Joined Nov 11, 2007
31,929 Blog Posts
The Bears Get Ready for a Stock Market Crash
[youtube://http://www.youtube.com/watch?v=O72jfzVczxQ 450 300]
Comments »Thomson-Reuters is Selling Its Soul For $1 Million Bribes
A closely watched consumer confidence number that routinely moves markets upon release is accessed by an elite group of traders, for a fee, a full two seconds before its official release, according to a document obtained by CNBC.
A contract signed by Thomson Reuters, the news agency and data provider, and the University of Michigan, which produces the widely cited economic statistic, stipulates that the data will be posted on the web for the general public at 10 a.m. on the days it is released.
Five minutes before that, at 9:55 a.m., the data is distributed on a conference call for Thomson Reuters’ paying clients, who are given certain headline numbers.
But the contract carves out an even more elite group of clients, who subscribe to the “ultra-low latency distribution platform,” or high-speed data feed, offered by Thomson Reuters. Those most elite clients receive the information in a specialized format tailor-made for computer-driven algorithmic trading at 9:54:58.000, according to the terms of the contract. On occasion, they could get the data even earlier—the contract allows for a plus or minus 500 milliseconds margin of error.
In the ultra-fast world of high-speed computerized markets, 500 milliseconds is more than enough time to execute trades in stocks and futures that would be affected by the soon-to-be-public news. Two seconds, the amount promised to “low latency” customers, is an eternity.
For exclusive access to the data, Thomson Reuters pays the University of Michigan $1 million per year, according to the contract, in addition to a “contingent fee” based on the revenue generated by Thomson Reuters. The contract reviewed by CNBC was signed in September of 2009. It expired a year later. Thomson Reuters and the University Michigan confirmed that the relationship still exists.
Comments »Bank Cash Hoard Tops $1 Trillion at the Fed, Another Problem For the Fed to Unwind
“The amount of money banks have at the Fed recently reached 13 digits, for the first time ever.
FORTUNE — U.S. banks now have $1 trillion at the Federal Reserve. It’s far more than they have ever had before, and it could be a big problem.
And it’s a new one. Before the financial crisis, the amount of cash banks kept idle at the Fed rarely topped $25 billion, which in terms of a multi-trillion dollar banking system is peanuts. But shortly after the start of the financial crisis, as a move to help the banks and save the economy (or perhaps the other way around), the Fed began paying interest on money banks deposited at the Fed.
Money flowed in. It has been rising ever since, but the rate of increase has picked up recently. In the first three months of this year, bank reserves at the Fed rose nearly $200 billion, or 25%, after barely budging in 2012. The amount passed the trillion dollar mark for the first time in April. Still, all that extra cash has done little to boost lending, which dropped in the first quarter.
MORE: Ultra-low interest rates are making bonds unsafe
“Many institutions have still seen deposits at the central bank balloon as more liquidity has piled up on their balance sheets in recent years,” analysts Marshall Schraibman and Robb Soukup of bank research firm SNL Financial wrote in report last week.
In the past month or so, interest rates have begun to rise, mostly driven by concern of what the Fed might do and when, now that the economy is improving. But most of that discussion has been around quantitative easing and the Fed’s $3.3 trillion bond portfolio. But what’s not talked about too often is the other hurdle the Fed faces in exiting its stimulus program — how to deal all the cash the banks have parked at the Fed, and what happens to that money.
In part, the two issues — the bond portfolio and the bank cash — are sides of the same coin. When the Fed buys bonds, it’s handing over money to someone, be it a bank or investors. And some of that money undoubtedly ends up deposited at a bank, which has to put it somewhere. When the Fed decides to sell off its bond portfolio it will be essentially taking that cash back, and, poof, the bank deposits will disappear.
MORE: Jamie Dimon’s $5 billion bet against bonds
That’s why some see it as a nearly a non-issue. “Reserves don’t even factor into my model,” says Laurence Meyer, a former Fed governor and head of economic forecasting firm Macroeconomic Advisers. “That’s not what causes inflation and not how the Fed stimulates the economy. It’s a side effect.”
Nonetheless, Meyer says Fed economists have drawn up plans to deal with the growing cash hoard. Many think a massive sell-off of the Fed’s bond portfolio might be too disruptive to the bond market, causing rates to skyrocket, slow the economy and potentially do massive damage to the banks. As such, the Fed is likely to hang onto its bonds until they mature, which could take years. That means the extra cash at the Fed could be around for long after the economy has fully improved.
That may make it harder to rein in inflation with future interest rate hikes. The Fed currently pays banks an interest rate of 0.25% on their deposits, which now amounts to $2.5 billion a year. Some have already called that a back-door bailout for the banks. Although the banks have to pay some of that money out to the FDIC in order to cover their higher deposit insurance….”
Comments »$GIMO Pops 32% for its IPO Debut
Fitch Returns India to a Stable Outlook
“MUMBAI (Reuters) – Fitch Ratings returned India’s sovereign outlook back to “stable” from “negative” a year after its initial downgrade, surprising markets with a validation of the government’s efforts to contain the fiscal deficit and revive economic growth.
The upgrade is likely to be a welcome relief to the government, coming during a period when the rupee had slumped to a record low, and be seen as a reward after months of efforts to cut spending, passing fiscal reforms, and wooing foreign investors.
Analysts, however, were sceptical about the upgrade, reflecting their pessimism about economic growth prospects at a time when inflation, although easing, remains high while the current account deficit remains a thorn to policy makers.
Prime Minister Manmohan Singh’s minority coalition also faces important state votes due before a national election next year, putting into doubt whether it can keep fiscal discipline and pass additional reforms in a gridlocked parliament.
“Challenges remain on the macro economy front, with the weakening rupee and the uncontrollable current account deficit,” said Jagannadham Thunuguntla, equity head at SMC Global Securities in New Delhi.
“There is still a long way to go for a rating upgrade.”
The rupee extended gains on the news, ending up at 57.79/80, well above its Tuesday close of 58.39/40 and its record low of 58.98, also on Tuesday.
The benchmark 10-year bond yield recovered from earlier falls, ending down 1 basis point at 7.29 percent. Stock markets were closed when Fitch made its statement….”
Comments »REALLY? Traders Said to Rig Currency Rates to Profit Off Clients
“Traders at some of the world’s biggest banks manipulated benchmark foreign-exchange rates used to set the value of trillions of dollars of investments, according to five dealers with knowledge of the practice.
Employees have been front-running client orders and rigging WM/Reuters rates by pushing through trades before and during the 60-second windows when the benchmarks are set, said the current and former traders, who requested anonymity because the practice is controversial. Dealers colluded with counterparts to boost chances of moving the rates, said two of the people, who worked in the industry for a total of more than 20 years.
The behavior occurred daily in the spot foreign-exchange market and has been going on for at least a decade, affecting the value of funds and derivatives, the two traders said. The Financial Conduct Authority, Britain’s markets supervisor, is considering opening a probe into potential manipulation of the rates, according to a person briefed on the matter.
“The FX market is like the Wild West,” said James McGeehan, who spent 12 years at banks before co-founding Framingham, Massachusetts-based FX Transparency LLC, which advises companies on foreign-exchange trading, in 2009. “It’s buyer beware.”
The $4.7-trillion-a-day currency market, the biggest in the financial system, is one of the least regulated. The inherent conflict banks face between executing client orders and profiting from their own trades is exacerbated because most currency trading takes place away from exchanges.
Benchmark Investigations…”
Comments »Big Banks Granted Two More Years to Comply With Shifting Risky SWAPS Into New Affiliate
“WASHINGTON—Some of biggest banks on Wall Street will get an additional two years to comply with a post-financial crisis rule requiring they move risky swap activities into separate affiliates.
The Office of the Comptroller of the Currency said it granted extensions to seven banks, giving them until July 2015 to comply with so-called “swaps push-out” rules required by the 2010 Dodd-Frank law.
While the move was largely expected, the OCC’s action could further inflame criticism that much of Dodd-Frank remains undone nearly three years after its passage. As of June 3, just 38% of rules required by Dodd-Frank had been finalized, while 63% of rule-writing deadlines have been missed, according to law firm Davis Polk.
The OCC notified Bank of America Corp., BAC -1.37% J.P. Morgan ChaseJPM -1.63% & Co., Citigroup Inc., C -3.96% Wells Fargo WFC -1.50% & Co., HSBC Holdings HSBA.LN +0.33% PLC, Morgan Stanley MS -4.06% and U.S. BancorpUSB -0.51% that they were granted a 24-month extension in response to their requests for a longer transition period.
The banks declined to comment.
The move comes less than a week after the Federal Reserve said foreign banks also will be eligible for the two-year delay in complying with the rule, which is slated to take effect July 16.
The rule is intended to move some of the banks’ riskiest activities to affiliates that aren’t eligible for access to the federal safety net, including federal deposit insurance and the Fed’s discount window. The provision, pushed by then-Senate Agriculture Chairman Blanche Lincoln (D., Ark.), requires banks to spin off some derivatives trading operations into separate units….”
Comments »$PFE and Takeda Reach a Settlement $TEVA and Sun Pharmaceutical For Generic Patent Infringement
“Pfizer Inc. PFE +0.18% and Takeda Pharmaceutical Co. 4502.TO -1.36% have reached a $2.15 billion settlement with Teva Pharmaceutical Industries Ltd.TEVA -0.43% and Sun Pharmaceutical Industries Ltd. 524715.BY -0.17% for patent-infringement damages resulting from their launches of generic Protonix in the U.S.
The settlement comes after a nearly 10-year legal battle in which Pfizer and Nycomed—now part of Takeda—sought to enforce the patent for the blockbuster acid reflux medicine.
Pfizer will get 64% of the settlement’s proceeds, while Takeda will get the remainder….”
Comments »In Play and On the Wires
Gapping Up and Down This Morning
Upgrades and Downgrades This Morning
Upgrades – AMRI, MDRX, AEP, AWK, APO, AMAT, SAM, CRL, HMA, LEN, MDAS, SE, TXRH,
Downgrades – BIIB, DF, KGC, LM, MPLX, ORIG, PRU, Q, USB, WFC,
Comments »David Rosenberg Sings a Bulls Song
“Here are some bullish insights from an unlikely source – David Rosenberg:
“First, sentiment has come down from recent lofty levels. That is encouraging.
Second, earnings estimates have stopped going down. That is good news.
Third…”
Comments »The Emerging Market Debacle May Cause Fed to Put Off Tapering
“LONDON (Reuters) – If currency turbulence in emerging markets escalates into full-scale investor flight, the Federal Reserve may have a fresh headache in deciding when to slow its dollar printing policy.
Given all the obvious influences on Fed policy – domestic inflation, jobless youths, long-term unemployment, stuttering credit creation or banking stability – gyrations on markets from Turkey to South Africa or South Korea may seem tangential.
But an enmeshing of the United States and the economies of the developing world since the turn of the century means the link between U.S. monetary policy and currency runs on the other side of the world could be tighter than many assume.
Another financial shock now in emerging economies that use vast holdings of U.S. Treasury bonds as capital insurance buffers could complicate a Fed exit from quantitative easing.
“As with so many previous emerging crises, although the Fed often triggers the withdrawal, it’s then forced to turn more accommodative by default as a result of the fallout,” said Simon Derrick, strategist at Bank of New York Mellon.
“MA(f)D”
To avert the sort of protracted and devastating investment freeze they suffered in the late 1990s, economies across Asia and around the globe have built up huge hard-cash buffers as protection against future ‘sudden stops’ in foreign financing….”
Comments »CBOE Settles With the SEC Over “Systemic Breakdowns” in Regulating Naked Shorting
“The Securities and Exchange Commission widened its crackdown on a controversial practice known as “naked shorting” by charging the Chicago Board Options Exchange with “systemic breakdowns” in the exchange’s regulatory and compliance functions.
The CBOE agreed to pay a $6 million fine and implement major reforms to settle the SEC’s charges. This is the first time an exchange has been assessed a fine for violations related to its regulatory oversight role, according to the SEC. (You can read the SEC’s press release here.)
The settlement follows a decision Monday by an SEC judge to fine a former Maryland banker accused by the SEC of engaging in billions of dollars in naked short trades. The Charles Schwab owned brokerage optionsXpress and its former chief financial officer were also penalized for violating laws aimed at banning naked shorting.
A naked short trade occurs when a trader sells a stock he does not own and does not intend to borrow to deliver to the buyer. An SEC rule known as Reg SHO is meant to ban the practice, which the SEC regards as abusive and harmful to markets….”
PIMCO Estimates a 60% Chance of Recession in 3-5 Years
“High debt levels have raised the chances of a global recession in the next three to five years to more than 60 percent, said Pimco, which manages the world’s largest bond fund.
The world economy goes through a recession about every six years and the frequency of global recessions tends to rise when global indebtedness is high and falling compared with when indebtedness is low and rising, Pacific Investment Management Co (Pimco) said in a note published on its website late Tuesday.
“Given that the last global recession was four years ago, and also given that the global economy is significantly more indebted today than it was four years ago, we believe there is now a greater than 60 percent probability that we will experience another global recession in the next three to five years,” Saumil H. Parikh, a managing director and generalist portfolio manager at Pimco said in the note.
The U.S. had a debt to GDP ratio of about 101.6 in 2012, up from 99.4 in 2011. Japan, the world’s third largest economy after China and the U.S., has a debt to GDP ratio of more than 200 percent….”
Comments »Apollo Tyres of India Buys $COO for $2.5 Billion
“Combination Creates World’s Seventh-Largest Tire Company with $6.6 Billion in Revenue
GURGAON, India & FINDLAY, Ohio–(BUSINESS WIRE)– Apollo Tyres Ltd (NSE: ApolloTYRE) and Cooper Tire & Rubber Company (NYS: CTB) today announced the execution of a definitive merger agreement under which a wholly-owned subsidiary of Apollo will acquire Cooper in an all-cash transaction valued at approximately $2.5 billion. Under the terms of the agreement, which has been unanimously approved by the boards of directors of both companies, Cooper stockholders will receive $35.00 per share in cash. The transaction represents a 40% premium to Cooper’s 30-day volume-weighted average price.
This strategic combination will bring together two companies with highly complementary brands, geographic presence, and technological expertise to create a global leader in tire manufacturing and distribution. Apollo, founded in 1972, has an international reputation for high performance tires across a portfolio of well-known premium and mid-tier brands, including the flagship Apollo brand and Vredestein. Cooper, the 11th-largest tire company in the world by revenue, was founded in 1914 and today supplies premium and mid-tier tires worldwide through renowned brands such as Cooper, Mastercraft, Starfire, Chengshan, Roadmaster and Avon.
The combined company will be the seventh-largest tire company in the world and will have a strong presence in high-growth end-markets across four continents. With a combined $6.6 billion in total sales in 2012, the combined company will have a full range of brands and greater ability to satisfy customer needs worldwide….”
Comments »$RMBS Pops 9% as They Settle Litigation Suit With Hynix
“Rambus Inc. (RMBS) said it settled its patent litigation with SK Hynix Inc. (000660) and signed a license agreement for the South Korean memory-chip maker to use its technology.
“This is a milestone agreement for both companies that puts years of legal disputes behind us and gives us the opportunity for collaboration,” Rambus Chief Executive Officer Ron Black said yesterday in a statement.
The five-year agreement with SK Hynix will bring in $12 million a quarter, according to the statement.
A federal judge in San Jose, California, last month ordered Rambus to pay $250 million to SK Hynix for destroying documents in their litigation. Rambus, based in Sunnyvale, California, won a $349 million judgment on its patent-infringement claims in 2006.
Representatives of SK Hynix didn’t immediately respond to an e-mail seeking comment on a licensing accord….”
Comments »$GOOG, $MSFT, and $FB Request Transparency From the Government in a Bid to Distance Themselves
“Three of the largest Internet companies called on the U.S. government to provide greater transparency on national security requests on Tuesday, as they sought to distance themselves from reports that portrayed the companies as willing partners in supplying mass data to security agencies.
In similarly worded statements released within hours on Tuesday, Google,Microsoft and Facebook all asked the U.S. government for permission to make public the number and scope of data requests each receives from security agencies.
Each of the companies, and several others, have come under scrutiny following disclosures in The Guardian and Washington Post newspapers of their role in a National Security Agency data collection program named Prism….”
Comments »Au Falls Agains on Extended Chinese Holiday
“SINGAPORE (Reuters) – Gold fell for a second straight day on Wednesday as a holiday in China deprived the metal of a strong support base and as investors worried about global central banks scaling back their easy-money policies.
The Bank of Japan’s (BoJ) move on Tuesday to refrain from taking fresh steps to calm turbulence in the domestic bond market, and Standard & Poor’s upgrade of the U.S. credit outlook on Monday indicated that the global economy was on track for a recovery, hurting bullion’s appeal as a hedge against inflation.
“The sentiment is still bearish,” said a trader in Sydney. “Since there is no China today, we can expect gold to fall again towards $1,365.”
China, which is on a three-day holiday for the Dragon Boat festival, has been a key support for gold prices during Asian hours as its demand continues to be strong. The No. 2 bullion consumer has, to an extent, overshadowed concerns about slowing demand in India, the biggest gold buyer, traders have said.
China’s gold imports from Hong Kong touched an all-time high in March as buyers scrambled to buy bullion, and the surging appetite caused a supply shortage in April. Premiums for gold bars in China also touched record highs last month.
“With the Chinese out until Thursday, the market is lacking a key stabilising factor, and we continue to see little support for gold at least until their return,” ANZ analysts wrote in a note.
Spot gold fell 0.3 percent to $1,375.1 an ounce at 0642 GMT, after a 0.5 percent drop the day before as equity and commodity markets were rattled by the BOJ standing pat….”
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