I had started a post this weekend which was to use 3C to uncover the surreal first week of trade on FB, what I quickly found out as I did my research is that an entire book could be written about the first week of trade alone so I'll post a few charts, it would take much longer then I have to really cover all of the bases and I think there's still much that is not known.
Everything you can imagine was there and a part of the story, from the NASDAQ conspiracy, how HFT (High Frequency Traders) may have caused NASDAQ to re-boot systems moments before FB opened in US trade, the errors NASDAQ made, the "Crossed Quote" on the NASDAQ (the ask dropped below the bid ) that were originally marked as "non-firm", meaning something was wrong, but only 30 seconds in to US trade another crossed quote went out marked as "Firm" which lasted until 13:50 p.m., with the bid @ $42.99. Algorithmic trading played a role and likely read this crossed quote with a much higher bid and as Algos are built for speed and not intelligence, it likely capped the stock from moving higher. In fact as soon as the crossed quote disappeared, FB made its first collapse lower on the first day of trade-essentially algos couldn't understand the crossed quote and it kept a lid on any potential FB upside as these unusual, and rare inverted quotes coming from Nasdaq influenced algorithms running on other exchanges.
The "STUCK" crossed quote...
FB price action as the crossed quote finally disappeared...
The NASDAQ Crossed Quote caused the bid/ ask spread (what someone is willing to pay and what someone is willing to sell) to jump from $.01 to $.70 in 1/10th of a second! The crossed quote apparently set the ceiling for FB trade early in the US session in which it had traded as high as $45, but while the crossed quote remained in place, FB couldn't break $42.50.
NANEX who did most of investigative work in to this rare occurrence ended their analysis with the following summation,
"This also brings another example of the dangers of placing a blind, mindless emphasis on speed above everything else. Algos reacting to prices created by other algos reacting to prices created by still other algos. Somewhere along the way, it has to start with a price based on economic reality. But the algos at the bottom of the intelligence chain can't waste precious milliseconds for that. They are built to simply react faster than the other guys algos. Why? Because the other guy figured out how to go faster! We don't need this in our markets. We need more intelligence. The economic and psychological costs stemming from Facebook not getting the traditional opening day pop are impossible to measure. That it may have been caused by algos reacting to a stuck quote from one exchange is not, sadly, surprising anymore."
At 11:59:22 NASDAQ quotes went completely silent for 17 seconds, in the world of High Frequency Trading, this is an eternity with NASDAQ usually pumping out 100,000 quotes per second, in HFT terms and at the speed they run, that's 17,000 micro-seconds. Nanex wonders if this 17 second period of dead silence from NASDAQ was a systems re-boot just as FB was starting to trade on the US market.
Then there were the two hour trade confirmation delays from NASDAQ.
Then there were the High Frequency Traders seeing Morgan Stanley (one of the IPO underwriters) defending $38 (the stock never traded one cent below $38 on the first day) so HFT's knew they could flip the stock over and over as the $38 level was defended by huge bids, much larger than any ask as I posted the quotes for the day with bid/ask sizes last week.
MS's defense of what we originally saw in real time, first at $40 and then $38 (the IPO level)
The 3C action showing MS trying to defend various levels and the negative divergence during the crossed quote mentioned above.
It's likely Morgan Stanley lost money trying to defend $38 as the size of their bids were enormous and amounted to much more than their $70 million IPO fee, likely explaining this chart...
This chart shows day 1 and the size of the bids vs ask (supportive bid blue/ ask red), note the price levels being defended, we were right on about $40 and $38.
Zuckerberg seemed (from storis floating around) to have had some information to sell quickly as the MS tried to hold up the FB floor, and it's quite probable he did as 60% of the entire float in FB was traded in the first hour alone.
I decided not to cover this story as I seriously think an entire book could be written on FB's first week of trade alone, I did note 3C did a good job in showing where MS was defending FB and those are the only two charts I'll post, but I was strucj by two things, one (and not surprisingly), Cramer:
Any
investor who can get shares of the Facebook IPO should purchase as
many shares as possible, Jim Cramer said on CNBC’s “Mad Money.”
Remember that Cramer is Goldman Sachs alumni and guess who the other underwriter of the FB IPO was?
For those who took his advice...
The other... The Zuckerberg letter to potential investors before the IPO (bold emphasis added by me)...
"A
Letter from Mark Zuckerberg
About
Facebook’s IPO
MENLO
PARK, CA (The Borowitz Report) – On the eve of Facebook’s IPO,
Founder and CEO Mark Zuckerberg published the following letter to
potential investors:
Dear
Potential Investor:
“For
years, you’ve wasted your time on Facebook. Now here’s your
chance to waste your money on it, too.”
“Finally,
if you invest in Facebook, you’ll be far from alone. As a
result of using Facebook for the past few years, over 900 million
people in the world have suffered mild to moderate brain damage,
impairing their ability to make reasoned judgments. These will
be your fellow Facebook investors.”
“One
last thing: what will, I, Mark Zuckerberg, do with the $18 billion
I’m expected to earn from Facebook’s IPO? Well, I’m
considering buying Greece, but that would still leave me with $18
billion. LOL.”
I suppose he who laughs last...
As for the week ahead, first lets catch up:
From the WSJ:
"STOCKHOLM (Dow Jones)--Credit rating agency Moody's Investor Service Friday downgraded a range of major banks in Sweden and Norway, citing contagion risks from the European debt crisis."
More Friday night bad news buried in the now political/financial trend of releasing bad news on a Friday night. However as you can see (and we have pointed out the bank run and capitalization problem all EU banks face), this wasn't aimed at Spain, Greece or Italy, the downgrades occurred in "The CORE", or what is better known as the much feared CONTAGION. As I mentioned after the banking sector downgrades last week, they are just getting started.
And about the Dollar's "Reserve Currency Status" mentioned last week, here's a little noticed blow...
From the AP: "Japan and China are expected to start direct trading of their currencies as early as June as part of efforts to boost bilateral trade and investment, according to reports. With the planned step,exchange rates between the yen and the yuan will be determined by their transactions, departing from the current "cross rate" system that involves the dollar in setting yen-yuan rates, Kyodo News said on Saturday."
As for the bank runs plaguing Europe's a;ready capital depleted banks, there's yet ANOTHER story out of the EU sewing circle that plan is being drafted in Brussels:
European rescue fund to seize control of struggling banks
"Secret plans are being drawn up in Brussels for a European rescue fund that could seize control of struggling banks across the Continent. The scheme, which would be funded by a levy on banks, will be presented by supporters as a "silver bullet" that could halt the steady escalation of the eurozone debt crisis. It is being worked on in tandem with a proposal from Mario Monti, the Italian prime minister, for a Europe-wide guarantee on bank deposits. The proposal would throw the financial muscle of Europe's stronger nations, and healthy financial institutions, behind weaker countries and lenders. Proponents, including top advisers to the European Commission, say the removal of the threat of bank collapses would restore market confidence in Italy and Spain."
The only thing I can say is what I said last week, "before the crisis was as bad as it is now and back when all of the EU was still roughly on the same page, they couldn't make any plan credible or effective", what are we to expect now?
Greek Election Polls Support Euro...
From the election polls in Greece that were terribly off the mark last election, 5 individual polls show New Democracy leading and with enough votes (combined with PASOK) to establish a "pro-bailout" government which has put a floor under the EUR/USD as you will see shortly.
Spain Injects $19 BN Euros into Bankia...
Remember the stories last week saying Bankia needed more and more money, up to 40% more in just a few days? Well After Spain's $19bn injection to keep Bankia afloat, news is out that Bankia and the rest of the Spanish banking sector may need another $30 BN Euros, meanwhile the bank runs continue and the situation changes for the worse every day!!! It's that pesky point of no return we talked about the last few weeks with Lehman serving as a case study example. News about Spanish banks will shortly morph from day to day stories to hourly stories of deterioration and emergency measures. Why do you think the Brussels banking "plan" came out when it did, AGAIN? Meanwhile Spain's 10 year yield hit 6.5% on Monday (this is the VERY RED ZONE).
Bloomberg offers more insight on Spain's Lehman moment (of course much bigger a problem).
This little tid-bit though should give you an idea, remember the Lehman and entire US banking sector liquidity and credit freeze were brought about by counter-party bank risk, or put more bluntly, no US financial institution trusted what another one said and for good reason, there were a lot of lies.
In sticking with the Banki/Spanish banking crisis (one of many), this bit of news broke and explains why Bankia went from a $41 million euro profit to a bailout and nationalization...
"From Reuters: "BFA, the parent group of nationalized Spanish bank Bankia said on Monday it had restated its 2011 results to reflect a 3.3 billion euro loss, rather than a 41 million euro profit, following a bailout from the state. In a statement to the stock exchange regulator, BFA said the restated loss reflected a review of its loan portfolios and capital needs after a new audit and as part of the clean-up plan implemented by the government."
The Northern/Southern EU divide...
Above and the last several weeks since Hollande was elected in France and the German-Franco alliance not only collapsed, but has turned in to the beginning of a North vs South fight in the EU, with France re-aligninging itself with the PIIGS as it starts to become a PIIGS itself, I have talked a bit about how dysfunctional the EU was when they were all roughly on the same page... Now according to Germany's Speigel , the fight between Merkel and Hollande is about to heat up as the EU era of the great divide has begun.
Merkel Prepares to Strike Back Against Hollande
"The more European leaders talked at a dinner last Wednesday, the grimmer Angela Merkel looked. One after another, they spoke out in favor of the joint assumption of debt and against the strict austerity course Berlin is calling for. The chancellor stared silently at the man who was responsible for this change of mood -- France's new president, François Hollande, who noted with satisfaction that there was "an outlook for euro bonds in Europe."
Merkel's world had been turned upside down. For the first time in years, the chancellordid not set the tone at an EU summit, nor did she and the French president agree on joint positions in a backroom before the meeting."
For those who remember the conflicting headlines last week regarding Euro bonds and their support at the EU summit, there's a little more background information in the article as both headlines which conflicted with each other cannot be right, here we have Germany's Speigel admitting what the true tone was.
As for US data this shortened trading week...
I'll be very interested in tomorrow's Consumer Confidence after last week's whacky reading that truly sounded like a flat out lie. There are several other interesting releases this week and several F_E_D speakers.
As for what the holiday thinned markets look like thus far (or as of about an hour ago)...
My general outlook hasn't changed, I'm looking for near term strength, probably a strong short squeeze and longer term trouble.
Here's a more recent update for both ES and the Euro...
Europe which saw thin trade today on a holiday (as well as the US market's closed) will open in about an hour and a half from now so a lot can still happen overnight, but so far it's looking pretty decent.
I'll see you in a few hours...
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