Market Manipulated! Levin Lets The Cat Out Of The Bag!

Original Content Sigma Options

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Via ZeroHedge, here is a jawdropping video where Larry Levin let's the cat out of the bag about gu'mint manipulation.

"Larry Levin is a professional futures trader. He has been in and around the S&P 500 futures pit at the largest futures exchange in the world; the Chicago Mercantile Exchange (CME), for almost 20 years.

Larry has been trading his own account or company's proprietary accounts since 1993, trading an average of 2500-3000 E-mini S&P futures contracts a day."

The meaty bit starts at about 2 minutes in.

Rate Cut Post Mortem

As you know I have my own feelings about Helicopter Bens's rate cut. In case you haven't been following along, I think it was an extraordinarily bad decision and each member of the FOMC should be strung up by their balls. I've been dieing to comment from a bush economists point of view (and have been ranting and raving offline), but really wanted a more professional opinion for this blog.

As usual, Mick Shedlock delivers the goods with some excellent analysis in Bernanke's Bullet Misses The Mark. Here is a synopsis taken directly from the article:

List of What's Changed

• Perception has changed.
  
• Any perception of the Fed as being concerned about inflation went out the window.
• Any perception of the Fed as being concerned about the dollar went out the window.
• Bulls are happiest they have been in months.
• The stock market is higher.
• Gold is higher.
• Oil is higher.
• The Prime Rate dropped 50 basis points.

List of What Hasn't Changed

• Mortgage Rates. (Actually mortgage rates rose since last week as the chart below shows).
• Auto Loan Rates. Nearly identical to last week.
• Home Equity Loan Rates. Nearly identical to last week.
  
• The outlook for jobs. (If anything the outlook is weaker judging from the Fed's panic).
• Credit Card Interest Rates.
• The foreclosures outlook did not change. It is still bleak.

The Fundamentals Have Not Changed

• Massive numbers of foreclosures are still going to happen.
• Banks are going to be stuck in huge numbers of REOs.
• Home inventories are still rising.
• The economic ship is still sinking
  
• The jobs market remains grim

Please read the whole article as it makes a whole bunch of sense.

As expected & noted, there has been movement in the markets; The USD is taking it up the ass, and Metals, Oil and other exchange rate sensitive markets are flying. The really curious movement to me was in the long bonds, both in the US and Europe. Since the rate decision, the contracts I follow closely and trade, The Euro Bund and The 10 Year T-Note have been down strongly and in fact accelerating today in big one day moves.

If you don't happen to know what this means, it means that longer term bond yields, which mortgages and other long-term are priced off, ARE RISING, as indicated in the 10 year YIELD chart on the left.

I am on record as holding the view that rates should in fact be rising and I think that once liquidity is normalized somewhat, Bernanke will be forced to raise again. But on the long end of the yield curve at least, the market is doing what the Fed doesn't have the balls to do. Those who have painted themselves into a corner in the housing market won't be getting any relief and nor should they. (Though I do feel sympathy for how the market and mass psychology have compelled them to make unwise decisions. The psychology used by vested interests is very strong.)

In conclusion, the shipwreck is still on course, a .5% cut proves it. The only area where I remain bemused is why equity traders are bullish.

The UK Mortgage Lender Implode-O-Meter?

By now just about everyone will know about the Northern cRock bank run on Friday and Saturday. I haven't posted till now for fear of merely regurgitating what is already posted in depth all over the freaking internet.

I have been amusing myself with pictures of queues outside branches like the one on the right... well, OK it's a photoshop job just for fun.

The only problem is that there are a lot of folks who won't be thinking the whole situation is funny at all. There will be hundreds of Northern Rock customers who will be having sleepless nights over the weekend, worried about the security of their investments; like the poor old lady below who stood in the queue for hours to get her money out, only to be turned away at closing time by the local constabulary. I feel for them.

Internet customers are having a hell of a time logging on and accessing their accounts amid suspicions that bandwidth has been deliberately restricted to stem the hemorrhaging of funds from the bank.

Of course everybody from the NR CEO, to the press, to the Chancellor of the Exchequer is saying that the bank is sound and that people funds are safe. But these parties are not known for telling the truth are they? Depositors obviously feel discretion is the better part of valour and taking their funds elsewhere. I can't say I blame them one iota.

Unquestionably, there is no way that NR can continue in it's current form, so basically the first mortgage lender in the UK will very shortly cease to exist.

That makes me wonder if some enterprising Englishman/woman has kicked off a UK version of
The Mortgage Lender Implode-O-Meter, because it might just be the first of many. Sub-prime lending in the UK has been rife and has been hidden by strong price appreciation to date and folks have been able to sell or MEW themselves out of trouble. But with the first month on month falls recorded, those days are over.

Regarding the future of the UK property market, I think there is a sound opinion here in the following video:



No matter what exactly transpires next, (I suspect governments and CBs will desperately try to prop up the boom) The world changed in August and things will be different and harder from now on.

Sub-Prime Mess Contained

A leading economist said today that there is no evidence that the sub-prime contagion will spread beyond the stratosphere. Meanwhile, the credit crunch is starting to involve the cheap tat buying public.

Families have been warned of a looming credit drought as banks and building societies stop handing out cards and overdrafts to hard-pressed households

Industry experts have said that lenders are clamping down on debt applications for fear that borrowers default as the economy worsens.

It is the latest evidence of how the financial markets crisis is affecting households and follows news that mortgage companies are primed to increase their interest rates, causing more hardship for hundreds of thousands of households due to renew their home loans in the coming months.

Equifax, a company that provides credit checks, said households would find it increasingly difficult to borrow money in the coming months, as lenders started to refuse more and more applications. FULL STORY

I think this will have a quantum effect on retail sales... perhaps even accelerate mortgage defaults. I know plenty of folks who are doing the credit card boogie to make their over-committed ends meet, all the while building more and more debt. Another signal we bush economists take note of.