End-of-Quarter Portfolio Rejiggering Rattles Shaky Markets

NEW YORK (Dow Jones)--Investors have been a trigger-happy lot this week, gobbling up risky securities one day and dumping them the next.

But while the European debt crisis dominated the conversation in the market, a key factor behind the turmoil was the fact that it's the end of the quarter.

Quarter-end is always a big deal for large, conservative investors like insurance companies and pension funds, which typically face self-imposed limits on their risk-taking and on how much they can hold in different investments. Those rules mean that at quarter-end they place buy or sell orders just to get back in line with their mandates.

1:01 (Dow Jones) The outperformance of the 30-year Treasury bond even turns the benchmark 10-year note into a relative laggard despite the latter's deeper liquidity. The extra yield investors demand to own 30s rather than 10s is 1.019 percentage points, the narrowest spread since July 2010 . It was 1.262 the day before the unveiling of Operation Twist last week. Some investors say the planned Fed buying will keep the 30-year yield falling in coming months, making the trade of buying 30s and selling 10s attractive. Some traders expect the yield gap to drop to as low as 0.75 point the next couple of months. (min.zeng@ dowjones.com)

Fed to begin 'Operation Twist' on Monday

The New York Federal Reserve Bank of New York said Friday that it would begin Treasury purchases and sales on Monday as part of the program dubbed "Operation Twist" announced by policy makers earlier this month. The Fed will buy long-term debt on Monday, Tuesday and Friday and inflation-linked debt on Wednesday. It will sell one-year debt on Thursday, the Fed said on its schedule posted on its web site.

- Deborah Levine

SEC Delays Ruling On New Stock-Market Shock Absorbers

The U.S. Securities and Exchange Commission on Wednesday put off until Nov. 28 a decision on stock exchanges' plan for a new system of shock absorbers to contain market volatility.

Regulators are weighing a proposal, put forth by exchanges in April, to retool the "circuit breaker" system developed to curb the massive price swings seen during the May 2010 "flash crash," replacing it with a new regime traders say will allow the market to operate more smoothly.

A ruling on the plan had been slated for Sept. 29 . Another two months will let regulators weigh reaction from the industry, which has included concerns that the program could create snarls for traders trying to price derivatives contracts.

The new concept would put in place curbs preventing share prices from rising or falling too quickly, though buying and selling could continue within such limits.

The current circuit breaker system automatically halts all trading in stocks and exchange-traded funds that see a 10% price move within a five-minute period. These temporary halts have at times frustrated firms that must sit on the sidelines until the affected security is reopened for business.

-By Jacob Bunge

Hedge Funds Face New Round of Redemptions As Losses Bite

LONDON (Dow Jones)--The hedge fund industry is braced for a new round of redemptions after two months of poor performance and growing investor desire to move money into cash.

The world's largest listed hedge-fund manager, Man Group PLC (EMG.LN), stoked fears of another industry meltdown Wednesday when it reported a net $2.6 billion was pulled from its funds between June 30 and Sept. 26 . It lost a further $1.5 billion from fund losses and $1.9 billion from the effect of a stronger U.S. dollar when accounting for euro- and Australian dollar-denominated funds. Its GLG unit, acquired last year, posted particularly large outflows.

Man Group shares fell as much as 25% in London.

SEC To Publish For Public Comment Updated Market Wide Circuit Breaker Proposals To Address Extraordinary Market Volatility

FOR IMMEDIATE RELEASE
2011-190

Washington, D.C. , Sept. 27, 2011 - The Securities and Exchange Commission today announced that the national securities exchanges and the Financial Industry Regulatory Authority (FINRA) are filing proposals to revise existing market-wide circuit breakers that are designed to address extraordinary volatility across the securities markets. When triggered, these circuit breakers halt trading in all exchange-listed securities throughout the U.S. markets.

The proposals being filed today would update the market-wide circuit breakers by among other things reducing the market decline percentage thresholds necessary to trigger a circuit breaker, shortening the duration of the resulting trading halts, and changing the reference index used to measure a market decline.

If approved by the Commission, the new market-wide circuit breaker rules would replace the existing market-wide circuit breakers, which were originally adopted in October 1988 and have only been triggered on one day in 1997.

Here's Why Everything's Rallying on No Real News

By Andrew J. Johnson

Even as uncertainty over the euro-zone's sovereign debt crisis continues, the euro, and European stocks, and US stocks, and everything else risky, climb higher.

There are at least three reasons why, says GFT Forex's Kathy Lien :

1) Investors believe that European officials are finally serious about fixing their debt crisis, even if the process is not always pretty;

2) the quarter is also coming to an end and in order to rebalance their portfolios. Following the sharp sell-off in equities in Q3, money managers will need to buy stocks and high-yielding currencies; and

3) investors are optimistic about Tuesday's vote in Greece , in which the Parliament is widely expected to approve an unpopular increase in property tax.

EU Super-Bailout Option Slips Away

Posted by Terence Roth

And that was that. An idea that tantalized global financial markets came out of the weekend and immediately sank into the tar pit of European decision making.

The sensation at the IMF meetings in Washington was a vaguely formed idea to increase the lending capacity of Europe's EFSF bailout fund not from 250 billion euros to 440 billion euros as agreed in a July 21 summit, but to as high as 2 trillion euros by leveraging its assets. Only this, proponents argue, would persuade markets that the EU wouldn't allow Europe's government debt crisis to spread to Italy and Spain , potentially scuttling the euro as currency.

Financial markets rallied around the globe Monday as investors saw the first glimpse of real hope for containing the European debt crisis.

Problem was that the lead advocates of the deal, the IMF's Christine Lagarde and the European Commission's Olli Rehn, are bureaucrats who don't have to answer to electorates every few years.

Europe's Banks Face New Funding Squeeze

LONDON (Dow Jones)--An extraordinary dry spell in the market for long-term European bank funding is amplifying pressure on policy makers to devise a solution to the continent's banking crisis.

For the past three months, European banks have been largely unable to sell debt at affordable prices to investors, who are wary of the banks' vulnerability to risky euro-zone government bonds and other loans.

At $34 billion , the amount of senior unsecured debt issued by the continent's financial institutions this quarter is on track to be the smallest of any quarter in more than a decade, according to data provider Dealogic . Most of those were bite-sized deals of less than $500 million apiece. Traditionally, issuing such debt has been among the most popular ways for banks to finance themselves over the long term.

Bachmann Warns of Hezbollah Training Camps, Weapons in Cuba

Some humor for today:

By Neil King Jr.

Of all the world's woes-- Greece near collapse, the Taliban's surge in Afghanistan , jitters over the rise of China --presidential hopeful Michele Bachmann is giving it to Cuba .

She first laid into the less-than-vibrant island nation during last week's GOP debate in Orlando , noting that Cuba remains on the State Department's list of terrorist sponsors and condemning any push to normalize relations with the communist country.

Cuba came up again at a Bachmann campaign rally in Cedar Rapids, Iowa , Monday when a supporter asked her to amplify on her debate comments. This time, the Minnesota congresswoman cited "reports" that Hezbollah , the militant Muslim group based in Lebanon , had established training sites in Cuba and might even set up missile sites 90 miles from U.S. soil.

She was referring to a story that ran in an Italian newspaper and was quickly picked up on various blogs earlier this month.

Panel Puts Nuclear-Disaster Compensation at Upward of Y3Tln Nikkei

TOKYO (Nikkei)-Compensation for the Fukushima Daiichi nuclear disaster will cost at least Y3 trillion to Y4 trillion, reckons a government-appointed panel looking into Tokyo Electric Power Co.'s (9501.TO) finances, the Nikkei reported in its Tuesday morning edition.

Tepco, as the utility is known, will run out of cash unless it restarts idle reactors at its workhorse Kashiwazaki-Kariwa nuclear power plant in Niigata Prefecture or charges more for electricity, according to projections that will be included in the panel's upcoming report.

The compensation estimates assume that the damaged Fukushima reactors are brought to the safe state, known as cold shutdown, early next year and that residents evacuated from the surrounding areas return home next fiscal year.

Oxygen Bio Chief Faked Resume, Abused Position, Audit Body Says

The former head of Oxygen Biotherapeutics Inc. (OXBT) was fired last month for allegedly falsifying his resume and abusing his position to personally enrich himself, according to findings from the company's audit committee.

Oxygen, which has never posted a profit, hopes to commercialize drugs it is developing to efficiently deliver oxygen to tissues for cosmetic and therapeutic purposes. The dismissal of Chairman and Chief Executive Chris J. Stern last month forced the company to push back its annual shareholders meeting to this Friday.

Stern purported to have a doctorate from Trinity University but instead earned the degree from Trinity College & University , an unaccredited institution, the audit committee said in a Securities and Exchange Commission filing. He also teaches at St. Galler Business School , not the more prestigious St. Gallen Business School , the committee said.

Warren Buffett Scorns Stock Buybacks Except Now

By Shira Ovide

There are a bundle of remarkable things about Berkshire Hathaway's announcement today that it plans to buy back an unspecified amount of its own stock.

One, the conglomerate has never under Warren Buffett's watch repurchased its own shares. That's 40-plus years of never.

Two, this announcement is an implicit admission that Buffett can't grow returns as he has in the past. Buffett has been warning for years that he won't be able to keep pace with his track record of shareholder returns. What seemed like tamping down of expectations may actually be true now.

And third, Buffett really doesn't like stock buybacks -- at least not when other companies do it. Here is what Buffett said, rather snidely, in his 2006 investor letter regarding his company's growth in book value: (Emphasis has been added by Deal Journal )

Azinonomics: Stagnation Nation?

 Very interesting post from Azizonomics :

It has long been my view that most of the seeds of the West’s ills were sown in the 1970s: that was the decade when Western consumerism began to be sated by Chinese imports, and Arab oil, and the decade when America cut the link between the dollar and gold sparked the first flames of the great Keynesian debasement bonfire. Richard Nixon and Henry Kissinger were the chief architects, of all three of these innovations, and the internationalisation of the dollar as the global reserve currency. As I have reported time and again, it was free lunch economics — but there ain’t no such thing.

In the 80′s, the United States’ trade balance flipped over and the U.S. became a net debtor, sending more and more dollars and debt out to the world as the free lunch got bigger and bigger. But something odd happened from the 70s onwards, as demonstrated by our graphic of the day (Image on the left).
Robert Reich claims that this stagnation began in 1979, but I think it’s obvious from the graph that the wage stagnation began earlier. Ever since Kissinger and Nixon’s innovations wages have been stagnant, while productivity, imports, corporate profits, government debt, the price of gold have all soared.

The reality is that ever since the 70s government policy, and the shape of global infrastructure and industry has favoured the rich over the poor, has favoured the monied over the moneyless, and favoured the powerful over the powerless.

That’s why get skyrocketing corporate profits. [...]

Bernanke at the Economic Club of Minnesota Luncheon

No commitments made. Chairman Ben S. Bernanke at the Economic Club of Minnesota Luncheon, Minneapolis, Minnesota:

The U.S. Economic Outlook

Good afternoon. I am delighted to be in the Twin Cities and would like to thank the Economic Club of Minnesota for inviting me to kick off its 2011-2012 speaker series. Today I will provide a brief overview of the U.S. economic outlook and conclude with a few thoughts on monetary policy and on the longer-term prospects for our economy.

EU's Barroso Says Euro Will Survive

Hmmm, more market manipulations in the works :

SYDNEY  (Dow Jones)-- European Commission  President  Jose Manuel Barroso  said Tuesday the future of the euro is safe and the single monetary bloc is meeting its sovereign debt crisis head on.

 The remarks came in a speech in  Sydney  as Barroso sought to shore up global confidence in the ailing euro bloc as markets continue to drive up borrowing costs for heavily indebted member states and as question marks are raised over a pledged new bailout for  Greece .

"Some like to ask these days: 'Will the euro and EU survive?' My plain and direct answer is, "Yes". You can bet your money on that and I guarantee you don't need to take insurance," said Barroso.

Dark View At An Italian Idyll

Villa d'Este isn't a bad place to spend a long weekend. Nestled on the banks of Lake Como in northern Italy , the splendid 16th-century former abode of European aristocratic families last week served as the idyllic backdrop for an annual symposium on the state of the global economy.

Part uber-networking event a la Davos and part platform for serious policy discussion, like the Federal Reserve's annual event in Jackson Hole, Wyo. , this gathering offers financial, political and economic leaders the chance to mingle behind closed doors (sessions are off the record) and exchange ideas.

Or should I say "idea"? As top central bankers such as Jean-Claude Trichet rubbed shoulders with economists like Nouriel Roubini while being brushed aside by the bodyguards of heads of state such as Israel's Shimon Peres , there was really only one thought making the rounds: Major Western economies and their capital markets are in deep trouble.

The contrast couldn't have been starker. Outside, the stunning beauty of verdant hills plunging into the lake. Inside, a bunch of powerful people getting gloomier and gloomier about the economic environment in the U.S. and Europe .

Events didn't help the mood. Friday's news that the U.S. had added precisely zero jobs in August landed with a thud on Villa d'. I saw superstar economists like Mr. Roubini and Martin Feldstein , the Harvard professor who has advised numerous U.S. presidents, revise their chances for another recession (upward) live, while the nonfarm payroll numbers were rolling in.

As for Europe , the sight of Mr. Trichet, the president of the European Central Bank , imploring the Italian government to stop squabbling and finally approve much-needed austerity measures didn't fill investors with confidence about the troubled euro zone. As the manager of a big hedge fund said while listening to the ECB chief's impassioned plea, "this screams 'short the euro' to me."

Global Regulators To Amend New Rules on Bank Liquidity

The farce continues :

DOW JONES NEWSWIRES

The Basel Committee on Banking Supervision is looking to soften the technical definitions in the "liquidity coverage ratio," which requires banks globally to hold enough assets to withstand a 30-day run on their funding, the Financial Times reported Monday citing people familiar with the discussions.

Banks have complained that the new Basel III standards on liquidity, to be implemented in 2015, would force them to sharply curtail lending to consumers and businesses, the newspaper said.

The planned changes would have the effect of reducing how much liquidity banks have to hold, and allow them to count more corporate and covered bonds toward the total, the people told the newspaper.

German Court's Bailout Ruling Looms

BERLIN  (Dow Jones)-- Europe's  bailouts of struggling euro-zone countries could face fresh obstacles on Wednesday, when  Germany's  constitutional court rules on the bailouts' legality.

The court's judgment, highly anticipated in European capitals and financial markets, will settle whether Chancellor  Angela Merkel's  government breached the German people's property rights in agreeing to the initial bailout of  Greece  in 2010.

The court also is due to rule on whether the German government should have asked the country's parliament before taking part in the bailouts of  Ireland  and  Portugal , as well as on the legality of the  European Central Bank's  purchases of government bonds.

September Could Be Worse Than August

From Market Oracle :

September notoriously often leaves markets in negative territory. Since the start of the Dow Jones Industrial Average in 1896, the index has lost an average of 1.07% in September, with a 0.71% average gain for all other months.

That's a 1.78-point spread - enough to be "statistically significant at the 95% confidence level," and be considered a genuine pattern by statisticians.
More discouraging, the market has performed especially poorly in past Septembers when the preceding months were weak.

And that's where we are today.

August took markets on a wild ride. The Standard & Poor's 500 Index fell 5.7% and the Dow 4.4%. The month included two of the top ten worst-performing Dow days ever - a 635-point drop on Aug. 8 and a 513-point drop on Aug. 4.

Now with investors digesting a slew of disappointing economic reports, and the U.S. Federal Reserve unlikely to announce any stimulus measures until the end of the month at the earliest, it doesn't look like this September will buck the trend.

In fact, it could easily be worse.

Business Booms and Depressions Since 1775

As seen on Zero Hedge :

Click for full resolution

Get the full pdf here : http://adf.ly/823765/boom-depressions

Update : Click here instead for full resolution image.

Where Are The Jobs?

We just had the August jobs report get released and it was nothing short of atrocious.

The August Nonfarm Payroll report came in unchanged, versus estimates of 70,000 jobs to be created during the month. What is even worse is that June and July were revised down an additional 58,000 jobs. The July payroll report was revised down to 85,000 from 117,000, and June was revised down an additional 26,000 jobs. What is interesting to note that despite no jobs being created during the month, the unemployment rate remained unchanged, at 9.1%.

What may be the start of a disturbing trend is the average hourly work week fell to 34.2 hours. Expectations were for 34.3 hours. That could be a sign of a slowdown in activity across the board. Average hourly earnings dropped by 0.1%, not a good sign when expectations were for an increase of 0.2%. If people are losing money, they can not spend. If people can not spend, jobs can not be created.

Breaking down the report via the Bureau of Labor Statistics website is even uglier than the headline number. The Birth/Death model accounted for +87,000. If you take this out, the country actually lost 87,000 jobs during the month of August.

European Stocks Extend Losses After Payrolls

1253 GMT [Dow Jones] Euro Stoxx 50 is down 3.4% at 2226.60, pushing further south after key US nonfarm payrolls and unemployment data come in worse than expected. NFP for August come in unchanged, the worst result since a small decline in September 2010 . The unemployment rate, which is obtained from a separate survey, is also unchanged, standing at 9.1%. Banks are some of the leading decliners, with the Stoxx 600 index, losing 4.1% on fears of stagnating economic growth. US futures are indicating a softer opening on Wall Street . The front-month DJIA contract is down 1.5%; the S&P 500 contract is 1.7% lower. No further data are due.

Canadian Dollar Hits Session Low As US Jobs Data Disappoint

TORONTO (Dow Jones)--The Canadian dollar slumped to a session low early Friday after U.S. nonfarm payrolls came in flat, raising fresh concerns over the strength of the economic recovery in the U.S.

The U.S. dollar strengthened to C$0.9824 from C$0.9780 , and from C$0.9770 late Thursday, according to data provider CQG.

The Canadian dollar, seen as a barometer of risk, strongly tracks macroeconomic data and growth outlooks of the U.S., which consumes nearly 70% of Canada's exports.

"The payroll number was pretty awful at first glance. Expectations were pretty low going into this data number, but it nevertheless shocked the market," said Blake Jespersen , director of FX sales at BMO Capital Markets in Toronto .

Payroll data assumed greater significance after U.S. Federal Reserve Chairman Ben Bernanke last week said the central bank still had the tools to stimulate growth if the situation warranted, putting the focus squarely on macroeconomic data.

"The data will amplify fears of recession or near-recession conditions in the U.S. economy," Avery Shenfeld , chief economist at CIBC World Markets in Toronto .

-By Satish Sarangarajan

Flat Payrolls Is A Black Swan Event

Some hilarity from Kathleen Madigan of Dow Jones :

8:45 (Dow Jones) Do you know how hard it is to tally up a labor force of 131 million workers and get absolutely no change month-to-month? Eyeballing the monthly revised payrolls number, it looks as if it hasn't happened since 1945. The closest in recent history was mid-2003 when payrolls dipped 2,000.

CAD Slides After Disappointing US Jobs Report

8:33 (Dow Jones) The Canadian dollar is under pressure after the release of the key US employment report for August as investors sought safety in the US dollar. The US dollar was C$0.9824 , from C$0.9780 before the data, and C$0.9770 late Thursday, according to CQG.

US To Sue Major Banks Over Mortgage Debt

The U.S. Federal Housing Finance Agency plans to sue "more than a dozen" major banks for billions of dollars over alleged misrepresentation of mortgage-backed securities sold before the housing bubble burst, the New York Times reported late Thursday. Targets of the planned lawsuits include Bank of America Corp. (BAC) , JPMorgan Chase & Co. (JPM) , Goldman Sachs Group Inc. (GS) and Deutsche Bank AG (DB) , the report said, citing three unidentified individuals briefed on the matter. The suits will be filed by Tuesday at the latest, shortly before a deadline expires for the housing agency to file claims, the report said.

Acapulco Teachers Strike To Protest Extortion

ACAPULCO, Mexico (AFP)--Around 600 teachers in Mexico's Pacific resort city of Acapulco went on strike this week after being subjected to extortion, local authorities said Thursday.

Teachers in four areas of the port city, which has been rocked by gangland- style violence in recent years, received anonymous letters seeking half their salaries in return for personal security, said Julio Bernal , the city's top education official.

Teachers in around 80 of Acapulco's 140 schools were taking part in the action, authorities said.

Acapulco's teachers have received several hundred threatening letters in recent weeks, a secondary school teacher who declined to be named said.

"We're in a state of psychosis because we haven't seen some of our colleagues and we don't know if they've been the victims of something or if they're in hiding," she said.

The head of education for Guerrero state, where Acapulco lies, asked the teachers to return to work while an investigation was underway.

The legendary resort city of Acapulco, some 250 miles southwest of Mexico City , is one of the worst hit areas in a wave of drug-related violence across Mexico.

An Unusual Friendship: Stocks, Bonds Rally At The Same Time

--Equities and Treasurys are seeing simultaneous rallies
--But stocks and bonds are driven by two different expectations
--Ahead of next Fed meeting, bad data could fuel optimism for stimulus

NEW YORK (Dow Jones)--Stocks and Treasurys are thriving at the same time, contrary to their typical relationship of traveling in opposite directions. The departure from normal market movement reflects just how divided investors currently are about the U.S. economy's health.

Volatility Protection Getting Cheaper As Far As The Eye Can See

As short-term volatility slides, the VIX is falling back in line with VIX future premiums, a reflection that demand for short-term disaster protection roughly matches demand for longer-term insurance.

Futures on the  CBOE's  Volatility Index are "flattening" as the VIX falls 1.7% to 31.08. This means that "fear" about the next 30 days is roughly in line with "fear" about each month through May.

Typically, "long-term fear outweighs fear over the next 30 days," says OptionsPit's  Mark Sebastian . In an unusual move earlier this month,  S&P's  US credit downgrade pushed the VIX to48, well above its futures readings, meaning investors bid up the price of short-term options protection relative to longer- dated protection.

By Mark Gongloff

Update: Bank Of Canada Injects C$945M Into Financial System Thursday

 Update (15:43PM EST) :

--Liquidity injection increased
--One-day repo transactions done to lower overnight rate
--Spokesman says they are "standard operations"

Money Flow Table For Major U.S. Indexes and Stocks 01/09/2011

MONEY FLOW - UPTICK/DOWNTICK TRADING DOLLAR VOLUME Sep 01,2011 12:05 PM