If you have been following the markets this week, you may have a case of motion sickness. Gone are the days of small ranges as we slowly grinded higher.

Tuesday had monster manic action, yet the moves have been seemingly unexplainable or shall I say comedic. The market opened higher with indiscriminate panic buying because the market never goes down on the second Tuesday of the month or on tax day or odd number days in April or whatever random reason you can make up.

But a few hours into the trading session the market couldn’t sustain these panic highs. Things were reported to be getting dicey in the Ukraine or maybe somebodyflashed a sell sign, and poof there was a more than100 point drop in the NASDAQ off the highs

But you can’t keep a bad market down, and proving once again how insanely non-sensical this bad-news-is-good-news market has become, the market ripped higher toward the end of the trading session.

The reason for today’s rip – an economic assessment downgrade for Japan which smahed USDJPY higher and through magic of carry, lifted US equities. There was no let-up in Ukraine, no data to confirm growth hype, no US news… but the Russell and Nasdaq managed a 2.5% bounce in a straight line after the Japan headline

Buckle up and hold on for the ride!


The European Union is talking tough about the High Frequency Traders and unlike the tough talkers here at home, who seemingly talk and talk (pre-election) with no follow through (post-election), something may actually happen.

As I’ve been writing about for the past couple of weeks, the mainstream has finally woken up to the unfair advantage of High Frequency Traders with the release of Michael Lewis’s latest book “Flash Boys”

I have been writing about this for a long time, but now there may finally be some action . The EU’s financial chief has promised to get tough.

According to Bloomberg:

European Union lawmakers are poised to approve some of the toughest restrictions in the world on high-frequency trading, the first actual crackdown

The curbs are part of revamped EU markets legislation ranging from commodity derivatives speculation to investor protection. The high-frequency trading limits include standards meant to keep the price increment for securities from being too small, mandatory tests of trading algorithms and requirements that market makers provide liquidity for a set number of hours each day.

“With these rules the EU is putting in place one of the strictest set of regulations for high-frequency trading in the world,” EU financial services chief Michel Barnier said in an e-mail. “While HFT trading might bring some benefits, we need to make sure that it doesn’t cause instability, and isn’t a source of market abuse. That’s what these rules set

The draft rules, which predate Lewis’s book, are “the most comprehensive regulatory response yet to HFT,” Christopher Bernard, financial regulation lawyer at Linklaters LLP in London, said in an e-mail.

While the assembly will vote on the measures this week, their ultimate impact will depend “to a large extent” on technical measures to flesh out the law that are still under discussion, Bernard said.

At least it’s a step in the right direction from the EU, will the US follow? Who will ultimately walk the walk?


Bulls may have to look for the Easter Bunny (does Janet Yellen wear costumes) this week. Things could be dicey with renewed geopolitical jitters as Ukraine moves back into the forefront.

Oleksander Turchinov said in a televized address that Ukraine has mobilized its armed forces to launch a “full-scale anti-terrorist operation” against pro-Russian separatists. Furthermore, knowing the only real escalation Kiev can engage in is in the war of words department, Ukraine set an 0600 GMT Monday deadline for pro-Russian separatists to give up their weapons and leave buildings they have occupied in the east of the country, a presidential decree said. It is unclear if this would be the catalyst to launch the military operation, but should Kiev indeed bring in the army it is certainly clear that Russia will respond in kind.

The Markets were slightly lower in Asia (Nikkei 225 -0.36%) after the reports of exchanged gunfire with pro-Russian militants. This sentiment carried over into the European session with stocks lower across the board (Eurostoxx50 -0.71%). Probably more important is that Draghi said any further strengthening of the EUR would warrant further action by the ECB, including non-standard measures such as quantitative easing – it is amazing how frequently and often the Virtu algos still fall for Draghi’s jawboning trick which has now become all too clear will never be implemented and certainly not if he keeps talking about it daily, as he does.

Which animal will dominate this week?


The market was hammered so hard on Thursday that the word “hammer” kept entering my mind throughout the day. I thought “Wow, the Nasdaq is getting hammered” and “Look at Gilead; it’s getting hammered.” The word stuck with me so much that I started to sing MC Hammer’s “You Can’t Touch This” with his catchphrase “hammer time.”

You know the lyrics, right

The, the, the selling hit you so hard

Makes me say “Oh my Lord”

Thank you for blessing me

With a mind to think and two quick feet

It feels good, when you know you’re short

A super dope homeboy from the CHItown

And I’m known as such

And this is a beat, uh, you can’t touch

I told you (long-only) homeboy (You can’t touch this)

Yeah, that’s how we trade it and you know (You can’t touch this)

Look at my eyes, man (You can’t touch this)

Yo, let me bust the funky lyrics (You can’t touch this)

Fresh new shorts, advance

You gotta like that, now you know you wanna dance

So move, outta your seat

And get a broker and catch this treat

While it’s rolling down, hold on

Pump a little bit and let ‘em know it’s going on

Like that, like that

Cold on a mission so fall them back

Let ‘em know, that you’re too much

And this is a beat, uh, you can’t touch

Now go into your closets, dust off your parachute pants from 1990 and sing along.

OK, seriously though, Thursday was a good reminder that one should have a few shorts positions in their portfolio when the market is weak. And since the market had already been weak for some time, one would already have been short stocks like TWTR, GM, GILD, TSLA, almost any biotech, and more.


Wednesday’s trade was framed by the minutes of the last FOMC meeting. Although we already heard directly from Janet Yellen, traders wanted to hear what the discussion was like behind closed doors. Moreover, traders wanted to know if the other voting members of the Fed, that make up the FOMC, agreed with Yellen’s comment of a 6-month time span after QE tapering ends when she would raise rates.

They did not settle upon that timeframe; therefore, stocks exploded. More easing via ZIRP was the agreed upon outcome of the FOMC minutes.

Part of the minutes read -

Almost all participants agreed that it was appropriate at this meeting to update the forward guidance, in part because the unemployment rate was seen as likely to fall below its 6½ percent threshold value before before long. Most participants preferred replacing the numerical thresholds with a qualitative description of the factors that would influence the Committee’s decision to begin raising the federal funds rate. One participant, however, favored retaining the existing threshold language on the grounds that removing it before the unemployment rate reached 6½ percent could be misinterpreted as a signal that the path of policy going forward would be less accommodative. Another participant favored introducing new quantitative thresholds of 5½ percent for the unemployment rate and 2¼ percent for projected inflation. A few participants proposed adding new language in which the Committee would indicate its willingness to keep rates low if projected inflation remained persistently below the Committee’s 2 percent longer-run objective; these participants suggested that the inclusion of this quantitative element in the forward guidance would demonstrate the Committee’s commitment to defend its inflation objective from below as well as from above.

So actually they seem confused. I’m not sure why it matters anyway; after all, Fed projections are horrible. Nevertheless, the market “heard” more QE and went wild buying everything in sight.


When the lunatics are running the financial asylum, I will celebrate the small victories.

Yesterday we learned the eight biggest U.S. banks must boost capital levels by a total of about $68 billion under new rules. The new rules are attempting to limit the big banksters reliance on debt. By 2018, banks must rely more on funding sources such as shareholder equity, rather than borrowing money.

According to Bloomberg:

Banks’ insured subsidiaries face tougher limits and must boost capital holdings by a total of about $95 billion, regulators said.

Officials said most firms are already on track to comply and could meet the requirements by retaining earnings, or could shrink or restructure some assets to reduce capital needs.

The final rules show regulators are unwilling to budge from an increasingly tough stance on banking requirements, as they seek to shore up banks after the 2007-2009 financial crisis.

“In my view, this final rule may be the most significant step we have taken to reduce the systemic risk posed by these large, complex banking organizations,” said Martin Gruenberg, chairman of the Federal Deposit Insurance Corp (FDIC).

The rule would apply to JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley, Bank of New York Mellon and State Street.

The Financial Services Roundtable, a trade group for large banks, issued a statement blasting the limits, which are more stringent than the international Basel III agreement.

“This rule puts American financial institutions at a clear disadvantage against overseas competitors,” said Tim Pawlenty, the group’s chief executive.

The FDIC, Federal Reserve and Office of the Comptroller of the Currency approved the rules, implementing a portion of the Basel III agreement known as the leverage ratio, which is calculated as a percentage of a bank’s total assets.

The rules require the eight biggest bank holding companies to maintain top-tier capital equal to 5 percent of total assets. Insured bank subsidiaries must meet a 6 percent ratio. That’s higher than the 3 percent ratio included in the Basel agreement.

The banks have till June to pony up. It will be interested to see what happens.


The notion of the declining debt burden for the consumer is in fact correct. That is if you exclude people who a – drive or b – use money appropriated for one thing for another purpose. Itis no secret that students increasingly use their loans for a lot of things besides tuition.

Last month total consumer credit increased by $13.8 billion, of which $14.0 billion went into student and car loans. Yes, people are putting less on their credit card -which is a good sign-but February was even worse. The headline number was great: $16.5 billion, well above the $14.0 billion expected. The problem is that of this number well more than 100%, or $18.9 billion was once again slated for car purchases and paying down “student bills”

In other words, anyone suggesting that the “surge” in household lending is in any way remotely indicative of consumer hope is incredibly naive. This is just another instance of free credit where Uncle Sam (aka all of us) will be left holding the bag when things go south.

In the past 12 months, a record 98% of all credit – $162 billion – has gone into non-revolving debt. while only $4 billion or 2% of total has gone on credit cards. So much for the heralded consumer recovery.

The market certainly was spooked by something as things got downright ugly on Monday for the NASDAQ. Most major averages are now close to flat on the year. It should continue to be interesting.


Even though the talking heads and the politicos tried to spin last Friday’s jobs data in countless different ways, the number was really pretty awful and the Fed isn’t coming to an immediate rescue. The hope-driven hyper-growth stocks got slammed as the Nasdaq had its worst swing since December 2011.

You don’t need to be a data sleuth to realize that despite the reported “milestone” hiring figure, the labor market hasn’t fully healed and remains systemically broken.

Even though the nonfarm payrolls eclipsed the peak number from January 2008, the gains in private sector jobs have lagged behind the growth in the adult working-age population. More telling is the continued growth in temporary employment. It used to be that a rise in temporary jobs would lead to an eventual increase in full time hiring. This hasn’t been the case in this “recovery” as the share of temp jobs to private payrolls is holding steady at a record level of 2.4%.

The growing labor force argument takes its biggest hit in terms of the labor force participation rate. The percentage of working-age people working or looking remains at 63.2%. This number has held steady over recent months but still remains near a 3 ½ decade low.

With the futures and European/Asian markets mostly lower overnight, this week should be interesting!


Last night I was watching TV and Henry Winkler came on talking about reverse mortgages. My first thought was, wow, the Fonz is doing commercials, how bizarre. But my second thought was more foreboding and that was if something is being pitched as a sound financial strategy late at night on cable, well then things may not be what they seem.

So what exactly is a reverse mortgage?

In a nutshell, it’s a specific type of home equity loan available only to people aged 62 and over, which has the added benefit of not carrying any interest payments and is only due upon death or once the homeowner is no longer using it as a primary residence. As you can see, this might be viewed as an attractive cash flow option for older Americans who didn’t save for retirement. That could be a lot of people, considering that Fidelity estimates 48% of baby boomers have not put away enough to retire.

While I have covered the various ways in which Americans are scraping by in the current feudal economy, from food stamps and disability fraud, to student loans and living in mom and pop’s basement, this reverse mortgage thing is a piece of the puzzle I have been missing.

These mortgages are not insignificant either. According to Inside Mortgage Finance, originations were up 20% in 2013, hitting $15.3 billion. So when you see that older guy working the cashier at Wal-Mart and wonder to yourself how he is surviving, the answer may increasingly be a reverse mortgage.

Oh, and since the FHA is originating many of these loans, you the taxpayer will be on the hook. But don’t worry the Fonz says it’s cool so all should be fine.


Today will mark the end of the “Rigged” trilogy of newsletters. This missive is actually a video; a video of Michael Lewis at the Bloomberg studio. In the link below you will see an actual interview about the book, and not a shameful scream-fest that was allowed (encouraged?) on CNBC the day before.

This one is worth your time.

The timing of the “Flash Boys” book release was great in a way. The last two days of trading has seen the stock market make new never-before-seen-in-human-history highs on worse than expected news, and absolutely putrid volume.

This HFT book has been a good diversion.

Trade well and follow the trend, not the perma-bull OR perma-bear “experts.”