Monday, July 2, 2012

Things heating up in the precious metal market ! HFT heist - from 2008 onward the thefts have just gotten larger and larger.......Great Libor heist of 2008 - as the Regulators here in the US stay silent.....Morgan Stanley coerces S&P and Moody's - and gets caught doing so !


http://harveyorgan.blogspot.com/

Good evening Ladies and Gentlemen:

Gold had a good time climbing by $24.10 to $1621.30.  Silver was up 77 cents to $28.44.
It seems that gold and silver are now decoupling from the markets.  I would like to emphasize that the European summit accomplished nothing.  We were basically lied to as we were told that seniority of bonds will not be part of the picture.  That is not true as Germany stated that only the first 100 billion euros to aid the Spanish banks has had their seniority lifted.  All new funds advanced will still have their seniority.  Also the loans to Spain will be put onto Spanish balance sheets and will be removed only with a new regulator for all of Europe.  Good luck on that one!!

Let us now travel to comex and see how trading fared today.


The total gold comex OI rose approximately 600 contracts from 418,129 to 418,751.  The non official delivery month of July saw its OI fall from 67 to 42 for a loss of 25 contracts.  We had 15 delivery notices filed yesterday so we lost 10 contracts or 1000 ounces of physical gold standing.  The next big delivery month is August and here the OI remained relatively constant at 209,619 dropping only 500 contracts from Monday;s level at 212,152.  The estimated volume today was quite tame at 124,889. The confirmed volume on Monday was extremely low at 11,927.


The total silver comex OI lost approximately 700 contracts falling from 123,965 to 123,242.  The front delivery month of July saw its OI fall from 2811 to 2385 for a loss of 426 contracts.  We had 331 delivery notices filed yesterday so we gained 85 contracts of additional silver standing.  My bet is that we had some errors in official OI standings yesterday.  The next non official delivery month for silver is August and here the oI fell marginally from 307 to 288 for  a loss of 29 contracts.  The estimated volume at the silver comex today was big at 62,993.  The confirmed volume yesterday was also quite large at 64,019.  It seems that there are some major entities taking on the bankers.

and non redundant articles....

The German economy is now sputtering and as such cannot possibly lend money to the rest of Europe.
The following der Spiegel commentary is very important:

(courtesy zero hedge/der Spiegel)



Germany Rumbling As Spiegel Leads With "Euro Endangers German Economy"

Tyler Durden's picture
Submitted by Tyler Durden on 07/03/2012 08:02 -0400




Objective analysis, or media spin to gauge popular reaction to Plan Z? Whatever it is, today's staff lead article in the English section of Spiegel has a piece that will likely raise more than a few eyebrows: "The common currency union was supposed to benefit the economy of the entire European Union. Now that the euro is struggling, however, it is bringing growth down with it. Germany's economy, once seemingly immune to the crisis, is now facing mounting difficulties."
From Spiegel:
When the board of Commerzbank met last Tuesday, Stefan Otto was supposed to make an appearance. The chairman of Deutsche Schiffsbank, a Commerzbank subsidiary based in Hamburg and focused on the shipping industry, had been summoned to Frankfurt to present the bank's financial results. But the presentation was cancelled; Commerzbank had no need for the numbers, having previously decided it no longer wanted anything to do with German shipping.
The executive board of Deutsche Schiffsbank was not notified in advance of the parent company's reversal. The supervisory board was also taken by surprise. Only three months earlier, Commerzbank CEO Martin Blessing had declared the financing of ships and commercial real estate to be part of the bank's core business. And although it was expected to shrink, Germany's second-largest bank intended to create a separate segment for the business.

But the executives had underestimated the risks that the European sovereign debt crisis presents to Commerzbank, and how much capital the ship and commercial real estate business ties up. Now Blessing has slammed on the brakes. Deutsche Schiffsbank Chairman Otto characterized the parent company's about-face as the "decision of a cautious businessman and not of a skydiver."

Commerzbank has recently made a huge effort to satisfy and even exceed the capital requirements set by the European Banking Authority (EBA). But if the euro crisis worsens, new gaps could soon open up, say banking industry insiders.

In Spain alone, Commerzbank is exposed to the tune of €14.2 billion ($17.9 billion) via investments in banks, companies and the government. The lower the rating agencies assess the creditworthiness of these borrowers, the more capital the bank will have to place in reserve for these investments in the future -- to say nothing of potential defaults.

Commerzbank isn't alone with such problems. The euro crisis and the higher capital requirements being imposed by regulators have adversely affected almost all European banks. And because of growing fears within the banks of a collapse of the euro zone, they are preparing for the worst by withdrawing to their home markets and winding down many investments.

This has serious consequences for the economy, not just along the periphery of the euro zone, but also in Germany, which had proved to be crisis-proof and was in fact booming until recently.
...
The euro crisis hasn't yet reached the German labor market. Last week, Frank-Jürgen Weise, head of the Federal Employment Agency (BA), announced a new jobless low: With 2.8 million people out of work, the unemployment rate had declined to 6.6 percent, the lowest level in 21 years. But in the economic cycle, the labor market is considered a "trailing" indicator. In other words, when things go up or down in the economy, it takes up to six months before jobs are affected.
Indeed, even though the German job market remains robust, BA head Weise says he sees "signs of weaker development." Month after month, the BA surveys all 176 employment agencies throughout the country about early indicators, so as to forecast labor market developments for the coming months. According to these indicators, the jobs situation will not deteriorate until autumn. But "we are nervous about 2013, because of all these risks relating to sovereign debt in the euro zone," says BA chief Weise.
Why is all of this relevant? Because as we get closer each day to the German ESM/Fiscal Pact constitutional court ruling, now expected on July 10, or a day after the ESM was supposed to go into operation, passions will rise. In fact, the Germany CSU chief Seehofer is already making waves with several announcements that put the bailout MOU achieved by Monti over so much blood and tears under question:
  • German CSU chief says the CSU can't back limitless German Euro aid
  • German CSU chief says concerned markets may question German Euro strenth
  • German CSU chief says the CSU doesn't want new constitution for Germany
  • German CSU chief says CSU rejects transferring powers to EU "Monster State"
  • German CSU chief says Merkel has no majority without CSU lawmakers
In other words, politicians are already preparing for the fallout from what this latest compromise will mean for Germany once the euphoria from last week's still completely unclear MOU fades, and with Spanish bonds having topped at 6.33% we wonder: was this it?
So when all fails, Germany will need a plan Z. The plan is outlined above, and it involves what Ray Dalio and increasingly more people say is a very real option: Germany just getting the hell out of Dodge first.

and.....


The EU is Out of Money. End of Story. And Neither the Fed Nor the ECB Can "Print" To Save the Day

Phoenix Capital Research's picture
Submitted by Phoenix Capital Research on 07/03/2012 15:55 -0400




While various media outlets and “analysts” try to claim that the EU summit was somehow a success and that Europe’s issues are solved, the fact remains that Europe is out of money.  And I mean TOTALLY out of money.

I realize this flies in the face of what 99% of analysts are claiming. But this is a proven fact. Of the various entities that could hold the EU together (the ECB, the IMF, Germany, and the two bailout funds: the EFSF and the ESM) none and I mean NONE of them actually have the capital to do it.

I am continually bombarded with emails from people saying, "well, if things get bad the Fed or ECB will just print and everything is solved."

This is beyond wrong. It is just groupthink based on the idea that the Fed has intervened ever since the Great Crisis began in 2008 (ZeroHedge recently ran an article showing that the Fed has intervened in over two thirds of the months since the Crisis began).

However, even Fed intervention has a limit.

To whit, the Fed has now pulled back from any aggressive monetary policy for over a year. There has been no money printing. Instead, the Fed has re-arranged its portfolio to attempt to flatten the yield curve.
Why is the Fed doing this instead of simply engaging in more QE? The answer is because QE removes Treasuries from the banking system. We are facing a solvency Crisis and Treasuries are the senior most asset on US bank balance sheets.

When the Fed buys a Treasury from a US bank, it is providing liquidity (cash) to the bank to meet the bank's short term funding needs.

However, by removing the Treasury from the bank's balance sheet, the Fed is removing one of the banks senior most assets: the very asset against which the bank has leant or traded hundreds of billions and  possibly even trillions of Dollars' worth of loans  and trades.

Put another way, the Fed, by buying Treasuries is making insolvent banks even more insolvent. It is a short-term gain (liquidity) for a long-term disaster: banks need as much collateral as they can get their hands on right now. And with Treasuries rallying (raising the value of the banks' assets) any aggressive Fed program to take Treasuries out of the system would be a MAJOR step towards another solvency Crisis a la 2008.

The same pattern is playing out in Europe right now though on a much grander scale (its banking system is nearly four times as large as that of the US).  While everyone continues to believe the ECB can save the day, the fact remains that the ECB has NOT bought a single sovereign bond in 14 weeks.

Why is this? The same reason that the Fed is not doing more QE: Europe is facing a solvency Crisis. Removing sovereign bonds from the market may be helpful from a purely liquidity standpoint (cash for trash) but the Crisis in Europe is not based on liquidity, it’s based on solvency. And EU banks need as much senior assets as they can get.

Everytime the ECB buys a sovereign bond it's removing much needed collateral from the EU banking system (a sovereign bond may be garbage, but it's usually less garbage than a EU mortgage loan or an EU corporate loan).

This in turn only increases the solvency issues in the EU banking system. And remember, bank runs are already underway in Spain, Italy, France, and Greece. So banks are desperate for capital and collateral.
THAT is why the ECB cannot and will not simply print to "save the day": doing so would NOT save the day but would in fact accelerate the EU banking Crisis.

So the Fed and the ECB WILL NOT be stepping in unless the entire system starts to go. This leaves the IMF which is a US-backed entity and thus cannot perform a large-scale EU bailout (it's an election year in the US and voters will not tolerate a US-lead bailout of Europe).

So all that is left to prop up Europe are the two mega-bailout funds (the EFSF and ESM) and Germany.

The EFSF's capital is already full committed and stretched to the limit in propping up Portugal and Ireland. So it's not an option anymore.

As for the ESM... well, it doesn't even exist yet: it has yet to be ratified by all the countries that need to vote on it. Moreover, Spain and Italy together are to account for 30% of the ESM's funding. So... these countries would be bailing themselves out!?!

Finally, both Finland and Netherlands are rejecting the idea that the ESM can be used to buy bank bonds. So the ESM, assuming it can even get ratified, will face
major political pressure regarding how it spends its capital.

This leaves Germany as the one and only true EU prop. However, Germany is stretched to the limit.
First off, the country is only €328 billion away from reaching an official Debt to GDP of 90%: the level at which national solvency is called into question.

Moreover, that €328 billion has already been spent via various EU props. Indeed, when we account for all the backdoor schemes Germany has engaged in to prop up the EU, Germany's REAL Debt to GDP is closer to 300%.

In Euro terms, Germany now has €1 trillion in exposure to the EU via its various bailout mechanisms. That's EQUAL TO roughly 30% of German GDP.

If even a significant portion of that €1 trillion goes bad (which it will as this money has been spent helping the PIIGS), Germany's financial system will take a MASSIVE hit.

This will guarantee Germany losing its AAA status, which in turn makes its funding costs much higher (see what happened to France in the last year: that country is now facing bank runs and its own solvency Crisis which you'll be hearing about in the coming weeks).

Angela Merkel is up for re-election next year. There is no way on earth she'll opt to let Germany get dragged down by the EU. She's even said she will not allow Eurobonds for "as long as [she] lives."

This is not empty rhetoric. This is fact. Germany has expressed its intentions dozens of times in the last month: NO Eurobonds and NO guarantee of EU banking deposits.

The reasons for this are simple: EITHER option renders Germany insolvent. It's already teetering on insolvency to begin with. But to allow Eurobonds or some kind of guarantee of the EU banking system to occur on top of the money Germany has already spent propping up the EU will take Germany down.

The German economy is already slowing. Most Germans are fed up with the Euro. Merkel would rather die than let her country become like Greece (which the creation of Eurobonds or EU deposit guarantees would most assuredly result in).
So Germany is tapped out as well. This leaves... NOBODY.

Again, Europe is out of money. End of story. This is the truth and investing based on the idea of some magical bailout occurring is like investing on Hank Paulson's Bazooka policy for Fannie and Freddie (three months later the markets imploded).

CFTC to Hold Open Meeting July 10 to Consider Final Rule on Definition “Swap”

As Bart Chilton informed SilverDoctors’ readers on May 31st when he stated that theCFTC’s silver investigation would conclude by September if not sooner, and that the CFTC would meet shortly after the 4th of July to consider final rules on the definition of the word ‘swap’, the CFTC has just publicly announced that it will hold an open meeting July 10th to consider the final rule on the definition of swaps, and the proposal to exempt certain swaps.

Full CFTC release below:
From the CFTC:

CFTC to Hold Open Meeting to Consider Final Rule on the Further Definition of the term “Swap,” Final Rule on the End-User Exception to Clearing, and Proposed Rule to Exempt from Clearing Certain Swaps by Cooperatives

Washington, DC – The Commodity Futures Trading Commission (CFTC) will hold a public meeting on Tuesday, July 10, 2012, at 9:30 a.m., to consider two Final Rules and a Proposed Rule:
  • Final Rule related to the Further Definition of “Swap,” “Security-Based Swap,” and “Security-Based Swap Agreement”; Mixed Swaps; Security-Based Swap Agreement Recordkeeping.
  • Final Rule related to the End-User Exception to the Clearing Requirement for Swaps.
  • Proposed Rule related to Clearing Exemption for Certain Swaps Entered into by Cooperatives.

What:Open Commission meeting to consider two Final Rules and a Proposed Rule
Where:CFTC Headquarters Conference Center, Three Lafayette Centre, 1155 21stStreet, NW, Washington, DC 20581
When:Tuesday, July 10, 2012, 9:30 a.m.






http://www.silverdoctors.com/jim-sinclair-cartels-battle-to-stop-gold-has-been-lost-gold-to-target-3500/


Jim Sinclair: Cartel’s Battle to Stop Gold Has Been Lost- Gold to Target $3,500

The legendary Jim Sinclair has sent the following email alert to subscribers this afternoon in what he describes as ‘MY MOST IMPORTANT MESSAGE FOR YOU SINCE MY $1650 GOLD CALL IN 2001‘.
Sinclair stated that ‘the rig is up‘, that today’s movement in gold means that the cartel’s battle to stop gold has been lost, and that ‘the six attempts to kill gold was a now failed attempt to keep gold from trading above $3500‘.

From Jim Sinclair:

Gold will go to and above $3500. This is the most important message I have sent you since 2001.

There are very few of us dynamic thinkers that see everything as a trend constantly in motion. Anyone can be a static thinker, quoting recent economic figures or news headline (MSM), and coming up with a usually wrong opinion.

The change today is that the “Rig Is Up.”

The Bank of England turning their backs on Barclays, the company who did their bidding, will be the event in time marking the trend change.

Many of us in our areas of activity will successfully fight the Riggers. The many complaints that so many of you kindly sent in to fight manipulation released the Kraken in me.


The Kraken is back in its cage where it belongs. The paper trail is there. The worm has turned. Even more importantly is that this fight in the $1540 gold price area was not for regaining the old high in gold. The six attempts to kill gold, supported by some gold writers looking for favors from the riggers was a now failed attempt to keep gold from trading above $3500.


The battle to stop gold has been lost.


The start, like all starts towards the old high and well above, should be slow with more unfolding drama. It will build on itself but gold will trade at and above $3500. I am now as certain of this as I was over ten years ago when I told you gold was headed for $1650. I knew that as fact and to me from $248 gold was trading at $1650.


My job now is to define gold’s full valuation for you when it occurs. The timing is no less than one year from now to a maximum of three years from now. I believe I will be able to do that for you.


This is the most important message I have written you since early in 2001. I write this with total intellectual and spiritual certainty.


Respectfully,
Jim





http://www.silverdoctors.com/turd-ferguson-the-rest-of-the-bullion-bank-cartel-has-turned-on-jp-morgan/


Turd Ferguson: The Rest of the Bullion Bank Cartel has Turned on JP Morgan!

TF stated that the commercial’s net short position has now been reduced to 12,000 contracts, a reduction of nearly 50,000 contracts from April 2011.   As JP Morgan is estimated to still hold approximately 16,000 net shorts, TF stated that it appears that the rest of the bullion bank cartel has turned on JP Morgan:  ‘All of a sudden, instead of all acting collusively together, all of a sudden it’s everyone against JP Morgan!‘

In this explosive interview focusing on the metals, The Doc & TF also discussed the LIBOR manipulation scandal, the new downturn in the US, the manipulation of ALL markets, and physical supply issues with gold and silver. 

When asked to discuss his current take on gold and silver, TF responded:

There is a lot of despair, and it’s been painful.  What did silver peak, 14 months ago?  If I had told you during that 1st decline with all of the margin hikes back in May of 2011 that ‘this is nothing man, we’re going to deal with this for the next year! , a lot of people would have thrown up their hands.

It’s always at the end, when you get that capitulation- we haven’t seen as much a dramatic price capitulation as we have an emotional capitulation of folks, and that’s part of setting the stage.

We have so many people ground out of the silver market, especially the COMEX post MF Global, it seems like there’s nobody left trading.   As much as it’s been painful and it seems like it’s continued to go down through May and June, it really hasn’t.   We’ve been in a range-bound trade, loosely bounded by $27 and $29 in silver, and about a $100 range in gold from $1530 to $1630.
With the benefit of hindsight we’ll be able to look back and say, look at that big long base from which this move started!   It feels like we’re still in this agonizing decline, when in fact we’re in this $2 and $100 range.

There has to be a whole bunch of sell-stops for long held positions in silver below $26, and below $1525 in gold.  The way the computers are driven by HFT and by the cartels, it has to be tempting.  I mean their mouths have to be watering at the prospect of beginning some cascade event and driving it through there, and letting it generate its own momentum, and then sell back into all of the selling that gets generated as those sell stops get tripped.    The challenge will be how do you drive paper price down when physical demand is this strong?

I’ve been discussing that with Andy Maguire for a couple of weeks.  He’s of the thought that the physical demand every time price dips, and why the paper price keeps bouncing off these floors is because of this really strong physical demand that appears at those price levels.  That physical demand will keep the paper price from falling.   I look at it, and Stevie Wonder can see the amount of stops that have to be present below $26, and so we’ll see.   Physical demand may keep them from falling any further, or there could be a spike down.  They’re both possible, and we have to be mentally prepared for both.

When asked on his thoughts regarding the physical gold and silver demand TF stated:

You have to go with your gut and your trusted sources.  Andrew Maguire talks about that a lot- the demand he sees that shows up at certain price levels in London.  Even above certain price levels- the demand just shows up every single day.  The metal is leaving the LBMA vaults and moving East.  How can that surprise anybody?  If you were the Chinese, or the Russians, or the Japanese- anybody sitting on dollar reserves, why would you not be diversifying?   They have been diversifying for years, why would you expect that not to continue, especially with metals prices lower vs. last year!

Dollars are being converted into hard assets, gold and silver being part of that, and that gold and silver is leaving the system!    I’m hearing reports of great efforts being made by LBMA banks to NOT deliver outside of the system.   ‘You can place an order with us if you just allow us to transfer some paper certificates around or drive a fork lift around from one side of the vault to the other, but if you want a couple million ounces and you want us to ship it somewhere, I’m sorry, you might have to go someplace else.’

They’re trying so hard to keep that metal within the system, because the system is all based on this fractional reserve bullion banking.  Every ounce that leaves their vault reduces their ability to leverage 100 to 1!   So there’s a great effort to keep metal in the system, but the demand is there,  and it’s that demand when people say ‘how will we ever stop the paper manipulators from suppressing price?’ , well it will be that physical demand that will ultimately breaks their back.

People who think that their isn’t a shortage say, ‘What are you talking about?  I can go on APMEX or SD Bullion and get a tube of Maples!’   That’s not what we’re talking about.   We’re talking about 2 million ounces in size delivered to a vault in Hong Kong, can do you that for me?

The bullion banks, particularly JP Morgan, know what they’re up against.  They knew it 18 months ago, they knew it 14 months ago when we almost had a signal failure on the COMEX in April of last year.
They have engineered the last 14 months as an attempt to extricate themselves from this massive paper short position.   They know what they’re up against from a physical standpoint, they can’t not know, and they don’t want to be the ones left holding the bag!

As long as that physical demand continues, and we certainly don’t see it abating, they’re going to move out of this short position.    Once that’s changed, once the banks get close to flat or net long, who else is left to sell?    It’s that basis that will drive silver higher.
The physical demand will cause the banks to eventually give up that game just for their own well-being. 

The Doc also asked TF what impact the LIBOR manipulation scandal will have on the awareness of precious metals manipulation.  TF stated:

In the end I think it further damages the credibility of the banks.   The hard part is, it damages their credibility in your eyes, in my eyes, and in the eyes of the small percentage of people who are actually paying attention.   In order for it to affect change, how many people have to be paying attention?  Does the guy driving down the street listening to the guy on the radio say the stock market was up 180 points- is he paying attention?  Is he going ‘those guys manipulated LIBOR!?!’

It speaks to the fact that EVERYTHING IS MANIPULATED, and it’s about perceptions.   Whether it’s LIBOR, whether it’s a currency market, FOREX, the Treasury market (which is openly manipulated by the Fed now- that’s what QE is), the equity market, all the way down to gold and silver.

If FOREX is manipulated- and we know that! The Bank of Japan, the Swiss National Bank- all these Central Banks manipulate their currency!   So we know FOREX is manipulated, we know the Treasury market is manipulated, we strongly suspect the equity market is manipulated, we now know LIBOR is manipulated, and SILVER ISN’T!?!   Or GOLD ISN’T?  Are you kidding?

The LIBOR scandal is a much bigger scandal in London than it is over here in the States, but in the end, it’s probably more further damning the credibility of the bankers than anything else.

Regarding the latest COT reports and the massive reduction in the Commercial’s net shorts in gold and silver TF stated:

On the COT report from Feb 28th, the bank or cartel sector in silver was long 34,000 contracts, and they were short 78,000 contracts.   Sothe net difference is about 44,500 contracts.  At that point in time, silver was trading above $37, and on the 28th it was breaking out and we were all excited.
They’ve smashed silver since.
As price has gone from $37 to $26, the amount of contracts that they’re short has fallen from 78,000 down to 61,000.  The amount that they’re long has gone from 34,000 up to 48,500 contracts!  It’s a TREMENDOUS NET change! 

We are at a point now where the total net short position is only 12,000 contracts.  If you go back to last April when things were starting to get away from the cartel, the total net short position was 5 times that!  It was 66-67,000 contracts!   Now it’s down to only 12,000, we’re down about as far as we’re going to go.

The Doc noted that not only is the commercial net short position down to 12,000 contracts, but Ted Butler estimates that JP Morgan’s net shorts increased last week to 16,000 contracts- implying that the other commercial banks are now NET LONG!!  TF responded,

That’s an excellent point Doc!  And when has that ever happened?  All of a sudden, instead of all acting collusively together, all of a sudden it’s everyone against JP Morgan!
So anything that might make JP Morgan to decide to no longer be in the silver suppression business-  or that may be what the other banks are anticipating- that’s why they’re willing to take them on or go against them, when they never have in the past.   The numbers indicate that we are very close to or have already achieved a bottom in silver.  The numbers bear it out.

TF and The Doc also discussed how the cartel initiates & executes paper raids,  the European debt crisis, the new downturn in the US, how the SCOTUS Obamacare decision will affect the US and the metals, and MUCH MORE!







http://www.zerohedge.com/news/joe-saluzzi-hft-parasites-are-killing-market-host


Joe Saluzzi: HFT Parasites Are Killing The Market Host

Tyler Durden's picture
Submitted by Tyler Durden on 07/02/2012 20:38 -0400




Submitted by Chris Martenson of Peak Prosperity
Joe Saluzzi: HFT Parasites Are Killing The Market Host
Joe Saluzzi, expert on algorithmic trading -- also known as high-frequency trading, or HFT -- returns as a guest this week to explain how the players behind this machine-driven process act as parasites that are destroying our financial markets (and, increasingly, even themselves).
Since Joe first spoke with us last year, HFT firms have only increased in size and share of market activity. Here are some staggering statistics on how influential they have become:


    • HTFs make up between 50-70% of the volume seen across market exchanges today
    • 2% of the traders on many exchanges (HFTs, specifically) represent 80% of the volume
    • a single large HFT firm (referred to as a Direct Market Maker) can account for 10%+ of a market's volume on a given day
    • Large HFT firms make between $8 to $21 billion a year
    • HFT trades occur in milliseconds (i.e. a small fraction of the time it takes your eye to blink)
    With such scale, speed and profitability, HFTs have turned the market away from being an efficient price-setting mechanism and perverted it into a casino where the clientele (i.e. human investors) gets fleeced.
    And our regulators are so outmatched by the scope, complexity and funding of these titanic HFT players that at moment, there are pretty much zero consequences for bad actors.

    Interestingly, these HFT parasites, which live by generating fractions of pennies in millisecond-timed trades, may be sowing the seeds of their own demise through their blind gluttony and hyper-competitiveness. As their quest for incremental advantage begins to bump up against the limits of physics (such as the speed of light), the marginal cost of the next increment of advantage increases exponentially. Profitability is being squeezed out and will disappear entirely some day.

    Sounds good to the rest of us investors, right? Not so fast. A key question to ask should these parasites experience a self-induced mass-extinction effect:
    What will happen to asset prices when all that volume suddenly disappears?

    HFT's Bloodsucking Role In the Financial Markets

    There is a host-parasite relationship. The host is the traditional order or the retail or institutional order. They will always lose. There is no doubt about it. The parasites are circling around that host all day long trying to find where they are going to take advantage of them – whether it is a VWAP order (Volume-Weighted Average Price) or something like that. If there are no hosts or the hosts are starting to decrease – because they are based on the mutual fund outflows that we talked about before – the parasites find it hard to make money. There is no more to feed off of. So they start to feed off of each other, which means that their margins by definition are going to have to start shrinking until it becomes unprofitable. And it will become unprofitable when all of a sudden they have to invest hundreds of millions of dollars to gain an extra microsecond, yet they are not getting their returns back.

    o the real fear that we have is that when it becomes an unprofitable opportunity or venture for them, what will they do? Will they walk away? Who will be left holding the bag?Where did all that “liquidity” go? Who is left now? Hopefully what will happen was the market will find its own solution at that point. But you would have some scary days, I can bet, between now and then.

    The Bastardization of "Investing"

    If you are an investor and you want to diversify -- which everybody should be doing, right? -- you want to pick different asset classes. You want to get things that are inversely correlated because that is how you can prevent yourself from taking a large loss, especially if you are a conservative investor.

    There was actually a report – I think it was a couple of months ago and it was produced by the U.N. --  they studied the correlation between oil and stocks. And they found it at record levels over the last five years. It just shot up off the charts where oil would normally be a negative correlation with stocks. And they were scratching their heads. And one of the things they pointed to was the correlation effect of the high frequency traders trading multiple asset classes.


    So this has been documented now. It is not just us kind of guessing, saying, “Well, I bet it was the HFT’s correlating asset classes.” Everything trades together. That does not make for a healthy market. That does not make me feel comfortable that I can hedge my position right now unless I was just trading around a zero position all day, like most of these guys do in the high frequency trading world.

    So what do you do as an investor? How do you diversify yourself? It is very, very troubling and at this point there really is not an answer to it.

    The Impotence of Our Regulators

    When you are dealing with this type of computing power and this heavy amount of quote traffic as well as trade traffic, the quote traffic is enormous. Every time an exchange tries to update their capacity, it immediately jumps up to the capacity level. It is a constant amount of quotes, trades, and cancellations. They do not have the systems available to track this type of behavior.

    So you have got one of two options if you are a regulator. Either, a) get up to speed quickly so that you can track this behavior so the investing public could feel confident again. Or, b) you have to start limiting this type of behavior. There is no other option. You cannot allow this to continue to go on. And by limiting it, something that we would suggest is maybe a real cancellation fee, not the ones that have kind of been suggested. Maybe a minimum order timelife. If I said to you, “Hey, we want a 50 millisecond minimum order timelife, would that be a problem?” And I would think it would not be a problem. Because, guess what? I just blink my eyes and it took me 200 milliseconds to do that. So 50 milliseconds really should be that big of an issue. And there have actually been reports – studies by academics that have said, “Any order less than 50 milliseconds really does not contribute to any liquidity.” So do not give me that you are going to be hurting liquidity.

    So the bottom line is the regulators are overmatchedand they need to do something now. And they have really one of two options. And the option of getting up to speed probably is not in their budget right now.

    and.... 






    http://www.zerohedge.com/news/guest-post-great-libor-bank-heist-2008


    Guest Post: The Great LIBOR Bank Heist of 2008?

    Tyler Durden's picture
    Submitted by Tyler Durden on 07/02/2012 21:01 -0400




    Submitted by John Aziz of Azizonomics
    The Great LIBOR Bank Heist of 2008?
    The LIBOR manipulation revelations ask some interesting questions.
    Washington’s Blog notes:
    Barclays and other large banks – including Citigroup, HSBC, J.P. Morgan Chase, Lloyds,Bank of America, UBS, Royal Bank of Scotland– manipulated the world’s primary interest rate (Libor) which virtually every adjustable-rate investment globally is pegged to.

    That means they manipulated a good chunk of the world economy.

    They have been manipulating Libor on virtually a daily basis since 2005.

    While the implications of this to the $1200 trillion derivatives market would seem to be profound, one question I have not seen asked much yet are the implications of the manipulation to the reality of the 2008 financial crisis.


    Here’s a really wild hypothesis: if the LIBOR rate was under manipulation in 2008, is it not possible that the inter-bank lending rate spike (and resultant credit freeze) was at least partly a product of manipulation by the banking cartel?

    Could the manipulators have purposely exacerbated the freeze, to get a bigger and quicker bailout? After all, the banking system sucked $29 trillion out of the taxpayer following 2008. That’s a pretty big payoff. LIBOR profoundly affects credit availability — and the bailouts were directly designed to combat a freeze in credit availability. If market participants were manipulating or rigging LIBOR, they were manipulating a variable directly tied to the bailouts.

    That means that every single tick must be under scrutiny; we know that rates have been manipulated for profit. I am no conspiracy theorist; it may just be a coincidence that a massive spike in a variable we now know to have been manipulated contributed to a credit freeze that led to historically-unprecedented bailouts. Yet it is no great leap of the imagination to say that the crisis may have been deliberately worsened for profit.

    Investigators should investigate.


    http://ftalphaville.ft.com/blog/2012/07/03/1068291/smells-like-bob-contrition/


    Smells like Bob contrition

    Posted by Cardiff Garcia on Jul 03 00:49.
    Step 1. Make exemplary use of the passive voice in communications to the Treasury Select Committee and staff.
    Step 2. Wait for someone else to fall on his sword.
    Step 3. Make growling noises to “person(s) familiar”…
    Bob Diamond is threatening to reveal potentially embarrassing details about Barclays’ dealings with regulators if he comes under fire at a parliamentary hearing on Wednesday over the Libor rate-setting scandal, according to people close to the bank’s chief executive.
    “If he is attacked, he will fight back,” said one person familiar with preparations for the Treasury select committee hearing.
    Step 4. Remember that whatever words are used, the intended message is not “I’m sorry” but rather “You’re freaking welcome!”…

    According to two people close to Mr Diamond, the Barclays chief executive is furious that he and the bank have been blamed for “lowballing” the rates at which Barclays said it could borrow from rivals at the height of the financial crisis in 2007 and 2008. Bankers insist the authorities knew these rates were inaccurate but did not object at the time because of fears it could further destabilise already panicked markets.

    Step 5. Wait for British regulators to tire themselves out; hope the Americans — who incidentally helped blow the Libor case open — aren’t on form.

    In other words, the opposite of this.
    We’d long suspected he wouldn’t listen to our colleagues, who wrote that “If he had an ounce of shame, he would immediately step down.”
    Too strong a qualifier, perhaps.


    and....



    http://www.zerohedge.com/news/unsealed-documents-expose-morgan-stanley-forcing-rating-agencies-inflate-ratings


    Unsealed Documents Expose Morgan Stanley Forcing Rating Agencies To Inflate Ratings

    Tyler Durden's picture
    Submitted by Tyler Durden on 07/02/2012 19:00 -0400




    With Europe, the BBA, and virtually everyone shocked, shocked, that the global bank cabal schemed and colluded for years to manipulate interest rates, so far only America appears relatively blase, and totally ignorant, about the issue. Perhaps it is because the first bank exposed in the manipulation scheme so far is European, perhaps because it is just tired of all the endless crime coming out of the criminal complex known as Wall Street. It is unclear. Then again, America will soon have its own manipulation scandals to deal with: and if it is not the US BBA member banks, all of whom were just as guilty as Barclays, and the only question is which bank will be the sacrificial scapegoat whose CEO will have to demonstratively depart (to warmer, non-extradition climes), it will be the following story from Bloomberg which will likely pick up much more steam over the next weeks and months, detailing how the bank which just barely avoided a triple notch downgrade (wink wink) has had previous dealings with the very same rating agencies seeking to, picture this,artificially inflate ratings! So to summarize: Fed manipulates capital markets, HFT manipulates bid ask spreads, "self-policing" CDS pricing market groups fudge the prices on trillions in Credit Default Swaps, bank cabals collude and manipulate short-term interest rates, and now banks are confirmed to have manipulated the ratings on tens of billions of bonds using monetary incentives and threats. Is thereanything in this "market" that was fair over the past several decades, and was actual price discovery ever actually possible? Because by now it should be very clear going forward all the things that actually make a free and fair market are forever gone, and that without endless fraud and manipulation by all the market participants who realize that anyone defecting the ponzi group means immediate and terminal losses for all, and all those calls for an S&P 400 would actually prove to be overly optimistic.

    From Bloomberg:

    Morgan Stanley successfully pressured Standard & Poor’s and Moody’s Investors Service Inc. to give erroneous investment-grade ratings in 2006 to $23 billion worth of notes backed by subprime mortgages, investors claimed in a lawsuit, citing documents unsealed in federal court.
    ...
    The unsealing of the internal documents from Moody’s and Standard & Poor’s came in one of the largest ratings lawsuits to emerge from the 2008 financial crisis. The lawsuit was filed in 2008 by Abu Dhabi Commercial Bank, based in the United Arab Emirates, and Washington’s King County, which includes Seattle.

    2007. SIVs issued short-term debt to fund purchases of higher- yielding long-term notes and failed when credit dried up amid the financial crisis, sparked by investments in mortgage-backed securities.

    As Morgan Stanley bankers were designing the Cheyne notes, they asked Moody’s to use the same volatility assumptions for subprime-backed mortgage securities as for those that had prime home loans as collateral, the investors allege in today’s filing. The ratings company agreed, the investors claim.

    “We in fact built everything,” Dorothee Fuhrmann, an executive for New York-based Morgan Stanley, said according to the documents, allegedly referring to the risk-analysis methods applied to the Cheyne ratings.

    This is where it gets good:

    Morgan Stanley successfully pressured New York-based S&P to raise its rating on some of the Cheyne securities, according to the plaintiffs. After Lapo Guadagnuolo, an S&P employee, told Morgan Stanley that some of the securities would get BBB ratings instead of the desired A grade, a banker e-mailed his boss and said the ratings were “very inappropriate.” S&P then agreed to give the higher rating.

    Morgan Stanley earned fees totaling as much as $30 million when the Cheyne notes were issued, according to the documents.


    “All of us were under instructions to rate everything that we could bring in the door, and they were measuring market share on a monthly basis,” Frank Raiter, a former analyst of residential-mortgage bonds at S&P, said in a deposition, according to the documents.

    “I wasn’t real confident we were doing a very good job at it.”

    Perry Inglis, the head of the S&P group that rated the Cheyne securities, wrote in an e-mail that it would be a “good idea” to figure out how to change its methodology to be more “competitive,” according to the court filing.

    And the punchline:

    “I’m a bit unclear if it is a big change or a ‘wee itty bitty no-one’s going to notice’ change!” Inglis is quoted as saying in an e-mail.

    Turns out someone noticed.

    Reuters' Allison Frankel points out that this discredits the rating agencies, who are once again exposed for being corrupt, complicit and arguably, criminal organizations, betraying any core values for the client's buck.

    In a series of filings in federal court in Manhattan, Abu Dhabi Commercial Bank and its lawyers at Robbins Geller Rudman & Dowd disclosed thousands of pages of internal communications and deposition transcripts to back their claims that S&P and Moody's are liable for fraud and negligent misrepresentation in connection with their rating of a structured investment vehicle underwritten by Morgan Stanley. Based on a declaration by plaintiffs that accompanied the documents, a huge percentage of the newly disclosed material has never previously been seen by the public -- and a good many of the documents deal not just with the Morgan Stanley SIV but more broadly with the rating process inside S&P and Moody's at a time when the two leading agencies were swamped with mortgage-backed securities to rate.

    Robbins Geller also provided a helpful CliffsNotes version of the evidence in the form of an unredacted response to the defendants' motion for summary judgment. (A redacted version was filed in February, with page upon page blacked out.)  This is a hot filing. Abu Dhabi quotes deposition testimony from "S&P's most senior quantitative analyst in Europe," for instance, that says "the ratings of (the SIVs) were inappropriate because the ratings of the underlying assets were not appropriate. So it leads to the conclusion that they should not have been rated." In other snippets quoted in the filing, rating agency analysts complained about "difficulties in explaining HOW we got to these numbers since there is no science behind it" and about "(making) up haircuts that were palatable to SIV issuers."


    A lead S&P analyst on the deal, according to the plaintiffs, said in an email to his boss that the default rates the agency was using for asset-backed securities were guesswork. "From looking at the numbers it is obvious that we have just stuck our preverbal (sic) finger in the air," the analyst wrote.

    Naturally the blame also lies with Morgan Stanley, for knowing fully well it was openly defrauding the rating process:

    Morgan Stanley, according to the plaintiffs' filing, bears at least as much blame as the rating agencies: The bank allegedly wrote the Moody's report on the SIV and read the S&P report before it was released to investors. The summary judgment opposition points to evidence that Morgan Stanley pressured the rating agencies to apply methodology that didn't suit the securities and to ignore the paucity of historical data in order to grant the SIV a rating it didn't deserve. By sending a supposedly "threatening" email to an S&P higher-up when an analyst proposed granting the SIV a BBB rating, Morgan Stanley boosted the rating to an A, the plaintiffs assert. In support, they quote an email from Morgan Stanley exec Greg Drennan, who had sent the allegedly menacing email: The bank's efforts, Drennan wrote, "did get us the rating we wanted in the end."

    Of course they did. You paid and threatened to get it. One wonders (not really) if the same series of events occurred last week when Morgan Stanley got just a two notch downgrade from Moody's instead of the much anticipated 3 notches.

    One also wonders (not really) when US regulators will go after Morgan Stanley with eagerness that British regulators appear to be pursuing Barclays?

    Full filing below




    Posted by at

    No comments:

    Post a Comment

    Subscribe to: Post Comments (Atom)