By: Pej Hamidi of T3LiveCan someone explain to me how one converts a “swap” into a “future”? That’s pretty cool: A very short-term commitment to a lot of risk, usually overnight, somehow converted into an exchange tradeable future. (Except custom Swaps for hedgies: think John Paulson Short Housing CDS’s; takes huge capital to even think of structuring one).
An obvious regulatory arbitrage trade: NASDAQ confirms they expect a “nine-figure-per-year opportunity” according to Traders Magazine, page 34 January 2010 “Betting on Swaps”. NASDAQ wants to use their purchase of the PHLX and the PBOT to create a customer & dealer driven clearing platform, especially for esoteric, complex products like Swaps and Futures. Let’s hope the dealers come on board and maybe we can start trading SWAPS in small pieces shorting Emerging Market Debt with other debts of developing countries.
Just for now, I would love to put that trade on. Iran is experiencing a Bank run. Remember: Iran pegs to the almighty USD. By the time a bank run starts, the Iranian Revolution has already begun. If the regime lets the Rial actually float (a comic proposition) only Allah knows where it will floor, or if it will even be worth as much as the Iraqi Dinar. How embarrassing.
On the other hand, let’s say they switch to a managed float like China, where they peg to a basket. Iran has built up their reserves in other assets. They just might be able to pull this off. It may also show who these huge buyers in the Gold markets are that are taking delivery of their gold contracts rather than rolling over. If you haven’t noticed, check out how much “taking delivery” vs. “rolling” the contract has changed. Gold Storage is a profitable business and very much in demand.
Lastly, they could throw SDR’s into the fold. Iran does have quite a few. They can link to SDR’s, or include them in a basket, not sure on this. If you don’t know what SDR’s are:
“The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. Its value is based on a basket of four key international currencies, and SDRs can be exchanged for freely usable currencies. With a general SDR allocation that took effect on August 28 and a special allocation on September 9, 2009, the amount of SDRs increased from SDR 21.4 billion to SDR 204.1 billion (currently equivalent to about $324 billion).”
I hope INTERPOL makes a bit of an effort to bring these killers to justice.
Lawrence Delevingne of Clusterstock
One of the most stunning mea culpas following the financial crisis was former Fed chairman Alan Greenspan’s admission in October 2008 that he had put too much faith in the free market to regulate itself.
His reputation damaged, Greenspan is hitting back.
In an interview with FORTUNE’s Geoff Colvin, Greenspan takes on his critics and says the housing bubble was a “once-in-a-century event.”
Colvin writes, “[Greenspan] believes the case against him is wrong. What is surprising is how deeply he analyzes the debate. He studies the data and is confident it will exonerate him. He is marshaling his facts and will present his data-driven analysis in a 12,000-word article, but hasn’t said when. Of course he doesn’t like what’s happening to his reputation, yet he seems sure that when this recession is past and informed people can look at the whole picture dispassionately, they’ll agree that he didn’t cause the crisis and couldn’t have prevented it.”
Some highlights:
- On his “business life,” Greenspan tells FORTUNE: “My actual business life hasn’t changed since 1948…The only thing that has changed is my employer…I have fewer meetings and spend less time on uninspiring matters.” He describes his current role as “studying data and trying to figure out how the world works.”
- On one of his staunchest critics and his good friend John Taylor, who has written scholarly papers intended to show that badly misguided Fed actions under Greenspan created the housing bubble: “He is a very good friend. But his evidence doesn’t show what he says it shows.”
- On the housing bubble: “Mortgage rates started moving down six months before we lowered the Fed funds rate.”
- On the breakdown in the financial system: “Counterparty surveillance failed to protect the system this time…I always thought it would. I held that belief for 60 years.”
- On whether tougher regulation is the answer: “I was on the board of J.P. Morgan prior to becoming Fed chairman…I knew what J.P. Morgan knew about Citi, Bank of America, Wells, and others. When I arrived at the Fed, I quickly learned that J.P. Morgan’s knowledge of those organizations was far greater than what the Fed knew…Counterparty surveillance will remain the regulators’ first line of defense.”
Read the full story here.
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(This post previously appeared at the author’s website)
With today’s unexpected decline in December payrolls, the cry for more job-related stimulus will grow even louder. But the sad truth is that any new stimulus or jobs bills will ultimately swell the ranks of the unemployed, thereby raising calls for an even bigger federal effort. If we are not careful, government regulations, subsidies, and spending, all designed to fight unemployment, could push the labor market into a death spiral.
Regulation acts like a tax on job creation. By subjecting employers to all sorts of extra expenses when they hire people, regulations increase the cost of employment far beyond the wages employers actually pay their workers. In fact, some regulations are specifically tied to the number of workers employed. This provides some employers with a strong incentive to stay small and not hire.
The minimum wage law, which is really just a very visible workplace regulation, actually makes it illegal for employers to hire certain individuals and destroys entire categories of jobs. For instance, faced with high labor costs, some restaurants will avoid hiring dishwashers by switching to plastic utensils and paper plates. On a larger scale, factories may decide to switch to robotic assembly lines if human labor gets too expensive.
Other types of regulations, such as those that prohibit discrimination, create incentives for employers not to hire individuals that fall within the protected class. This is the result of potential litigation costs that may result from wrongful termination lawsuits. In other words, the more expensive government makes it to fire workers, the less likely they are to hire them in the first place.
Subsidies produce the opposite effect of regulation, but sometimes the results can be just as harmful. Government subsidies divert resources towards politically favored activities, resulting in more jobs in areas such as health care and education, but fewer jobs in other sectors such as manufacturing. The net effect of this transfer is to diminish the productive capacity and efficiency of the economy, which lowers real economic growth and diminishes employment opportunities.
Although not as visible as regulations and subsidies, government spending also plays a large role in job destruction. The more money government spends, the more resources it drains from the private sector. The fiscal 2011 budget proposed by President Obama contains $3.8 trillion in federal spending. Think of government as a cancer feeding off the private sector. The larger it grows, the more jobs it kills. Unfortunately, most politicians follow the misguided advice of economist John Maynard Keynes, who advocated government spending as a means of job creation. In reality, government spending merely results in government jobs replacing more efficient private sector jobs.
Some economists point to taxes as the primary job killer, and argue that lower taxes will boost employment. While I have sympathy for this view, it misses the larger issue that the burden of government is not what it taxes but what it spends. The proposed fiscal 2011 federal budget contains “only” 2.4 trillion of taxes. The remaining 1.4 trillion of spending is borrowed (incredibly, for every dollar the government collects in taxes, it now spends almost $1.60). I would argue that a dollar borrowed kills more jobs than a dollar taxed. Therefore, cutting taxes and borrowing the shortfall kills more jobs then it creates. This is true because jobs require capital and government borrowing more directly crowds out private capital investment than taxes do.
In the end, I fully expect the government to directly provide make-work jobs to the armies of the unemployed. This will accelerate the pace of private sector job destruction and make our economy even less productive than it is today. This means that while the government may be able to provide people with jobs, the wages they pay will provide little in the way of purchasing power. In the end, we will become a nation of government employees, with plenty of work but little to show for it.
Hat/Tip Zero Hedge Submitted by OilPrice.com, originally published at: http://www.oilprice.com/article-crude-oil-prices-drop-as-investors-seek-safe-haven-in-the-us-dollar.html
After starting the week on a firmer note, oil prices fell sharply toward the end of the week in a general market sell-off as investors sought the dollar as a safe haven amid worries about European Union economies.
Debt problems that have plagued Greece are now spreading to Portugal and Spain, driving the euro down temporarily below $1.36 and bringing the dollar to an 8-month high. Because oil and other commodities are priced in dollars, gains in the U.S. currency usually translate into declines in oil prices.
Even a decline in the U.S. jobless rate below 10% on Friday could not stop the downward trend in commodities.
Some analysts were predicting that crude oil futures, which crashed through the longtime support level of $72 dollars a barrel to dip briefly below $70 for West Texas Intermediate in Friday afternoon trading, were sliding downward into a new trading range of $65 to $72 a barrel, after oscillating between $72 and $80 the past several weeks. Crude oil, which settled just above $71 a barrel on Friday, has dropped nearly 15% since hitting its 15-month high just above $83 on Jan. 6.
Energy news also depressed prices. Crude oil inventories in the U.S. rose 2.3 million barrels in the week, several times what economists had been expecting. In Asia, China is importing more crude than it needs, analysts said, apparently with intention of exporting more refined products, which would weigh on the global market.
Earlier in the week, positive manufacturing data from several economies had driven up energy prices to above $77 a barrel as market participants saw signs of stronger economic recovery. But that gave way to the concerns about a debt contagion in Europe and the impact of austerity measures to bring debt under control.
The new scramble into the dollar as a safe haven was evident in the sharp drop in gold prices, which fell more than 4% on Thursday, and fell further on Friday to about $1,050 an ounce. Gold had risen in the past few months as a safe haven from the dollar.
Now cash – dollar cash – seems to be the preferred safe haven for many investors. The Dow Jones Industrial Average, which spent most of the day well below 10,000, recovered in a late rally to close above that threshold with a small gain.
By Vadim Pokhlebkin
Today, the EUR/USD stands well below its November peak of $1.51. Find out what Elliott wave patterns are suggesting for the trend ahead now — FREE. You can access EWI’s intraday and end-of-day Forex forecasts right now through next Wednesday, February 10. This unique free opportunity only lasts a short time, so don’t delay! Learn more about EWIs FreeWeek here.
What moves currency markets? “The news” is how most forex traders would undoubtedly answer. Economic, political, you name it — events around the world are almost universally believed to shape trends in currencies.
A January 14 news story, for example, was high up on the roster of events that supposedly have a major impact on the euro-dollar exchange rate. That morning, the European Central Bank announced it was leaving the “interest rate unchanged at the record low of 1% for an eighth successive month.” (FT.com)
The euro fell against the U.S. dollar after the news. But could it have rallied instead? You bet. In fact, traditional forex analysis says it should have. Here’s why.
Analysts always say that the higher a country’s interest rates, the more attractive its assets are to foreign investors — and, in turn, the stronger its currency. Well, U.S. interest rates are now at 0-.25% and in Europe, at 1%, they are 3 to 4 times higher. Isn’t that wildly bullish for the EUR? Apparently not, and wait till you hear why — because in today’s announcement ECB president Jean-Claude Trichet warned that European recovery would be “bumpy.” Ha!
By no means is this the first time a supposedly bullish event failed to lift the market. On June 6, 2007, for example, the ECB raised interest rates. Bullish, right? But the euro didn’t gain that day, either — the U.S. dollar did.
Watch forex markets with these “inconsistencies” in mind and you’ll see them often. In time you realize that it’s not news that creates market trends — it’s how traders interpret the news. That’s a subtle — but hugely important — distinction.
So the real question becomes: What determines how traders interpret the news? The Elliott Wave Principle answers that question head-on: social mood — i.e., how they collectively feel. Currency traders in a bullish mood disregard bad news and buy, leaving it to analysts to “explain” why. Bearishly-biased traders find “reasons” to sell even after the rosiest of economic reports.
If you know traders’ bias, you know the trend. How do you know? Watch Elliott wave patterns in forex charts – it’s reflected in there, on all time frames.
Today, the EUR/USD stands well below its November peak of $1.51. Find out what Elliott wave patterns are suggesting for the trend ahead now — FREE. You can access EWI’s intraday and end-of-day Forex forecasts right now through next Wednesday, February 10. This unique free opportunity only lasts a short time, so don’t delay! Learn more about EWIs FreeWeek here.
Scott Redler of T3Live
With the jobs number out and the market oversold, I focused on trying to find a bounce in Apple (AAPL) and Goldman Sachs (GS). In this morning’s note, I highlighted exactly what I would look for. This is what I wrote:
…watch Apple (AAPL)–it had a second downmove yesterday from the $194-195 zone. Some will try to short that zone for a sell setup. Others will use yesterday’s low (if the market gets pressured) as a pivot. It could trade through that spot for another move lower, catch some support at a lower level, then perhaps trade higher.
Both worked trades worked well to generate cash flow. We call this setup the REDDOG REVERSAL. It’s a play to trade a calculated long (or short) in an overextended market.
Here are the charts to provide a visual description of the two setups. First is AAPL:
…and here’s Goldman:
You can either take the money already earned from the trade, or sell some and leave the rest on the table with some room to run for a day or two swing. It all depends on your personal trading time horizon.
From the BLS:
The unemployment rate fell from 10.0 to 9.7 percent in January, and nonfarm payroll employment was essentially unchanged (-20,000), the U.S. Bureau of Labor Statistics reported today. Employment fell in construction and in transportation and warehousing, while temporary help services and retail trade added jobs.
Click on graph for larger image.
This graph shows the unemployment rate and the year over year change in employment vs. recessions.
Nonfarm payrolls decreased by 20,000 in January. The economy has lost almost 4.0 million jobs over the last year, and 8.42 million jobs since the beginning of the current employment recession. (note: job losses were 7.2 million before benchmark revision).
The unemployment rate declined to 9.7 percent. (I’ll have more on that soon)
The second graph shows the job losses from the start of the employment recession, in percentage terms (as opposed to the number of jobs lost).
For the current recession, employment peaked in December 2007, and this recession is by far the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only early ’80s recession with a peak of 10.8 percent was worse).
From the time the market started rallying last March, skeptics have been warning of a coming storm ahead.
Today, it felt like we experienced it. As one market pro put it today: This was real.
Here are the key highlights:
- The 15 sovereigns at risk of collapse >
- 20 reasons the economy can’t recover >
- Morgan Stanley: We can’t believe how fast the euro unraveled >
- The Dow crashes through 10,000 >
- It’s a good thing you’re hedge with gold >
- The crazy action in leveraged ETFs >
- TALEB: Everyone should be short treasuries >
- The countries short-sellers are abusing >
- Commodities hammered >
- Moody’s: The US debt is vastly understated and on course for a downgrade >
- Portuguese debt disaster bludgeons the euro >
The DOL reports on weekly unemployment insurance claims:
In the week ending Jan. 30, the advance figure for seasonally adjusted initial claims was 480,000, an increase of 8,000 from the previous week’s revised figure of 472,000. The 4-week moving average was 468,750, an increase of 11,750 from the previous week’s revised average of 457,000.
…
The advance number for seasonally adjusted insured unemployment during the week ending Jan. 23 was 4,602,000, an increase of 2,000 from the preceding week’s revised level of 4,600,000.
Click on graph for larger image in new window.
This graph shows the 4-week moving average of weekly claims since 1971.
The four-week average of weekly unemployment claims increased this week by 11,750 to 468,750.
This is the third weekly increase in a row for the four week average, and the average is now 28,000 above the low in early January. Both the level of claims, and the recent increase in the 4-week average, are concerning and suggest continued job losses.
If you want to initiate swing longs with the belief that the bull trend is intact then do yourself a favor and don’t do it until these levels are taken out on GS IYR XLE. We had been watching these levels for days (on Twitter and in our newsletter) and all three held where they should meaning that resistance is to be respected:
GS reversed at the 160 level we’ve been talking about for several days. If you’re a bull you want that level and then the 200 SMA taken out with force.
IYR reversed at the 50 SMA and is leading the market down — be patient and wait for that to be remounted.
Whether one likes it or not oil stocks are a big part of the current market — wait for XLE to re-gain the 50 SMA.
A Great Newsletter for Active Traders
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