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JPM & Goldman Keep Italy CDS Risks Secret, Legal Stealing & CFTC Rule 1.29, Kyle Bass Brings It

News That Moves Markets: Italy CDS Risk, MF Global Fraud has Legs, Japan Next Big Global Risk, Gold Primary Solution To Protect Assets

Turn off CNBC and stop listening to Bloomberg radio or whatever market news source you currently look to for answers. The chatter from these various news ’sources’ is detrimental to your sanity and portfolio. The constant cheer leading and continuous efforts to explain every ripple during the trading session are truly worthless. In this new and growing age of social media and search it is best to scour numerous sites and compile stories that actually matter. This process helps eradicate the agendas of news corporations and makes it easier to reveal the true thread driving market activity.

To that end, I have three accounts from diverse sources that I feel best highlight the real issues undermining the equity and commodity markets at present. The stories I am about reveal are driving market participants to withdraw liquidity. No other single factor is more influential to the markets than the withdrawal or addition of liquidity.  Every story I publish, every post I compile has at its core the desire to illuminate the direction of liquidity.  Those who follow my tweets (!/BretRosenthal) know I constantly update the direction of the carry trade as defined by the relationship between the Aussi $ and the Japanese Yen (AUD/JPY). This is one of the best ways to monitor market liquidity flows.  The chart below clearly illustrates the ‘carry’ (chart on the left) has been collapsing well ahead of the S&P500 during the month of November as shown by the yellow rectangles….


But I digress, I promised three stories and I will deliver….

1) The MF Global collapse and subsequent fraud story is gaining stream. I believe this is the single biggest issue facing markets today. Not European debt issues nor US economic woes can or should overshadow the importance of this MF disaster (pun intended). Making a mockery of segregated accounts and defrauding clients is perhaps the best way to induce a serious round of liquidity withdrawal. The MF global issues are driving the decline in the carry trade as investment managers raise liquidity and move assets away from other possible weak hands (Jefferies). This reduction in carry is felt across all asset fronts at once regardless true value.  Hence, even Gold weakens during the run on liquidity. This story is not going away. Another shoe is going to drop on this Imelda Marcosian market.  The Golden Truth explains….

More On Legal Stealing – The Infamous CFTC Rule 1.29

Time to cut to the chase.  Let me just preface this with my belief that the missing $600 million from MF Global was money taken from segregated customer accounts and used by MF Global to satisfy a massive margin call issued by JP Morgan on MF Global proprietary accounts.  I say JPM ultimately has the funds in question because if you have been following all of the news from the beginning, including the initial proclamation that the missing funds were found in the basement of JP Morgan followed by the slightly delayed statement of denial by JPM, then it makes sense to me that the dotted lines ultimately connect that missing money to JPM.

If the court rules that JP Morgan’s claims are superior to that of the customers, whose assets were supposed to be in a segregated account and arguably should be treated with a greater degree of superiority and protection than that of a general creditor, then the MF Global bankruptcy is indeed a case of legal stealing….Read More

2) Speaking of JP Morgan, the financial stocks as a group have been leading equity markets lower. Financials have always been a great barometer of the overall markets and today is not only no exception it is now the rule. The chart below reveals the same characteristics of the carry trade vs the S&P500 as discussed above….


Notice how the financials in the chart on the left (NYSEARCA:IYG) have sold off in almost a straight line during the month of November while the S&P500 attempted to break above resistance at the 200 day MA (Red line near top of yellow highlighted box on the right). For further insight as to why this weakness may be occurring please read the following…

JP Morgan Joins Goldman Keeping Italy Derivatives Risk in Dark

JPMorgan Chase & Co. (NYSE:JPM) and Goldman Sachs Group Inc. (NYSE:GS), among the world’s biggest traders of credit derivatives, disclosed to shareholders that they have sold protection on more than $5 trillion of debt globally.

Just don’t ask them how much of that was issued by Greece, Italy, Ireland, Portugal and Spain, known as the GIIPS.

As concerns mount that those countries may not be creditworthy, investors are being kept in the dark about how much risk U.S. banks face from a default. Firms including Goldman Sachs and JPMorgan don’t provide a full picture of potential losses and gains in such a scenario, giving only net numbers or excluding some derivatives altogether.

“If you don’t have to, generally people don’t see the advantage to doing it,” said Richard Lindsey, a former director of market regulation at the U.S. Securities and Exchange Commission who worked at Bear Stearns Cos. from 1999 through 2006. “On the other hand, if there were a run on Goldman Sachs tomorrow because the rumor was that they had exposure to Greece, you’d see them produce those numbers.”

A case in point: Jefferies Group Inc. (JEF), the New York-based securities firm, disclosed every long and short position it held on European debt earlier this month after its shares plunged more than 20 percent. Jefferies also said it wasn’t relying on credit-default swaps, contracts that promise to pay the buyer if the underlying debt defaults, as a hedge on European holdings….Read More

3) In conclusion, I will allow the always eloquent and remarkable concise Kyle Bass to explain the realities of the situation courtesy of Zerohedge…

Kyle Bass Un-Edited: “Buying Gold Is Just Buying A Put Against The Idiocy Of The Political Cycle. It’s That Simple!”

If the abridged summary from BBC’s Hardtalk interview with Kyle Bass that we published yesterdaywas not enough for those seeking sense, truth, and direction, then (as promised) the full 24′30″ interview will quench that desire. Reflecting on the similarities of his subprime perspective, he provides a crucial context for the debt-laden world of sovereign debt that he is now hedging. Shrugging off the somewhat snarky ‘nefarious short-sellers’ angle of questioning (and insuring the uninsured prod), he simply and elegantly points out how massively asymmetric the bet was, how the asymmetry in Europe has disappeared now, and all the asymmetry lies in Japan. From the 14-minute mark, describes the demographic disaster, destroys the savings myth of the land of the rising sun, and brings into focus how Italy’s rapid demise should be a forewarning for the debt-servicing of Japan.

Ending up on the Fed’s printing and the need for guns and gold, there’s a little here for everyone!

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