12/19/10…T+3 again?

…what happened to stocks last Friday? To recap, TB commented on a David Kotok piece…he of Cumberland Advisors…on the rise in bond yields that was occurring globally and that in terms of the local currency all the major countries are seeing Gold appreciate. Is this a sign of confidence? Furthermore, the biggest hit…beginning on October 12th and in an almost straightline manner, every major countries sovereign debt has seen sharp increases in yields.

So what happened on Friday? Stocks took a nosedive then managed to get back to around even by the close…but in the meantime long treasuries rose by about 3 points…causing even more consternation for managers and this writer as the obvious question was why???

Overnight, European stocks and U.S. futures are rallying while Asia is weak…now concern has shifted to emerging markets? If any of this makes sense to you, honk! Because nothing explains what we saw Friday or may see today…except one thing: T+3 settlement.

Are we returning to the pattern of 2008 and early 2009 where the hedge funds determined the course of stocks…and bonds in the final days of the quarter? To recap, while conventional money managers can trade up to and including the last trading day of the year and have it count for their closing positions, hedge funds, due to the use of leverage have to use only ‘settled’ trades. That means that trade date plus three days is their cutoff for any quarter – or year! That gives them a huge advantage for window dressing purposes to make conventional managers look bad. As of today there are just 8 trading days left in 2010…and volume will be slack near the end of each week. So what to do…and remember that some hedge funds, due to the insider trading scandals are also seeing huge redemptions? In any event it is unlikely that they will be big buyers into yearend, leaving that to last minute conventional window-dressers and mutual fund rebalancing.

Look at the volume on the NYSE since 12/9, the last day with 1 billion shares trading before a string of weak days,

12/10 975M

12/13 963M

12/14 953M

12/15 1.11B

12/16 990M

Now look at Friday: 2.02 billion shares on the NYSE…largest since 2.55B on June 25th! Keep that date in mind. Of that 2.03B shares 450 million were in the first few minutes on a drop of 50 or so points…then there was a spike back to perhaps a point positive around noon that lasted most of the afternoon, then another swoon and a spike back to +1 then fade into the close. Volume only crossed 1 billion shares 55 minutes before the close! 10 minutes before the close it stood at 1.14B shares…the rest was at or near the close with another 22 million shares at the close for total volume of 2.28B shares!

Now back to June 25th – it was the last day for T+3 settlement in Q2(there was no similar effect in the 3rd quarter)! The high on the Dow on June 22 was 10594, it closed down slightly that day and by the close of 6/25 it stood at 10081 and then plunged to 9614 on July 2nd before another tally began! What will happen this time? Don’t know but expect volatility…just like in D.C. there is everything at stake. Next Monday is the last day for T+3 settlement.

The point is there was no news to justify the move or the volume on Friday. The market has been enamored by the tax and unemployment benefit extension – even though it will bite us down the road and exacerbate the wealth gap, and it is doubtful that jobs will be increased to the degree anticipated. Furthermore, much is being made of the improvement in initial jobless claims…three years into this mess don’t you think there should be? But where are the jobs? What about the huge pool of unemployed who may now lack the skills and are competing with the new college graduates coming on the scene?

But what about the rally in bonds? Looking at the headlines today, that will also likely be fleeting…although spread product should do better. We are in a very complex world with few answers.

. . . - - - . . .    . . . - - - . . . (S.O.S.)

Anyone who believes the next two years will be boring is not paying attention. The GOP took all those seats due to disgust with Dems…and the able help of the teabaggers…who could …and should turn against them for their shameful lying over stopping ‘earmarks.’ First they vowed to cut the deficit with not one area disclosed that they could do this…with 80% of the budget tied up with the military and social security benefits (and by the way the problem is not with social security it is with Congress for using it as their bank borrowing from it thru t-bills and thereby causing the problem to exacerbate over the past three years during the crisis. But you hear no one comment on this…on either side of the aisle. As for their hatred of earmarks…they broke their pledges within days of making them…using the lame excuse that they had to in order to end them in the future…if that makes sense to you, then you have a problem…of course the Dems love earmarks too but it was the GOP that took it to an artform.

We’ve only just begun…and that folks, is a problem.

Have a great day!

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries...as he sees it...and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Copyright TBD Capital LLC, December 19, 2010.

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