By David K. Randall and Edward Krudy

NEW YORK (Reuters) – Stock-picking once again matters on Wall Street.

After a year in which stocks moved in near-lockstep regardless of individual merit, the herd mentality is crumbling away.

The move away from a frenzied rush in and then back out of the market is a welcome sign for stressed-out fund managers and lay investors alike.

“If I think something looks cheap I’m more prepared to own it because I think that will matter. Before, I would throw up my hands and say, ‘So what? If it’s perceived as a higher risk asset then it’s going to crater with any nasty news out of Europe,'” said Art Steinmetz, chief investment officer at OppenheimerFunds in New York.

The change reaffirms the diversification strategies that underpin trillions of dollars worth of savings meant for college tuition and retirement. When just about everything is moving in the same direction, investors have fewer ways to cushion market swoons.

In 2011, daily activity in individual stocks was less dependent on company reports than on action in European government debt markets, and the equity, currency and commodities markets traded in tandem.

Now that stocks are going their own way, it’s been good for so-called active fund managers, those who decide what individual stocks are best to hold rather than follow an index.

In January, about 70 percent of active managers outperformed the S&P 500, compared with just 23 percent in 2011, according to Bank of America/Merrill Lynch data.

“Our traders have had their best month since 2009 because of the fall-off in correlation,” said Don Bright, a director and trader at Bright Trading in Chicago. “We’re doing a lot of homework on earnings since fundamentals are driving individual stocks again.”

Read the rest here.

Bespoke

Not quite a bubble, but something to keep in mind….

A good unemployment number came in today, but we are very far from being in a full blown recovery.

Not a good sign in my book, but then again the markets look pretty tasty….

Via SharesPost, 100,000 shares of Facebook were sold for $40.

The largest amount of cash being stashed since the collapse of LEH.

This is being touted as a sign of economic recovery….to me it is a carry trade issue.

They would like not to damage their reputation with their clients…..

The Indian government pledged to cut rates once they are confident inflation continues to trend lower…. 

If the banks agree it will give them another year to recognize losses…..

It seems bondholders are closer to taking a 70% haircut, but not concrete agreement has been found…

Here is the current list of Weekly options in chart form, click here for charts

By Alexandra Alper

WASHINGTON (Reuters) – As pro-business groups clamor to convince regulators to overhaul their draft of the controversial Volcker rule, fault lines are emerging within the opposition over just what a revamped draft should look like.

The Volcker rule — named for former Federal Reserve Chairman Paul Volcker — was mandated by the 2010 Dodd-Frank financial oversight law to prevent banks that receive government backstops like deposit insurance from making risky trades with their own funds.

Heralded by the left as a means to rein in the risk-taking that nearly toppled the financial system in 2007-2009, the Volcker rule has been excoriated by the right, who warn it could take liquidity out of the market and make it hard for firms to raise capital.

The rule — whose first draft was proposed by regulators in October — would have the biggest impact on large banks such as Goldman Sachs and Morgan Stanley .

But as business groups, banks and others rush to complete comment letters before the February 13 deadline, a split has emerged Aabout the best approach to make sure the ban on proprietary trades doesn’t also capture trades that banks make for their customers’ benefit, known as “market making”, or firms’ own portfolio hedging.

Read the rest here.

Justin Fox is editorial director of the Harvard Business Review Group

The Financial Services Roundtable, the lobbying group for the biggest financial companies in the U.S., has a new “white paper” out with the rah rah title, “Financial Services: Safer & Stronger in 2012.” A few of the bullet points:

•Banks insured by the Federal Deposit Insurance Corporation have $1.5 trillion in capital — the highest capital levels in the history of American banking.• The largest U.S. banks have increased Tier 1 capital — the core measure of a bank’s financial strength from a regulator’s point of view — by nearly 50 percent over the last four years.
• Executive compensation has been reformed significantly to align with long-term performance.
• Banks have developed fortress balance sheets, improving credit quality by 54 percent, increasing net income and, restoring aggregate lending to pre-crisis levels of nearly $7 trillion.

Why you’re very welcome, Financial Services Roundtable! You see, almost all of the positive indicators above were enabled by or forced on banks by people working for us the taxpayers (by which I mean Congress, the Federal Reserve, and financial regulators). Most of them — increased capital, executive compensation changes, higher credit quality, fortress balance sheets — would have been fought tooth and nail by the Financial Services Roundtable before the financial crisis. (Because Jamie Dimon always gets bent out of shape when people tar all bankers with the same brush, it should be noted that JP Morgan Chase and a few other institutions were improving credit quality and building up capital before 2007. But the industry as a whole was not. If it had been, there wouldn’t have been a financial crisis.)

There’s a lesson here. If you let the financial services industry do exactly what it wants, the financial services industry will eventually get itself — and by extension the economy — into staggering amounts of trouble. If you force it to behave, it might just thrive.

Read the rest here.

The treasury wants to run negative yield auctions; which would put investors in a position to pay a premium for holding paper…

Read the rest here:

The drafters of the Dodd-Frank financial reform law got an important thing right. Despite fierce pushback from the banks – and lackluster support from the White House at critical moments – the legislators communicated a key new intent: megabanks must be able to fail, and the Federal Deposit Insurance Corporation should be in charge of that liquidation process.

The F.D.I.C. was an inspired choice for this role, because it is less captivated by the “magic” of Wall Street and less captured by its money and influence than any other group of officials.

The F.D.I.C. has also long been in the business of shutting down banks while limiting the damage to taxpayers, although it did not previously have complete jurisdiction over the largest banks when they got into trouble. It could only deal with those parts that had federally insured “retail” deposits, and this turns out not to be where the biggest problems have occurred in recent times.

Charged with this mandate involving the too-big-to-fail banks and with the difficult task of potentially shutting one or more of them without disrupting the economy, the F.D.I.C. took the remarkable step of opening up its decision-making process.

By creating a Systemic Resolution Advisory Committee of informed outsiders and by Webcasting the deliberations of that group, the agency has brought perhaps an unprecedented degree of transparency to public policy for banks – a point made forcefully by Dennis Kelleher; his blog at Better Markets is a must-read for anyone who cares about financial regulatory reforms. (Disclosure: I’m a member of the committee, an unpaid position.)

Committee members hold a wide range of views. Some are quite sympathetic to our existing financial structures, some much more skeptical. You can look over the list and make up your own mind as to who is on which side, and you might want to review the recording of the Jan. 25 meeting.

There is no question that the senior leadership of the F.D.I.C. is paying attention to the committee – and at the meetings, key people are put on the spot to discuss all relevant details with well-informed committee members, who can ask a lot of follow-up questions.

It is inconceivable that any other part of our financial regulatory apparatus will ever open itself up in the same way – for example, the Federal Reserve (in both Washington and New York), the Treasury Department and the Federal Stability Oversight Council are likely to be forever opaque. They, too, should open themselves up in public to tough cross-examination by experts, but that goes directly against their aloof and perhaps arrogant culture.

The history of American public administration is littered with examples of policy gone wrong – and actions misdirected – because informed and well-meaning critics were kept at arm’s length. Information is withheld even from other agencies. Powerful special interests work their influence; the rest of society has no effective voice. Even the most energetic Congressional oversight is unlikely to work when expert critics are kept so far from the real policy action.

Within the financial sphere, if the F.D.I.C. really manages to convince the markets that big banks can and will fail – meaning that creditors face the genuine prospect of losses – that changes everything.

Merkel visited China for a three day pitch for help; China said they are interested in helping Europe, but have not pledged any help as of yet.