by ilene - April 23rd, 2014 11:28 am
Courtesy of Pam Martens.
Last month, the Securities and Exchange Commission released the second in what looks to be a never-ending, head-scratching study into whether some aspects of high frequency trading are, in fact, the equivalent of rigging the stock market and thus patently illegal under existing law. In one long paragraph, the SEC appears to emphatically say that two strategies, order anticipation and momentum ignition, are manipulative and illegal. The SEC writes:
“Directional strategies generally involve establishing a long or short position in anticipation of a price move up or down. The Concept Release requested comment on two types of directional strategies – order anticipation and momentum ignition – that ‘may pose particular problems for long-term investors’ and ‘may present serious problems in today’s market structure.’ An order anticipation strategy seeks to ascertain the existence of large buyers or sellers in the marketplace and then trade ahead of those buyers or sellers in anticipation that their large orders will move market prices (up for large buyers and down for large sellers). A momentum ignition strategy involves initiating a series of orders and trades in an attempt to ignite a rapid price move up or down. As noted in the Concept Release, any market participant that manipulates the market has engaged in conduct that already is illegal. The Concept Release focused on the issue of whether additional regulatory tools were needed to address illegal practices, as well as any other practices associated with momentum ignition strategies.”
We have italicized the following phrases in the above paragraph: “trade ahead”; “in an attempt to ignite a rapid price move up or down”; and “conduct that already is illegal.” The SEC certainly appears to be saying that it recognizes these activities to be market manipulation and illegal under the statutory framework of the Securities Exchange Act of 1934.
So why has the SEC been studying this problem for the past four years instead of charging those deploying these strategies with crimes? We can thank former SEC trial attorney, James Kidney, for answering that question: the revolving doors of the SEC have morphed it into a Federal agency “that polices the broken windows on the street level and rarely goes to the penthouse floors. On the rare occasions when Enforcement does go to the penthouse, good…
by ilene - April 23rd, 2014 11:20 am
Courtesy of Mish.
Greenlight Capital hedge fund manager Einhorn Shorting Tech as ‘Cool Kid’ Stocks Show Bubble.
Greenlight Capital Inc., the $10.3 billion hedge-fund firm run by David Einhorn, said it was betting against a group of technology stocks as evidence grows of a bubble.
“There is a clear consensus that we are witnessing our second tech bubble in 15 years,” the New York-based firm said in a quarterly letter to clients today.
Greenlight said that companies it’s betting against may fall by at least 90 percent “if and when the market reapplies traditional valuations,” according to the letter, a copy of which was obtained by Bloomberg News.
Greenlight cited initial public offerings of technology firms that have “done little more than use the right buzzwords and attract the right venture capital” as evidence of how far along the current bubble is.
Greenlight, best known for wagering on a decline in Lehman Brothers Holdings Inc. before the bank collapsed in 2008, said it was betting against a group of stocks because it reduces the potential of a single investment becoming too costly. The firm didn’t identify the individual companies.
Greenlight questioned whether technology companies would be able to keep their highly skilled employees if they stopped giving them large amounts of equity. The firm said it was hard to ignore the future dilution of shares that result from paying employees in stock.
“Once again, certain ‘cool kid’ companies and the cheerleading analysts are pretending that compensation paid in equity isn’t an expense because it is ‘non-cash’,” Greenlight wrote.
Valuations are without a doubt back in bubble land. The only open question is whether the time is finally ripe for shorting.
Mike “Mish” Shedlock
by ilene - April 23rd, 2014 10:12 am
Courtesy of The Automatic Earth.
Arthur Rothstein Planting beans near Belle Glade, Florida January 1937
QE Is A Fraud Perpetrated By Made Men
A lot of words are being spent again these days on deflation and the QE measures that are supposed to “cure” it. Paul Krugman, who when it comes to stimulus is a hammer seeing nails only, now has it in for Sweden’s central bank, which he labels monetary sadists for not opening the spigots. But it’s all a hugely deceptive false flag; it’s not an issue of whether you launch QE or not. There’s a third, and much more valid, way of looking at this.
First of all, one should wonder if QE is the right kind of stimulus, if growth and recovery in the real economy is the objective. Which in present circumstances is a very big IF ,that is surprisingly, hardly ever questioned. But if the real economy is the target area, it’s highly likely that something like Steve Keen’s version of a debt jubilee, where every citizen receives an X amount, first to be used to pay off any debts, would be far more effective. Or the Positive Money ideal, in which central banks, not commercial banks, have the ability to create fresh credit.
However that may be, what everybody should realize is that QE or another form of stimulus MIGHT work, but only if they’re executed in the proper fashion, that is, if debts are restructured at the same time stimulus is unleashed, i.e. the financial system is purged, which is the only way to restore trust and confidence. Debt restructuring must be a core element of any stimulus, and if it’s not, wherever you live, you know you’re being screwed.
In essence, what central banks have done so far, first in Japan, then in the US and EU, is to cordon off the debts residing in their banks (e.g. in the form of swaps and not-so-securities), and then flood these same banks with money/credit, in order to make them look healthy. Since all these nations’ banks have the same debt issues, they all agreed to ignore each other’s obvious sleight of hand. And anyone can understand that if these banks are still sitting on huge amounts of debt, any and all stimulus must and will at some point disappear into…
by ilene - April 23rd, 2014 9:54 am
Submitted by Tyler Durden.
As we reported yesterday, Bill Ackman bought up only $76 million in Allergan stock knowing well in advance Valeant would submit a bid for the company, guaranteeing (as in absolutely no risk at all) that the stock would soar, with the rest of the purchase comprising of AGN calls. It is unclear just how much actual capital at risk he put up but indicatively May $150 call options that cost $1.55 per contract on Monday were trading at $15.53 in midmorning trading on Tuesday, a roughly ten-fold increase in one day.
In other words, Ackman not only used material [non]public information to frame his trade – perfectly legally, thank you SEC – but, as is to be expected of a hedge fund manager whose recent track record has been spotty, applied massive leverage in the form of calls to make up for any residual humiliation. That said, Ackman may want to consider selling his calls to the primary (and very unhappy because no amount of delta hedging could have offset all the losses) broker he bought them from while they are still solidly in the money, because Allergan may have a very different opinion on promptly selling itself to Valeant than what Ackman thought.
Specifically, Allergan on Tuesday night said that its board of directors had adopted a one-year stockholder rights plan to give it more time to consider takeover proposals. The Valeant offer was made with Pershing Square Capital Management hedge fund, which built up a stake in the company.
The chief executive officer of Valeant Pharmaceuticals, which made a $47 billion unsolicited offer for competitor Allergan Inc. on Tuesday, said during an interview on CNBC that he was "disappointed" with Allergan's so-called poison pill.
"We are disappointed but on the other hand, I think this deal will get done," Valeant CEO Michael Pearson said on Wednesday.
So besides accepting or outright rejecting Valeant's bid, what other options does Allergan have? Here is Bloomberg with the full menu:
Valeant’s proposal currently stands at $48 billion, or almost $161 a share. Sterne Agee Group Inc. said the offer is too low because Allergan has appealing growth prospects as a stand-alone entity. Shareholders may demand a price closer
by ilene - April 23rd, 2014 8:57 am
Lee Adler talks about what the lack of recovery in housing while prices bubble higher means. He says that the energy boom helps only a few, but helps create the illusion that the US economy is growing at a healthy pace. Finally, where are stocks and bond headed. Is this the top? Are we headed for a crash, or is something more prosaic at hand?
Copyright © 2012 The Wall Street Examiner. All Rights Reserved.
Chris Whalen: True Perpetrators in Michael Lewis’ Tale of Wall Street Greed and Corruption Are Congress, SEC, FINRA, Major Exchanges
by ilene - April 23rd, 2014 8:23 am
Courtesy of Larry Doyle.
Today I am pleased to elevate author and investment banker Chris Whalen into the highest echelon of the Sense on Cents Hall of Fame.
Whalen distinguishes himself as he properly frames the ongoing debate surrounding the scandalous practices within high frequency trading in a recent commentary that ran at Zero Hedge entitled, In “Flash Boys” Michael Lewis Misses the Point — Deliberately.
Let’s navigate as Whalen further exposes how our public officials and regulators charged with protecting the public interest are really “in bed with Wall Street.”
All of the strategies used in HFT are not only legal, but they are the result of extensive rule making and public hearings by Congress, the Securities and Exchange Commission, FINRA and the major exchanges. So while Lewis is right to say that these strategies “screw” retail customers in a practical sense, the fact is that the activity has been entirely blessed by Congress, regulators and the major exchanges . . . structural duplicity is programmed into the system.
The question begs as to who was truly representing the public interest when systems and practices were developed and implemented that allowed for the legal ‘screwing’ of retail customers. Whalen continues and nails the real cause behind the symptomatic injustice that is embedded within high frequency trading activity:
. . . the real scandal is that all of this has been entirely blessed by the SEC, FINRA and the major exchanges . . . the crime of HFT is that Congress, the SEC and other regulators have allowed a handful of Wall Street firms to assemble a set of opaque market rules that few people understand.
Whalen trashes the presumption that Congress and our financial regulators actually protect the public interest. How and why do you think this ‘scandal’ and ‘crime’ happen? Because Congress and the regulators are getting paid to do so. The payola comes in the form of massive campaign contributions and lobbying funds and a spin through the revolving door to a high paying job in the industry. Those on the outside would define these practices as corruption. Those on the inside of these rackets would define them as ‘business as usual.’
We should thank Michael Lewis for using his celebrity and considerable writing skills to draw attention to this issue of HFT, but “Flash
by ilene - April 23rd, 2014 12:59 am
Courtesy of Mish.
Chinese manufacturing remains in contraction for 2014. Output and new orders were down for the 4th consecutive month, but at a slightly reduced pace according to the HSBC Flash China Manufacturing PMI.
Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co – Head of Asian Economic Research at HSBC said:
“The HSBC Flash China Manufacturing PMI stabilised at 48.3 in April, up from 48.0 in March. Domestic demand showed mild improvement and deflationary pressures eased, but downside risks to growth are still evident as both new export orders and employment contracted. The State Council released new measures to support growth and employment after the release of Q1 GDP. Whilst initial impact will likely be limited, they signalled readiness to do more if necessary. We think more measures may be unveiled in the coming months and the PBoC will keep sufficient liquidity.”
There is a massive expectation that China will step on the gas at any time now to improve conditions. I rather doubt it, unless there is a far bigger, disorderly breakdown.
China needs to rebalance, and will. Slower and slower GDP growth will generally be the norm, most likely for years to come, perhaps interrupted by an occassional unsustainable spurt here or there.
Mike “Mish” Shedlock
by ilene - April 22nd, 2014 8:39 pm
Submitted by Tyler Durden.
Stephen Roach, former Chief Economist at Morgan Stanley, has never been shy to share his opinions about the world and having left the Wall Street firm is even freer to speak uncomfortable truthiness. This brief clip, as Sovereign Man's Simon Black notes, says it all so succinctly… "The market has been distorted by far bigger forces than flash trading. To me, the force that has rigged the market… is the Federal Reserve, not the flash traders."
We recommend skipping to 13:05 for about 30 seconds of brilliance if you’re pressed for time:
by ilene - April 22nd, 2014 8:35 pm
The financial forecasts around the end of 2013 brimmed with optimism. Here are just a few examples:
- Many scoff at notion stock bubble exists — Associated Press, Nov. 19, 2013
- Economy Entering New Year on a Roll — Bloomberg, Dec. 25, 2013
- 'We have entered a 15- to 20-year bull market' — CNBC, Dec. 30, 2013
- Economy poised for strong 2014 — Atlanta Journal-Constitution, Jan. 1, 2014
- Market Prediction: Bull will keep charging in 2014 — USA Today, Jan. 2, 2014
- Bull Market has Years Left Based on S&P 500 Valuations — Bloomberg, Jan. 6, 2014
- Economist tells Denver audience to be aggressive over next four years — Denver Post, Jan. 9, 2014
This super bullish outlook was also expressed just before the 2000 and 2007 market tops. Indeed, a chart from the April 2014 Elliott Wave Financial Forecast shows that investment pros are more bullish now than before the two prior major market peaks.
EWI's special report, The State of the U.S. Markets — 2014 Edition notes:
Investors are even more optimistic than economists. While the overall economy barely grinds ahead in first gear, indicators of Wall Street psychology stand at historic extremes of optimism. This optimism is the only thing holding up nominal stock prices.
Market history shows that extremes in psychology always reach a turning point. The Wave Principle can help you identify when the market's trend is about to change.
It is a thrilling experience to pinpoint a turn, and the Wave Principle is the only approach that can occasionally provide the opportunity to do so.
The ability to identify such junctures is remarkable enough, but the Wave Principle is the only method of analysis that also provides guidelines for forecasting…
It is our practice to try to determine in advance where the next move will likely take the market.
Elliott Wave Principle: Key to Market Behavior, tenth edition, p. 96
by ilene - April 22nd, 2014 6:49 pm
Courtesy of Mish.
Moving back home with parents is not just for millennials. A large number of those aged 50 to 64 are moving back home, for economic reasons, not for providing care to aged parents.
The LA Times reports Moving in with Parents Becomes More Common for the Middle-Aged
At a time when the still sluggish economy has sent a flood of jobless young adults back home, older people are quietly moving in with their parents at twice the rate of their younger counterparts.
For seven years through 2012, the number of Californians aged 50 to 64 who live in their parents’ homes swelled 67.6% to about 194,000, according to the UCLA Center for Health Policy Research and the Insight Center for Community Economic Development.
The jump is almost exclusively the result of financial hardship caused by the recession rather than for other reasons, such as the need to care for aging parents, said Steven P. Wallace, a UCLA professor of public health who crunched the data.
“The numbers are pretty amazing,” Wallace said. “It’s an age group that you normally think of as pretty financially stable. They’re mid-career. They may be thinking ahead toward retirement. They’ve got a nest egg going. And then all of a sudden you see this huge push back into their parents’ homes.”
Many more young adults live with their parents than those in their 50s and early 60s live with theirs. Among 18- to 29-year-olds, 1.6 million Californians have taken up residence in their childhood bedrooms, according to the data.
Though that’s a 33% jump from 2006, the pace is half that of the 50 to 64 age group.
The surge in middle-aged people moving in with parents reflects the grim economic reality that has taken hold in the aftermath of the Great Recession.
Long-term unemployment is especially acute for older people. The number of Americans 55 and older who have been out of work for a year or more was 617,000 at the end of December, a fivefold jump from the end of 2007 when the recession hit, according to the Bureau of Labor Statistics.
Those in their 50s move in only as a last resort. Many have exhausted savings. Some have jobs but can’t shoulder soaring rents in areas such as Los