Trader’s Narrative

Before the SEC could make their move, BATS and Nasdaq decided to ‘voluntarily’ stop flash orders. As alluded to before, this is a good development because it returns us to a state where all participants on the exchange have equal access to information, without any heavy handed regulatory action.

For more economic and market news and to see what interesting reading you may have missed last week, check out the list below. To see it all go to news.tradersnarrative.com:

• Say goodbye to flash orders
• The Great Missed Opportunity of 2009
• No, The Price Is Not Right
• CNBC Concerned About Australian Camels
• Get a FREE Subscription to Financial Magazines
• Chinese markets have become a giant Ponzi scheme
• Kass: Dousing the Fire With Kerosene
• Has the Gold Bull finally arrived?
• Lessons From Irwin T. Yamamoto
• Get the “Best of Trader’s Classroom” eBook for FREE (limited time)
• Turtle Trading using Excel Spreadsheets
• What’s the beef with high-frequency trading?
• Old Banks, New Lending Tricks

For the complete list, follow the graphic below:

And remember to check back regularly since there are interesting links added throughout the week.

Week Ahead: Fed Meeting & Retailer Earnings

If you missed yesterday’s The Daily Show with Jon Stewart, then do yourself a favor and watch it online. Not only does Jon rip CNBC and Jim Cramer a new one, he devotes a good part of the whole show to the “Decession”.

My American readers can watch the episode here:

Fellow Canadians can watch the episode here.

There is the usual Daily Show edit cuts but the most damning satire is reserved for CNBC’s Carl Quintanilla interviewing Sir Allen Stanford. But more than satirizing CNBC, Stewart asks some incredibly cogent questions like, why are we, in effect, buying the same toxic assets twice?

I stopped watching CNBC, even for entertainment purposes, years ago. When the history of our time is written, I hope they and the general mainstream media get the treatment they so richly deserve.

Does anyone really watch CNBC anymore? seriously? If you do, please tell me what I might be missing. I’m sincerely curious if they have any saving graces at this point.

Here are just a few of the articles from this week’s reading list at news.tradersnarrative.com:

• Was Rick Santelli’s “rant” a pre-arranged PR stunt?
• Buffett’s Annual Letter - worst performance ever
• Lessons From 1921 - what if doing nothing is the best option?
• Gold Based Ponzi Scheme
• In Defense of the Bull Market - wide based indices above November lows
• The Formula That Killed Wall Street
• Consumer Confidence hits basement, starts drilling
• House Prices: Reversion to the Mean (long term chart)
• Soros sees no bottom for world financial collapse

And remember to check regularly since there are interesting links added regularly throughout the week.

To see what you missed, here are just a few of the articles from this week’s reading list at news.tradersnarrative.com:

• Legacy of a Crisis - A Generation Shy of Risk
• Inside the Meltdown - PBS Frontline
• Congress’ new blockhead idea: a ‘Trader Tax’
• Bear Market in Chinese mistresses
• Chinese liquidity - and stocks - go BOOM
• Stanford a mini-Madoff fraud shut down after 15 years of dawdling
• Eastern Europe may take down Western European banks
• Dow Theory: Be Leery
• CDS jump for US banks

And remember to check regularly since there are interesting links added regularly throughout the week.

As you’ve probably seen on your filters, Escala (ESCL) has been crashing for the past few consecutive days. The shares gapped down hard on Tuesday and continued to sell off the Spanish authorities raided the offices of Afinsa and shut them down by declaring them insolvent.

The anti-corruption prosecutor has arrested 9 owners/executives of Afinsa. It seems that the Barron’s expose from last year didn’t even scratch the surface. It now appears that, since 1998, Afinsa had been running one of the biggest ponzi schemes ever right under the noses of the authorities.

The company, through its website and a press release, is denying everything of course. I found this section of their FAQ especially hilarious :

¿Los clientes podrán recuperar su dinero?

El dinero de los clientes de Afinsa está tan seguro hoy como ayer.

Translation:

Will the clients recover their money?

The money of Afinsa’s clients is as safe today as it was yesterday

Before this is over, we’re going to have a great epic story - maybe not quite as epic as say, Enron - but already we have such surreal elements as billions of missing funds, confiscated Lambourghinis and Ferrarris, freshly plastered wall in the house of an executive that unsuccessfully tried to hide 10 million Euros, thousands of bilked investors and one red faced regulatory authority that let this spiral out of control.

The story is still coming out but what they think was happening was that Afinsa would buy either normal real stamps or counterfeit stamps and then sell them at an enourmous markup to their investors. Then they would take part of the money and pay the older investors their 10% p.a. promised return. A classic ponzi scheme that required more and more suckers to keep going and finally unravelled under its own weight.

The unwashed masses, meanwhile, are getting mixed messages about their fate. The Bank of Spain and the securities regulatory authority are saying that there will be no restitution since this sort of investment is not covered under the generous government insurance scheme protecting the financial sector in Spain. But, ever mindful of the wrath of voters, Zapatero has pledged to not leave thousands of people helpless.

So it turns out that I was (partly) wrong and the shorts and Barron’s were vindicated to a degree they themselves perhaps couldn’t begin to imagine. There is no question that with such a huge short position, someone made out like bandits. I checked but unfortunately no shares were available to be borrowed (from IB).

The lesson I take away from this is that a) a situation can be rotten to the core and still float higher based on pure ignorance and b) the Spanish population is astonishingly gullible and ignorant when it comes to any financial matters.