A Broke FDIC Expands Checking Account Insurance From $250,000 To Infinity
by Zero Hedge - September 30th, 2010 5:31 pm
Courtesy of Tyler Durden
A few days ago, the FDIC, broke as ever, with a Deposit Insurance Fund that was well south of zero at last check, announced, with delightful irony, that it was expanding its insurance on non-interest bearing checking accounts from the current $250,000 to, well, infinity. As in there is no upper limit on how much the FDIC would insure – the fact that it has no money at the FDIC to begin with being completely irrelevant. That’s right, the broke FDIC basically said that it would guarantee up to $480 billion currently sitting in US checking accounts between December 31, 2010 and December 31, 2012. Yet is this nothing less than another Volcker-inspired plan to get capital out of multi-trillion money market industry and into consumer hands via easily accessible transaction accounts, and to encourage spending on useless trinkets like iPads? This could very well be the case.
As many will recall, earlier this year the Group of 30, headed by Volcker, came out with a recommendation to allow money market to suspend redemption without prior notice. We, along with many others, speculated that this was merely an attempt to spook MM investors into stocks. Well, it succeeded… half way. Investors did indeed take out money from mutual funds, whose current after-fee 7-day simple yield on prime funds is just 7 bps. However, they then used that money to buy not stocks, but fixed income, instead focusing on such securities as Investment Grade bonds and Treasurys. As a result the much expected ramp in stocks never really occured, and it was up to the Fed and the HFT mafia to keep ramping stocks as ever more outflows exited dometic equity mutual funds.
This latest action by the FDIC, as Barclays’ Joseph Abate speculates, is nothing less than a comparable attempt to get Americans to take out theyr cash from money market funds and, now that the whole equity investment avenue is closed, to put it into checking account instead, hoping that once the money is one step closer to the end consumer (as it will reside in non-interest bearing transaction accounts), and easier to withdraw, the psychological element will be one of spurring consumption. Yet will this latest scheme to impact mass consumer psychology work? If past experience is any indication, the desired outcome will once again fall well short of the…
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DiggMystery of Disappearing Proprietary Traders: Michael Lewis
by ilene - September 30th, 2010 5:02 pm
Mystery of Disappearing Proprietary Traders: Michael Lewis
By Michael Lewis writing at Bloomberg
In the run-up to the vote on the financial overhaul bill, the big Wall Street banks squashed an attempt by Senator Carl Levin to pass a simple ban on any form of proprietary trading.
A Senate staffer close to the process told me the amendment was one of Wall Street’s highest priorities, spreading money around to exert as much pressure as possible.
It worked: Levin’s amendment never reached the Senate floor for a vote. The final version of the bill restricts proprietary trading but allows big Wall Street firms to invest as much as 3 percent of their capital in their own internal hedge funds. How exactly the new rules are enforced is left to regulators inside the Federal Reserve, but it’s not hard to see how a wholly owned hedge fund might become a proprietary trading group, with a different name.
The 3 percent loophole amounted to an invitation for the big banks to keep on doing at least some of what they had been doing — which is why Levin felt compelled to remove it, and the banks fought so hard to keep it.
Yet in just the past few weeks news has leaked that Morgan Stanley, JPMorgan and Goldman Sachs all intend either to close their proprietary trading units or to sell their interests in the hedge funds they control.
Obviously, something is wrong with this picture. Why fight for a right, and win, only to proceed as if you have lost? Why take prisoners only to surrender to them? Having preserved their loophole the big American banks now appear to be freely abandoning any attempt to exploit it. (Credit Suisse, on the other hand, just bought a stake in a hedge fund.)
Shark Watch
To see Wall Street turn its back on money is as unsettling as watching a shark’s fin veer away, and then sink from view. It leaves you wanting to know where the shark has gone, and why.
Continue here: www.bloomberg.com
THE SHORT THAT GOT AWAY….
by Chart School - September 30th, 2010 4:35 pm
Stock OBMA – not a very good looking chart, and still not a buy.
THE SHORT THAT GOT AWAY….
Courtesy of The Pragmatic Capitalist
In January of 2009 I wrote the following:
“I haven’t seen expectations like this since the mighty U.S. military rolled into lowly Iraq with the expectation to conquer a nation in a month. The public is infatuated with
Obama . Lovefest might be an understatement. At this point, you have to wonder if expectations are getting a little blown out of proportion. Obama is facing the most problematic economic crisis in over 70 years.On the bright side, he’s entering office when things are downright awful, which likely means we’re closer to the bottom than the top. But you still have to wonder, with such an enormous global economic mess, are expectations too high for President
Obama ? Let’s just say, if I could short approval numbers, I’d be calling an Obama top….”
The attached chart (Via Real Clear Politics) shows just how far we’ve come since the euphoric lovefest of 2008 – and to think that this collapse has occurred during a simply staggering rally in the equity markets! A pairs trade on the Obama approval rating would have made for a pretty nice trade. Where was my Goldman Sachs banker when I needed him to put that deal together and find some buyers and sellers? Oh right, he was convincing Congress to bail them out….
We’re now at an even more interesting juncture, however. In my opinion, President Obama is in a tough spot. I said it long before anyone was elected and I’ll stick to my guns – the person who was to be elected in 2008 was a sitting duck in 2012 because no matter who you put in office the odds of them being able to overcome this severe balance sheet recession were mighty low. The numbers look increasingly grim for the President.
At the end of the day if the populace doesn’t have jobs and can’t feed their families the buck is going to stop with the President. I have a hard time imagining a scenario in which the unemployment rate drops below 8% by 2012 (others are far more pessimistic). According to recent data from the CBO and BLS the United States will have to create 225,000 jobs per month just to get the unemployment rate down to 8%…
This Has To Be A Joke: SEC About To Blame Entire Flash Crash On Waddell And Reed’s E-Mini Trades
by Zero Hedge - September 30th, 2010 4:31 pm
Courtesy of Tyler Durden
Bloomberg has just released something which if true, will wipe out every last ounce of credibility left in the market. As readers will recall, the initial scapegoat that CNBC and everyone else, who has no clue what really happens in the market decided to pin the flash crash on, was small Kansas-based trading firm Waddell & Reed, which traded a few extra contracts of E-Mini futures in the hours preceding the flash crash. Well, ladies and gentlemen, if this advance glance into what the SEC is about to disclose in its flash crash report is indeed valid, then the entire flash crash is about to be blamed on Waddell and Reed once again, with no mention of High Frequency Trading, or any of the other real culprits for the drop which wiped out $1 trillion in market cap, and the furthermore the report will have no policy recommendations. This is so insulting to the general intelligence of the average American investor who has by now seen the destructive influence of HFT in action so many times, that it will wipe out the last remaining shards of credibility left in US stocks. Will Mary Schapiro next blame every single mini flash crash which we have seen on almost daily basis over the past month on Waddell and Reed as well? Or is that reserved for E-Trade retail accounts? We will not pass judgment until we see the final report, but if true, this is immediate grounds for termination of the SEC head, and will require that everyone pull their money from the market asap, as it will definitely confirm that even our regulators have no clue just how broken the market truly is. It will also confirm that every single SEC staffer has been bribed, bought and corrupted beyond repair by the HFT lobby.
From Bloomberg:
U.S. regulators have concluded that Waddell & Reed Financial Inc.’s trading of Standard & Poor’s 500 Index futures spooked traders on May 6, turning an orderly selloff into a crash that erased $862 billion from the value of American equities in less than 20 minutes, according to two people with direct knowledge of the findings.
Waddell & Reed’s selling of the E-mini futures was part of a normal hedging strategy, according to a report from the Securities and Exchange Commission and
…
Boo-yah for Limelight Networks Inspires Demand for Calls
by Option Review - September 30th, 2010 4:14 pm
Today’s tickers: LLNW, LPS, TEVA, XRT, MON & AEO
LLNW - Limelight Networks, Inc. – Call options on the provider of Internet distribution services for video, music, games and other media and entertainment content are in high demand today with shares rising as much as 14.8% at the start of the trading session to touch an intraday high of $6.35. Limelight’s shares jumped after “Mad Money” host Jim Cramer said he’s bullish on the firm’s long term prospects. LLNW’s shares tapered off significantly during the course of the day and are currently up a lesser 5.60% to stand at $5.84 with less than 30 minutes to go before the final bell. Bullish investors picked up 1,000 in-the-money calls at the October $5.0 strike for an average premium of $1.11 each. Call buyers at this strike are poised to profit should LLNW’s shares exceed the effective breakeven price of $6.11 by October expiration. Trading traffic in calls was heaviest, however, at the December $5.0 strike where some 4,600 in-the-money calls were purchased at an average premium of $1.51 a-pop. Investors long the calls make money if the price of the underlying stock jumps 11.5% over the current price of $5.84 to surpass the average breakeven point at $6.51 by expiration day in October. Options implied volatility is still up 12.1% on the day to arrive at 83.75%, but earlier jumped 25.92% to touch a high of 94.10% today.
LPS - Lender Processing Services, Inc. – The provider of integrated technology and outsourced services to the mortgage lending industry attracted a bevy of long-term bearish put buyers this afternoon. Shares are down 0.40% at $33.31 heading toward the close, but did manage to eke out an early-morning rally of 0.25% to touch an intraday high of $33.52 perhaps after being rated new ‘buy’ at Fagenson & Co. with a 12-month target share price of $38.00. Put players may be buying the puts outright because they expect the firm’s shares to decline, or they could be building up downside…
RANsquawk Market Wrap Up – Stocks, Bonds, FX etc. – 30/09/10
by Zero Hedge - September 30th, 2010 4:10 pm
Courtesy of RANSquawk Video
Mexican Central Bank Takes FX Warfare Into The 21st Century: Writes $600 Million Worth Of Dollar Options
by Zero Hedge - September 30th, 2010 3:59 pm
Courtesy of Tyler Durden
The FX war recently launched by every central bank in the world, just entered its modern warfare stage: we have learned that the Mexican Central Bank has just sold $600 million worth of USD options. That’s right – the central bank of our southern neighbor has moved beyond merely pedestrian cash interventions and has entered the derivatives game, in their attempt to raise the US peso and lower its Mexican equivalent. While there is no immediate indication of how the NAFTA treaty reacts to such outright open aggression between member states, it will likely be modestly to quite modestly frowned upon by the central banks of Canada, and most certainly, our own Fed. What we would love to find out, however, is who it was that was on the other side of the transaction, and bought $600 million worth of USD options. It would be supremely ironic if it it is discovered that it was the FRBNY that was taking the other side of the trade, as it would confirm that central banks have now gone AIG on betting on the outcome of currency wars.
Either way, the incremental systemic complexity introduced by this action will make plain vanilla interventions increasingly more unpredictable, and it is a likely validation that many other central banks also engage in this kind of synthetic trading. Also, who is to stop the counterparty on such trades to suddenly ramp up colletaral requests, very much in the fashion that Goldman and JPM destroyed AIG and Lehman, respectively? Should the Fed need to really pounce on the dollar, all it needs is to get the bank that did the deal (or itself) to make a few calls, and increase margin requirements from 5% to 100%+, forcing an immediate unwind of the transaction, and causing who knows how much havoc to both the synthetic and cash scenes.
Guest Post: 10% Savings Rate + Consumer Spending At 65% Of GDP = Retail Disaster
by Zero Hedge - September 30th, 2010 3:34 pm
Courtesy of Tyler Durden
Submitted by Jim Quinn of The Burning Platform
10% Savings Rate + Consumer Spending At 65% Of GDP = Retail Disaster
Now that the Wall Street Journal, New York Times, CNBC and every other mainstream media outlet have figured out what some financial blogs had figured out months ago http://theburningplatform.com/blog/2010/08/26/the-great-deleveraging-lie/, everyone knows that the American consumers have not yet begun to deleverage. Consumer credit outstanding peaked at $2.58 trillion in July 2008. It has plummeted all the way to $2.42 trillion today, a 6% reduction over two years. The full $160 billion reduction can be attributed to write-offs by the Wall Street, Ivy League MBA run, banks.
American consumers do not want the Age of Mammon to end. They will need to be dragged kicking and screaming into the Age of Austerity. Consumer expenditures peaked at $10.2 trillion in the 3rd Quarter of 2008. They reduced spending for two quarters, but when Big Daddy Government handed them billions and told them to spend it on cars, appliances, and homes, they dutifully obeyed. Today, consumer expenditures stand at an all-time high of $10.3 trillion, still accounting for 70.5% of GDP. There really has been no hint of austerity by Americans. It is a false storyline. The major reductions in consumption still loom in the future.
The myopic financial “experts” have no sense of history or the concept of reversion to the mean. They didn’t get it with home prices and they don’t get it with consumer expenditures. The country has been on a 30 year drunken binge of debauchery, debt accumulation and delusions of never ending 10% annual home price gains funding a glorious 30 years of retirement on an island in the Caribbean. These visions of a sugar plumb life of leisure are slowly giving way to the nightmare scenario of eating cat food in your very own cardboard box McMansion. The bombastic Boomers are turning 50 years old at a rate of 10,000 per day. A staggering 38% of workers between the ages of 45-54 have less than $10,000 of retirement savings and a mind boggling 29% of workers over 55 have less than ten grand in their retirement savings, according to the Employee Benefit Research Institute. It is no longer a matter of people deciding whether to save, it is a matter of saving or else living in abject poverty in…
Ohio SecState Sends Criminal Referral To US AG Over Mortgage Scandal
by Zero Hedge - September 30th, 2010 3:23 pm
Courtesy of Tyler Durden
Since the mainstream media has declared a black out on any coverage of the ongoing Mortgage Scandal, here is the latest: Ohio Secretary of State Brunner has sent a criminal referral to the US attorney general over ubiquitous mortgage fraud.
JPMorgan Stock: The Best of a Not-So-Good Bunch
by Chart School - September 30th, 2010 2:57 pm
JPMorgan Stock: The Best of a Not-So-Good Bunch
Courtesy of YCharts
The greatest competitive advantage in banking is not screwing up, and on that point one has to hand it to Jamie Dimon, the CEO of JPMorgan Chase & Co. (JPM) Alone among these four giants of banking, JPMorgan managed not to report a quarterly loss during the recent financial crisis.
How? JPMorgan dove less deeply into the subprime lending waters than most of its competitors. And it came into the crisis period with a strong balance sheet and plenty of liquidity. So, JPMorgan ended up being a source of strength to the banking system – buying the carcasses of Bear Stearns and Washington Mutual – rather than a weakness. Dimon gets an “A” in civics.
Having kept some of his powder dry, Dimon, in addition to scooping up those two huge acquisitions, quickly began hiring talent and seeking to grab market share from weaker banks as the crisis ebbed. Give him points for having a killer instinct, too.
Oh, make no mistake: JPMorgan took plenty of lumps – tens of billions of dollars of loan losses. And the mess isn’t entirely cleaned up yet.
But compared to his peers at Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC), Dimon better managed the risks inherent in banking. And JPMorgan has been rewarded with the higher market capitalization.
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