Remember last year when the market dropped 10% in a matter of minutes. SPX futures traded with 10 handles spread, stocks would move 10, 20, 30% in a couple of minutes. That was the Flash Crash. Next up is the Splash Crash, another crash, but this time involving all correlated assets, equities, currencies, commodities and bonds. Below from Barrons;
Last year’s Flash Crash was a hair-raising experience for stock and commodities investors—comparable to the sudden descent of a large airliner from 38,000 feet to tree-top level, followed by an equally sudden and steep ascent.
A trillion dollars in equity vanished in minutes, as stock futures, exchange-traded funds and equities plunged. I’ve recently heard from a computer-trading expert warning of the very real possibility of a more widespread and catastrophic “splash crash,” a dislocation by high-speed trading computers that could simultaneously splash across many more asset classes and markets. Imagine our metaphorical jet buried in the earth up to its tail.
Oversight of robotic trading is so slight that regulators have little idea of itsimpact. Progress Software’s Bates frets that, absent more oversight, terrorists wielding the smart machines could attack the markets in an attempt to cripple our economy. Regulators counter that it would be much more difficult for hackers to infiltrate a stock exchange than, say, a company like Sony (SNE), the recent victim of a crippling criminal cyber attack. But it isn’t impossible. Imagine an agent working for a foreign government infiltrating a firm that owns robots and infecting one or more of the machines with a malicious virus.
“You almost need something like a Norad [the joint U.S.-Canadian North American Aerospace Defense Command]… for the markets,” Bates says. Because some 15% of the U.S. economy is based on financial services and the markets, they should be protected on the basis of national security, he asserts. This is arguable. Other experts opine that the Securities and Exchange Commission is more lacking in manpower than technology and that it could stay fairly on top of the market with a hundred more mathematicians, as opposed to a billion-dollar supercomputer.
When the US economy collapsed a couple of years ago, large swaths of the media landscape dealt with the financial institutions at the root of the debacle with something like equanimity. One of the harsher critics of the crisis’ major players was Rolling Stone’s contributing editor, Matt Taibbi, who developed a sort of loose cannon appeal to the disgruntled, downtrodden, and degraded.
His reporting and editorializing often overlap, and his deliberately opinionated prose bubbles with invective aimed at the villains in his stories. At the same time, his clear and concise descriptions and his ability to streamline information have made him required reading on the subject of Wall Street perfidy.
His most recent article explores the Levin Report, a 650-page guide on how to steal money from unsuspecting citizens, also known as a rehashing of the inner workings of Goldman Sachs pre-2008, which was released by the Senior Senator from Michigan, Carl Levin.
In person Taibbi is quiet and self-aware, a sharp contrast to his acerbic and biting prose. We met for coffee in Midtown Manhattan.
Read the rest at Vice Magazine: GOLDMAN SACHS OF SHIT – Viceland Today
First you get the bail out you need, then you try AUSTERITY, which brings the country into further violence and problems. When there is no chance of refinancing the country and the economy is in full stagnation you are pressed to sell the crown jewels, and great now the guys who lent you the first money, can buy the assets at fire sale levels. This is capitalism. Below from Kathimierini;
Greece approved on Monday the first wave of privatizations aimed at helping making its debt sustainable by deciding to “immediately proceed” with the sale of stakes in several state-controlled companies, including OTE telecom and Hellenic Postbank (TT).
A statement issued by the Finance Ministry said the Cabinet agreed on the plan which aims to raise 50 billion euros by 2015 by also reducing holdings in Piraeus and Thessaloniki ports as well as the Thessaloniki water company (EYATH) “in order to front-load its ambitious program.”
“To accelerate this process, the creation of a sovereign wealth fund composed of privatization and real estate assets was also decided upon,” the ministry added.
Greece plans to sell a 10 percent stake in OTE to Deutsche Telekom and will consider selling an additional 6 percent of the phone company. A 17 percent stake in power company PPC will also go under the hammer either through the stock market or by spinning off PPC assets to a strategic investor.
Additionally, a 34 percent stake in TT will be put up for sale with an additional 10 percent in the lender possibly being listed on the Athens bourse or going to a strategic investor.
Greece has been under increasing pressure from financial markets and its creditors, the European Commission and the International Monetary Fund, to pick up the pace of the sell-off program as a condition to receiving the fifth tranche of EU-IMF aid worth 12 billion euros.
After last week’s Eurogroup meeting in Brussels, several EU leaders made it clear that any possibility of Greece being provided with additional aid to the 110-billion-euro agreement signed last year will require faster execution of the sell-off program.
Meanwhile, data from the Finance Ministry released on Monday showed that the general government deficit in the first four months of the year was slightly larger than expected as revenues dipped under the weight of the recession.
The general government deficit, which does not include budget data from local councils and state enterprises, reached 7.2 billion euros, versus an expected 6.9 billion euros.
Revenues in the January-April period dipped 9.1 percent year-on-year to 14.4 billion euros, some 1.2 billion short of the target, due to a deeper-than-expected recession in the last quarter of 2010 and last year’s one-off revenue boost to road tax which was not repeated.
For the period, ordinary budget expenditures were up 3.6 percent at 21.02 billion euros, compared with a four-month target of 20.84 billion.
Fitch revises Belgium, the country sans government. The same country is host to the failing Euro experiment.
Fitch Ratings has revised Belgium’s rating Outlook to Negative from Stable and affirmed its Long-term foreign and local currency IDRs at ‘AA+’. The Negative Outlook reflects Fitch’s concerns over the pace of structural reform in the coming years, along with the ability to accelerate fiscal consolidation without a resolution to the constitutional crisis. Despite the ongoing political dispute, however, day-to-day fiscal management has remained strong, in keeping with Belgium’s high-grade rating
Congratulations to the happy owners of LinkedIn at 120 Usd, where the stock was priced at 1250 P/E. But this time it’s different, or? People’s greed creates bubbles just like this time. When LinkedIn trades at 60, the 120 investor will feel the bubble has burst, and that will happen sooner than later, irrespective of this time being different. Welcome to Irrational Exuberance again. Below from PWC,
“There does not appear to be a bubble forming for the technology sector as a whole, and there also appears to be some support for the valuations of social media sites,” says PricewaterhouseCoopers’ technology valuations specialist Simon Harris, who just published PwC’s latest Valuation Index…
According to the index:
“At the height of the tech boom in 2000, Price/Earnings (PE) ratios for UK listed technology companies peaked at close to 90x, compared to a wider multiple of around 25x for the market as a whole.
“Today, the PE ratio for listed technology companies of 16x is only slightly higher than for the overall market multiple of 15x, with a similar picture in the US. So a bubble does not seem to be forming for the technology sector as a whole, certainly for quoted businesses.”
PwC shows that PE for listed technology companies has actually crashed since 1999…
But the accounting firm acknowledges that, for businesses in sectors like social media, PE is not necessarily the best metric on which to draw valuations – nor, therefore, on which to call a bubble. PwC partner Ian Coleman says: “When you look at value per user metrics, the valuations for some of these businesses begin to make more sense.” So they have picked another metric – value per user…
Welcome to the new ERA of social networking stock valued at 1000 p/e and still cheap.
For our frequent readers it is no surprise that Glencore is trading down. Investors are now down some 4% on the hot Glencore IPO. Like we pointed out before the IPO, the Glencore guys represent the smart money, and they would not risk selling themselves short at the wrong price. Their market timing is perfect, just like the Blackstone and Goldman IPO market the top, Glencores “smart money” sale marked this top. Let’s see if the last Average Joe is “sucked in”? Below, first Goldman’s IPO, the second Blackstone and recent top by Glencore.
From the Greek paper Kathimerini, we couldn’t agree more;
Premier George Papandreou has to convince them even at this point to accept the sacrifice of their privileges for the common good or collide with them and publicly seek the help of Antonis Samaras, the president of the conservative opposition New Democracy party, as well as the other political leaders to do so.
He should make clear to his party loyalists who exert power over key state-controlled enterprises like the Public Power Corporation that the alternative will be much worse for everybody in terms of social dislocation, including a further rise in unemployment.
It is also important that the Greek people be informed that the country undertook the policy commitment to complete a 50-billion-euro privatization and real estate development program in the informal EU meeting on March 11 in return for extending the bilateral loans and cut the interest rate by 100 basis points.
So it is nothing new when our partners demand we carry out this program.
Moreover, it is necessary if we want to reduce the public debt and grow out of this mess by promoting economic growth, since privatizations lead both to a more efficient allocation of capital and usually bring about more investments.
They should also be informed that divestures of this type under the current unfavorable conditions will not produce the kind of proceeds the country could have hoped for under normal circumstances but this should not stop the privatization process because the cost of default would be much greater for all.
It is unfortunate that one year after the economic policy program was put in place, the Greek people see no light at the end of the tunnel.
Mistakes and delays have cost a lot but they will look very small compared to future ones if the rationalization of the public sector stalls and vested interests succeed in derailing competition in output and input markets.
The change in Greece’s economic model will be more painful and abrupt than estimated a few months ago, but there is no doubt the alternative is much worse.
Led by declines in production-related indicators, the Chicago Fed National Activity Index fell to –0.45 in April from +0.32 in March. April marked the lowest reading of the index since August 2010. Three of the four broad categories of indicators that make up the index deteriorated from March, but two of those three categories made positive contributions to the index in April.
The index’s three-month moving average, CFNAI-MA3, declined to –0.12 in April from +0.08 in March, turning negative for the first time since December 2010. April’s CFNAI-MA3 suggests that growth in national economic activity was somewhat below its historical trend. With regard to inflation, the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year. Production-related indicators made a contribution of –0.16 to the index in April, down sharply from +0.31 in March. Manufacturing production decreased 0.4 percent in April after rising for nine consecutive months, and manufacturing capacity utilization declined to 74.4 percent in April from 74.8 percent in March. Parts shortages that resulted from the earthquakes in Japan contributed to a decline in motor vehicle and parts production.
This note is extremely bearish, and although we don’t share it’s view completely, we find it interesting reading. As we have argued over the past months, volatility is too low and not taking into account possible “hick ups”. What if below starts unfolding?
First: Spain falls in summer. Spanish bonds are dumped, interest rates on them rise to 9%. Seemingly endless EU/IMF negotiations follow. This is not Greece or Ireland, after all (?!). These negotiations end in a deal, against a background of large-scale protests across Europe, not the least of which take place in the rich EU nations, where people are sick of bailing out the poorer periphery.
Then, the government of Belgium (there actually is one in the screenplay!) abdicates. Belgium is now a serious threat to Euro -financial- stability, and it gets billions in loans from the European stability fund. The EU stabilizes for a short period of time.
However, next up are elections in Ireland. Sinn Fein win a large majority. They decide to leave the Eurozone -and the EU itself-. Which means that Irish bonds, denominated in Euro’s, will have to be paid back in a much weaker “new punt”, which can’t be done. In other words, those EU -and US- banks that have bought Irish bonds will have to write down losses, very substantial ones.
The markets then turn their attention to Italy; its bonds come under pressure. The first victims are the French banks, which have huge exposure to Italian debt. Somewhat surprisingly, PM Berlusconi refuses to be bailed out by the EU. This raises his domestic popularity beyond levels anyone could have imagined. Berlusconi then turns to China and Libya (it’s a 2010 scenario!) for financial aid. Italy closes its borders.
This becomes the start of the endgame. Germany and Holland -perhaps France- may still be able to sell some debt, but other EU countries are locked out of financial markets. Austerity measures even in Holland reach draconic levels.
The European leaders end up in a long drawn-out meeting in Versailles. The outcome is a full political and fiscal union: The Unites States of Europe.
Nice detail: first, Angela Merkel will lead Europe from Paris. Then, Sarkozy will rule for 2 years from Berlin.
So far Mr. Vendrik’s fictional scenario. And that’s just what it was meant to be: what might happen, not what will. Or was it?
Spain will be the EU dealbreaker. And as we saw, again, not that long ago, for an entire decade, from 1997-2006, Spain built more homes than England, France and Germany combined, of which far too many to count now stand empty. Plus, much of the financing for all these superfluous homes was done through still seemingly healthy large Spanish banks like Santander and BBVA.
The debts involved have thus far remained hidden, in the same manner that Wall Street banks to date hide their losses, though a combination of long-stretched fake accounting (think FASB157) and multi-billion bail-outs in taxpayer funds. It’s hard to foresee, but the uncovering of hidden debts through this weekend’s Spanish local elections that the Wall Street Journal article talks about might be the first step in a cascading debt “truth-finding” that may well go way beyond Spanish borders. It’s certainly about time we figure out who owes what to whom.
Santander, for one, has conducted quite aggressive acquisition tactics in Britain over the past few years. And is connected to the entire global financial system in more or less the same ways that all of the too big to fail institutions are. If the squares of Madrid and Barcelona come to resemble anything like Cairo’s Tahrir square, it’s hard to say what will come out of this. What we know for sure is that the 20%+ unemployment rate (40%+ for young people) won’t be solved on Monday. Nor will the untold thousands of ghost homes be sold. And that means Spain is a bond market accident waiting to happen, be it tomorrow or a few months from now (it won’t take years). In that sense, the docudrama scenario painted above can never be that far off. (Businessinsider)