Cracking Down on Naked Short Selling of Treasuries

The 'fails to deliver' statistics on debt instruments is almost as interesting, and a bit less opaque, than the naked short selling of equity instruments.

A "fail to deliver" occurs when someone sells an asset such as a Treasury note to another party and then does not deliver it within a reasonable period of time.

As you can see from the chart, this had become a pandemic fraud recently as investors flocked to Treasuries as a safe haven and the usual front running hedges started falling apart.

Let's see how this works, and if the 'financial charge' is more than a wristslap to the hedge funds and banks who engage in these practices.

Now, if someone could kindly turn some attention to the obvious naked short selling in commodities and equities, other than when their banking friends are in trouble, we might see a return to markets based on some reasonable approximation of the fundamentals and price discovery of value, rather than blatant manipulation of nearly everything as facilitated by the demimondes of Wall Street.

The banks must be restrained, and the financial system reformed, before there can be any sustained recovery in the real economy.


New York Fed Applauds Implementation of the TMPG's Fails Charge Recommendation
May 1, 2009

The Federal Reserve Bank of New York welcomes today’s implementation of the Treasury Market Practices Group’s (TMPG) recommendation that settlement fails in U.S. Treasury securities transactions be subject to a financial charge when short-term rates are low. The TMPG worked with both buy- and sell-side market participants to address a weakness in market practices that became apparent last fall when short-term market interest rates neared zero.

The New York Fed has adopted this new trading practice in its own market operations and continues to encourage its adoption by all market participants. (The New York Fed was frontrunning Treasuries and selling them naked short? LOL Maybe they were getting tired of the abusive insider trading since they were now in a position to support the bonds. - Jesse)

"We applaud the dedicated efforts of the TMPG in spearheading the development and implementation of this targeted solution to the settlement fails problem," said New York Fed President William Dudley. "This significant milestone in the evolution of Treasury market practice demonstrates that groups, such as the TMPG, are effective in addressing deficiencies in market functioning and facilitating market best practices."

The New York Fed acknowledges all of the market participants who joined this effort to develop this new trading practice guidance. In particular, the Securities Industry and Financial Markets Association, the Fixed Income Clearing Corporation, the Securities and Exchange Commission and the U.S. Treasury Department have provided critical support and guidance throughout this process.

Is the Rally Over, Almost Over, or Still on Its Way to a New High?

"Life is a School of Probability." Walter Bagehot

Probability does not tell you what WILL happen. It only tells you what is likely to happen, with a generous dose of conditionality.

Probability is a living, changing condition in the markets. Additional iformation over time will modulate the forecasts and levels of support and resistance.

Silver First Notice Day

This note just received from a metals trader:

"Today is first notice day for the silver futures contract. The open interest as of the end of yesterday is a good approximation for the number of contracts that will stand for delivery, as brokers typically require any longs not funded for delivery to be sold or rolled forward by the end of trading the day before 1st Notice (some require this up to 3 days before).

Comex May silver Open Interest as of yesterday's close was 4365. I don't think this includes the old CME contract, which is the NYSE Liffe contract, so this number ultimately may be low.

These 4365 contracts equate to 21.8 million ounces, or 33% of the amount of silver on the Comex that is registered for delivery. Not enough to do real damage to the Comex inventory, but probably enough raise some eyebrows around the world. I am absolutely convinced that part of this week's pure paper attack on silver was designed to discourage longs from taking delivery."

The silver market has been manipulated for some time now based on what we have seen. Interestingly enough one of the principle players had been the London crew of AIG, who apparently had to find a new routine when AIG exited that trade a few years ago. What was an insurance company doing as a major trading player in the metals markets? Because they had not yet discovered the benefits of selling increasingly worthless derivatives.

If this is true, if these markets are being used in this way, then we should see increasing shortages of the physical products until the exchange delivery mechanism is broken, and the contracts force settled in cash, with defaults in funds galore.

The investigation into the metals and energy markets by the CFTC and other government agencies makes the SEC appear to have the wisdom and integrity of Solomon.

Let's see how this plays out, and how it is spun if and when it breaks. It's sure to be amusing.

SP Futures Hourly Charts: Frauds R' US

Do not get in front of this rally on the short side. It appears to be the end of month tape painting, but the primary short term trend is still up.

If we break key supports it may drop quickly.

This 'could be' an official reflation, supported by the Treasury and the Fed, such as we saw from the bottom of the market in 2003 that provoked the housing bubble. But the economy is now so crippled that we doubt they can sustain this latest attempt to cover over the rotting Potemkin economy with paper and paint.

These fellows leading us are like a more sophisticated and polished version of Bernie Madoff, full of smooth talk, impressive results and short term gains that lead to worse problems and staggering losses.

How many times can we be fooled? How many times will the world fall for this fraudulent printing of wealth?

You are not wrong; you are not alone in your thoughts. Madness is madnesss, no matter how popular it may be, appearing attractive, clever, well-presented, and enticing in the short term.