SP 500 and NDX Futures Daily Charts - Bernanke in Twitterland

We start hitting the substance of the economic reports with GDP tomorrow and Non-Farm Payrolls on Friday.

The Twitter IPO looms over the market action as well as the real economy, and I have a sneaking hunch that the Street will support stocks until Twitter gets shoved out the door tomorrow, and perhaps for a few days after.  As you have probably heard it is coming out on the higher side of $26 per share.   Let's see how it does in the market.

I am not in stocks here, but am fighting an urge to get something going on the short side until we get a better idea if they can keep this pig in makeup for the year end ramp at least.  Twitter may give us some insight.

This market is built on a foundation of meringue, supplied by those little elves at the Fed, who are pumping huge sums to Wall Street while Main Street languishes with little excess buying power and a floundering median wage.

While the Fed does not control fiscal policy, they have a huge amount of leverage as a primary bank regulator that they are not using well.

Have a pleasant evening.

The Wall Street Code

“The complaints of the privileged are too often confused with the voice of the masses...The man who is admired for the ingenuity of his larceny is almost always rediscovering some earlier form of fraud. The basic forms are all known, have all been practiced.”

John Kenneth Galbraith


"It is difficult to get a man to understand something, when his salary depends upon his not understanding it."

Upton Sinclair

This is not quite as complex as it seems, at least in my thinking with regard to the principles of the fraudulent aspects of it. The complexity comes in the implementation of the trading code, not in the design of the system. I have been in groups that have taken on much hairier network and computing problems, and I know what self-induced complexity looks like, and understand its true purpose. 

I thought the example of line jumping for concert tickets in the video was a fairly good metaphor from which to start thinking. 

It is all about a lack of transparency, asymmetry of information, and special rules for certain people who are 'connected' in the traditional sense. 

So you establish top down market principles of transparency and equal protection. You place an order and it has a fixed life of one second.  Everyone has the same privileges of trading in the same priorities and monetary units, that is, everyone can trade to the whole cent, or the tenth of a cent with equivalent fill priority.  And everyone knows what the other players can know when they know it.

Yes the exchange can make money by selling certain key information to the highest bidder, but in doing so it has just undermined the integrity of the exchange, so too bad.  Exchanges are utilities operating under license like other utilities, and not spying agencies or extortionists who happen to run an exchange.  And if you don't want to be a utility operating within certain constraints, find some other business.

Transparency and equality. Wow, what arcane concepts.

And a very nominal fixed transaction tax of five cents per every order placed, like a toll, to fund the costs of regulation of the exchange, would be quite effective, in addition to some fundamental hysteresis on every order as described above.

Most of the complexity is unnecessary and designed for asymmetric advantage for insiders, and not for liquidity which is the great bogeyman of the Street. HFT is predatory in nature and provides no liquidity. Liquidity is not volume, it is the money that stands in the market in the locus of genuine price discovery, and stands its ground on that, and not on the next price tick.

You have to ask, what is the purpose of this system? And if the answer is fairness and soundness of price discovery, and not making the most money for powerful insiders, the answers start to clarify from first principles. These used to be called moral values.

Some fairly simple changes would fix all this, based on fundamental concepts like transparency and equal protection. The problem is that politicians and private firms make enormous sums by taking some 'vig' or vigorish from each and every trade by the 'dumb' or outsider money.

Most frauds have a lot of flash and dazzle for misdirection, but deep down they are always shockingly simple, and most often based on time honored cheats.

Eliot Spitzer and Bill Black certainly 'get this.' Lots of good people do. But the Banks use their friendly politicians and the power of money to isolate them. Just denying access to key careers or events is often enough to obtain most people's silence. This is how the status quo perpetuates itself, with money and the credibility trap. It is not dissimilar to organized crime.

The regulators should be ashamed, but they can point to the politicians, and the politicians can take the 'CEO defense' of not understanding what is going on. And the band plays on. There is some hope that the institutions might start using their leverage more effectively in their fiduciary roles, because without them the game ends. They are the 'marks' and their naivete is the criminal's incentive.

Taibbi: JPM Chase Is Not the Only Bank In Trouble - Credibility Trap - Pigmen Agonistes

If you want to take the unadjusted temperature of the ongoing financial crisis, you don't go to the financial talking heads and spokesmodels at CNBC or Bloomberg TV, but rather to the sportswriter at Rolling Stone magazine.

I particularly liked this piece because it is a nice vignette of the credibility trap in action.

I am not optimistic.  The powers that be have far too much of their own skin in the game to engage in meaningful reform.    Both parties are in the tank for the monied interests.  It will not be easy, but change will come.

And Taibbi does not even touch on the developing gold bullion scandal, which will shake the Western central banks to their foundations when their perfidious collusion with the bullion banks to steal the wealth of nations is finally revealed.

Enjoy.

Chase Isn't the Only Bank in Trouble
By Matt Taibbi
November 5, 12:55 PM ET

"There are multiple scandals blowing up right now, including a whole set of ominous legal cases that could result in punishments so extreme that they might significantly alter the long-term future of the financial services sector.

As one friend of mine put it, 'Whatever those morons put aside for settlements, they'd better double it...'

Firstly, there's a huge mess involving possible manipulation of the world currency markets. This scandal is already drawing comparisons to the last biggest-financial-scandal-in-history (the Financial Times wondered about a "repeat Libor scandal"), the manipulation of interest rates via the gaming of the London Interbank Offered Rate, or Libor. The foreign exchange or FX market is the largest financial market in the world, with a daily trading volume of nearly $5 trillion...

The Forex story broke at a time when the industry was already coping with price-fixing messes involving oil (the European commission is investigating manipulation of yet another Libor-like price-setting process here) and manipulation cases involving benchmark rates for precious metals and interest rate swaps. As Quartz put it after the FX story broke:

For those keeping score: That means the world's key price benchmarks for interest rates, energy and currencies may now all be compromised.

Perhaps most importantly, however, there's a major drama brewing over legal case in London tied to the Libor scandal.

Guardian Care Homes, a British "residential home care operator," is suing the British bank Barclays for over $100 million for allegedly selling the company interest rate swaps based on Libor, which numerous companies have now admitted to manipulating, in a series of high-profile settlements. The theory of the case is that if Libor was not a real number, and was being manipulated for years as numerous companies have admitted, then the Libor-based swaps banks sold to companies like Guardian Care are inherently unenforceable.

A ruling against the banks in this case, which goes to trial in April of next year in England, could have serious international ramifications...

And virtually simultaneous to that, JP Morgan Chase disclosed that it is currently the target of no fewer than eight federal investigations, for activities ranging from possible bribery of foreign officials in Asia to allegations of improper mortgage-bond sales to . . . the Libor mess. "The scope and breadth of risky practices at JPMorgan are mind-boggling," Mark Williams, a former Federal Reserve bank examiner, told Bloomberg.

The point of all of this is that any thought that the potential Chase settlement might begin a period of regulatory healing for it and other Wall Street banks appears to be wildly mistaken. If anything, the scope of potential liability for all the major banks, particularly in these market-rigging furors, appears to be growing in all directions...

One gets the feeling that governments in all the major Western democracies would like to sweep these manipulation scandals under the rug. The only problem is that the scale of the misdeeds in these various markets is so enormous that even the most half-assed attempt at regulation will cause a million-car pileup. (This is the credibility trap in action, and how it impedes the reforms necessary to achieve sustainability. A lot of those cars are limos filled with politicians taking a free ride. - Jesse)

There's simply no way to do a damage calculation that won't wipe out the entire finance sector when you're talking about pervasive, ongoing manipulation of $5-trillion-a-day markets. That's the problem – there's no way to do a slap on the wrist in these cases. If they're guilty, they're done."

Read the entire article here.

Gold Daily and Silver Weekly Charts - Claims Per Deliverable Ounce to 59

"People criticize owning bullion because there’s no yield. But there’s a reason everything else needs a yield, to compensate you for things like obsolescence risk, business-cycle risk, and management risk, all of the things that gold doesn’t have.

We’re not gold bugs, but there’s a reason humanity has tended to use gold as an alternative to man-made currency: it’s the only virtually infinite-duration asset in the world."

Matthew McLennan


"Indeed there can be no criterion, no other standard than gold. Yes, gold which never changes, which can be shaped into ingots, bars, coins, which has no nationality and which is eternally and universally accepted as the unalterable fiduciary value par excellence."

Charles de Gaulle


"The Lydian Lion coins are in significant demand because of their history, the evocativeness of their design, their metallurgic characteristics, and their mystery. Other coins may vie for the title of the world's first coin, also from Lydia, nearby in Ionia, in the Middle East, and across the world in India and China, though none do so as persuasively. The Lydian Lion is the one coin that has been referred to as "The Coin."

It directly preceded ancient Greek coinage, which through Rome begot all Western coinage, and which through the Seleukids, Parthians, and Sassanians begot all Islamic coinage. Indian coinage has largely been a product of Greek, Roman, and Islamic influences. Chinese coinage, though it probably developed independently, was succeeded by Western-style coinage in the late nineteenth century."

Gold caught an obvious hit on the Comex open that took it back down from the 1320 level.

Silver also traded sideways.

There was no serious movement at the Comex warehouses with just 3 kilo bars Brink's customer storage, and nothing coming in.

The claims per deliverable ounce have risen to 59, back to the all time high once again.  

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - The Pause That Refreshes

Stocks were flat to mixed today, as the market pauses ahead of the more significant economic data later this week.

Have a pleasant evening.

NAV Premiums of Certain Precious Metal Trusts and Funds - Plus C'est la Même Chose

"We find our population suffering from old inequalities, little changed by vast sporadic remedies. In spite of our efforts and in spite of our talk, we have not weeded out the over privileged and we have not effectively lifted up the underprivileged. Both of these manifestations of injustice have retarded happiness.

No wise man has any intention of destroying what is known as the profit motive; because by the profit motive we mean the right by work to earn a decent livelihood for ourselves and for our families.

We have, however, a clear mandate from the people, that Americans must forswear that conception of the acquisition of wealth which, through excessive profits, creates undue private power over private affairs and, to our misfortune, over public affairs as well. In building toward this end we do not destroy ambition, nor do we seek to divide our wealth into equal shares on stated occasions.

We continue to recognize the greater ability of some to earn more than others. But we do assert that the ambition of the individual to obtain for him and his a proper security, a reasonable leisure, and a decent living throughout life, is an ambition to be preferred to the appetite for great wealth and great power."

Franklin D. Roosevelt, 1935


"They were ruined, when they were required to send laboring children to school; they were ruined, when inspectors were appointed to look into their works; they were ruined, when such inspectors considered it doubtful whether they were quite justified in chopping people up with their machinery; they were utterly undone, when it was suggested they need not always make quite so much smoke.

Besides Mr. Bounderby’s gold spoon which was generally received in Coketown, another prevalent fiction was very popular there. It took the form of a threat. Whenever a Coketowner felt he was ill-used, that is to say, whenever he was not left entirely alone, and it was proposed to hold him accountable for the consequences of any of his acts—he was sure to come out with the awful menace, that he would ‘sooner pitch his property into the Atlantic.'"

Charles Dickens, Hard Times