Fat Fingering AXP Calls Or Does Someone Know Something?

by Zero Hedge - September 29th, 2009 6:58 pm

There was some strange action in AXP calls today. Early in the morning a total of 107,600 in the October $25 Calls was traded (on 9,612 open interest), as well as 20k October $26 and 39,640 of the October $27.50 on 6,613 open interest.

The $25 transaction seems to have been a combination of two nearly offsetting trades of 50k sold at $9.20 and 57.6 k bought at $9.30.

And yet while the $25′s could be explained by a simple fat finger (there was no material put action), the $27.50 trades were all long purchases.

Was there anything notable occurring at the time the calls were being traded? As the chart below shows (white vertical lines) nothing of significance was happening: the underlying stock was trading without any traditional “Atari 2600 on tilt” patterns. Furthermore, the overall action in credit card names today was definitely not bullish.

Is this some strange spread? With all active call families trading so deep in the money, it makes little to no sense. Which is why the only alternatives (especially with such a short time horizon) are: fat fingers or does someone know something? An acquisition of AXP for $40+ in the next 3 weeks would be quite a windfall to whoever was on the bid side of these transactions.

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Gold Manipulation Smoking Gun?

by ilene - September 29th, 2009 6:05 pm

Gold Manipulation Smoking Gun?

gold Courtesy of Mish

Numerous people have asked me to comment on the Zero Hedge article Exclusive Smoking Gun: The Fed On Gold Manipulation.

The "Smoking Gun" is a now declassified document about gold, sent to president Gerald Ford on June 3, 1975 by Arthur Burns, chairman of the Fed from 1970 to 1978.

The document concerns the "broad question as to whether central banks and governments should be free to buy gold, from one another or from the private market, at market related prices"

Market prices at the time were $160-$175 and the official price was $42.22 per ounce.

Arthur Burns states "It is an open secret among central bankers that, at a later date, the French and some others may well want to stabilize the market price within some range".

Arthur Burns also states "The Federal Reserve has sought to avoid taking a rigid position", while going "some distance to try and conciliate the French view". Yet… "If we do ever acceded to French views on gold, we should at least use our bargaining leverage to some major political advantage".

Finally Burns states "All in all I am convinced that by far the best position for us to take at this time is to resist arrangements that provide wide latitude for central banks to purchase gold at market-related prices."

Shocking Revelation?

Burns sought an agreement whereby central bankers and governments would not buy gold at market prices. Because gold prices never traded at $42.22 again, essentially that was an agreement to not buy gold.

After Nixon closed the gold window, why is it such a revelation that events like this happened? Did any governments cheat?

The most interesting thing in the document was Burns’ willingness to bargain for "political advantage". However, the idea that governments are lying manipulators willing to sell their soul for the right political advantage can hardly be a considered a startling revelation.

Smoking Gun or Historical Footnote?

The importance of this document is only in the historical sense in that it helps shows us how the move toward an irredeemable fiat currency evolved around that time.

The document has no direct bearing on what is happening today, although it remains true that gold is the enemy of the warfare state and its central banks.

The so-called "smoking gun" of 1975 is

…

Tags: Gold, manipulation, Mish, Zero Hedge

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Hank Paulson's Speed Dial #1: Goldman Sachs

by Zero Hedge - September 29th, 2009 5:59 pm

Courtesy of Tyler Durden

It would appear that employees of the NY Post can do more than merely plant stories and spread unfounded rumors. Some of them actually do investigative work. Case in point – John Crudele, who has compiled FOIA reports to create a chronological narrative of Hank Paulson’s speed-dialing in the days after the Lehman collapse, in a piece titled “The secret to Goldman Sachs’ good fortune.” The net result: more communication between Paulson and Blankfein during the heart of the crisis than anyone else (including then-President Bush), with the only exception of Ben Bernanke. Just what were these two people talking about so frequently in the two days when the Dow made an 800 point round trip? And just who was leaking the rumors that ultimately were based on information sourced by Hank Paulson himself? Crudele’s chronology presents a relevant framework for analyzing just who the critical decision-makers are in US financial markets. Hopefully one day phone transcripts will be released and the full picture of just what information Blankfein was getting straight from his former boss can be reconstructed.

Crudele’s post, represented almost in its entirety, due to the extended amount of relevant detail:

On Wednesday, Sept. 17, 2008 — the day before the one I am writing about — the stock market performed horribly.

By the end of the session the Dow Jones industrial average tumbled 449 points as investors worried about the nation’s financial system. The next morning, Sept. 18, Paulson placed his first call of the day at 6:55 a.m., to Lloyd Blankfein, who succeeded Paulson as CEO of Goldman. It’s unclear whether the two connected because Blankfein called Paulson minutes later.

And then Blankfein placed another call to Paulson at 7:05 a.m. for what looks like a 10-minute conversation.

After that Paulson called Christopher Cox, Securities & Exchange Commission Chairman twice; British Chancellor Alistair Darling and New York Federal Reserve head (and now Treasury Secretary) Tim Geithner two times.

Then Paulson took another call from Goldman’s Blankfein.

It wasn’t even 9 a.m. yet — 30 minutes before the stock market was to open — and Paulson and Blankfein had already exchanged three phone calls.

This wasn’t particularly unusual.

On Wednesday,

…

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Will Japan drive our interest rates higher?

by ilene - September 29th, 2009 5:36 pm

Will Japan drive our interest rates higher?

Courtesy of Vitaliy N. Katsenelson at Contrarian Edge

Japan, deflation, interest rates In investing, it’s important to think unconventionally and creatively while at the same time considering risks – no matter how remote or unmanageable they are. I keep thinking: What would drive our interest rates up in the US?

China is the obvious culprit as it’s the largest holder of our fine Treasury obligations. If China’s exports to the US don’t recover to the pre-Great Recession level then, considering its large overcapacity and bad-debt problems, it may quite suddenly find itself unable to buy as many of our bonds/bills. Or even worse, it may start selling them. But this scenario is one I’ve discussed in the past more than once.

Then you start looking down the list of who’s who in the ownership of our government debt, and you find Japan only slightly behind China. Japanese interest rates were circling around zero, but they still failed to stimulate the economy that’s been in a recession for as long as I can remember. The Japanese savings rate was very high, and thus, as government debt ballooned over the last two decades, it was happily absorbed by consumers who were net savers – they had extra funds to invest. However, Japan has one of the oldest populations in the developed world. As people get older they save less; thus the savings rate has been on a decline in Japan. (The fact that their exports fell 36% did not help their savings rate, either. To save you need income).

The appetite for Japanese bonds will decline in tandem with their savings rate. The Japanese government (and corporations) will have to start offering higher yields to entice interest in its bonds. Interest rates in Japan will rise, and this of course will put a significant interest-servicing burden on the already highly leveraged Japanese government. But more importantly (at least from our selfish US perch), Japan will finally become a formidable competitor for borrowing. Our borrowing costs will rise. In addition, Japan may also start buying less or selling US debt, not by choice but out of necessity, putting additional pressure on US interest rates.

Not to appear as an “on the other hand” economist (I’m not one), but the counterargument to this is, the US consumer may become a net saver and will be…

Tags: government debt, Interest Rates, japan

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Guest Post: Economists’ Raised Expectations For The Sept Chicago-ISM Report May Be Too High

by Zero Hedge - September 29th, 2009 5:14 pm

Courtesy of Tyler Durden

Guest post submitted by John Bougearel of Structural Logic

Attachment	Size
ISM Too High.pdf	81.98 KB

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Financial ETF Sees Sizeable Bull Call Spread

www.interactivebrokers.com

by Option Review - September 29th, 2009 4:19 pm

Today’s tickers: XLF, NKE, SLV, WAG, CVS, PSS, RYL & TCB

XLF - A large bullish trade just went across the tape on the Amex in the financial sector ETF in which a 50,000 lot call spread traded in the XLF at a 27 cent premium involving 17 and 19 strike calls. The underlying share price of $15.08 would need to rally 14.5% over the course of the next three months to allow this investor to break even. We make it mid-October last year that the XLF share price last popped above $17, while recent overhead resistance has restrained the bulls at $15.50. – Financial Select Sector SPDR –

NKE - Call options on the maker of footwear and apparel were in high demand today with shares of NKE up 1.8% to $60.02. Nike is schedule to release results for the first quarter after the closing bell today. Analysts are expecting the firm to report 97 cents per share on revenue of $4.9 billion. Option traders exchanged more than 17,400 calls at the October 60 strike on existing open interest at the strike of just 6,900 contracts. Approximately 8,100 of the calls were purchased for an average premium of 1.78 apiece. The October 60 strike calls have managed to land in-the-money this afternoon. However, investors long the calls will not begin to amass profits unless the stock rises another 3% to breach the breakeven point at $61.78. Another 6,050 calls were exchanged at the higher October 65 strike for an average premium of 40 cents apiece. The higher strike calls were both bought and sold by investors placing bets on Nike ahead of first-quarter earnings results. – Nike, Inc. –

SLV - One investor initiated a long-term bullish play on the silver exchange-traded fund amid a slight 0.25% dip in shares to $15.88. The trader looked to the November 16 strike to purchase 14,000 calls for an average premium of 90 cents apiece. At the same time, the investor spread the nearer-term purchase against the sale of 14,000 calls at the January 2012 20 strike for 2.80 per contract. The trader pockets a net credit of 1.90 per contract on the transaction. The investor is likely expecting the calls to land in-the-money by expiration in November. If this occurs, he may exercise the options and take delivery of the underlying shares for an effective price of $14.10 [$16.00 – 1.90 = $14.10]. If…

Tags: CVS, NKE, PSS, RYL, SLV, TCB, WAG, XLF

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Guest Post: Why Would We Let Them Rig The Game?

by Zero Hedge - September 29th, 2009 4:04 pm

Courtesy of Tyler Durden

Submitted by Dylan Ratigan

Why is health insurance the only business that has an exemption from the Sherman Anti-Trust Act other than Major League Baseball? If the delivery of taxpayer trillions by our politicians to the banks to support their fraudulently paid bonuses hasn’t shown you what our current government’s values are, check this link out.

Through the governmental negligence that we as voters allowed, a health care system was created in which a single health care company controls at least 30 percent of the insurance market in 95% of the country, including states like the following:

Maine, where Wellpoint controls 71% of the market.

North Dakota, where Blue Cross controls 90% of the market.

Arkansas, where Blue Cross Blue Shield controls 75% of the market.

Alabama, where Blue Cross Blue Shield controls 83% of the market.

This monopoly, combined with the misaligned incentives that trap people in employer-based health care, is causing the skyrocketing health care costs that are hurtling our nation towards bankruptcy.

I don’t know what’s worse: that most Republicans seem to be against ending this unfair legal protection for an entrenched industry that is ruining our country with their non-competitive practices, or that most Democrats seem to be threatening this arrangement only as a bargaining chip to push for a meaningless public option that wouldn’t be accessible to almost 85% of the population?

Instead of improving our country, through creating and enforcing free and fair markets, our politicians are currently engaging in backroom deals, most of which protect the very companies who profit the most from these disastrous outdated systems — industries like health insurance and big Pharma.

While we clearly have the ability as a group of 305 million to update the system that is American Health Care and move our country into the 21st century in the process, it’s becoming clear that we may not have the leaders to do it.

Instead of seeking answers to the problem of paying for and providing medicine, we are doing the exact opposite. Taxpayers’ money is being played with by politicians who are desperately trying to protect the competition-stifling, false security of the monopolistic employer-based health care system and its outdated, over-charging, under-delivering ways. Given the least consideration are those affected the most…

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Economic Madness Is Repeatedly Endless

by ilene - September 29th, 2009 3:38 pm

Economic Madness Is Repeatedly Endless

japan - from the economist Courtesy of Mish

Demand for goods and services in Japan are plunging. Please consider Japan’s Deflation Deepens as Prices Fall Record 2.4%.

Japan’s consumer prices fell the most in at least 38 years in August, heightening the risk that prolonged deflation may hamper the country’s recovery from its deepest postwar recession.

Prices excluding fresh food slid 2.4 percent from a year earlier, topping July’s 2.2 percent decline, the statistics bureau said today in Tokyo. The drop, the sharpest since the survey began in 1971, matched economists’ estimates.

“We’ll soon start to see that there isn’t enough domestic demand to push up wages,” said Kyohei Morita, chief economist at Barclays Capital in Tokyo. “As households’ spending power falls, there’s concern that this deflation will lead to further deflation — in other words, that we’ll enter into a deflationary spiral.”

Much of the drop in prices reflects last year’s peak in oil costs. Crude reached an unprecedented $147.27 a barrel last July, and has dropped more than 50 percent since then.

The oil effect “will diminish over the next few months, quite quickly,” said Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo. Even so, Jerram expects prices will keep falling for at least another three years as the country enters a period of “persistent deflation.”

Economic Madness Over Pork Prices

In what amounts to economic madness, Japan to Buy Domestic Pork to Boost Prices After Demand Drops.

Japan, the world’s largest pork importer, will purchase about 70,000 swine carcasses from local herds to boost prices after an economic slump cut consumption and sent stockpiles of the meat to the highest level in 20 years.

The government will spend 292.9 million yen ($3.3 million) on the purchasing program, the Ministry of Agriculture, Forestry and Fisheries said in a statement today.

Pork wholesale prices plunged 26 percent from a year earlier to 380 yen a kilogram on average this month in Tokyo, according to government data. Consumers are eating less meat as the recession cut wages and boosted unemployment. Japan’s price- support measure may benefit exporters such as the U.S., Canada and Denmark as the domestic premium over imports may widen.

Japan’s pork imports dropped 14 percent from a year earlier to 61,981 tons in July, according to data from the Finance Ministry. Purchases declined as Japanese

…

Tags: japan, pork

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SEC to Hold Roundtable to Address The Lack of Transparency in Securities Lending

by Zero Hedge - September 29th, 2009 3:24 pm

Courtesy of Travis

Not to get too personal, but I know a thing or two about Securities Lending; you may know it as “stock loan,” or it’s older brother “bonds borrowed.” The premise is simple- do a favor, make a loan in assets to cover what was surely a short position somewhere else. Get some collateral for it, put it to good use. Make a spread. Look like a big-shot. Go out for dinner.

For many a Wall Streeter, this gig was a sure thing. Many large custodian banks would earn extra revenues for lending securities that would be idle in an account- making tons of potential return with very little downside risk.

Today and tomorrow, the Securities and Exchange Commission is holding a roundtable on securities lending and short sales, shedding light in an area of the industry that is considered “opaque.”

According to an article written by Nina Mehta of www.tradersmagazine.com; co-acting director of the SEC’s Division of Trading and Markets, James Brigagliano is quoted as saying, the purpose of the roundtable is “not to front-run a discrete retulatory initiative;” but “the lending market is opaque… And the SEC is putting the little niche market in a taste of the limelight.

Securities lending refers to the loan of securities by large institutions with large portfolios to prime brokers among others. These firms need to borrow securities to support short sales by their customers/trading desks. These customers include hedge funds, trading firms and retail investors. Securities lending programs are often managed by custodian banks, with BNY Mellon and State Street among the largest, pioneering players.

The SEC is concerned about the lack of transparency with pricing, supply, collateral and compliance requirements. Hinting that new models or platforms may add “trasparency.”

Speakers at the roundtable will consist of six panels, some 39 panelists, representing every facet of the operation. Investors, banks, prime brokers, regulators, etc, etc.

Truth remains- the once sure game of Sec Lending has lost its luster after the fall of the markets just last year. Less brokerage houses to service, and where are you making your money? In what form of collateral? Overnight Repo? The clients just don’t want the risk anymore.

It’s just not worth it to the institutional client, many of which are pension funds, retirement funds and local/State governments.

So, alas, the pinky-ring wearing, big luncheon/dinner ”trader,” really just a gatekeeper; may just have to revert…

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Goldman's "Naked Short Selling" Strawman

by Zero Hedge - September 29th, 2009 3:10 pm

Courtesy of Tyler Durden

Matt Taibbi has put together a very informative piece on Goldman’s lobbying attempts, specifically in the context on the upcoming discussion over naked short selling. The contention here by the majority is that naked short selling, or NSS, promotes bear raids on crippled companies which tend to feed upon each other, with CDS traders also joining in the fray. The argument is a dramatic oversimplification and has little substantiation by facts. “Bear raids” occur only and exclusively in financial stocks: why can’t you have a bear raid on a firm like Coke or Johnson and Johnson, or even some leveraged behemoth like Hertz.

As an side, full disclosure before Hertz sues us like it did Audit Integrity for daring to mention that it is a prime bankruptcy candidate: we fully recognize the company’s tremendous cash flow potential, its amazing assortment of non-rapidly amortizing fleet vehicles, it manageable capital structure, its absolute lack of reliance on pristine credit markets, and the fact that GM is now entering the rental arena courtesy of GM’s 60 day money back guarantee is only a synergistic positive: after all the definition of fleet sales is completely irrelevant for a post-bankruptcy Detroit 3 monster. Hertz is a titan of a company and its prospects foreshadow a future so bright we’ve gotta wear shades. Zero Hedge however feels for third party research companies like Credit Sights, GimmeCredit, or KDP which may feel otherwise. We hope Hertz’ legal team smites them like the irresponsible cockroaches they are if they ever dare to issue a negative report on such a stalwart of American Kapitalism.

Anyway, back to the original point – if you do a bear raid on a company that has tangible assets all you end up creating is an attractive entry point for others who see the depressed stock price as an indication of cheap valuation and nothing else. Of course, why this could be a threat for financial firms, is that the vast majority of financial companies are woefully undercapitalized through the equity level. Bear raids can in fact work when there is a total loss in confidence in any one company. Ironically what worked with Lehman, if indeed it was a bear raid, could easily, and almost did, work with virtually all other financial companies whose only tangible assets were a cesspool of…

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