More Diffusion Confusion: Chicago PMI Refutes Every Other Piece Of Negative September Economic Data
by Zero Hedge - September 30th, 2010 9:51 am
Courtesy of Tyler Durden
The market surged a few minutes prior to 9:45am, as the Chicago PMI was prereleased to subscribers. The number came in far stronger than expectations printing at 60.4 vs. expectation 55.5, compared to a previous read of 56.7. Even so the employment index declined to 53.4 vs. Prev. 55.5, while the New Orders component surged to 61.4 vs. Prev. 55.0, even as all other regional Fed surveys saw a decline here. Lastly, the prices paid also declined to 55.0 vs. 57.2 previously. All in all, nothing makes sense anymore, as data conflict one day to the next, which means the HFTs are sitting pretty and today’s upward churning feedback loop is about to be unleashed. At the end of the day, all this “economic data” stuff is for amateurs. Today’s POMO is starting in 25 minutes. Strap in.
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DiggWhy Be A Market Maker When You Can Just Be A HFT Scalper?
by Zero Hedge - September 30th, 2010 9:45 am
Courtesy of Tyler Durden
One of the key underreported news from yesterday was this tidbit by the WSJ, which highlighted that the head of Interactive Brokers Group Inc. said that his firm’s market-making unit may withdraw from some options markets or even convert into a high-frequency trading firm because of what the company views as an unfair regulatory regime. In other words, the current regime rewards HFTs and punishes standard prop traders. (As a reminder IB’s Timber Hill market making algo is precisely what two Norwegians gamed in 2007 and 2008 to make enough profits to get them in court and facing a 6 year prison sentence). To an extent this should answer Michael Lewis’ rhetorical questions posed yesterday in Bloomberg, as to why Wall Street firms are voluntarily eliminating their prop trading divisions. The simplest answer: everyone is entering the scalping business, with some already having a material advantage over others. As to what this means for the market, the answer is another virtually assured flash crash: “If [regulators] do not make it sufficiently attractive for us to continue as market makers, then we will probably selectively deregister,” Peterffy said in an interview. “Potentially we could even become a high-frequency trading firm ourselves, and provide liquidity when it is in our interest.” And it gets worse.
”We are discontinuing some business where there is practically no trading,” said Peterffy. “Once the SEC comes out with the new rules [for high frequency traders], we’ll examine whether we need to make a bigger change, or not.”
Peterffy said that Interactive Brokers continuously maintains about 500,000 bids and offers in various markets around the world. He said the firm sometimes finds itself at a disadvantage to smaller competitors that operate with fewer regulatory restrictions and are able to move more quickly.
When market conditions change, it takes Interactive Brokers some time to adjust all of its quoted prices, he said. High-speed trading shops that are not registered market makers are able to selectively choose where to trade and outpace firms like Interactive Brokers that carry obligations to be in many markets, according to Peterffy.
The cannibalization of profits courtesy of HFT means very soon everyone will be an HFT! And when that happens, virtually everyone will be on the same side of the trade, until there is a…
Frontrunning: September 30
by Zero Hedge - September 30th, 2010 9:09 am
Courtesy of Tyler Durden
- A cynical must-read twofer from Bloomberg: Mystery of Disappearing Proprietary Traders (Michael Lewis) and Save Americans by Sticking It to Them (Jonathan Weil)
- Someone gets it: Stocks are up only in terms of a declining dollar. In real terms, relative to gold, stocks have gone nowhere. (Barrons)
- Ireland faces “horrendous” bank bill, Spain downgraded (Reuters, WSJ)
- Final bill for Anglo bailout at least €29.3bn (Irish Indepndent) as Lenihan warns Budget will be worse than expected (IE)
- Pathetic farce of the day: AIG Announces Plan to Repay U.S. Rescue With Stock (Bloomberg) as nobody mentions yet that the CBO, OMB and Treasury project losses on the “aig investment program” in the amount of $36B, $50B and $45B; Taxpayers cant wait to get made whole fast enough
- Japan and South Korea report output growth (FT), yet stocks are more focused on the 7K claims beat in the US
- China Says U.S. Yuan Legislation Will Hurt World Economy (Bloomberg)
- China says U.S. yuan bill could harm ties (Reuters)
- Gold hits record high as investors eye U.S. policy (Reuters)
- The Myth And Mistake Of Quantitative Easing (Forbes)
- Many toxic waste threats are history but Superfund lives on (Reuters)
Initial Claims Come at 453K, While Prior Print Is Revised Higher, As 300K Claimants Fall Of Benefits
by Zero Hedge - September 30th, 2010 8:42 am
Courtesy of Tyler Durden
The Department of Lies has released its latest initial claims report: last week we saw 453,000 initial claims, meaning the economy continues to lose about 50-100 jobs a month. This was slightly better than expectations of 460,000. Yet what the market once again misses is that for the nth week in a row the previous week’s claim number is revised, as always, higher, but who cares. Last week’s 465K was pushed higher to 468K, essentially making this week’s “improvement” a wash. Continuing claims came at 4.457MM, even as the prior week’s data was stunningly revised far higher, from 4.489MM to 4.540MM. DOL indeed. And while the market focuses on completely irrelevant noise of beats by a few thousand which the BLS will certainly revise for a deterioration next week, those who no longer receive 99 weeks of max claims continues to decline: those on EUC declined by -256,536, while those on extended claims fell by -36,686.
Of course none of this matters to the algos: all they need is the slightest validation to turn the ramp signal on.
Elsewhere, the second revision to Q2 GDP was misreported to be 1.7% from 1.6% before, even as the economy is about to go negative courtesy of gridlock that will take away about 3% from annualized GDP. This time, the fudge factor was Corporate Profits which increased from 2.9%, and from a consensus of 2.9%, to 3.9%.
Thrill Ride Thursday – Could this be the End of the Line?
by Phil - September 30th, 2010 8:26 am
I’ve listened to preachers
I’ve listened to fools
I’ve watched all the dropouts
Who make their own rules
One person conditioned to rule and control
The media sells it and you live the role
Mental wounds not healing
Driving me insane
I’m going off the rails on a crazy trainHeirs of a cold war
That’s what we’ve become
Inheriting troubles – I’m mentally numb
Crazy, I just cannot bear
I’m living with something’ that just isn’t fair
That pretty much sums it up for the markets in September – especially for the silly old bears, who were as sure that we were going down in flames at the beginning of September as the bulls are sure that we are going to the moon at the beginning of October. As one of the few people left in America who has the ability to step back and look at the bigger picture (the one where "history" goes back further than last weekend), it’s kind of funny when we pull out the old 1-year chart (I know – "what’s that?") to see what all the fuss is about.
Last Tuesday we looked at…
AIG: Time for Treasury Secretary Geithner to Clean Up the Mess
by Zero Hedge - September 30th, 2010 8:25 am
Courtesy of rcwhalen
Over the past several weeks, the news has been filled with reports about the likelihood of taxpayers recovering their investment in American International Group (AIG). We wrote about the AIG bailout in The Institutional Risk Analyst a great deal over the past two years, most recently in ‘The AIG Rescue: What Did We Bail Out and Why?’, March 22, 2010. Our contributor Richard Alford then opined:
“Why did the Fed let itself be put in the position where it became expected to act as a bankruptcy court and a supplier of capital to private insurance concerns? And why did we bail out the operating and capital deficits of AIG, deficits which suggest the same type of questionable accounting maneuvers and regulatory arbitrage as was seen in the Lehman Brothers collapse. If a bailout of AIG was better than bankruptcy, how would we know?”
How indeed. Part of the problem with the AIG situation as well as the other “investments” made by the Fed and Treasury in assets from the failure of Bear, Stearns, is that Treasury Secretary Geithner has not yet done the right thing and asked Congress to clean up his mess. The reasons for this reluctance are obvious now barely over a month before the mid-term election. And Tim Geithner’s latest efforts to window dress the AIG situation stem from the same political motivations.
The fact is that the “loans” by the Fed to AIG were really private equity investments and thus illegal under the Federal Reserve Act. Under the new Dodd-Frank law, the Fed could not make these advances at all. Thus the first step to getting this situation in order is to recognize that the stakes in AIG as well as the assets acquired from Bear, Stearns prior to the acquisition by JPMorgan Chase are illiquid, long-term investments that are inappropriate for the balance sheet of the U.S. central bank.
The Treasury should issue debt to the Fed in exchange for these assets and the ownership would ultimately shift to the Federal Financing Bank (FFB). The FFB is the part of the Treasury that ultimately holds all financial investments by the government, including the stakes in AIG, General Motors and Citigroup.
The FFB is the appropriate place for these assets to be house, managed and eventually disposed of, but there should be no hurry. To paraphrase Jesse Jones, head of…
Today’s Economic Data Highlights – GDP Revision, Claims And Chicago PMI
by Zero Hedge - September 30th, 2010 8:21 am
Courtesy of Tyler Durden
Key releases on jobless claims and industrial activity give way to Chairman Bernanke and other financial regulators at mid-morning…
8:30: Unemployment insurance claims….back in the range. Initial claims have moved up and down over the past few weeks, but from 30,000 feet one broad theme is clear—there has been no significant trend one way or the other in 2010. Continuing claims have edged down over the same period, but the trend in total recipients is much less clear after adjusting for the people who have lost eligibility for all programs. For initial and continuing claims, analysts this week expect more of the same. The continuing figure applies to the payroll survey week, but the emergency/extended programs have another week to go before hitting this point.
For initial claims, median forecast (of 47): 460k, ranging from 450k to 475k; last 465k.
For continuing claims, median forecast (of 8): 4.473 million, ranging from 4.45mm to 4.5mm; last 4.489mm.
8:30: GDP for Q2 (second estimate)….not much change. The third cut to GDP growth and its components rarely produces much change from the second-round estimates, though risks tilt to the downside given large revisions to construction spending in May and June. The GDP price index is unlikely to move significantly. The core PCE index will incorporate updated information on bank service charges, but nobody knows which way this would likely push the results.
On GDP, GS: +1.6%; median forecast (of 81): +1.6%, ranging from +1.3% to +2.2%; last (Q2 second est) +1.6%.
On the GDP price index, GS: +1.9%; median forecast (of 39): +1.9%, ranging from +1.7% to +2.0%; last: +1.9%.
On the PCE core index: GS: +1.1%; median forecast (of 16): +1.1%, ranging from +1.1% to +1.1%; last: +1.1%.
9:45: Chicago purchasing managers’ index for Sep…further moderation? This index has run stronger than the national ISM manufacturing index in recent months, presumably due to the larger weight that auto-related production has in this region. Most economists expect it to come down a bit further.
GS: 58; median forecast (of 57): 55.5, ranging from 53.6 to 58.3; last 56.7.
10:00: Federal Reserve Chairman Ben Bernanke testifies on implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act….before the Senate Banking Committee. He will be joined by FDIC Chair Sheila Bair, SEC Chair Mary Schapiro, and CFTC Chairman Gary Gensler.
14:30: Federal Reserve Chairman Ben Bernanke speaks to…
Anonymous Blogger Speculates Spanish GDP Is Inflated By €40 Billion, Goldman Gets Involved
by Zero Hedge - September 30th, 2010 8:08 am
Courtesy of Tyler Durden
Yesterday we received a report submitted from a Spanish blogger who wishes to remain anonymous, in which the author, in 7 brief pages, describes why in his view Spain’s GDP is massively overrepresented (and coming just before Moody’s downgrade of Spain earlier today). The report (attached below) provides extensive validation for this hypothesis using employment data, information from the service sector, construction output, industry data and foreign sector data. The various data lead the author to observe that: “ΔNational Income= ΔDemand of goods + ΔDemand of services = -56,392 – 11,115 = -67,507 million €, which means a fall of GDP by 24.6% for the biennium 2008-2009.”
More from the author.
If this fake is confirmed, the repercussions would be enormous. Because the official discourse of the Spanish government about a supposed adjustment of the Spanish economy would be proved false.
* Productivity per employee instead of growing, would be falling at record rates.
* Unit labour costs would be increasing across all sectors.
* Company profits would have suffered a big drop.
* The Debt to GDP ratio would increase considerably.
* Public deficit for 2009 would have reached from 11.2% to 13.5% of GDP.
And the conclusion:
As seen, this calculation gives us a drop in internal demand bigger than the same number reached with the previous method, 40,555 million €. The divergence could originate because the MPM, when in the middle of a collapsing internal demand, could fall significantly; on the other hand, the drop in GDP could have been underestimated with the other method due to the accumulation of stocks in the construction sector, or maybe both effects are at work here. Anyhow, both methods are completely at odds with the fall in the national income reported in the National Accounts and makes consistent the hypothesis of a vast manipulation of data.
As for where this gets really interesting, is the fact that none other than Goldman has immediately issued a rebuttal of the report. Permabull Erik Nielsen has just released a statement in which he says the report is not to be believed at all as it “makes little sense”:
I suspect that the reason why anyone cares at
…
Daily Highlights: 9.30.2010
by Zero Hedge - September 30th, 2010 8:04 am
Courtesy of Tyler Durden
- Asian stocks slump as banks decline on European concern.
- China will speed up introduction of a trial property tax in some cities.
- China Yuan weakens for first time in 13 days on threat of US trade sanctions.
- China tightens limits on lending, plans tax to cool housing prices.
- Eurozone inflation rate up at 1.8% in September.
- Fed Presidents far from unanimous on need for further easing.
- Gold extends rally to another record after Dollar slumps; Silver tops $22.
- German unemployment rate declines to 7.2% in September.
- Ireland said to hold talks to take a majority stake in Allied Irish Banks.
- Japan stock down 2% on strong Yen, weak production data.
- Moody’s downgrades Spain’s credit rating to Aa1 with outlook stable.
- US House approves $58.4B in NASA spending through 2013.
- Yellen, Raskin win Senate confirmation as Fed Board members.
- Yen’s impact on business sentiment may spur Bank of Japan to add stimulus.
- ABB will pay $39.3M to resolve bribery, kickback claims.
- AIG Board said to approve plan for US government to start reducing stake.
- Anglo Irish, Allied Irish may need as much as €14.4B in extra capital: Irish Central Bank.
- BHP, Rio Tinto rethinking a revision to their proposed $116B iron-ore JV in Australia.
- Facebook, Skype in talks to mesh their communications services more closely.
- Family Dollar Stores’ Q4 net rises 23% to $74M, beating its own EPS view by 5 cents.
- FedEx says ‘tepid’ US trails China, India as shipping revives.
- FedEx to increase shipping rates for US domestic, export srvcs by 5.9% next year.
- Goldman raises $2.25B from Industrial & Commercial Bank share sale.
- JPMorgan asks Judges to delay rulings as it reviews foreclosures.
- Liberty Mutual postponed the largest US IPO of 2010, co planned to raise almost $1.3B.
- Stericycle Inc. to buy Healthcare Waste Solns from Altaris Capital for $245M.
- Synnex Corp. said Q4 EPS will be as much as $0.97 vs. cons est. of $0.90.
- Toyota Europe sees sales recovering after recall crisis, profits before volumes.
- UBS not to pay dividends for some time due to Basel-based capital requirement rules.
- VeriFone Systems offered to buy Hypercom Corp. for $5.25/sh ($290M) in cash.
- Western Union reports prelim Q3 revs above consensus; reaffirms FY10 guidance.
Economic Calendar: Data on Q2 GDP, Initial & Continuing Claims, Chicago PMI to be released.
Earnings Calendar: ACN, AEHR, AZZ, CBK, CRAI, GRO, LWSN, MKC.
RECENT…
Moody’s Downgrades Spain To Aa1, As Goldman Rushes To Explain How It Was All Priced In
by Zero Hedge - September 30th, 2010 7:50 am
Courtesy of Tyler Durden
Moody’s downgrades Spain from AAA to Aa1, a rating which pretty much everyone knew would not last, with the kneejerk reaction nonetheless being to spike bunds. However, as Goldman immediately reminded everyone who cares, this was (supposed to be) “completely priced in.” As Erik Nielsen reminds us: “Moody’s has just announced that they have downgraded the Spanish government to Aa1 with “stable outlook”. This is not really a surprise since they had given themselves until the end of September to consider this rating, and – as I discussed in my Sunday email – there is a good degree of “catch-up” in these ratings. The good news, if that’s the way of putting it, is the “stable” outlook. It appears that Moody’s is getting somewhat impressed with the reform agenda in Spain (as they should be).”
And here is Moody’s on Spain:
Moody’s downgrades Spain’s rating to Aa1, outlook stable
Moody’s also downgrades the ratings of Fondo de Reestructuración Ordenada Bancaria (FROB) to Aa1/stable
London, 30 September 2010 — Moody’s Investors Service has today downgraded Spain’s local and foreign currency government bond ratings by one notch to Aa1 from Aaa. The outlook on the ratings is stable. Today’s rating action concludes Moody’s review for possible downgrade of Spain’s sovereign ratings, as initiated on 30 June 2010.
RATINGS RATIONALE
The main drivers of Moody’s decision to downgrade Spain are as follows:
(1) The country’s weak economic growth prospects, also relative to Aaa-rated sovereigns, as the process of rebalancing the economy away from the construction and real-estate sectors will likely take several years;
(2) The considerable deterioration of the Spanish government’s financial strength, as reflected in a more pronounced fiscal deterioration compared to Aaa-rated sovereigns; and
(3) Worsening debt affordability (i.e. interest payments as a share of revenues) and significant borrowing requirements, implying that the government remains vulnerable to further episodes of market volatility.
At the same time, Moody’s has today affirmed Spain’s short-term issuer rating of Prime-1 with a stable outlook. Spain falls under the Eurozone’s Aaa regional ceilings for bonds and bank deposits, which are unaffected by today’s downgrade.
Moody’s has also downgraded to Aa1/stable outlook from Aaa/review for possible downgrade the rating of Spain’s Fondo de Reestructuración Ordenada Bancaria (FROB), whose debt is fully and unconditionally guaranteed by the government of Spain.
RATIONALE FOR DOWNGRADE
“One of the key drivers for Moody’s decision…
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