Friday 7 May 2010

“It Was Mayhem.”


Baltic Dry Index. 3468 +89

LIR Gold Target by 2019: $3,000.

"It happened so quickly, it was like a torpedo," said Scott Redler, chief strategic officer at T3 Capital Management, a hedge fund. "It was mayhem."

WSJ. 7 May, 2010.

We open this morning with the logical consequence of turning US stock markets into High Frequency Trading, computerized, front running, leveraged gambling casinos. Score another hit to the wealth of nations by the great vampire squids of the world and their relentless greed in rent seeking.


Record plunge in Dow stokes market panic

By Stephen Foley in New York Friday, 7 May 2010

Stock exchange bosses and regulators were last night scrambling to explain the cause of a plunge in the Dow Jones Industrial Average, which took the index down by the largest number of points in its history and stoked panic across fragile financial markets.

With share prices already falling sharply in response to the eurozone debt crisis, the Dow went into a sudden freefall a little over an hour before the close of trading in New York. The result was a period of unprecedented chaos that also dragged in currency and credit markets.

Market veterans pointed the finger at the super-fast computer-based trading programmes that have come to dominate activity on the formal stock exchanges and on opaque trading platforms called "dark pools". At 2.20pm, the Dow stood at 10,460, already down 400 points, but then it tumbled 600 points in seven minutes to its low of the day of 9,869, a drop of 9.2 per cent.

That was the biggest intra-day percentage fall since the crash of 1987 and the biggest points fall ever.

Several stocks were trading at seemingly impossible prices: Procter & Gamble (P&G), one of the world's biggest companies, maker of household staples including Ariel washing powder, was down 37 per cent at one point; Accenture, the multinational consulting firm, was quoted at 1 cent, compared to $40 before the chaos began.

The Dow snapped back but continued to swing wildly until the close of trading, when it settled at 10,520.32, down347.80 points on the day, a fall of 3.2 per cent. Investors bolted for the safety of US Treasuries, sending yields on US government debts sharply lower and the dollar sharply higher.

Last night, regulators from inside the exchanges and from the Wall Street watchdog, the Securities and Exchange Commission, were hunting through data on the day's trades to understand the sequence of events.

Traders had reported hearing, variously, that a single dealer had entered thewrong number for a sell order, that a large investor had dumped lots of stock on the market without concern for the consequences, or that there had been suspicious, high-volume trading in stock-market futures.

The chaos will lead to recriminations between exchanges and the newer offexchange electronic trading platforms.

Duncan Niederauer, chief executive of the New York Stock Exchange, which employs specialist share-dealers who can override electronic trading, said on television: "We think we acquitted ourselves well today. The electronic markets are free to do what they want."

But he conceded that the actions of those specialists might have been an important component of the chaos.

They halted trading in stocks such as P&G and Accenture for between 30 and 90 seconds yesterday, in a bid to find an accurate price for the stocks after a period of volatile electronic trading, Mr Niederauer said. With the stocks halted on the NYSE, trading continued on other exchanges and trading platforms in much lower volume, where the lower liquidity meant price declines were exacerbated.

Price declines had been getting worse throughout the day, even before trading went haywire. Investors were digesting more news from Greece and a warning from credit-rating agency Moody's that the bond market could now turn against government debt in other eurozone countries and the UK.

There will now have to be an extended period of work to decide which trades should stand and which trades should be cancelled as being obviously erroneous. Those decisions will save some investors from huge losses - but will rob others of big profits.

http://www.independent.co.uk/news/business/news/record-plunge-in-dow-stokes-market-panic-1965820.html

In UK news this morning, the UK voters voted in a hung Parliament and a looming constitutional crisis. The largest party in Parliament will be the Conservative Party, but it only managed to retain its one seat in Scotland. The second largest party will be Labour, but the party was rejected by the voters everywhere but Scotland. Britain’s third party the Liberals, were largely rejected too. Far from doubling their total of seats they look likely barely have the same number as before. As usual, the nationalist separatist parties in Scotland and Wales were repudiated by the voters, who are only too aware of what a disaster befalls a small independent country, when the roof caves in similar to events in Iceland, Ireland and Greece. So this morning, Europe has in addition to a Greek tragedy and a growing Iberian crisis, a new crisis in who governs Britain, and how effective can any government formed be in tackling the problems that face the country. All three parties lied to the voters about the scale of the UK’s financial problem, and the size of the austerity reforms needed to tackle it. None has a mandate to impose Irish or Greek style austerity on the public. None was endorsed to start imposing their version of truth on the rest, let alone via some sort of botched coalition, or worse minority government. For now, the worst British Prime Minister since Lord North lost the American colonies, limps on in office but not in power. Over the next few days, all three parties get to haggle over the spoils of a very flawed result. In reality a second election is likely within the next two years. Stay long precious metals.

Below, the WSJ covers the reality facing 13 years of socialist misrule. More on developments over the weekend on the blog.

An election is coming. Universal peace is declared and the foxes have a sincere interest in prolonging the lives of the poultry.

T. S. Eliot

MAY 7, 2010

Greek Lessons for the New U.K. Prime Minister

"A new day has dawned, has it not?" Tony Blair famously declared almost exactly 13 years ago on winning the 1997 election. Well, another new day has certainly dawned in the UK – and it's unlikely to be one that anybody looks back on with any affection.

What will surely become apparent in weeks, if not days, is that the election campaign was one long holiday from reality – paid for through the generosity of the markets. As a result, events in Greece and the wider euro zone, where a potentially devastating crisis with huge consequences for the UK is unfolding, was barely noticed or acknowledged by any of the parties. Certainly, no one bothered to spell out the lessons for the UK voter.

Politicians were fortunate that for the best part of a year investors and rating agencies effectively suspended judgment on the UK. It's unlikely the UK would have retained its AAA-rating or been allowed to borrow at less than 4% on the basis if the market had not believed tough action on the deficit would be taken after the election.

It's only now the election is over that the real voting will begin. The futures market opened at 1AM Friday to allow investors to start trading as the election results came in. From now on, whoever emerges as Prime Minister will have his performance judged not by daily opinion polls but in real-time by the markets. And unless that performance is remarkably sure-footed, the judgment is likely to be brutal.

The new Prime Minister should not kid himself that the UK is somehow a special case, immune to euro zone contagion. The UK may have a separate currency, an independent central bank and longer debt maturities than other troubled economies. But these will come in little use if the markets lose confidence.

Orchestrating a multi-country euro zone bail-out is fraught with financial and political difficulties. But at least the euro zone has the aggregate fiscal capacity to backstop its banks and support Greece, Spain, Portugal and Ireland. Excluding these four countries, the rest of the Euro area had a fiscal deficit last year of 5.2% of GDP and an outstanding level of gross debt of 81.5% of GDP, according to David Mackie of JP Morgan. The UK, with gross debt of 72.9% of GDP and a deficit likely to reach 12.6% this year, the largest in the European Union, has no such capacity – and only the IMF to turn to for a bailout.

As Moody's points out in a new report, what makes the UK so vulnerable to a sovereign debt crisis is the weakness of its banking system. Including private and public sector debt, the UK is one of the most leveraged countries in the world of debt equivalent to [400%] of GDP and a banking system still highly dependent on wholesale funding.

The new government will have to strike a very fine balance between cutting the deficit fast enough to satisfy the government bond markets but not too fast to choke off growth. If it cuts too fast and tips the economy back into recession, the banks could be hit by a fresh wave of losses. But if it disappoints the gilt markets, banks could be hit by far higher funding costs, hitting their ability to lend – and triggering a fresh recession.

http://online.wsj.com/article/SB10001424052748704370704575228493522274272.html?mod=WSJEUROPE_hps_MIDDLEFourthNews

Adding to the next UK government’s problems the largest mostly state owned bank is still in deep trouble. On a more positive spin, it’s losing money at a slower rate than before, but I doubt that the Gilt traders will be much impressed.

“When a politician is in opposition he is an expert on the means to some end; and when he is in office he is an expert on the obstacles to it.”

G.K. Chesterton.

RBS Alone Among British Rivals as It Posts First-Quarter Loss

May 7 (Bloomberg) -- Royal Bank of Scotland Group Plc, the U.K.’s biggest government-owned bank, reported the only first- quarter loss among British rivals as profit at its investment bank plunged. Profit at RBS’s investment bank fell 58 percent to 1.47 billion pounds from a profit of 3.47 billion pounds a year earlier, the Edinburgh-based lender said in an e-mailed statement today. Barclays Plc’s investment banking unit last week posted a 62 percent rise in profit during the same period.

“We remain conscious of the economic imbalances still to be tackled globally and of the risk of specific events, such as those affecting Greece, with the associated danger of contagion,” Chief Executive Officer Stephen Hester said in the statement.

RBS is the only publicly traded British bank still reporting a loss after Lloyds Banking Group Plc, also bailed out by the U.K. taxpayer, said last week it returned to profit. The U.K. government, which owns 83 percent of RBS, has a 1.5 billion-pound paper loss on its 45.5 billion pound investment.

The bank’s net loss was 248 million pounds ($363 million), compared with 902 million pounds in the year-earlier period, the statement said.

Revenue at RBS Global Banking & Markets from the rates, currencies and commodities business declined 60 percent from a year earlier, when markets were experiencing an “exceptional environment,” RBS said.

Impairments dropped 14 percent to 2.68 billion pounds in the first quarter from 3.1 billion pounds in the last quarter of 2009. Impairment levels are “likely to remain high and there may be volatility in impairment losses, particularly in the non- Core portfolio,” the bank said.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aZBdxX5wAqP0&pos=5

Earlier this week, Willem Buiter, Citi’s leading economist and ex member of the Bank of England’s monetary policy committee, published his thought on the Greek bailout and why he thinks Greece will still have to restructure its sovereign debt ahead. It is available to readers on the LIR Intraday page.

http://londonirvinereport.blogspot.com/p/intraday-news.html

We close for the day with more links to the latest on the BP-Transocean disaster.

Cofferdam Arrives at Leak Site

http://www.rigzone.com/news/article.asp?hpf=1&a_id=92881

Oil Spill Discussion - May 6
Posted by Gail the Actuary on May 6, 2010 - 10:26am
http://www.theoildrum.com/node/6437

“The art of politics consists in knowing precisely when it is necessary to hit an opponent slightly below the belt.”

Konrad Adenauer.

At the Comex silver depositories Thursday, final figures were: Registered 51.66 Moz, Eligible 64.98 Moz, Total 116.64 Moz.


Seventy years ago this Sunday, Hitler launched his attack in the west that almost brought down western civilization. We continue our (almost) daily update on the “Dunkirk” page.

Dunkirk & the Battle of France – Day by day 70 years on.

http://londonirvinereport.blogspot.com/p/dunkirk-battle-of-france.html


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Crooks & Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

Today, more of Nu Labour’s dumbed down Britain. In what was widely tipped to be a hotly contested general election, with more voters intending to participate in this election than in the previous three, incompetent to the end, Her Majesty’s Government of serial ditherers, botchers and dissemblers, managed to disenfranchise many of its own likely supporters, by not ordering the organizing councils to make special preparations for the rush.


“It is terrible to contemplate how few politicians are hanged.”


G. K. Chesterton.


May 7, 2010

Voters declare their anger as thousands are turned back at polling station door

Thousands of people were deprived of the right to vote last night as polling stations were unable to cope with demand.

Election chiefs told The Times that the widespread failures to deal with high voter turnout may lead to re-runs in the next few weeks, which could be critical to the overall outcome.

The Electoral Commission said it would be conducting a “thorough review” to determine what went wrong.

An estimated 500 people were turned away in Nick Clegg’s constituency of Sheffield Hallam as a large number of students and other voters descended on the polling station at St John’s Church in the Ranmoor district of the city. Police had to remove about 100 people who refused to leave.

A further 200 people in Woodseats, a suburb five miles away, were told that they could not cast their vote. Police were called to deal with 100 angry people who refused to leave the library being used as a polling station.

About 600 people were turned away in Chester, a key marginal where Labour was defending a majority of 915.

Police dispersed 300 people who were prevented from voting in Brockley in the Lewisham-Deptford constituency, southeast London. A sit-in was also broken up in Triangle Road in Hackney, East London.

Other polling stations in Newcastle East and Sutton Coldfield stayed open after 10pm to cope with demand. Electoral Commission rules state that votes can only be counted if ballot papers have been issued by the 10pm deadline. In Liverpool some polling stations were reported to have run out of ballot papers.

John Mothersole, returning officer for Sheffield, acknowledged the shortcomings there. “We got this wrong and I would like to apologise,” he said. “We were faced with a difficult situation with the numbers of people, and a large amount of students turning up to vote without polling cards.”

Students said that part of the problem was that more than 5,000 students had been registered at a single polling station. Elizabeth Eele, 19, a physics and philosophy undergraduate at Sheffield University, said that students may have been unfairly treated because they were moved into a separate, longer queue. “[The presiding officer] said that people with children and older people should go first, but that means that students who queued for longer were not allowed to vote.”

http://www.timesonline.co.uk/tol/news/politics/article7118998.ece

“My choice early in life was either to be a piano-player in a whorehouse or a politician. And to tell the truth, there's hardly any difference.”

Harry Truman.


The monthly Coppock Indicators finished April:
DJIA: +245 UP. NASDAQ: +448 UP. SP500: +276 UP. The great Bull market goes on with the all three continuing higher in positive numbers.

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Another weekend, and Europe continues to stumble along towards a runaway crisis. On Sunday German voters can add to Chancellor Merkel’s difficulties by voting for her opposition parties. If it happens and Germany to the ranks of weak governments in Europe. Right now, Europe’s front runner to spit out the next Lehman, although a few more days of mayhem on Wall Street, as the Squids computer programs game each other to death, make it a close run thing. Next week looks likely to be “exciting.” Have a great weekend everyone. For those in the UK, there’s still time to catch the carpets of bluebells in our delayed spring woods.


“Politicians are the same all over. They promise to build a bridge where there is no river.”

Nikita Khrushchev.

The monthly Coppock Indicators finished April:

DJIA: +245 UP. NASDAQ: +448 UP. SP500: +276 UP. The great Bull market goes on with the all three continuing higher in positive numbers.


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