Market-top economics could be an entire university course, if people cared enough about such phenomena. Most only consider the signs of a market top months or years after a crash when some unyielding economics researcher puts the pieces together. As human-beings we have developed an uncanny ability to rationalize what we know to be bad news and convince ourselves, "This time is different," despite the fact that it usually never is. In a previous article we provided analysis on economic/equity decoupling (cognitive dissonance) and showed that the economy as we know it cannot persist--we are either due for a literal gap-up in leading economic conditions, or we are due for a serious correction in US equities. With today's 5.4% slip in existing home-sales, let's go with the latter.
Remember when various students of the Econ. PhD persuasion (not to mention various paywall holdco-funded blogs, both desperate for namedropping-based page views), alleged that reading Zero Hedge makes one's money "vanish" (instead of focusing their brilliantly insightful googling efforts on such worthier topics as MF Global or its successor, PFG, or even Libor)? We were going to present a picture of your typical "testosterone" addicted reader below as a reminder, but instead we opted for a picture of MBIA's intraday price, which is up 8.5% from where we broke news that the company may soon be worth much, much more. And to facilitate these same academics in their abacus-based pursuits of truth, justice and the Keynesian way, we will even calculate the annualized return: 847,801,191% (we will withhold calculating what the return on various short-term call options may have been - we are confident even career Economists can figure that one out after several hours of consultations). But since when have facts ever been part of the status quo's arsenal...
There remains some confusion about the timing of actions around the PFG Best disaster. From withdrawn salary cuts to liquidation-only orders to forced liquidations from Friday to Monday, CNBC's Rick Santelli provides a succinct and shocking insight into what real money accounts and brokers have dealt with and continue to try to comprehend. The sad truth about where the money went is summed up by his guest that "we're just hearing rumors; it could be, on a percentage basis worse, than MF Global."
US Attorneys General Jump On The Lieborgate Bandwagon; 900,000+ Lawsuits To Follow, And What Happens Next?Submitted by Tyler Durden on 07/11/2012 20:00 -0500
The second Barclays announced its $450 million Libor settlement, it was all over - the lawyers smelled not only blood, but what may be the biggest plaintiff feeding frenzy of all time. Which is why it was only a matter of time: "State attorneys general are jumping into the widening scandal over whether banks tried to manipulate benchmark international lending rates, a move that could open a new front against the top global banks. A handful of state attorneys general said they are looking into whether they have jurisdiction over the banks, and are starting preliminary discussions to determine what kind of impact the conduct involving the Libor rate may have had in their states."
We throw 7 billion cars into the air every year. What's that about?
Ultimately, the surge in demand for gold reflects one thing alone: distrust of the increasingly messy, interconnected, over-leveraged and fraudulent financial system. Whether it is China — fearful of dollar debasement — loading up on bullion, or retail investors in the United States or Europe — fearful of another MF Global (or PFG, or Lehman Brothers) — stacking Krugerrands in their basement, demand for gold reflects distrust in finance, distrust in the financial establishment, distrust in banks, distrust in regulators, distrust in government and distrust in the financial media. And it is that distrust — not (by any stretch of the imagination) central bank interventionism — that is the force moving demand for gold. There will be no bear market for physical gold until trust in the financial system and regulators is fixed, until markets trade fundamentals instead of the possibility of the NEW QE, until governments represent the interests of their people instead of the interests of tiny financial elites.
If there is an event that should cost Gary Gensler his job as head regulator at the CFTC, it is this. According to a just released Reuters report, the head of MFG(lobal) part 2, PFG, whose story we broke yesterday, Russell Wasendorf Sr. "intercepted and forged bank documents for more than two years to cover up hundreds of millions of dollars in missing money, a person close to the situation." Once Wasendorf realized he was caught, and knew the implications of his actions would be exposed for the whole world to see, he tried to commit suicide, and failed. "Wasendorf, 64, is reported to be in a coma after a suicide attempt Monday morning, according to a complaint filed by the Commodity Futures Trading Commission on Tuesday that accuses Wasendorf and Peregrine of fraud." And while crime happens all the time, what is truly stunning is that as we reported previously, the CFTC gave the firm a clean bill of health in its January inspection of Peregrine Financial Group. That's 6 months ago. The CFTC, as a reminder, was it regulator. The entity whose sole charge is to make sure that firms at least have real, not rehypothecated, cash in their segregated client bank accounts. PFG never did for the past two years. And somehow the CFTC missed this. MF Global was a warning shot, and the CFTC missed it entirely. And not only that but 2 months later ir pronounced PFG clean. For this Gensler has to be fired immediately, and with prejudice.
MF Global 2 is now official. At least one can never accuse ex-Goldmanite, and current head of the CFTC Gary Gensler, as being behind the curve:
- U.S. COMMODITIES REGULATOR SUES PEREGRINE FINANCIAL GROUP
- FIRM HAS $200 MILLION CUSTOMER FUND `SHORTFALL', CFTC SAYS
- CFTC LAWSUIT FILED ONE DAY AFTER FIRM ANNOUNCES NFA PROBE
Hopefully, the CFTC's now meaningless action will help all those farmers whose money has just vaporized. Luckily, they can make it all up on record corn profits.
The MF Global playbook is playing out step by step:
- JEFFERIES HAS BEGAN AN ORDERLY LIQUIDATION OF PFG’S POSITIONS
- JEFFERIES DOESN'T EXPECT TO INCUR ANY LOSS IN RESPECT OF PFG
- JEFFERIES ALREADY LIQUIDATED SUBSTANTIAL PORTION OF POSITIONS
- JEFFERIES SAYS PFG POSITIONS SECURED BY CASH HELD IN MARGIN ACC
- JEFERIES TO KEEP PFG LIQUIDATION PROCEEDS IN SEGREGATED ACCOUNTS
As PFG Falls, a Return to the MF Global / Eric Holder Connection and How to Keep an Investigation StaleSubmitted by EB on 07/10/2012 06:56 -0500
Wasendorf take note: step 1, become powerful governor and/or senator (editor of SFO magazine won't cut it); step 2, hire Blankfein's lawyer for key personnel who can throw you under the bus
UPDATE 2: Have no fear though since as recently as January 2012, the CFTC did not find any "material breaches of customer funds protection requirements" at FCMs (firms like PFGBest)
UPDATE 1: Account-holders may not be so surprised to find who is the custodian for the PFGBest FX accounts: none other than huge MFGlobal fans, JPMorgan!
Remember when the entire segregated account fiasco was supposedly fixed in the aftermath of the November 2011 MF Global bankruptcy, and where regulators: the CFTC, the SEC, the CME, and anyone you asked, swore up and down this would never happen again? Turns out that 7 months later, the spirit of MFG has struck again, only this time with one letter switched: it is now known as PFG, as we suggested first 3 hours ago when we broke the story. From the just filed affidavit by Lauren Brinati who is working with the National Futures Association, which in turn has just filed notice prohibiting PFGBest from operating further, and freezing all of its accounts: "On July 9, 2012, NFA made inquiry with US Bank and learned that rather than the $225 million that PFG had reported as being on deposit at US Bank just days earlier, PFG had only approximately $5 million on deposit at U.S. Bank." Translation: another $220 million segregated account pillage, in the vein of none other than Jon Corzine and MF Global.
The money has now officially vaporized.
Update 2: Russ Wasendorf Sr., the founder and CEO of PFGBest, reportedly attempted to commit suicide this morning outside the corporate headquarters in rural Cedar Falls, company officials confirmed Monday afternoon.
Update: PFGBest had $400MM in customer segregated funds at the end of April. Is JPMorgan about to "discover" another $400 million in Q2 "profits"?
Just out from futures broker PFG Best to clients, where the owner's suicide attempt apparently has led to a whole new MF Global spin off.
Due to a recent emergency involving Russell R. Wasendorf, Sr., a suicide attempt, some accounting irregularities are being investigated regarding company accounts. PFGBEST is wholly owned by Mr. Wasendorf. Therefore, the NFA and other officials have put all funds on hold, and PFGBEST is in liquidation-only status with our clearing FCM. What this means is no customers are able to trade except to liquidate positions. Until further notice, PFGBEST is not authorized to release any funds. We will update you as any new procedures are stipulated and with any further information as it becomes available.
... And just as the public trust was storming back into the capital markets.
Fed Chairman Bernanke should be impeached if he does not restore Fed surveillance over primary dealers immediately.
We especially enjoy reading things that we disagree with, and that challenge my own beliefs. Strong ideas are made stronger, and weak ideas dissolve in the spotlight of scrutiny. People who are unhappy to read criticisms of their own ideas are opening the floodgates to ignorance and dogmatism. Yet sometimes our own open-minded contrarianism leads us to something unbelievably shitty.
The financial system is being regulated by clueless schmucks — many of whom would also castigate Zero Hedge as a “big fat hoax”, while ignoring grift and degeneracy within the financial establishment and the TBTF banks. In the face of such grotesque incompetence who can blame market participants for wanting a hedge against zero?
The system of corporatism we have today has far more akin with Marxism and “social management” than Marxists might like to admit. Both corporatism and Marxism are forms of central economic control; the only difference is that under Marxism, the allocation of capital is controlled by the state bureaucracy-technocracy, while under corporatism the allocation of capital is undertaken by the state apparatus in concert with large financial and corporate interests. The corporations accumulate power from the legal protections afforded to them by the state (limited liability, corporate subsidies, bailouts), and politicians can win re-election showered by corporate money. The fundamental choice that we face today is between economic freedom and central economic planning. The first offers individuals, nations and the world a complex, multi-dimensional allocation of resources, labour and capital undertaken as the sum of human preferences expressed voluntarily through the market mechanism. The second offers allocation of resources, labour and capital by the elite — bureaucrats, technocrats and special interests. The first is not without corruption and fallout, but its various imperfect incarnations have created boundless prosperity, productivity and growth. Incarnations of the second have led to the deaths by starvation of millions first in Soviet Russia, then in Maoist China... As the financial system and the financial oligarchy continue to blunder from crisis to crisis, more and more people will surely become entangled in the seductive narratives of Marxism. More and more people may come to blame markets and freedom for the problems of corporatism and statism. This is deeply ironic — the Marxist tendency toward central planning and control exerts a far greater influence on the policymakers of today than the Hayekian or Smithian tendency toward decentralisation and economic freedom.