Much Ado About TED, LIBOR, and Currency Swaps

There is some alarm being expressed about the recent increase in the TED spread from some quarters this week.

Here is a short term chart of the TED. It is definitely elevated expressing the accelerated demand for dollars in Europe. Although the BIS reports will not catch up with this action for quite a while, I suspect we are seeing a replay of a flight away from dodgy assets such as dollar denominated CDO's that European customers had deposited with their banks that are now being liquidated again. Also, and undeniably, there is a flight to gold, Swiss francs, and US dollars from the Euro as the ECB and the EMU sort out their serious issues brought about by a single currency and monetary policy working across a wide diversity of localized fiscal conditions.



However, here is the longer term picture of the TED spread. As you can see, it is a bit too early to hit the warning sirens. But it does bear watching.



The long view is not very dramatic, and also not as useful for promoting short euro hedge fund trades, or for generating viewer clicks.

For some additional perspective, here is a chart of the one year LIBOR rate.



Here is a short term view of LIBOR in US Dollars. It is definitely elevated.



But here is a similar short term view of LIBOR expressed in ECU's. By comparing the two LIBOR charts one might think that there is an elevated demand for dollars, probably attributable to a flight to safety. The DX chart indicates that it seems to be peaking. But it can always take a turn for the worse.



And while we are at it, here is a reprise of a prior discussion of the Fed's swap lines with Europe, designed to relieve imbalanced demand for dollars.

The US is indeed contributing to the bailout of Greece, via its membership in the IMF. But not through the currency swap lines, unless there is something else going on there behind the scenes. Since the US owns the biggest printing press in the world, at least for now, that would not be a shock.

There may be a time to worry about European insolvency. But quite a bit of what we are hearing about Europe these days seems a bit overwrought, and spoken from the perspective of a particular set of speculative trades.

SP 500 Daily Chart and The Planet of the Apes

The SP futures declined to briefly touch a channel trendline that goes all the way back to the intraday spike lows of October 2009!

The market is rallying sharply now, and if it can retake the old support, now resistance, around 1105 it has a good chance of setting a new uptrend back to the top of the channel. This could just be a dead cat bounce. I was looking at some of the indicators last night, and they were at record oversold levels going back at least four years, including the crash.

Was all this a trading gambit mixed with petulance over the financial reform package? In a normal market I would say "nonsense." But this market is thin, like a Ponzi scheme, driven by high frequency trading and artificial liquidity. The few genuine investors are being chased and shot down like the human beings in The Planet of the Apes. The Wall Street gorillas have all the horses, nets and rifles, courtesy of the government, the regulators, and the Fed.

The smackdown in gold and silver ahead of option expiration next week, and the miners' option expiration today, was some of the most blatant and heavy handed market manipulation I have seen in a long time.

The US is badly in need of adult supervision and behavioural modification. Not the much maligned people, the long suffering public which seeks only to go about its daily business creating wealth in the real economy in the face of mounting hardships, but rather the corrupt and irresponsible government, and the pampered princes of Wall Street, who are engaged primarily in wealth extraction and redistribution, primarily for themselves.

Washington can pass all the reforms it wishes. But until it obtains the will and the regulators to enforce the laws, including the existing laws, it is all merely a show to placate the public and maintain a misplaced confidence in 'extend and pretend' sustained by self-serving neo-liberal economic mythology.

"Meanwhile, the financial sector is to be enriched by the translation of junk economics into international policy. Living in the short run is the financial sector¹s time frame ­ while distracting the attention of indebted populations from calculations that Wall Street understands quite well: the debts cannot be paid in the end.

But they can be paid in the short run, with promises to pay someday ­ as if any economies ever have been able to grow by imposing austerity! It is all junk economics, of course. But it buys time for the bankers to pay themselves yet more bonuses this year. By the time the financial system collapses, they presumably will have put their money into hard assets.

Bank lobbyists know that the financial game is over. They are playing for the short run. The financial sector’s aim is to take as much bailout money as it can and run, with large enough annual bonuses to lord it over the rest of society after the Clean Slate finally arrives. Less public spending on social programs will leave more bailout money to pay the banks for their exponentially rising bad debts that cannot possibly be paid in the end. It is inevitable that loans and bonds will default in the usual convulsion of bankruptcy."

Michael Hudson

As the crisis continues unreformed, the frauds will become increasingly outrageous, and obvious, to all those with a willingness, and yes the courage, to see things as they really are.

The Horizons AlphaPro Dennis Gartman ETF and Its Narcoleptic Returns

"The investment objective of the Horizons AlphaPro Gartman ETF (the “ETF”) is to provide investors with the opportunity for capital appreciation through exposure to the investment strategies of The Gartman Letter, L.C. (“Gartman”), founded by Dennis Gartman. The ETF will use equity securities, futures contracts and exchange-traded funds to provide the ETF with long and short exposure to multiple asset classes which may include but are not limited to global equities, commodities, fixed income and currencies.

The ETF provides long or short exposure to multiple asset classes including global equities, commodities, fixed income and currencies."

The ETF seems to be underperforming the major indices and precious metals, and mostly everything except for Obama's approval ratings. It did perform a little better than the TLT 20 Year bond index. At least their performance is consistent.

In fairness to Mr. Gartman I do not know how faithfully this ETF follows his philosophy and market 'calls.'

Perhaps this is like one of those Krusty the Klown franchise deals where the product only involves his name, philosophy, pictures, quotes, and trademarks, with no responsibility or genuine involvement in the content. I would suppose he is getting something out of this deal.

I mean look at their returns for the past year. It defines 'mediocrity.' A passbook account at .25% offered better returns with less risk.

I did think that it was cute that they blamed "President Obama's attack on the financial sector' for their lousy performance this year. LOL The Congress could not reform a schoolyard with a SWAT team if the kids had enough leftover lunch money to make it worth their while.

The Gartman ETF seems to be doing a little better than Goldman's advice to its retail clients, which has been wrong 7 out of 9 times according to recent stories from Bloomberg. Gee, do you think they are doing so well because they are doing what they do best, and taking the other side of the trades for their own book? Oh no, I forget. They are "market makers."

At least the Gartman ETF managed to get a memorable symbol for the ETF, HAG:TSX. I suppose DEDMUNI:TSX was out of the question.

When someone sent this chart and fund description to me I thought it was a hoax. I guess you really can't make this stuff up.

Oh well. Another Wall Street legend, shot to hell. Still, tomorrow is another day.

SP 500 June Futures Daily Chart at 1:00 PM EDT, and NDX Futures into the Close

Having broken lower from the first decision point, the US equity market has continued lower, presumably towards the support at the lower end of the long term trend channel.

As a reminder, option expiration is tomorrow for stocks, and next week for Comex precious metals options.

Did the Flash Crash probe the way lower? Traders, and I am one, are notoriously superstitious and suspicious about such unexplained movements, suspecting that they are exploratory and will likely be retraced.

Well, we're there. Wash and rinse. Wax on, Wax off. Make it on the way up, and on the way down. As long as you are fleecing the sheep. That is how you gain a perfect trading record, if you are dealing the cards, playing with guaranteed house money, and peeking in everyone's hands, if even only by milliseconds before they make their plays. Get them buying hope, and then selling panic. It's all good if you can keep the money moving across your tables.



If that support does NOT hold, we're not in Kansas anymore Toto. But some sort of bounce seems more likely at the moment. Ben has not yet begun to print. I think they're just negotiating terms and turf right now.

Later: Here are the NDX June Futures going into the NY close of trading. The futures were selling off HARD led by the financials. The SP futures were looking for traction again around that key 1070 support and barely hanging on, with a similar story around 1800 support on the big cap tech NDX. The SP futures have a definite shot at the prior lows in the overnight trade.

Gold and silver spot was holding the exact levels where I would have expected them to find something to hang on. Let's see stocks go into option expiration tomorrow. There are a lot of calls that are going to be expiring worthless. I wonder if they will try and jam the puts for a little whipsaw action.

I will be a little surprised if they let gold up for air before its own expiration next week.