Dear FINRA: Pick The "Natural" IOI Out

by Zero Hedge - November 17th, 2009 10:53 am

Courtesy of Tyler Durden

Dear FINRA,

We know you are busy, we also know you are hell bent on intercepting IOI manipulation as per Mr. Jon Kroeper’s recent media appearances. Which is why we kindly request that you get back to us at your earliest convenience with information on how many of the IOIs disclosed below are, in fact, “natural.” We will make this a recurring topic on Zero Hedge until such time as you respond to our information request. You can contact us at outsourcefinra@zerohedge.com

We appreciate your prompt attention to the matter

Zero Hedge staff.

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$3.5 Billion POMO Closes, All Of It Used To Repurchase 3 Year Auctioned Off 20 Days Ago

by Zero Hedge - September 29th, 2009 11:14 am

Courtesy of Tyler Durden

The monetization continues: today’s $3.5 billion POMO was practically all used to repurchase CUSIP LM0, a 3 Year Note auctioned off by the treasury a whopping 20 days ago: this one. Recall that the auction had $16 billion of Primary Dealers interest accepted. Not a bad way for PD’s to offload 21% of their allocation in less than three weeks. Any questions why there was $81 billion in PD bids tendered? The answer: see chart below.

PS: the $30 million LH1 straw man also repurchased: a 3 Year auctioned off on August 11, 2009.

The good news: there is only $7.3 billion left in QE dry powder for USTs: two more POMOs and then the seemingly never ending liquidity-based lubrication of equities is over.

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FDIC Discloses Deposit Insurance Fund Is Now Negative

by Zero Hedge - September 29th, 2009 10:54 am

Courtesy of Tyler Durden

In an unprecedented disclosure, the FDIC has highlighted that it expects the DIF reserve ratio to be negative as of September 30. As there are a whopping 48 hours before that deadline, one can safely assume that the DIF is now well into negative territory: as of today depositors have no insurance courtesy of a banking system that has leeched out all the capital of the Federal Deposit Insurance Corporation. Let’s pray there is no run on the bank soon.

Pursuant to these requirements, staff estimates that both the Fund balance and the reserve ratio as of September 30, 2009, will be negative. This reflects, in part, an increase in provisioning for anticipated failures. In contrast, cash and marketable securities available to resolve failed institutions remain positive.

Additionally, the FDIC has now raised its expectation for bank failure costs from $70 billion $100 billion. Feel free to expect this number to continue growing.

Staff has also projected the Fund balance and reserve ratio for each quarter over the next several years using the most recently available information on expected failures and loss rates and statistical analyses of trends in CAMELS downgrades, failure rates and loss rates. Staff projects that, over the period 2009 through 2013, the Fund could incur approximately $100 billion in failure costs. Staff projects that most of these costs will occur in 2009 and 2010. Approximately $25 billion of the $100 billion amount has already been incurred in failure costs so far in 2009. Staff projects that most of these costs will occur in 2009 and 2010.

First Mary Schapiro has failed at her task of “regulating” anything on Wall Street, and now Sheila Bair presides over a newly insolvent institution. Chalk one up to Washington’s success at “containing” the crisis. Zero Hedge wishes Ms. Bair all the luck in the world in returning the DIF to its statutory minimum requirement of 1.15% of all insured deposits (a shortfall of a mere hundred billion or so). Maybe she can convert the FDIC to a REIT and have Merrill Lynch do a concurrent IPO and follow-on offering (while Goldman raises it to a Conviction Buy which incorporates the firm’s expectations for 10% GDP growth in 2010 coupled with projections for $1,000 per barrel of crude)?

FDIC’s full memorandum outlining its failure can be found here.

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Rosenberg On The Ongoing Case-Shiller Fallacy

by Zero Hedge - September 29th, 2009 10:28 am

Courtesy of Tyler Durden

The ever-sober Rosenberg debunks yet another market driving headline, this time focusing on the recurring optimism presented by Case-Shiller, which was sufficient to drive futures up from negative territory. And while the headline number is sufficient for an epilepsy inducing Breaking News flasher and recurring Green Boxes out CNBC, doing the preposterous and actually reading between the lines reveals the following facts on shadow inventory, which Zero Hedge among many others, has been highlights for a long time. From Rosie’s earlier brief:

THE SHADOW HOUSING INVENTORY IS HUGE

The bulls had a field day with the “improved” housing inventory data in the August reports, but what they can’t explain is why it is that prices continued to deflate. That can only mean that at the last price point, there were still more sellers (supply) than buyers (demand). Indeed, the “shadow’” inventory that does not show up in the official data is closer to 7 million housing units (equivalent to two years of supply!) when you add up all the current foreclosures, the homes entering into the foreclosure process and the number of mortgage borrowers who have not made a payment in the past year.

Let’s examine the data (courtesy of the WSJ):

• The “shadow’” housing inventory in the U.S. is closer to 7 million units (equivalent to two years of supply!)
• As of July, there were 1.2 million loans that had just entered the foreclosure process.
• There are an additional 1.5 million existing units making their way through the foreclosure process.
• And, a further 217,000 homes in which the borrower has not made a mortgage payment in the past year, but the lender has yet to file notice. In other words, 17% of the homes that are a year past due or more are not yet in foreclosure, up from 8% a year ago.

This inventory has yet to hit the market, but it will. So pundits that get excited about two or three months of Case-Shiller data are spending too much time looking out the back window. More deflation is coming in residential real estate — this bear market in housing ain’t over yet. Remember, homes that are foreclosed typically go on to the market at discounts ranging between 10% and 50%.

Amusingly, Rosenberg, also take a quick jab at Jim Grant who is the latest convert to the V-shaped recovery camp. When the dust settles, after all the government stimuli, incentives, subsidies, backstops, and…

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Consumer Confidence Survey Drops, Misses Expectations

by Zero Hedge - September 29th, 2009 10:13 am

Courtesy of Tyler Durden

Big surprise in the Conf Board consumer confidence index, which posted a September reading of 53, down from 54.5 in August, and an expected reading by “economists” of 57. The market, which trades solely on macro headlines these days, takes a brief dive. Expect this not to last as window dressing time promptly regains a foothold, and bad news continues to be good news. From the Conference Board:

The Conference Board Consumer Confidence Index®, which had improved in August, dipped in September. The Index now stands at 53.1 (1985=100), down from 54.5 in August. The Present Situation Index decreased to 22.7 from 25.4. The Expectations Index declined to 73.3 from 73.8 last month.

Says Lynn Franco, Director of The Conference Board Consumer Research Center: “Consumer Confidence, which had improved in August, retreated slightly in September. The Present Situation Index decreased, as consumers viewed both current business conditions and the labor market less favorably than last month. While not as pessimistic as earlier this year, consumers remain quite apprehensive about the short-term outlook and their incomes. With the holiday season quickly approaching, this is not very encouraging news.”

Consumers’ assessment of current conditions was less favorable in September. Those claiming business conditions are “bad” increased to 46.3 percent from 44.6 percent, while those claiming conditions are “good” increased to 8.7 percent from 8.5 percent. Consumers’ appraisal of the job market was also less favorable. Those claiming jobs are “hard to get” increased to 47.0 percent from 44.3 percent, while those claiming jobs are “plentiful” decreased to 3.4 percent from 4.3 percent.

Consumers’ short-term outlook was also slightly more pessimistic. Those anticipating an improvement in business conditions over the next six months decreased to 21.3 percent from 22.2 percent, while those expecting conditions to worsen decreased to 15.0 percent from 15.2 percent.

Most importantly, the job outlook is looking about as dreary as ever:

The labor market outlook was virtually unchanged. Those expecting more jobs in the months ahead edged down to 17.9 percent from 18.0 percent, while those expecting fewer jobs remained the same at 23.1 percent. The proportion of consumers expecting an increase in their incomes increased slightly to 11.2 percent from 10.8 percent.

Curiously, equities today have dislocated from the tick-for-tick currency driver over the past week as the strenghtening dollar is no longer relevant at all, at least in the stock market.

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Loans Versus Bonds Relative Value: Week of September 24

by Zero Hedge - September 29th, 2009 9:35 am

Courtesy of Tyler Durden

Irrational exuberance in High Yield shows no sign of abating: the loan-HY bond spread is down to 2009 tights: a mere 326 bps for the represented universe of credits. Last week HY bonds averaged 710 bps, while loans were are 383 bps. For rational types, now is the time to consider some long loan-short bond basis packages, at a 1.0x:1.85x ratio. Also the negative loan-HY basis in Sealy continues, now at about 500 bps: either the data there is really faulty or somehow that relationship makes sense… in some parallel universe.

Big movers in the prior week were Mediacom loans moving wider by 150 bps and Neiman Marcus bonds caught in another squeeze, pushing them tighter by 130 bps. Overall loans widened by 6 bps while bond tightened by 34 bps.

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Frontrunning: September 29

by Zero Hedge - September 29th, 2009 9:06 am

Courtesy of Tyler Durden

• SEC weighs new rules for lending of securities (WSJ)
• GE’s Immelt warns US recovery slowest in decades (AP)
• Fed may wait too long to raise rates, says Steve Hanke (Bloomberg) as if there was any doubt
• Is Paulson considering merging CIT and IndyMac, or is he still just accumulating C (NY Post)… Yes, the NY Post
• FDIC seeking to pocket years of bank advances to pretend it is not insolvent (FT)
• A week after claiming the opposite, Japan has read an econ textbook and now is intervening to keep the Yen weak (Bloomberg)
• UBS to sell Paine Webber but not yet (Reuters)
• BA launches New York-London Business-only service (WSJ)
• The Fed continues to operate blindly (RCM)
• Michael Moore: America’s Teacher (The Nation)
• As subprime lending crisis unfolded, watchdog Fed didn’t bother barking (WaPo)
• Intelligence and integrity personified: Bove raises Citi price target to $6.50, never mind the pro forma market cap
• Matt Taibbi on Zero Hedge (True/Slant)

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Daily Highlights: 9.29.09

by Zero Hedge - September 29th, 2009 8:43 am

Courtesy of Tyler Durden

• Asian stocks rise from two-week low; led by oil and technology companies.
• China will support mergers among `able’ companies: Stocks Regulator says.
• FDIC expected to propose banking industry to prepay assessments for the next 3 years.
• The Federal Reserve decided to keep pumping $1.25 trillion of new money into the mortgage market.
• Japan consumer prices fall record 2.4%; deflation return threatens economy.
• Obama admin close to committing $35B to help state and local housing agencies.
• Singapore’s GIC suffered a loss of $41.6B in Y09 on stock rout, loss on UBS stake.
• Taiwan is considering allowing Chinese investors to buy stakes in its flat panel and chip companies
• Yen falls versus Euro on economy optimism, speculation Japan to intervene.
• Anglo American: Seeing the first signs of recovery in demand for metals.
• Astrotech Corp. is mulling strategic options - including a possible sale of its assets.
• BNP Paribas will raise 4.3 billion euros, or $6.28 billion, in new capital.
• British Airways is launching its new business class service between London and NY.
• CNOOC in talks to acquire stakes in about 6 billion barrels of oil reserves in Nigeria.
• CVS, Medco profits may narrow on $10B US contract facing overhaul.
• FairPoint in talks with creditors on restructuring debts.
• J&J bought an 18% stake in Dutch biotechnology company Crucell NV for $442.7M.
• Moog Inc. to offer 2.5M Class A shares common stock; proceeds to repay debt.
• PartnerRe to pursue acquisition of the remainder of PARIS RE through a merger.
• Volkswagen agrees with union on 4.2% increase, performance bonus from 2011.
• Warner Music, YouTube close to deal on licensing video clips on latter’s site.

Earnings Calendar: CFW, DRI, JBL, MDRX, NKE, WAG, WOR, ZZ.

Companies to watch: Allscripts-Misys, Darden Restaurants, Jabil Circuit, Micron Technology,
Nike, Sealy Corp., Walgreen, Worthington Inds.

Recent Egan-Jones Rating Actions
CLEAN HARBORS INC (CLH)
ST JUDE MEDICAL INC (STJ)
COCA-COLA BOTTLING CO (COKE)
COCA-COLA FEMSA SAB DE CV (KOFL MM)
FIDELITY NATIONAL FINANCIAL INC (FNF)
ABBOTT LABORATORIES (ABT)
AFFILIATED COMPUTER SERVICES INC (ACS)
XEROX CORP (XRX)
CHARMING SHOPPES INC (CHRS)
KNOLL INC (KNL)
BOWNE & CO INC (BNE)
KB HOME (KBH)
HOVNANIAN ENTERPRISES INC (HOV)

Data provided by Egan-Jones Ratings And Analytics

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FINRA Warns Against Fraudulent IOIs Once More… Not Even "Or Else" Follows

by Zero Hedge - September 29th, 2009 1:11 am

Courtesy of Tyler Durden

One of Zero Hedge’s recurring concerns with market abuse has been the concept of manipulated natural Indications of Interest, or IOIs, a topic which readers can catch up on here and here. And yes, absent feedback from regulators this could have added to the ever increasing list of conspiracy theories broached by Zero Hedge. Yet ironically shortly after Zero Hedge first posted on this, FINRA came out with the following regulatory notice 09-28 from May 2009, in which the regulator “reminded firms of their obligation to provide accurate information in disseminating indications of interest.”

In typical fashion, FINRA talks the talk, yet when it comes to actually enforcing its own regulations against market manipulation substantiated by copious incriminatory evidence, the regulator runs like the toothless hag it is. And just in case perpetrators of the illegal IOI gambit did not hear the warning the first time around, FINRA gives all the firms it hopes to plant its current employers at, yet another warning. Trader’s Magazine points out that twice is the charm for slapping hands when it comes to FINRA and its mellifluously named SVPs:

Jon Kroeper, senior vice president at FINRA, said at the Investment Company Institute conference in New York last Thursday that broker-dealers sending out traditional IOIs “through their OMSs or a service provider” must play by the rules. They must “be sure the information is accurate and not purposefully misleading,” he said. If they send out IOIs tagged as naturals, they must have natural orders in hand and for the size they’re advertising.

In other words, Wall Street’s SRO is telling the organizations it is supposed to police that even it has no intent of regulating: after all firms, whose ethics has been proven beyond reproach over and over, can regulate themselves much more effectively and cheaply. After all, does anyone even remember when the last time was that some Wall Street company acted not in the best interest of market and investor integrity? 

If a firm represents “natural trading interest” and doesn’t have it, “that’s a concern,” Kroeper said. He also said that “when a firm puts out an IOI with a size and that’s not what they have”–as in, they never had that size order or it’s no longer available–that’s another cause for regulatory concern. The most popular IOI distribution services are Bloomberg and Tradeweb (formerly known as AutEx).

 

At least FINRA is “concerned” -…

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Guest Post: Wall Street's Fraud Solutions For Systemic Peril

by Zero Hedge - September 28th, 2009 11:16 pm

Courtesy of Tyler Durden

Submitted by Janet Tavakoli of Tavakoli Structured Finance

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