Save Capitalism From S&P Futures Manipulation!

Weekend note... Save capitalism from the possibility of S&P Futures manipulation ($ES_F). Read this post at Zero Hedge and follow the instructions to notify the SEC so they can investigate the matter..
"Since FINRA and the Securities and Exchange Commission believe in going only after $1,000 insider traders with the full weight of their enforcement teams, yet ignore major market manipulation in futures and other markets, Zero Hedge wanted to present readers an opportunity to be heard by the market's regulators."

Lets heal the world people, we are the world.

Ken Lewis' Testimony on the Bank of America/Merrill Lynch Merger

I posted Bernankes testimony on the Bank of America/Merrill Lynch merger today. Here is the CEO of Bank of America, Ken Lewis, testifying before congress on June 11 (full video via CSPAN).

Bernanke Testimony On Bank of America, Merrill Lynch Merger

Here is the full video of Bernanke's testimony on the Bank of America/Merrill Lynch merger via CSPAN.





Here is Bernanke's full testimony:

Chairman Ben S. Bernanke
Acquisition of Merrill Lynch by Bank of America
Before the Committee on Oversight and Government Reform, U.S. House of Representatives, Washington, D.C.
June 25, 2009

Chairman Towns, Ranking Member Issa, and other members of the Committee, I appreciate the opportunity to discuss the Federal Reserve's role in the acquisition by the Bank of America Corporation of Merrill Lynch & Co., Inc. I believe that the Federal Reserve acted with the highest integrity throughout its discussions with Bank of America regarding that company's acquisition of Merrill Lynch. I will attempt in this testimony to respond to some of the questions that have been raised.

Background


On September 15, 2008, Bank of America announced an agreement to acquire Merrill Lynch. I did not play a role in arranging this transaction and no Federal Reserve assistance was promised or provided in connection with that agreement. As with similar transactions, the transaction was reviewed and approved by the Federal Reserve under the Bank Holding Company Act in November 2008. It was subsequently approved by the shareholders of Bank of America and Merrill Lynch on December 5, 2008. The acquisition was scheduled to be closed on January 1, 2009.

As you know, the period encompassing Bank of America's decision to acquire Merrill Lynch through the consummation of the merger was one of extreme stress in financial markets. The government-sponsored enterprises, Fannie Mae and Freddie Mac, were taken into conservatorship a week before the Bank of America deal was announced. That same week, Lehman Brothers failed, and American International Group was prevented from failing only by extraordinary government action. Later that month, Wachovia faced intense liquidity pressures which threatened its viability and resulted in its acquisition by Wells Fargo. In mid-October, an aggressive international response was required to avert a global banking meltdown. In November, the possible destabilization of Citigroup was prevented by government action. In short, the period was one of extraordinary risk for the financial system and the global economy, as well as for Bank of America and Merrill Lynch.

Discussions Regarding the Possible Termination of Agreement to Acquire Merrill Lynch
On December 17, 2008, senior management of Bank of America informed the Federal Reserve for the first time that, because of significant losses at Merrill Lynch for the fourth quarter of 2008, Bank of America was considering not closing the Merrill Lynch acquisition. This information led to a series of meetings and discussions among Bank of America, the regulatory agencies, and Treasury. During these discussions, Bank of America's CEO, Ken Lewis, told us that the company was considering invoking the Material Adverse Event clause in the acquisition contract, known as the MAC, in an attempt to rescind its agreement to acquire Merrill Lynch.

In responding to Bank of America in these discussions, I expressed concern that invoking the MAC would entail significant risks, not only for the financial system as a whole but also for Bank of America itself, for three reasons. First, in light of the extreme fragility of the financial system at the time, the uncertainties created by an invocation of the MAC might have triggered a broader systemic crisis that could well have destabilized Bank of America as well as Merrill Lynch. Second, an attempt to invoke the MAC after three months of review, preparation, and public remarks by the management of Bank of America about the benefits of the acquisition would cast doubt in the minds of financial market participants--including the investors, creditors, and customers of Bank of America--about the due diligence and analysis done by the company, its capability to consummate significant acquisitions, its overall risk-management processes, and the judgment of its management. Third, based on our staff analysis of the legal issues, we believed that it was highly unlikely that Bank of America would be successful in terminating the contract by invoking the MAC. Rather, an attempt to invoke the MAC would likely involve extended and costly litigation with Merrill Lynch that, with significant probability, would result in Bank of America being required either to pay substantial damages or to acquire a firm whose value would have been greatly reduced or destroyed by a strong negative market reaction to the announcement. For these reasons, I believed that, rather than invoking the MAC, Bank of America's best option, and the best option for the system, was to work with the Federal Reserve and the Treasury to develop a contingency plan to ensure that the company would remain stable should the completion of the acquisition and the announcement of losses lead to financial stress, particularly a sudden pullback of funding of the type that had been experienced by Wachovia, Lehman, and other firms.

Ultimately, on December 30, the Bank of America board determined to go forward with the acquisition. The staff of the Federal Reserve worked diligently with Treasury, other regulators, and Bank of America to put in place a package that would help to shore up the combined company's financial position and reduce the risk of market disruption. The plan was completed in time to be announced simultaneously with Bank of America's public earnings announcement, which had been moved forward to January 16, 2009, from January 20, 2009. The package included an additional $20 billion equity investment from the Troubled Asset Relief Program and a loss-protection arrangement, or ring fence, for a pool of assets valued at about $118 billion. The ring-fence arrangement has not been consummated, and Bank of America now believes that, in light of the general improvement in the markets, this protection is no longer needed.

Importantly, the decision to go forward with the merger rightly remained in the hands of Bank of America's board and management, and they were obligated to make the choice they believed was in the best interest of their shareholders and company. I did not tell Bank of America's management that the Federal Reserve would take action against the board or management if they decided to proceed with the MAC. Moreover, I did not instruct anyone to indicate to Bank of America that the Federal Reserve would take any particular action under those circumstances. I agreed with the view of others that the invocation of the MAC clause in this case involved significant risk for Bank of America, as well as for Merrill Lynch and the financial system as a whole, and it was this concern that I communicated to Mr. Lewis and his colleagues.

Disclosures

The Federal Reserve also acted appropriately regarding issues of public disclosure. As I wrote in a letter to this Committee, neither I nor any member of the Federal Reserve ever directed, instructed, or advised Bank of America to withhold from public disclosure any information relating to Merrill Lynch, including its losses, compensation packages or bonuses, or any other related matter. These disclosure obligations belong squarely with the company, and the Federal Reserve did not interfere in the company's disclosure decisions.

The Federal Reserve had a legitimate interest in knowing when Bank of America or Merrill Lynch intended to disclose the losses at Merrill Lynch. Given the fragility of the financial markets at that time, we were concerned about the potential for a strong, adverse market reaction to the reports of significant losses at Merrill Lynch. If federal assistance to stabilize these companies were to be effective, the necessary facilities would have to be in place as of the disclosure date. Thus, our planning was importantly influenced by the companies' planned disclosure schedule. But the decisions and responsibilities regarding public disclosure always remained, as it should, with the companies themselves.

A related question is whether there should have been earlier disclosure of the aid provided by the U.S. government to Bank of America. Importantly, there was no commitment on the part of the government regarding the size or structure of the transaction until very late in the process. Although we had indicated to Bank of America in December that the government would provide assistance if necessary to keep the company from being destabilized, as it had done in other cases during this time of extraordinary stress in the financial markets, those December discussions were followed in January by significant and intense negotiations involving Bank of America, the Federal Reserve, the Treasury, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency regarding many key aspects of the assistance transaction, including the type of assistance to be provided, the size of the protection, the assets to be covered, the terms for payments, the fees, and the length of the facility. The agreement in principle on these items was reflected in a term sheet that was not finalized until just before its public release on January 16, 2009. The Federal Reserve Board and the Treasury completely and appropriately disclosed the information as required by the Congress in the Emergency Economic Stabilization Act of 2008.

In retrospect, I believe that our actions in this episode, including the development of an assistance package that facilitated the consummation of Bank of America's acquisition of Merrill Lynch, were not only done with the highest integrity, but have strengthened both companies while enhancing the stability of the financial markets and protecting the taxpayers. These actions were taken under highly unusual circumstances in the face of grave threats to our financial system and our economy. To avoid such situations in the future, it is critical that the Administration, the Congress, and the regulatory agencies work together to develop a new framework that strengthens and expands supervisory oversight and includes a broader range of tools to promote financial stability.

I would be pleased to take your questions.

Frontline - Breaking The Bank, Shadiest Weekend In Financial History

Yup, the shadiest weekend ever in financial history.


The Frontline video, "Breaking The Bank", gives a behind the scenes look at the moments leading up to the Lehman bankruptcy and Bank of America/Merrill merger. Was September 13-14, 2008 the shadiest weekend in financial history? DV was there, Lehman Disaster Sending Index Futures Lower, BAC Buys MER. The drama continues tomorrow as Bernanke testifies before congress regarding allegations that he pressured Bank of America's Lewis to buy Merrill from Thain. Hopefully I'll be able to embed the hearing video.



"In one of the most dramatic days in Wall Street’s history, Merrill Lynch agreed to sell itself on Sunday to Bank of America for roughly $50 billion to avert a deepening financial crisis, while another prominent securities firm, Lehman Brothers, filed for bankruptcy protection and hurtled toward liquidation after it failed to find a buyer." New York Times

Hat tip Value Plays

Fed Keeps Rate At 0-0.25%, (6/09 FOMC Statement)

Release Date: June 24, 2009

For immediate release

Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months. Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.

The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

FederalReserve.gov

August USO, XLE Put Options Active

I just checked out today's option activity on $USO and $XLE and found big out of the money August put volume. USO (oil ETF) closed at $37.41 today and 9,370 August $37 puts traded with 192 open and 25,897 August $34 puts traded with 2,209 open. Call action was minimal. XLE (energy stock ETF) also had large out of the money August put action. XLE closed at $47.03 today and 12,836 August $45 puts traded with 333 open.

The volume/open interest ratio was very wide on these trades. So were these trades speculative out of the money longs or sellers? Lets say these ballers were long. Using XLETS (XLE Aug $45 Put) $1.99 premium at the close, traders dropped $2,554,364 for the right to sell 1,283,600 shares of XLE at $45 which would make profit < 43.01. I'm sure OptionMonster has information on the actual ticks. XLE broke below the 50 and 200 day moving average and the Oil Volatility Index ($OVX) gathered strength recently (chart below). This could be a crazy summer for the energy sector. Watch out for hurricanes in the Gulf and/or volatility in Tehran.

AUDJPY Hit Retracement Level, Needs Reflation Jumper Cables


I'm revisiting the $AUDJPY currency pair. It just hit the 50% fibonacci retracement level and sold off (104 2008 high - 55 2009 low, hits 80). I wrote about the AUDJPY carry trade unwind, reflation trade and commodity currency relationship a few posts ago. The Australian Dollar bottomed out against the Yen and rallied hard as the reflation trade caught traction (or China restocking unwound the carry trade unwind - Baltic Dry Index On Fire, 1, 2, 3). China is a big importer of Australian commodities which requires Australian Dollars. With oil, gold and other commodities losing strength it could sink the $AUD. GOLD could sell off to the 200dma (875ish) if the risk aversion trade sticks for a while.

As you can see from the chart below, $AUDJPY broke through the 75.52 support level and could test the 38.2% retracement level (74.26) then possibly hit 70 if nothing can hold. C-bank moves and Japan fundamentals could also affect this pair. It will be interesting to watch and stay protected w/ stops. I'd probably hedge w/ ITM calls somehow. So will the Yen carry trade unwind unwind, unwind?

For better info and analysis visit these articles:

Barclays’ Englander Sees Room for Australian Dollar to Retreat (Bloomberg)
Dollar and Yen Extend Rally on Falling Stocks and Commodities (IBTimes)
Risk Aversion Spikes as World Bank Sees Deeper Recession (FXStreet)
Yen gains as uncertainty stalks market ahead of Fed (Guardian.co.uk)
Australian, New Zealand Dollars Decline on World Bank Outlook (Bloomberg)
Nikkei Plummets As Stocks See Massive Sell-off On Economic Woes (RTTNews)



AUDJPY (FXstreet.com)


Market Needs Support From IYT, Transports, FDX


Not too long ago the Dow, S&P and Nasdaq all busted through their 200 and 50 day moving average. The Transports ($TRAN, $IYT) tested and failed that level recently and now price action is being squeezed between the 50 and 200dma awaiting trend decision. I wouldn't stand in front of this uptrend (or at least in size) until it breaks the 50 day and trend support. Also watch for the 50/200 day "golden cross" to the upside which would be a long term bullish indicator. Puts open are dominating calls however there is no crazy OTM activity. The IYT Schaeffers Volatility Index is at 0.41, up 10% from 0.37 on June 5. Look at the $IYT chart.


Stockcharts.com