fine”
And further…
On Thursday 14 December 2006, Trader F emailed a Submitter, requesting a low three month US dollar LIBOR submission for the following Monday, 18 December 2006; “For Monday we are very long 3m cash here in NY and would like the setting to be set as low as possible…thanks”. The Submitter instructed another Submitter to accommodate the request; “You heard the man” and confirmed to Trader F “[X] will take notice of what you say about a low 3 month”.
Two seconds later, that Submitter sent himself an electronic calendar reminder to make a low three month submission at 11 am on Monday 18 December 2006: “USD 3mth LIBOR DOWN”.
And further it goes…
For example, on 26 October 2006, an external trader made a request for a lower three month US dollar LIBOR submission. The external trader stated in an email to Trader G at Barclays “If it comes in unchanged I’m a dead man”. Trader G responded that he would “have a chat”. Barclays’ submission on that day for three month US dollar LIBOR was half a basis point lower than the day before, rather than being unchanged. The external trader thanked Trader G for Barclays’ LIBOR submission later that day: “Dude. I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger"
And further…
Trader E communicated with traders at Panel Banks 1, 2 and 6 in advance of the IMM date. For example on 12 February 2007, Trader E stated in an instant message with a trader at Panel Bank 6:
“if you know how to keep a secret I’ll bring you in on it […]
we’re going to push the cash downwards on the imm day […]
if you breathe a word of this I’m not telling you anything else […]
I know my treasury’s firepower…which will push the cash downwards […]
please keep it to yourself otherwise it won’t work”.
And further the FRAUD goes…
Various instant messages exchanged after the final benchmark rates were published on 19 March 2007 indicated that the traders involved considered that their strategy had been successful. Trader E commented to the external trader at Panel Bank 6 “this is the way you pull off deals like this chicken, don’t talk about it too much, 2 months of preparation […] the trick is you must not do this alone […] this is between you and me but really don’t tell ANYBODY”.
LIBOR is a major international interest rate used for rate calculations that may have affected you. Let’s see; if you had and ARM loan at any time from 2005 until today, or student loans, or car loans…or any damn loan…you may have been harmed by this outrageous and blatant FRAUDULENT activity! In fact, LIBOR sets the interest rate for $350 TRILLION in interest-rate sensitive products.
So what was the penalty you’re wondering? The usual for big banks: a small fine of $200 million and a “promise” to never do it again.
Why isn’t Phil Falcone being fined $1 million and why wasn’t Martha Stewart fined about $10,000? Oh yeah, they aren’t mega banks like Barclays, JPM, Shitibank, and Goldman Sachs.
If the government refuses to put one person in jail for this scandal, I personally hope Barclays is sued into permanent bankruptcy – never to rise again.
Trade well and follow the trend, not the so-called “experts.”
___________
Larry Levin
President & Founder - TradingAdvantage
Rally Time
Friday’s stock indices all closed markedly higher, which came after huge higher gap opens. What happened in between the higher gap opens and the close was nothing. The markets were dead…until the closing bell. Only then was there life when the markets went even higher on a short covering explosion.
ZeroHedge has a good recap of the action here Brian Sack's Window Dressing Farewell Gift To Wall Street | ZeroHedge
Stocks opened around 2% gap higher this morning after the late-night headlines from Europe made many think that the tooth-fairy and Santa are real once again. S&P 500 e-mini futures saw some selling into the open but then stabilized amid a very narrow range for much of the rest of the day - leaking higher on low volume-driven short-covering. The news from Germany of ESM ratification was greeted with absolutely no price movement as an indication of just how insane things are but the need to drive stocks up in the last few minutes was crazy. Into the close, volume exploded as ES rose 10pts in minutes from absolutely nowhere. Average trade size was very heavy during this period and delta skewed notably to block selling into the ramp though it is never that obvious. ES closed above its 50DMA back to its highest since 5/8.
The Window-Dressing Roadmap
It would appear that the No 'New' QE from the FOMC on 6/20 left a lot of all-important funds long-and-very-wrong. Today's rampfest miraculously lifted (window-dressing) Energy and Financials (two of the MOST sensitive sectors to QE) back to perfectly unchanged from the exact time of the FOMC announcement. Notably, since that exact time 'safe' sectors of Staples, Healthcare, and Utilities have outperformed as Tech, Materials, and Discretionary are underperforming (though all did their very best to end the month up (especially relative to the FOMC news moment)... fascinating eh?
While stocks exuded every bit of total insanity, Treasuries ended the week lower in yield across the whole complex (leaving Gold, the Long Bond, and the USD all almost perfectly +2.8% YTD). WTI is down 14.5% YTD to close Q2 thanks to a huge VW-like 9% squeeze higher today (that acounted in correlated risk terms for around half of equity's performance) up to around $85. Equity and HY credit have recoupled but HYG is the most expensive relative to its fair-value in over a month. The USD plunged on EUR strength (and AUD carry trades) to end the week -0.66% but Gold and Silver more than doubled those implied gains ending the week +1.8%. VIX tested below 17% late on but ended above it (down 2.6 vols) closing at 6/20 closing levels. The main takeaway is that most risk assets recovered to last week's highs but stocks turned the amplifier of insanity to 11 and pushed back to near two-month highs not to be outdone into quarter-end (wink wink).
Trade well and follow the trend, not the so-called “experts.”
_________
Larry Levin
President & Founder - TradingAdvantage
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When Ben Bernanke was appointed as Chairman of the Federal Reserve seven years ago, the national debt was $7,932,709,661,723.50. For those of you not interested in counting digits, that number is nearly a cool $8 trillion, but still a tough sum to wrap your brain around.
After yesterday’s end of the month $70 billion Treasury debt auction settlement, total US debt is now a record $15.692 trillion dollars, nearly double what it was when Benny became the leader of the Inkjets back in 2005.
To make the seemingly unquantifiable somehow quantifiable - total US GDP is $15.6242 trillion, which is 101.5% of GDP. That’s right; the national debt is now GREATER than the Gross Domestic Product. US politicians, including the White House, Treasury, and the Federal Reserve have just crossed the Rubicon: the point of no return.
Unless the US economy heats up like a furnace, which would drive GDP higher than total debt, we have crossed the Rubicon indeed. Speaking of the Rubicon we are reminded of Caesar and how the Roman Empire once ruled the world. England, France and Spain were also global empires that were brought to end by DEBT. To be sure, there was more
to it than debt but it cannot be denied that profligacy was a major factor in all their declines.
If you aren’t depressed enough, read on at Zero Hedge where the eponymous Tyler Durden writes about the implications of this unfathomable debt figure.
http://www.zerohedge.com/news/total-...soars-1015-gdp
Trade well and follow the trend, not the so-called “experts.”
Larry Levin
President & Founder - TradingAdvantage