Headline of the week

Drunk trader banned for buying 7 million barrels of oil

 From BBC News

An oil trader who bought seven million barrels of oil after a weekend of heavy drinking has been banned by the City watchdog.

Steven Perkins made the trade in the early hours of the morning after a weekend of "excessive" drinking, said the Financial Services Authority (FSA).
His actions caused the price of Brent crude oil to jump to an "abnormal level".
The regulator said Mr Perkins' actions amounted to market abuse.
He has been fined £72,000 and has been banned from working in the financial services industry for at least five years.
"Perkins' trading manipulated the market in Brent by giving a false and misleading impression as to the supply, demand and price of Brent," the FSA said.
"[His actions] seem to have been a consequence of extremely heavy drinking resulting from alcoholism, which he now acknowledges."
The FSA said that Mr Perkins had also repeatedly lied to his employers, PVM Oil Futures, in order to cover up his unauthorised dealing.
He has since joined a rehabilitation programme for alcoholics and he has stopped drinking, the regulator added.
"Perkins' drunkenness does not excuse his market abuse," the FSA said.
"Perkins has been banned because he is not a fit and proper person to be involved in regulated activities and his behaviour posed a risk to the proper functioning of the market."

If This Doesn't Make Your Day........

Bond Yields Imply The Fair Value Of The S&P Is 750

Taken from ZeroHedge:

One of the less discussed topics by the propaganda machine is that with bond yields approaching record yields, and in the case of the 2Y below them, the S&P has no place trading over 1,000. There was a time when bonds and stocks would correlate, and as bond prices surged, equities would plunge and vice versa. Now that we live in HFT days where stock values are completely disconnected from fundamentals, and even the bond market, courtesy of the Fed's seemingly endless market interference,  it makes sense to extrapolate what the fair value of stocks would be implied purely based on bond yields stripping away for the Fed. Attached we present a very simple regression analysis between simple 10 year spreads and the S&P, and the 2s10s (steepness between the 2 and 10 Year) and the S&P. What both analyses indicate is that stocks are approximately 30% overvalued, at least based on historical regression patterns relying on yields to imply stock prices. Yet even though this analysis is purely statistical, here is a simple extension: with US stocks at about $13 trillion in market cap, if one assumes the suggested 30% haircut the result is $9.1 trillion in fair market value. Considering that the Fed has pumped $2.5 trillion in the form of monetary stimulus, and Obama's various fiscal stimuli now amount to just over $1 trillion, that explains the delta. Bonds are implying where stocks should be almost to the dot, absent the $3.5 trillion pumped into stock by the administration and the Chairman. Fair value of stocks, when stripped away from the printer and Congress, is 750.
 
Both regression analyses show stocks are overpriced between 25 and 35%. And the Fed will do everything in its power for stocks to prevent going back down to their fair value of 750, which would nullify the entire impact of both monetary and fiscal intervention. Yet should it fail, look for the next $2.5 trillion in quantitative easing to push stock up once again to a 25% overvalued level compared to where bonds should be. Of course, should the Fed admit defeat and print, bond yields will likely drop thus resetting the baseline lower once again. We wish our Central Banking overlords all the luck in the world as the continues their attempts to fool US investors that stocks are even remotely fairly priced. We, on the other hand, will stick with the "alternative" central bank, which more and more are turning to - gold.

Today could Get interesting

FYI the worst thing you can do if you are a bankrupt country is to announce why you are freaking out and what you are freaking out. Well Spain did that by providing its skeptics the timing and the catalyst to trade around by announcing that they are freaking out about their interest rate roll, Therefore, the market has PUNISHED the IBEX to the tune of 4%.

S&Ps are looking ugly.

this 20 point drop in reaction probed 8 points lower than last weeks low of 1062 as well as almost filling the gap back down to 1051/1052. There is no reason to retrace all of this rally unless the market wants to test the prior lows. The problem with making new relative highs (read this past 2 week rally) without retesting lows that needed to be retested is that it indicates that when those lows are ultimately retested it is not to form a bottom but to push well through those levels. The level that has been indicated is around the 1018/1014 level.

These points could potentially be delayed further if we can close back above 1067.

Quote of the Day

"You cannot help the poor by destroying the rich. You cannot strengthen the weak by weakening the strong. You cannot lift the wage earner up by pulling the wage payer down. You cannot further the brotherhood of man by inciting class hatred. You cannot build character and courage by taking away people's initiative and independence. You cannot help people permanently by doing for them, what they could and should do for themselves." - Abraham Lincoln

These are words our government needs to heed.

BP Oil Spill - Just in case you were wondering

And by the way, the crude price rise brought by the spill also marked up the value of BP’s reserves, easily allowing it to cover the cost of the clean up, no matter how big it is. This is how profitable this company is, and why they were so generous with a $20 billion contingency fund.

Gotta love the free markets!

Why economics are a joke

Everyone was out touting the GDP statistics some time back claiming that the worst is over. Recently, I came across this fantastic chart that exposes this myth of nominal GDP and essentially government spending an programs have been propping up our GDP figures. Yet another reason why this market and market action are amazingly suspicious. We are in a giant ponzi scheme where we are leveraging our future merely to prop up the unsustainable consumption society that we are today.

In most cases where governments laud economic statistics they are as twisted and manipulated as any accounting numbers if not more so. They essentially thrive on assumptions that hold no basis. (Please see my previous post for a great joke about an economist, a chemist and a physicist)

An economist, a chemist and a physicist..........

An economist, a chemist and a physicist are marooned on a desert island. Their only food is a can of beans, but they have no can opener. What are they to do? The physicist says: "Let's try and focus the tropical sun onto the lid—it might melt a hole." "No," says the chemist. "We should first pour saltwater on the lid—maybe that will rust it." The economist interrupts: "You're wasting time with all these complicated ideas. Let's just assume a can opener."

Listen To Cramer

I cannot believe I'm doing this but listen to Cramer. He personifies the giant cluster(*$## that the current market action is.

Stock Market not a Market of Stocks

So I was trying to explain why my positions have been mostly short lived to one of my clients and we got into a discussion on investment theory and whether or not I see Value Investors as Dinosaurs. My response was "yes". The reason why I feel we are in a a period where Long term asset management must be accomplished through short term methodologies is due to one main reason and that is the header of this post; we are part of a Stock Market and not a Market of Stocks. In the old days (ie 10 years ago) institutional and retail order flow would dictate whether an individual stock would rise or fall on any given day. Each stocks rise and fall was then arbitraged out via buying or selling the index, thus creating a Market of Stocks. Enter Henry Paulson and his back room dealing with the US Govt. allowing investment companies to take on massive leverage. Why lever up on individual securities when you can take that leverage and apply it to an already leveraged product like Futures? the answer is you wouldn't. Combine it with advancement in computing, programming, electronic exchanges and a high speed connection and buy and hold is a thing of the past.

So you get what we have today where once it was stocks order flow that determined the index's pricing we now have the futures trading programs that push the market and in turn computer programs designed to take advantage of discrepancies in prices in the individual stocks react accordingly (basket trading). What do you get? Extreme moves in every individual security, not because there is a fundamental change in those individual security, but because stocks are now a 1st or second derivative of futures trading.

We have seen this in the near-perfect correlation the markets traded with the dollar, yen, or euro, depending on what monetary instrument the computers decided to implement during that trending attempt.

Even the indicies have been trading at extremes. Just look at the # of 200+ moves in the dow over the last couple years.

In the data above going back almost two-and-a-half years, the Dow was up 200 or more points on 52 days and down 200 or more points on 73 days. For those still long U.S. equities, my guess is that stocks are a lot like the game of golf – you remember the far less common really good days (or golf shots) much more than you remember the more frequent bad ones and, over long stretches of time, most people see little or no overall improvement.

Buy and hold doesn't look that attractive now does it?

I'm Back!

Google finally restored my blog after 4+ months of me fighting with their stupid spam bot that kept thinking my blog was spam. So I will start posting again stay tuned.....