License to Steal?

Leo Kolivakis's picture

Via Pension Pulse.

A senior pension fund manager sent me a link to a Washington Examiner blog entry, Europe starts confiscating private pension funds:

The U.S. isn't the only place that's facing a major pension fund crisis. The Christian Science Monitor has this alarming report:

People’s
retirement savings are a convenient source of revenue for governments
that don’t want to reduce spending or make privatizations.

 

As most
pension schemes in Europe are organised by the state, European
ministers of finance have a facilitated access to the savings
accumulated there, and it is only logical that they try to get a hold of
this money for their own ends. In recent weeks I have noted five such
attempts: Three situations concern private personal savings; two
others refer to national funds.

 

The most striking example is Hungary, where last month the government made the citizens an offer they could not refuse.
They could either remit their individual retirement savings to the
state, or lose the right to the basic state pension (but still have an
obligation to pay contributions for it). In this extortionate way, the
government wants to gain control over $14bn of individual retirement
savings.

The article goes on to detail other
pension grabs in Bulgaria, Poland, France and Ireland. Obviously, this
is a cautionary tale for America. If fiscal austerity becomes a real
issue in the U.S. the way that it's been reaching critical mass in
Europe -- don't think that U.S. lawmakers regard your either your
personal wealth or money they might owe you as sacrosanct. Government
has a habit of looking out for itself.

While some governments are "Hungary for pensions",
I wouldn't worry too much about a big US pension grab -- at least not
yet. I am more worried about legalized theft taking place in the markets
every single day. Yahoo Finance posted a CNBC article, Investing Dying as Computer Trading, ETFs & Dark Pools Proliferate:

There's
an old Wall Street adage meant to inspire investors that goes "it's
not a stock market, but a market of stocks." Consider that dead.

 

Computer
trading, dark pools and exchange-traded funds are dominating market
action on a daily basis, statistics show, killing the buy and hold
philosophy still attempted by many professional and retail investors
alike. Everything moves up or down together at a speed faster than which
a normal person can react, traders said.

 

High
frequency trading accounts for 70 percent of market volume on a daily
basis, according to several traders' estimates. The average holding
period for U.S. stocks is now just 2.8 months, according to the
Crosscurrents newsletter. In the 1980s, it was two years.

 

"The
theory that buy-and-hold was the superior way to ensure gains over the
long term, has been ditched completely in favor of technology," said
Alan Newman, author of the monthly newsletter. "HFT promises gains are
best provided by holding periods measuring as few as microseconds,
possibly a few minutes, or at worst, a few hours."

 

The
problem is only made worst by the proliferation of exchange-traded
funds, traders said. The vehicles, which make trading a group of stocks
as easy as buying and selling an individual security, passed the $1
trillion in assets mark at the end of last year, according to
BlackRock. This is probably why all ten sectors of the S&P 500
finished in the black for two consecutive years, something that's only
happened one other time since 1960, according to Bespoke Investment
Group.

 

"The capital raising stock market of the past hundred
years has morphed in just the last 10 years into a casino," said Sal
Arnuk of Themis Trading and a market infrastructure expert who advised
the SEC after last year's so-called Flash Crash. "Who is doing the
fundamental work analyzing stocks? In the end, we've greatly increased
systemic risk."

 

Another factor jumped
into the fray in December: dark pools. Off-exchange trading accounted
for more than a third of the trading volume in December, says Raymond
James. While these trades are eventually reported to the public
markets, they further damage price discovery, an essential element for a
fair securities market, investors said.

 

"This was a record high
market share for off-exchange trading and we believe the SEC will
ultimately be forced to react to support the price discovery process by
limiting off-exchange trading for all traces except for large block
trades," wrote Raymond James analyst Patrick O'Shaughnessy in a note to
clients yesterday.

 

"This destroys
capital markets," said Jon Najarian, co-founder of TradeMonster and a
'Fast Money' trader. "Hidden trading venues, where some participants
get to peek at the orders as they are entered so long as they agree to
'interact' with a minimum percentage, is not an exchange, it's a
license to steal."

 

While many see these
forces aligning to cause a sort of self-correcting powerful drop in
the market down the road, others feel like it's creating an opportunity
for the stock pickers to mount a comeback.

 

At the end of last
year, something strange happened. After tracking the S&P 500 for
most of 2010, the Russell 2000 Index, made up of many small companies
with very different characteristics and merits, broke away in the final
three months to double the gains of large cap benchmark for the year.

 

"Small
cap outperformance in the last quarter is a very good sign this trend
is ending," said Joshua Brown, money manager and author of The Reformed
Broker blog. "Winners and losers are starting to separate themselves
after a year of the whole risk-on (buy anything), risk off (sell
everything) of the last year."

 

Of course, you could have just bought the iShares Russell 200 Index ETF (NYSEArca:IWM - News) in September.

I
also feel that all these dark pools, ETF flows, and high frequency
trading platforms are wreaking havoc on the market, but they do present
opportunities for stock pickers. This is because if things get really
out of whack, long-term investors (like pension funds) will move in, and
in extreme cases, they may even take a company private.

Nonetheless,
the reality is that investors are struggling to make sense of wild
market gyrations caused by high frequency trading and dark pools. Over
at Zero Hedge, they have been writing on this subject
for a long time, but only now is mainstream media waking up to the fact
that markets are routinely being manipulated by a few large and
powerful players in this space. Some will dismiss this as "part of the
liquidity game", but I think large pension funds should also be asking
some tough questions on how these new "sophisticated" trading methods
impact their holdings.

For me, this is all a license to steal.
Sure, it's legal, but it's still theft using multimillion dollar
computers that are able to trade faster than the speed of light. And
I'm not so sure that the CNBC article got it right. I think Michael Hudson got it right,
the average stock is held for 22 seconds and foreign currency
investment for 30 seconds. As sad as this sounds, this is the reality of
our "new and improved" markets. Computers have taken over, and while
there are limits to these trading platforms, they are increasingly
dominating the way markets react to fundamental news.

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Gromit's picture

"Starting Jan. 1, 2012, the government will cap the asset management fee for private pension funds to 0.2% of proceeds from members, down from the current 0.8%, and it will limit their operation costs to 0.9% of the proceeds, compared with 4.5% now, Mr. Matolcsy said."

 

MobBarley's picture

I'm still waiting for Tyler n crew to do an in depth look into how CEDE & CO 

is involved with all this. You can't tell me there isn't a good reason they've

been herding all stock holders into benificiary status with CEDE & CO the

actual owner and don't tell me it's because it makes things easier paper-work

wise. Partly, it is to allow short selling and other hanky panky because CEDE

can lend the stocks willy nilly when they're the actual owner. I wouldn't be surprised

if at any given time there are far more of a company's shares 'in process' than

actually exist.

 

 

David99's picture

This Casino has nothing to do with any data, any results, any fundamentals, any technicals, any good / bad figures.

This Casino is run by fraud FED through 18 PD's (Fraud Street gang) and depends on the size of daily POMO's (Bigger is the loot, higher it goes)

Rest all is blah blah blah and waste of time, good for nothing

Very Simple

dizzyfingers's picture

Thank you; common sense.

Watauga's picture

I still want to know if this is all headed for TEOTWAWKI and if so, when?  Any guesses?

I think this is the key question for the prudent investor.  If we believe that the risk of TEOTWAWKI is high, physical PMs and actual preparation for the worst would seem to be the way to go.  However, if the risk of TEOTWAWKI is low, the better route likely would be PM ETFs and some lucky shorting of the DJIA/S&P, the dollar, bonds, and the euro.

topcallingtroll's picture

I hate to be such a troll but I beg to differ. Buy and hold has kicked ass over the last two years. 65 percent is not bad. Over thirty years buy and hold has kicked silver and gold's hairy ass. Over the next thirty years buy and hold will again kick some pm ass. Of course I love the shiny stuff too. I just loved it more at 650 and 9.25

Leo Kolivakis's picture

Interesting time horizon you chose because the market got pummelled in 2008. If you think the last two years will be indicative of the next ten years, well then go ahead, buy and hold...just make sure you are holding the right stocks! :)

(Btw, I bet you computers made a lot more money than buy & hold!)

Salinger's picture

" I wouldn't worry too much about a big US pension grab -- at least not yet."

 

so when and under what circumstances?

we all know the markets are rigged but going after pensions is an idea that the NWO conspiracy crowd has been warning of for some time and now mainstream publications are talking about it. Leo, you're the pension guy and accordingly are in a position to comment on these conspiracy themes with a little more depth than the above statement.

topcallingtroll's picture

Never. Because that starts the revolution.

dizzyfingers's picture

I'm sad to agree. The greatest generations are over.

dizzyfingers's picture

I'm sad to agree. The greatest generations are over.

Whatta's picture

Revolution...in modern America? Ha. Not gonna happen.

We can't even put out a decent soccer hooligan, much less revolutionary popular masses.

Slickdick political talk over the MSM will persuade Joe Schlub that taking his savings and retirement accounts is Being Patriotic...fighting that bastard terraist ObL. Raise a g-ddamned American Flag and salute it as you give me your US$.

No...American's, as Clint Eastwood recent has said, are pussies. Choked off by overthinking and under(re)acting.

Watauga's picture

It would be interesting to see what happens if the federal government were to go down the road of seizing pensions, IRAs, 401Ks and so forth, and merging all into Social Security to keep it solvent and to steal from it to buy power.  I believe that many "Red State" Americans and quite a few "Blue State" Americans would take up arms.  I truly believe that.  At that point, why not?  Jobs would be rare.  Business would be almost gone.  The scraps that the government would pass back in exchange wouldn't be enough to live on.  There are enough guns and ammo in this country to make a good fight of it, even if Big Brother were to crush the fight. 

I am not sure that the government will seize the pensions and retirement funds.  But if it does, I think it might well get very ugly.

centerline's picture

It won't be an "in your face" taking of pensions.  It will be much more sleazy and back-door-ish.  The rules will be changed, a little at a time.  Retirement funds will be redirected.  Your options narrowed.  Rules for borrowing and withdrawing tightened.  Etc.

NotApplicable's picture

Since all pension funds are ponzi schemes and doomed to fail, it will be postured as a bail-out. Worthless plans will be transferred to the PBGC (an already insolvent quasi-government golem (a la Fannie and Freddie)), and will then be "made whole" with Treasurys.

In other words, it will be made to look like a win-win, while in reality it will just be the final nail in the coffin of surviving without the fedgov teat (which will dry up, only to be replaced by the IMF teat).

jbc77's picture

Excellent write up Leo. I saw the headline on Yahoo! yesterday and it blew me back a little to see a main stream outlet discuss HFT & dark pools.

cranky-old-geezer's picture

They want what we earn (via taxation).

They want what we save (via inflation) ...and now directly by taking our savings and giving us (worthless) IOUs.

They want all our money now while it's worth something.   They plan to pay it back in money worth much less.

It's the inflation end-game.  They know they're going to inflate the money supply until the dollar is worthless.  

Sure, there are other things they could do.  They could refuse to bail out anyone. They could prosecute fraud. A few high-profile people going to prison and having all their wealth confiscated would be a strong deterent to anyone else thinking about committing fraud. They could slash government spending.  They could slash taxes and jump start the economy overnight.  They could change laws to create a business-friendly atmosphere so a manufacturing base could start rebuilding.   

But they don't care about America anymore.  They don't care about Americans anymore. 

It's every man for himself now.  Steal as much weath as possible from everyone else.  That's the game now.

"Every man for himself."  That's what they said on the Titanic in the last minutes before it sank.

When America's leaders adopt the "every man for himself" mentality, America is close to sinking.

nmewn's picture

+ a million Black Rock overseers.

dracos_ghost's picture

When America's leaders adopt the "every man for himself" mentality, America is close to sinking.

The "when" is already here.

As far as the gubmint taking over your 401(k). There are already proposals to restrict what you can buy (ie. Treasuries only)

http://www.cbsnews.com/stories/2010/02/26/politics/main6246640.shtml

Americans have to care about Americans -- which I personally don't see with Snooky et al as role models. The politician is bought and paid for by the Chinese. Don't expect them to step up to the plate and do what is right. Democrat or Republican is a moot point. It's all pageantry since they have abrogated all powers to the international bankster.

As far as the Retirement Services industry -- f*&k 'em. I do compliance in the biz. Biggest bunch of criminals going. Mr. Forfeiture fraud, kickbacks and hidden fees trading with their hedge fund buddies and the retiree gets shafted. No one cares.

Ban 401(k)s, 403(b) and the whole lot. It's about locking up capital so these scumbags can leverage and trade the book.

One last thing-- watch out for PBGC. Gonna make TARP look tame.

 

 

dizzyfingers's picture

We're there, have been there long before the first CDOs and CMOs were just gleams in someone's eyes. But in the case of CDOs and CMOs, the greedsters who made billions want the swindle of the world to continue. Talking heads want us to believe that they know "how to fix the U.S. financial system", but all who profess such wisdom simply want the swindle to continue. http://www.amazon.com/Too-Save-U-S-Financial-System/dp/0470499052

Taxpayers = slaves.

Ruling classes = slavemasters.

twotraps's picture

CRANKY-OLD-GEEZER  FOR PRESIDENT!!!!!!!!!!!  Getting teared up reading your post, could not agree more.  You could have written this years ago....what has happened since then?  The entire process has been cheapened by letting everyone off the hook and keeping the sheeple distracted with debate on the Estate Tax as the only answer to our problems.  Well done.

guidoamm's picture

Pension and insurance funds have been pilfered ever since banks were allowed to disregard mark to market accounting.

By allowing banks to mark to model, banks retain investment grade rating. As such, banks are by far the preferred investment for institutional money. This is why when all is unraveling around us, banks (particularly Prime Dealers) are still able to pay out rich bonuses.

TARP was an explicit and overt vehicle to funnel money to the banks. Mark to model is the covert and far more damaging vehicle to funnel money to the banks. The tax payer get fleeced twice but is only aware of having been fleeced once.

That's the utility of a fiat monetary system.

Stuck on Zero's picture

A Tobin tax on stock transactions of just 0.1% would return sanity to the markets. In addition the SEC could force all stock trades to move through a stock transfer title house so that dark trading would suddenly be too risky.  

hbjork1's picture

Stuck...,

I agree!

The small, per share transition tax, with transaction titled would restore sanity to the markets. 

The problem would be that the dark trading would move offshore and many current, influential players would not be able to play in the "free" market.

dizzyfingers's picture

Interesting. To test whether there's any intent in congress or government to fix what's broken, let's watch and see if this ever happens.

MurderNeverWasLove's picture

Although I am for a fee on fiat transactions, I don't think trying to hit stock trades is anywhere close to a good idea.

Once the fiat moves out of an account, then hit it with a .0049 (the new fee that replaces all other taxes of every kind)

 

snowball777's picture

I think it depends on the approach. A transaction tax could be structured such that HFTs and houses making big moves bear the brunt of the burden while J6P gets a pass. For example, you could have the tax waived if your trade stays up past a threshold (i.e. you establish that you aren't a bot) or make it steeply progressive based on the size of the transaction. You can attempt to precisely target pure speculators and behemoths based on their consistently annoying behavioral characteristics.

MurderNeverWasLove's picture

http://apttax.yuku.com/topic/408/Are-there-any-current-figures

between swiff and fredwire and the clearinghouses, we've broached $3Q/yr in taxable without even messing with the exchanges, which are small potatoes comparatively.

 

RockyRacoon's picture

The SEC could be instrumental in restoring sanity?  You're joking, right?

dizzyfingers's picture

Yes, joking.

Greedsters and fraudsters, SEC, government....how to tell them apart?! 
  http://seekingalpha.com/article/214999-goldman-settlement-the-sec-s-real-failure "Goldman Settlement: The SEC's Real Failure (by Sam E. Antar) July 18, 2010

The Securities and Exchange Commission's settlement of a lawsuit against Goldman Sachs (NYSE: GS) over a certain subprime mortgage product sold to investors misses a key issue. That is, concerning the company's duty to provide timely and transparent disclosures to its own shareholders about government subpoenas, investigations, and pending enforcement actions against the firm. In this particular case, Goldman did not make timely disclosures about the regulator's investigation and pending lawsuit against the firm, right under the SEC investigator's noses.

Goldman Sachs chooses to keep shareholders in the dark about SEC investigation and pending enforcement action

During the summer of 2008, the SEC started investigating Goldman's marketing of a certain subprime mortgage product, known as ABACUS CDO, to investors who lost over $1 billion from that transaction.
At that time, Goldman Sachs knew that the SEC was investigating its failure to disclose material information to investors in violation of SEC Rule 10b-5 in connection with that transaction. However, Goldman Sachs did not disclose the SEC's investigation in its financial reports.

In July 2009, the SEC sent Goldman Sachs a Wells notice informing Goldman of its intention to file a lawsuit against the company. Still, Goldman Sachs chose not to disclose the SEC's pending enforcement action in its financial reports.

On Friday, April 16, 2010, the SEC filed a surprise lawsuit against Goldman Sachs and Executive Director Fabrice Tourre alleging securities fraud in connected with the company's marketing of the ABACUS CDO to investors. That day, Goldman Sachs shares plummeted from $183.31 per share to $160.30 per share or about 13%, wiping out about $12 billion of shareholder wealth.

Clearly, investors deemed the surprise news of the SEC complaint against the company as material information, unlike the management team running Goldman Sachs.

Goldman Sachs settles SEC charges

Yesterday, Goldman Sachs settled SEC charges against the firm. According to the SEC's press release:

...Goldman, Sachs & Co. will pay $550 million and reform its business practices to settle SEC charges that Goldman misled investors in a subprime mortgage product just as the U.S. housing market was starting to collapse.

 

  Robert Khuzami

 

In agreeing to the SEC's largest-ever penalty paid by a Wall Street firm, Goldman also acknowledged that its marketing materials for the subprime product contained incomplete information.

In a news conference, Director of SEC Enforcement Robert Khuzami spoke about Goldman's duty to provide full and transparent disclosure to its customers but ignored the company's duty to likewise provide such disclosures to its own shareholders:

They acknowledge that their marketing materials for the ABACUS CDO contained incomplete information, and that they failed to disclose both Paulson & Company's role in the portfolio selection process, and that Paulson's economic interests were adverse to CDO investors.

The settlement also contains forward-looking reforms. Goldman has agreed to tighten internal controls and assess the roles and responsibilities of Goldman personnel and others to insure that disclosures in future offerings of mortgage and CDO products are full and accurate.

In agreeing to the settlement, we also took into account that Goldman is engaging in a broad-based self-assessment of their overall business practices that will increase transparency, evaluate and remediate conflicts, and take other steps that collectively will reduce the chances that investors in the future will be misled.

This resolution achieves the goals of accountability, punishment for past misconduct and prospective reforms that are the hallmark of a successful outcome.

Today's settlement is a stark reminder that there will be a heavy price to be paid if firms violate the principles fundamental to our securities laws - full disclosure, honest treatment and fair dealing - and those principles do not change, even if the product is complex or the investor sophisticated.

By ignoring Goldman's failure to inform shareholders in a timely manner about the SEC's investigation of the company and then pending enforcement action, the SEC is sending a message that surprising investors about investigations and enforcement actions is fair game. Moreover, a resolution requiring self-assessment is meaningless, as anyone not sleeping soundly through the last decade should know.

Friday, news of the settlement sent Goldman shares 4.43% higher to close at $145.22 per share, still far lower than its $181.31 price per share the day before the SEC filed its complaint against the company.

Disclaimer: I am a convicted felon and a former CPA. As the criminal CFO of Crazy Eddie, I helped Eddie Antar and other members of his family mastermind one of the largest securities frauds uncovered during the 1980's. I committed my crimes in cold-blood for fun and profit, and simply because I could.

If it weren't for the efforts of the FBI, SEC, Postal Inspector's Office, US Attorney's Office, and class action plaintiff's lawyers who investigated, prosecuted, and sued me, I would still be the criminal CFO of Crazy Eddie today.

There is a saying, "It takes one to know one." Today, I work very closely with the FBI, IRS, SEC, Justice Department, and other federal and state law enforcement agencies in training them to identify and catch white-collar criminals.

I do not seek or want forgiveness for my vicious crimes from my victims. I plan on frying in hell with other white-collar criminals for a very long time.

Recently, I exposed financial reporting violations by Overstock.com (NASDAQ: OSTK) as an independent whistleblower. The Securities and Exchange Commission is now investigating Overstock.com and its CEO Patrick Byrne for securities law violations (Details here, here, and here).

In addition, the SEC is now investigating possible GAAP violations by Bidz.com (NASDAQ: BIDZ) after I alerted them about the company's inventory accounting practices."

 

mynhair's picture

He's talking Tobin Tax, which only applies to Tobins.

Buttcathead's picture

Would not be a problem if Bail Outs were never handed out.   Big Bubbles more troubles.  401k is a scam.

dizzyfingers's picture

...there was talk when congress changed the pension laws that they were simply anticipating the need for increases tax revenues when boomers would be getting on social security. SS is only one of the big problems. With greedsters of all types looking for a way to legitimize more theft by reinflating the CDO/CMO bubble and etc., worse is coming. When criminals rule, all crimes become legit.

mynhair's picture

Cdad wants this:

http://www.youtube.com/watch?v=FP2YYc39_TA&feature=related

'All your Country is Mine'  Because I drank....

mynhair's picture

O/T,

It only takes 100K to make one of these bimbos yours.

Totally leaves Cdad out.  Cdad, Criminal Dad?

http://www.youtube.com/watch?v=Ty6XkY3O7b8&feature=channel

Just trying to make her way from Cdad....prevert that he is.

Bet he drools over E. Smart pics.

Mitchman's picture

A good column Leo.  If you were managing pension money, what would you do?

Leo Kolivakis's picture

Mitchman,

Sorry for the delay. A senior pension fund manager told me that the best way to beat computers is by taking a long-term view on some asset classes. You can never beat computers in the short-run, so focus on longer term themes.

nmewn's picture

It's alive...LOL.

I'm still waiting Leo...what have you to say about the morality of federal employee trust funds that have zero market risk?...they have nothing in common with what the taxpayer has been forced into, do they?

Why is it that the taxpayer assumes all risk...both for his own retirement & the federal employee? Is this fair in your view?

And, what is your opinion of Black Rock skimming off the top?...basically just acting as an accountant...what is their take on this ponzi within a ponzi, any idea? I'm gonna go out on a limb here and say a competent accounting firm could do what they are paid to do for much less.

Come on Leo...humor me ;-)

 

dark pools of soros's picture

Venus REITs???  is that long enough?  have they frontrun that already?

 

btw Leo - what's your take on Dow's Powerhouse solar shingles?  gamechanger or will regular panels avoid becoming 8-trackish afterthoughts

Boilermaker's picture

...find a way to skim it or flat out steal it just like all the other pension fund sleaze balls.

dark pools of soros's picture

find a sugar daddy at JPM to drop your pants, and funds for...

High Plains Drifter's picture

Please don't pick on Cdad. He is a very nice man.

mynhair's picture

Duh, taxpayer sucks up this pension cit.  Prove me wrong.

http://www.youtube.com/watch?v=yvT_pzN2UHA

Go Chinee Solars!  Not.

Those that earn give to those that don't.

If you see no problem there, may God have mercy on your soul.

http://www.youtube.com/watch?v=HL548cHH3OY&a=4oVf-d_DwKBl7W1PmcRKnLc0P6D...