Price Keeping Operations

[wndysrf]

Mark?s Market Commentary ? March 4, 2003

 

More ramblings today. IPO?s and mergers are dead. Even traders in stocks and bonds cannot make any money due to the volatility. The highest paying jobs in London go to the derivative players. Where there is always a market for mood swing insurance, employment puts, GDP calls, ?beat by a penny? straddles, and ISM Index strangles. From The Daily Mail:

 

?For a select group of City specialists, times could not be better. About 50 bankers working in derivatives trading are earning up to GBP 1million a year by knowing how to take advantage of falling markets. London has become one of the most important financial centres for this activity. The top players include JP Morgan, Goldman Sachs, Deutsche Bank, Lehman Brothers and Commerzbank.?

 

Mark?s Translation:

 

The reason the bear market has dragged on for so long, interrupted by these hysteria spikes, is because the Perpetual Motion Liquidity Machine has allowed fortunes to be made by using Repo funds for arbitrage. Most of these arbitrage plays are designed to play the short side of the market, since Deutsche Bank and Commerzbank are bleeding profusely and have no chance of surviving unless Hail Mary plays are used to make a killing in a market selloff or a credit market dislocation. These plays are also natural hedges against the huge exposures held by various Pyramid Players who bet on a 2nd half v-shaped recovery the last 3 years.

 

?Derivatives are sophisticated complex financial tools which allow betting on whether share prices and the value of other commodities, such as oil, will rise or fall. There are many types of derivatives and schemes are being invented by top bankers all the time. Mention derivatives, and rogue trader Nick Leeson, who lost GBP 850million and brought down Barings bank in 1995, springs to mind. But the new breed of derivatives experts are being hailed as banking heroes. For many of the City's biggest banks, this is the only area currently making money as stock markets continue to fall and merger activity dwindles.?

 

?The top-rated traders - most of whom are in their early thirties - are taking home GBP 125,000 basic salaries, topped up by bonuses of up to GBP 1.5million. Research by City recruitment company Napier Scott shows bankers' pay went down 15 per cent last year. But a rush by banks to boost their staff in derivatives trading has inflated the pay packages of the select group. Not much is known about this complex world.?

 

Derivative traders have become a cult club, dealing in the secretive OTC market, where they have become gunslingers and crack poker players. GQ Magazine is soon to feature a group of these traders as the most eligible and most sought after players in the London Social Circuit. The traders themselves are currently riding at the crest of a wave, experiencing the ultimate in variety and selection of the most beautiful women in the world, and heavily badgered by recruitment firms offering millions in signing bonuses.

 

?But insiders highlight several names, including Simon Morris at Goldman Sachs, Guy America at JP Morgan and Adam Clayton at Merrill Lynch. The best have only been working in the market for a few years but are already the most experienced in their field. One banker, who has worked in this area, said: 'Everyone has focused on the doom and gloom but we have been making some tidy sums. 'No one will talk about it because they would be sacked.?

 

?Shaun Springer, chief executive of Napier Scott, said: 'These guys are the new supermen of the City. 'They are in demand, unlike most other types of banker in the City. 'There are very few of them and the area is very young. 'The bandwagon gathered pace in 2002, with second and third-tier banks struggling to fill a growing number of vacancies as the market continued to expand.' The rise of derivatives traders and similar experts is in sharp contrast to other banking divisions. Cuts have been particularly savage for those trading shares and working in research or corporate finance where business has dried up amid falls in mergers and aquisitions.?

 

The Derivative Superstars have been essentially trading in a black hole environment, where math models have been perfectly able to keep up with the ebbs and flows on the economy. Some discussion on gloom and doom possibilities exist, but they are quickly brushed aside as manageable risks for the Program Robots, whose executions are lighting quick. As long as the gravy train continues, the bets continue to escalate as the two top traders take on increasingly risky positions in order to one-up each other.

 

Never before have so few made it so fast since the Internet Era.

 

Never before has an obscure, murky world been controlled by just a chosen few.

 

Never before has it been so easy to make huge sums in the most diabolical, most bizarre, most extraordinarily large, most unwatched and unregulated arena of all time.

 

Ten-Sigma anyone?

 

The biggest drama unfolding is in Japan, where the Nikkei is a hairsbreadth away from breaking lows which have held 5 time so far this year. Now we have to see if the PKO can hold it up the rest of the month in time for the year end statement print for the major banks.

 

From today?s The Wall Struck Journal:

 

?Japanese banks are rushing to tap investors? wallets because they need money to shore up their sickly finances ahead of the March 31 fiscal year end. Several times during the past decade, Tokyo has taken steps to boost the stock market prior to March 31, including injections of public money and direct efforts to buy shares through givernment-directed funds, a process known as price keeping operations (PKO).?

 

?In 2002, the Nikkei surged 26% from its February low in just a few weeks, when the PKO instituted new restrictions on short selling.?

 

Unfortunately, the PKO has probably spent its money already by supporting the dollar and shorting the yen. So far, its not working:

 

?During afternoon trading in New York, the dollar nose-dived against the yen as a breach of technical support levels ignited heavy selling, despite speculation the Bank of Japan would defend the dollar against further weakening. So far, no one had seen intervention, and any waning of such supportive effors could have left the dollar vulnerable.?

 

Imagine the moral hazards built up during the bear market. Riverboaters going long the dollar can always count on the BOJ to rescue it eventually. Riverboaters going long U.S. stocks can always count on a major jam job rally for a bailout, even if they have to wait a couple of months. Why not take a chance and lever up 100:1 on your trades when you have so many powerful forces on your side?

 

We?ll have to watch how much longer things can remain propped. The longer the propping, the more confident the longs get.

 

When will the cycle finally break?

 

Other notes:

 

IPO Spinner Quattrone at CSFB finally quit. No worries about him. A giant severance package awaits. In fact today, the WSJ reported that many of the CEO?s of The Gang of 22 are still making $11 - $19 million this year.

 

And more stories are featured, outlining the bear market maulings on ordinary people. Today?s story was about a 66-year old retired lady who Riverboated her severance and inheritance up to $1 million during the bull market by investing in growth stock funds. When the market collapsed, she confronted by her broker. He ?predicted a rebound and told her to keep all her money in the market?. Finally, in the summer of 2001, she fired the broker and hired a financial planner, who jammed her into a bunch of annuities. Luckily, she probably got out near the highs, prior to September 11. Her portfolio was down 30%. Imagine if she didn?t sell. She?d be down 45% by now.

 

Think she?s one of the ?investors snapping up bargains? around these lows? At 66 years of age, I doubt it. Those who sold are probably out for good. Those who are still hanging on and sell later will NEVER invest in stocks again.

 

In the meantime, the Bullhorners are still making announcements on the tape, trying to convince everyone that a ?New Bull Market? is in play, and many stocks are ?breaking out? to ?new highs?:

 

La Jolla Phara jumps as Q4 loss meets expectations (LJPC) by Tomi Kilgore

 

?Shares of La Jolla Pharmaceutical (LJPC) are rallying 13 cents, or 10 percent, to $1.43 after the drug maker reported a fourth quarter net loss of $13.2 million, or 31 cents a share, wider than the 19 cents it lost in the year-earlier period, but in line with the average anal cyst estimate compiled by Thomson First Call. Research and development expenses increased 92 percent to $11.3 million, due primarily to expenses associated with Phase III trials of its lupus drug candidate and to Phase I and II trials for its thrombosis drug candidate. The company added that existing cash, investments and interest are expected to be sufficient to fund operations in the first quarter of 2004.?

 

Of course nobody bothered to mention that the stock got croaked two weeks ago by gapping down from $9 to $2, and that this ?10% rally? barely makes a dent, and doesn?t even get close to the $2/share closing price the day of the gap.

 

What a colossal joke.

 

When will investors stop listening to all the incessant hype??

 

Here?s Buddha?s forecast:

 

?Forensic analysis proceeding accurately. However since Hog market likes to bounce into old support after 2 straight days of high TRIN down action, I would suggest that this support is either 'tested' or broken and then another temporary Roman candle retrace as chronic dip buyers and addicted day trader Al Green come on the scene.?

 

?But criminal trend into midMarch continues to be down. PigMen have no shills or 'events' to stage a false movement North and can see that the easy money direction is South now that 'no earnings season is off and we are done with EOM and OE operations. Capone is set to return around the 14th however. Lets see if we don't get some selling waves into that period which sets up an excellent numbers run North into the next OE jam.?

 

?This is my wave analysis. It is not based in numerals or lines. It is based in rap sheets on the leading Mobsters. I work for Elliot Ness, we have been tracking the movements of Nitty, Lansky and big Al across each month since we began our Dragnet. There are some obvious footprints in the snow here which I would encourage all law abiding citizens to honor and respect.?

 

Today, the volume was once again on the light side. Drifting down, everyone afraid to sell because of the coming War Rally. So many rotating out of the Dow, hiding in the Nasdaq to ?participate? on the upside by piling on the ?high beta screamers?.

 

As Lance Lewis describes it, a perfect setup for an epic collapse if INTC lowers guidance on Thursday.

 

Stephen Roach's latest describes the perilous condition of the Global Speculative Sphere, all dependent upon Joe Sixpack and his SUV, continuing his spending binge to feed the globe:

 

"There are times when it pays to be overly-simplistic on the global macro call. This is one of those times. Three key points are most obvious to me insofar as the cyclical prognosis for the world economy is concerned: First, in a US-centric world, the global call is basically a call on the US economy. Second, the US is in the midst of a classic oil shock. And, third, that shock has occurred at a point of maximum vulnerability ? when a US-centric industrial world had slowed to a virtual standstill. The conclusion is inescapable: The recession warning model that I have long advocated is now flashing a serious alert for the US and for the US-centric global economy. A stalling economy lacks the cyclical immunities that

cushion it from an unexpected blow. A stalling economy that has been hit by a shock is a recipe for recession. Unfortunately, it?s that simple."

 

So many interconnected cables. So much hope placed on AMAT.

 

Anyway, is it any wonder why we are seeing massive commodities inflation? Price Keeping Operations underway worldwide. Whatever it takes to prop up the Paper Pyramid.

 

Oh, the Horror if it collapses?..

[machinehead]

"'These guys are the new supermen of the City. 'They are in demand, unlike most other types of banker in the City. 'There are very few of them and the area is very young. 'The bandwagon gathered pace in 2002, with second and third-tier banks struggling to fill a growing number of vacancies as the market continued to expand.'

 

This is how Soloman's "Masters of the Universe" mortgage traders used to be described in the 1980s (Liars Poker and all that).

 

Such inflated language, and 'second and third-tier banks struggling' to get in, tells you that the smart money is already selling out to the dumb money.

 

Wonder what Nick Leeson's up to these days?

[Donovan's Reef]

Are we starting to see a crack in the housing market? Builder stocks down and A.G.'s comments making people wonder. Auto stocks down too as people start to run out of home equity to buy those H2s and Navigators. The reality make sink in very soon.

 

DR

[martialcomp]

I am getting a real strong feeling that deflation is finally happening.

 

AG's comments and the fact that many stocks like Coca Cola, Harley Davidson, etc. are all at or near 52 week lows.

 

I think the market is forecasting a major drop in consumer spending.

[3Martinis]

Apocalypse is nigh, Buffett tells Berkshire faithful

By Simon English in New York (Filed: 04/03/2003)

 

*hic*

 

Dat's da kinda headline that will wakem up.

 

edit:

http://www.telegraph.co.uk/money/main.jhtm.../04/ixcity.html

[The End]

Well stoolies, Did we all have fun today? :grin:

 

We close below trend line support.

 

The a/d line is doin' the right thing.

 

Still short.

 

We could bounce alittle or go straight down.

 

Tanks for everyones help last night about my computer. I appreciate it.

 

I notice people are talking about Warren's statements. If I recall correctly Brian 4 said last night that was going to continue to cause a stir.

 

Good call buddy.

[chiefywiefy]

I'm tired of the volatility. Seeing good profits slip away just to get them back and slip away again. I closed all RYDEX shorts at the close. I'm up 30% in the 401k for the year and I'm going to start taking profits on the short cycle bottoms and waiting for the bounce to reshort. If I miss "the catastrophe", oh well, I'll still be better off than Joe Sixpack.

[catapuss]

"London has become one of the most important financial centres for this activity. The top players include JP Morgan, Goldman Sachs, Deutsche Bank, Lehman Brothers and Commerzbank."

 

I have always assumed that those firms are not British, certainly I am guessing that Deutsche Bank is maybe German?

It has long been a source of amusement to me that I live in a country where "the City", the so called world centre of finance, is considered vitally important, especially when I have to try hard to think of a relevant british firm involved in the field.

At the same time, nobody seems at all concerned that there is no industry left here anymore.

[PileDriver]

Wake me up when we get there.

 

Still monster style short since Dec/Jan

[The End]

In 48 hours I will be back in NYC. Can't wait. :grin:

[K Wave Rider]

Mark,

 

No mention of the absolute destruction of the homebuilders? Down 7-8% across the board on big volume.

 

Hmmm..Maybe someone has a vested interest in the continutaion of the bubble.

 

The blinders are gonna have to come off some time.

 

Just givin' ya a hard time.

[Oyster]

Bottom indicator trin...look at it...if the feed was correct.......what the hell is that today?....it normally gives warning to the bear.....any comments out there?

 

[wndysrf]

K Wave:

 

Sorry, I missed it. Wow, they really got croaked.

 

So did WHR, WSM, BBBY, etc.

 

Didn't expect weakness from that group at all. Thought that would be the last to collapse.

 

I guess investors would rather hang on to EBAY and AMGN at 14x sales, 100x earnings rather than a homebuilder at 6x earnings.

 

Kind of strange.

[bubbadropping]

That article in the Wall STruck Journal that Marky referenced is testimony to the accuracy and warning power of this site. It is a testament to the efficacy of the continuing arguments coming out of Mark to Market Central and Dr. Stool himself. I suggest that Doc please consider affiliating with an outlet like alternet.org to help spread the word and alert the minions that this entire global experience is resting like a house of cards atop a base of brittle glass. Alternet is crying out for a financial news division that would help to save some dollars for its politically sophisticated and well informed readership. Anyway kudos out to all the prophets of doom that roam freely here. Absent a sigma 10 we will still see tremendous defense of these 'bottom' areas and a very long drawn out Bear as a consequence.

[Guest]

Today, Hairlessman Alan Greasepan stated that in 2002, $700 billion was extraced from home equity through refinancing. As a talking head on Crapvision pointed out "that represents 10% of all of the equity value of housing in the United States!"

 

Easy Al also said that the costs of selling a house and moving would prevent people from selling their houses as readily as they might sell stocks in the face of a decline. I just sold mine by owner and paid less in commission than a round-trip on Martha Stewart (Omnimedia). I bought it like a stock - made my 50% - and sold it like a stock. What Speculative Bubble?

 

He also stated that there could be no such thing as a national housing bubble - as all markets are local and independent of one another. So I guess the fact that housing prices in Osaka, Nagano, Tokyo and every other Japanese city fell out of bed simultaneously was just an amazing coincidence.

 

Andrew Clark of Lipper was just interviewed about the supposed absence of a housing bubble. He said essentially "if you've bought a home to live in and raise a family and it's not about an investment, you have nothing to worry about. If on the other hand you bought as an investment - get out."

 

He went on to show a chart that clearly revealed the disconnect between the affordability of housing vs. renting. He explained that when you see a sudden spike in house prices that diverges north of the relatively flat line representing the rental market...it's a bubble.

 

Conclusion...IT'S A BUBBLE!

 

Plunger