Sideways Market Monday Edition

by Zero Hedge - August 31st, 2009 2:30 pm

Traders may be back from vacation but all are still drinking Iced Caramel Macchiatos, as everyone knows no real trading is done before After Hours anymore. In the meantime SPY is locked between the VWAP and Thursday’s close.

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Michael Moore's Latest Love Story: Capitalism

by Zero Hedge - August 31st, 2009 2:15 pm

Courtesy of Tyler Durden

Here comes the populist revolt.

hat tip Stephen

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Five Wall Street Banks Seek to Protect Lucrative OTC Derivatives Market

by ilene - August 31st, 2009 2:09 pm

Five Wall Street Banks Seek to Protect Lucrative OTC Derivatives Market

Courtesy of Jesse’s Café Américain

Gottes Mühlen mahlen langsam, mahlen aber trefflich klein
Ob aus Langmut er sich säumet, bringt mit Schärf’ er alles ein*.
Friedrich von Logau

This story about the Wall Street lobby was interesting, particularly since this morning Bill Dudley, friend of Wall Street and Chairman of the NY Fed, called for the continuing purchase of 1.4 trillion in bad mortgage debt from these banks at above market prices here.

And here the National Association of Banking Economists has overwhelmingly recommended that there be no new stimulus packages aimed at the public and consumers, who have had enough. In fact, the government should begin to cut spending on public programs.

But not a word about the subsidy to these money addicts, the banks, who use the opaque derivatives markets to widen the spreads on products, to hoodwink the naive and less sophisticated individuals and small towns.

And so Wall Street once again gathers its forces to persuade (provide many millions in donations and soft bribes) to Congress and the Administration. It is said that many Congressmen were able to retire comfortably, or send their children to the top private universities, thanks to the lobbying efforts that accompanied the repeal of Glass-Steagall.

Do you get the picture yet?

Bloomberg
Wall Street Stealth Lobby Defends $35 Billion Derivatives Haul
By Christine Harper, Matthew Leising and Shannon Harrington

Aug. 31 (Bloomberg) — Wall Street is suiting up for a battle to protect one of its richest fiefdoms, the $592 trillion over-the-counter derivatives market that is facing the biggest overhaul since its creation 30 years ago.

Five U.S. commercial banks, including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Bank of America Corp., are on track to earn more than $35 billion this year trading unregulated derivatives contracts. At stake is how much of that business they and other dealers will be able to keep.

“Business models of the larger dealers have such a paucity of opportunities for profit that they have to defend the last great frontier for double-digit, even triple-digit returns,” said Christopher Whalen, managing director of Torrance, California-based Institutional Risk Analytics, which analyzes banks for investors.

The Washington fight, conducted mostly behind closed doors, has been overshadowed

…

Tags: Bank of America, Citigroup, derivatives legislation, Goldman Sachs, government oversight, JPMorgan, Morgan Stanley, over-the-counter derivatives

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Mickey Mouse Brings Merger Monday Back

by ilene - August 31st, 2009 1:53 pm

Mickey Mouse Brings Merger Monday Back

Courtesy of John Carney at Clusterstock

disney mickey broom tbi, marvel entertainment Wow..

First we had the $5.5 billion dollar deal between Baker Hughes and BJ Services. Now Disney picks up Marvel. It’s suddenly feeling like the old days when Monday mornings meant merger announcements. That’s $9.5 billion in deal flow today.

No details yet on the banks working the deals or the financing involved.

From the Associated Press:

Walt Disney Co. says it is acquiring Marvel Entertainment Inc. for $4 billion in cash and stock, bringing characters like Iron Man and Spider-Man into the Disney family.

Under the deal, Disney will acquire ownership of 5,000 Marvel characters.

Disney said Monday that Marvel shareholders will receive $30 per share in cash plus 0.745 Disney shares for every Marvel share they own.

It said the boards of Disney and Marvel have both approved the transaction, but it requires an antitrust review and the approval of Marvel shareholders.

Disney To Acquire Marvel In $4 Billion Deal (DIS, MVL)

By Rory Maher, Clusterstock

Disney (DIS) announced this morning it was acquiring Marvel Entertainment (MVL) for about $4 billion, or $50 per Marvel share. The acquisition price represents a 30% premium to Marvel’s current share price.

Operationally Marvel appears to be a good fit for Disney. Disney’s distribution could quickly exploit Marvel’s strong licensing business. In addition, Marvel has recently gotten into making its own productions (versus just licensing its characters for films), which has helped drive better-than-expected results the past few quarters.

And also:

Disney Should Buy Electronic Arts, Says Analyst (DIS, ERTS)

Tags: Disney, Hollywood, Marvel, Marvel Entertainment, media, Mergers And Acquisitions, Movies

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Dollar Carry Flips, VIX Now Tracking DXY, Stocks Pretending To Care About Bonds

by Zero Hedge - August 31st, 2009 1:26 pm

Courtesy of Tyler Durden

Remember the JPY carry trade: long the Dollar and short the Yen? That was then. This is now.

Another interesting observation is that the VIX now seems to be tracking currency risk, instead of the market (seems nobody cares about equities any more).

Lastly, bond yields are hitting intraday lows while the stock market is being floored by HAL9000 thinking the sideways VWAP will persist until 3 pm (and is likely correct).

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Rare Earth- A Thought on Being Green and the Supply and Subsequent Demand on Earth Elements

by Zero Hedge - August 31st, 2009 1:12 pm

Courtesy of Travis

I’ve often scoffed at the people who drive hybrids and think they’re doing everyone a big favor. After the much publicised “Cash for Clunkers” effort, to get American drivers to “go green,” I find it interesting the reasoning. Spend an extra $6,000 to $10,000 (on average compared to a similar non-hybrid vehicle) and get marginally better fuel milage, which, would take you years and years to ever fully realize in cost savings.

But another facet that has not been talked about much is the global impact hybrids and other eco-friendly battery operated devices have on the planet. This time, from a basic elements perspective.

Today, Steve Gorman from Reuters writes “As hybrid cars gobble rare metals, shortage looms” a story how materials used in the production of car batteries is quietly outstripping supply.

Rare earth metals ”covering 15 entries on the periodic table of elements, is expected to exceed supply by some 40,000 tonnes annually in several years unless major new production sources are developed.” Gorman hints that once promising new source of “rare earths” is slated to reopen in California by 2012.

One rare earth depicted is neodymium- a key component in the production of magnets for motors and generators. Others mentioned are terbium and dysprosium- also used in magnets.

Of the biggest offenders to the looming shortages- the Toyota Prius. The article sites- “Toyota plans to sell 100,000 Prius cars in the United States alone for 2009, and 180,000 next year…” Toyota forcasts sales of hybrids totalling 1,000,000 units per year starting just next year in 2010!

Another offender of the rare earth shortages- China- as their industries begin to consume most of their own rare earth production. Leaving Toyota among others looking for viable reserves.

While Toyota is quiet of confirming or denying anything, other than buying a Prius is “green,” they and others are looking to Canada and Vietnam for possible rare earth possibilities.

As for going “green” and driving a hybrid- if it’s not one natural resource you’re burning through- it’s invariably another.

Maybe in 30 or so years- they’ll have “Rebates for Rare Earths.” Don’t laugh- it could happen.

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HFT Tax On Deck, Musical Chairs Game Ending At A Corrupt Exchange Near You

by Zero Hedge - August 31st, 2009 12:44 pm

Courtesy of Tyler Durden

While recently there has been much speculation about a Tobin tax equivalent hitting our much less “regulated” (could we please just load the entire SEC headquarters…during working house… on one of those unused Capesizes and take advantage of the crashing Baltic Dry to ship them over to Britain so they can continue their phenomenal job of zombifying investors for 40 hours a week) ancestors east of the Atlantic, the trade tax is actually coming to an HFT algorithm near you.

According to an article in The Hill, the push for taxation on churning (which has been rumored to be illegal for retail investors but perfectly legal when performed by 2600 trading cores), courtesy of TradeBots and other purely speculative vehicles is set to become a reality, courtesy of the AFL-CIO and Democrats.

The nation’s largest labor union and some allied Democrats are pushing a new tax that would hit big investment firms such as Goldman Sachs reaping billions of dollars in profits while the rest of the economy sputters.

The AFL-CIO, one of the Democratic Party’s most powerful allies, would like to assess a small tax — about a tenth of a percent — on every stock transaction.

Small and medium-sized investors would hardly notice such a tax, but major trading firms, such as Goldman, which reported $3.44 billion in profits during the second quarter of 2009, may see this as a significant threat to their profits.

“It would have two benefits, raise a lot of revenue and discourage speculative financial activity,” said Thea Lee, policy director at the AFL-CIO.

It would be hard to find fault with Ms. Lee’s observation:

“This would discourage numerous financial transactions. People flip their assets several times in an hour or a day. They make money but does it really add to the productive base of the United States?”

The benefit: lots of much needed capital to fill at least a part of the massive black hole that the US budget has become:

Lee said that taxing every stock transaction a tenth of a percent could raise between $50 billion and $100 billion per year, which could be used to pay for infrastructure projects and other spending priorities. She said the tax could

…

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Guest Post: A President's Approval Rating And Stocks: Are They Linked?

by Zero Hedge - August 31st, 2009 12:06 pm

Courtesy of Tyler Durden

Submitted by Yves Lamoureux of Blackmont Capital

Since Obama started to talk about health care reform his approval has sunk real quickly. It is now up to a point that the consensus prefers no reform at all. I am of the opinion that such a grand task is ill-timed. After the financial fiasco of the credit bubble who’s to say that we are on solid footing. The same talking heads that claimed all was fine are out in force with the same rhetoric. Don’t believe it. A balance sheet recession will take a lot of time to unwind. People on Main Street are perhaps not as gullible the second time around.

Only Bill Clinton in recent presidencies had a lower approval than Obama after seven months in office.

We did push the exercise to compare a president’s approval rating and the stock market to see if we did find any correlation. Under Clinton the general trend of his approval is up and equally so is the stock market. We find that there are periods where credit creation and or destruction will dominate over the popularity of the president. The 1990’s is the period of low rates and the dot-com bubble; however, there is a clear link with an often leading position relative to stocks.

Jimmy Carter’s rating gives a good example of the linkage between both his popularity and the stock market. From election the trend is steadily lower from 70% to about 40% in mid 1978.The stock market from that period moved from about 960 to 750 over the same time frame. sentiment will go down for a while without effect on stocks.

Surely it is always a matter of time and Lyndon B. Johnson’s popularity in the period of 1964 to 1966 is a good example of this. By late 1965 the market dropped big from 1000 to 740 rather quickly.

Nixon is also a very interesting case as well. In a period where the general public loose faith in the chief commander the market is sure to suffer even if it lags the consensus.

We can also compare Nixon with Truman, who got caught in the beginnings of the Cold War and got stuck in the Korean War. Yet, he caught…

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Foreign Central Banks Accelerate Rotation From Agencies Into Treasuries

by Zero Hedge - August 31st, 2009 11:43 am

Courtesy of Tyler Durden

The recent trend that has been followed by various non mainstream media venues, which indicates rotation by Foreign Central Bans out of Agencies and MBS and into Treasuries, continues unabated. Whether this is facilitated by a Federal Reserve which at this point is openly acknowledging it is monetizing debt, (in whatever definition of the word) just “not that much” is irrelevant, however, it is obvious that the reason why the Fed’s QE program has a 4x capacity for agency/MBS purchases is solely to facilitate the disposition of agencies by foreign CBs (don’t worry, the GSEs have a lot of worthless debt to go around) and to promote the direct leveraging of the United States to unsustainable debt level as the country is set on financing its $9 trillion budget exclusively with newly issued debt and tax hikes.

The chart below indicates the almost one to one correlation between increase in foreign CB Treasury holdings and their respective decline in Agency/MBS positions.

The same rush out of agencies and into USTs can be seen on a 4-week rolling change, with the precipitating event being the conservatorship of the GSEs in August 2008. In retrospect, one can’t blame foreign CBs for not wanting to be part of a bankrupt enterprise which is now refinancing loans at up to 125% LTV.

And lastly, the most recent quarterly data confirms this MBS->Treasury flight. In all reality, the Fed will likely have to expand the agency/MBS portion of QE even more than the Treasury monetization portion when it is time for QE 2.0, as foreigners want to have increasingly nothing to do with Fannie and Freddie. Yet their poison, is the eager involuntary meat of US taxpayers, or so Bernanke will like everyone to believe.

Source: NY Fed, Morgan Stanley

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Xie: Chinese stocks are a Ponzi scheme

by ilene - August 31st, 2009 11:35 am

Xie: Chinese stocks are a Ponzi scheme

Courtesy of Tim Iacono at The Mess That Greenspan Made

Former Morgan Stanley Chief Asia Economist Andy Xie says the Chinese stock market is still in "deep bubble territory", noting that the Shanghai Composite Index would have to fall another 25 percent to get to fair value.

Click to play in a new window

He also noted that real estate sales account for 10 percent of GDP and half of all local government revenue. Earlier today, China’s stock market fell seven percent, the sharpest decline since June 2008, and is now down about 23 percent from the early-August peak.

Tags: Andy Xie, CHINA, China's GDP, deep bubble territory, Shanghai Composite Index

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