CME Goes To Collateral DefCon 1: Makes Maintenance Margin Equal To Initial For... Everything!?
Update: Based on unofficial statements by the CME, it appears that the exchange has gone the way of inviting more risk by lowering Initial to meet existing Maintenance margin across the board. We will likely only know for certain on Monday. We suppose the proposed explanation will be to minimize margin exposure for onboarded MF positions. Of course, that this is very much counterintuitive at a time when risk is spiking and vol readings per SPAN are soaring, and instead is inviting even more risk, is apparently irrelevant to the exchange.
The most important news announcement of the day was not anything to came out of Cannes (as nothing did), nor from Greece (the merry go round farce there continues unabated). No, it was a brief paragraph distributed by the CME long after everyone had gone home, and was already on their 3rd drink. It is critical, because not only is this announcement a direct consequence of what happened with MF Global several days ago, but because also it confirms one of our biggest concerns: systemic liquidity is non-existanet. We confirmed interbank liquidity in Europe was at an all time low earlier today, and can only assume the same is true for US banks. But what is very disturbing is that this is just as true at the exchange level, where it appears the aftermath of the MF collapse is just now being felt. What exactly was the announcement. Unless we are completely reading it incorrectly, it is nothing short of a margin call for tens if not hundreds of billions worth of product. Because as of close of business on November 4, today, the CME just made the maintenance margin, traditionally about 26% lower than the initial margin for specs, equal. For everything. Which means that by close of business Monday, millions of options and futures holders will be forced to deposit billions in additional capital to the CME just so they are not found to be margin deficient, and thus receive a margin call. Naturally, since it is very unlikely that this incremental amount of liquidity can be easily procured in one business day, we anticipate the issuance of hundreds of thousands of margin calls Monday, followed by forced liquidations of margin accounts across America... and the world. Just like when Lehman blew up, it took 5 days for Money Markets to break. Is this unprecedented elimination in the distinction between initial and maintenance margin the post-MF equivalent of the first domino to fall this time around?
From the CME (source):
And for those asking, here is a complete breakdown of all CME products and associated margins:
(57 votes)
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manic monday
IF YOU'RE GOING TO PANIC, PANIC FIRST.
I sense a disturbance in the force.
rick santelli was trying to talk about this stuff all morning long..........he was feeling a disturbance in the force..........
translation...
sucks to be (listed below):
you.
I heard it doesnt refer to 'everything' only to 'performance bonds' (thanks Ulikadese)
Performance Bond, in the case of CME or clearing parties, normally just another word for acceptable collateral.
I'm guessing the error is that it does not apply to all products otherwise things get "interesting" (in Chinese proverb sense) on Monday, lol.
Worse comes to worse, Timmy and Bennie will provide the collateral.
I'm thinkin' this is a snoozer - no way will TPTB let the CME wreak havoc.
Could be a "them or us" situation for the CME, if it's hand is stuck in the cookie jar. They may well cut it off rather than being caught. Damn the consequences from "TPTB".
It's those damn evil speculators. You know, the ones with the cash that the CME wants to steal.
They're all short now into early next week. Going to ride this pig down and profit short, then steal positions back and ride it up as Ben announces more easing to come in the folloiwng weeks / months. Money can't be made in a thin market without volatility.
It's all in a bankers life! Get used to being stolen from and put aside the "injustices", and you begin to see the game for what it is: The CME THEMSELVES are the evil speculators and bet wrong, now short on cash. LMFAO!!
nah...it's indicative of cash shortages. The economy doesn't really support the growth of credit so everyone, in realizing that there is a shortage of it, is demanding more of everything upfront because the "down the road" picture doesn't look like anyone will be able to pay.
the system is no longer "creditworthy."
it's tautological, trav!
"We are not worthy!"
so if you are holding PMs in your hand, that means you got a margin call too?
There will be a day when the Fiat Ponzi crumbles. Debt/money has had little recourse considering it has zero value. Debt/money is a ficticious creation of sore minds. It is a way to leverage wealth from the base of the society to very few.
Along the way promises were made, and quiteness was kept. People went about buying and spending, hoping to repay their loans with future earnings reamed of. But these days were far out of reality. Now we see that leverage makes no distiction among its prey. We see that when the House comes down, those praying in it will be trapped.
Those holding real assets are far from this mess. Those who have their ability are above the clouds. Humanity creates, and it destroys. This is a time of destruction. The creation will come from its ashes.
1. You can be "First".
2. You can be "Smarter"
3. or.. You can "Cheat".
Banks are open until 12 noon tomorrow unless you have a private banker and a branch that will open for you, ala' Northern Trust. http://www.northerntrust.com/pws/jsp/display2.jsp?XML=primary/locations/import_0921_39.xml&TYPE=locDetail&TYPE2=fl&TYPE3=Palm%20Beach&nxml=empty&ntype=/xsl/locIndex.xsl&nav=global_about&services=persServ
If you dont believe in tangibles or in backwardation.. unless this gets called off.. you will be a firm believer by 12 noon Monday when the Markets Open Late and still are diving past 7,000.. from a close today of 12,000(ish).
There is not enough energy to go around.. 300% +++ in monetary base growth.. and the World markets are still going to fast? and need to be slowed?
I dont know, I am just spit balling with the rest of you.
God Bless and Good Luck!
What, did you watch the movie "Margin Call" last night?
Jeremy Irons does not cheat, and Kevin Spacey will think he's a great guy while he rapes every client the firm has. And life imitates art.
Will it matter that much if it's only for "performance bonds"?
In CME-speak I believe that's a generic term referring to collatoral margin requirements, so if true would seem to be a fairly significant event.
But I tend to think we don't see the whole story here, I can't believe CME would "go rogue" with something that would cause a major disruption in financial markets like this.
false alarm
http://kiddynamitesworld.com/the-cme-margin-notice-that-has-everyone-in-a-tizzy
These are the people in charge of our commodities exchanges.
The incompetence is simply STUNNING. Taking on more risk in this environment is nothing short of insanity.
In any event, this is good. No collapse Monday.
another day, another mosely-claven prediction falls flat on its face
So after 75,000 views and 800+ comments, all of this was for.... nothing?
Weird. Just watched the film last night.
With the well-known Jungle compensation plan: "You Eat What You
Kill", are ther many wonders why evisceration of assets is a fine art. Smart monkeys move on while the patriarcal baboons deeply-rooted in their entitlement by hierarchy try to buy love with the merde at hand.
every dollar owed relies on another borrower to borrow. This is the problem in the face of aggregate contraction.
The issue we face as plebes is that the BANKS are the sole conduit of money into the economy. So, when the economy grew, the banks prospered. As the Bernank prints, the banks prosper.
This is the point of the deflationists, credit becomes artificially scarce not because of individual borrowers' inability to repay but the fact that there don't exist the MORE borrowers in the future who will have to borrow the interest owed. It's a systemic problem. It's that proverbial someone else, the lack of growth, that prevents the system from functioning.
So, everyone has to repay, everyone has to put everything up front, everything real and in existence now trades at a premium. The system can't grow to pay today's interest, so nobody will lend even if the individual interest or venture lent to would be viable. The system in a state of contraction makes the credit growth necessary for a compounding interest system untenable, therefore lending ceases.
Today's principal P becomes tomorrow's principal P + interest I. The system necessarily requires someone to borrow (request the creation of money) more at every future point time T+1. It always has to grow. There always must be more credit created. A loan today can't be created, exist, be viable, be repaid, without that.
Then let the fucker collapse. Except it won't happen next week because our inimitable central banker has decided he is both the party to request the creation of money at every T+1 and the creator of that money and he is still running loose.
yes exactly - unless
- they unveil a new fiat pyramid 10x the size of the old one
- they let gold go to 20K to refinance the old system
- a technology comes along to economically harvest heavy oil and bitumen
or some combination of the above ... i know you don't believe that last one is possible - but that's really the only way forward. i'm not prepared to live in a mad max deflation. positive EROI is possible with the right technology breakthrough(s)
Yes, it is systemic. I'll add that one person cannot have money without another person/entity going into debt. When work is performed no money is added to the system; one person is paid cash and another goes into debt, but the money to cover the interest never existed.
No, but beware the leveraged neighbour who can't wait to give it away to save his ass. I'm afraid it was always going to be every man financial entity for himself & let the devil Wall Banks take the hindmost MF Global
I don't think so dude. My pm's resting nicely and still doing better than any stock over the last year.
No counter-party risk--ahhhh, I'm sleeping real good. Remind when the last time gold or silver went to zero.
Zero what? Dollars? They can't. Dollars are leveraged on gold; just ask Bernanke how his 14k tonnes are doing.
First rule of having physical PM: Do not tell anyone
Second rule: If you tell, it will be taken.
How do you use something in trade that you can neither show nor tell?
You await until you need to trade. Then you will have to change your life and gaurd your valuables and take extreme security measures. In the meantime STFU.
Like the kid growing the pot plants....if you tell anyone , they will be gone.
When does your army of one sleep when you do deed one with your stash in the midst of real strife?
oops
Same rule applies when you're growing weed in your house.
So where you shacked up theses days?
A commodity is a commodity whether you grow it or mine it. Personally, I prefer to smoke it.
Cant wait till I get home today. Got a little sativa sensamilla (sin semilla or "without seeds") waiting for me. Wish I could still find juahacan or acapulco gold. You kids can keep your skunky indicas. Old fashioned sativas, particularly sensamilla wakes you up and clears your mind. I dont like the comatose buzz from indica.
My sort of chat.
U should come to oz, u'd be impressed with the resources here...
the system is no longer "creditworthy."
The system was never creditworthy. Returns (interest) aren't high enough to cover quantum default risk plus a profit. So it's a losing battle from the get go. Problem is, when those "prosperous" 4-6 year episodes take hold, the illusion of lending profitably becomes a contagion, and the system levers up (i.e., fractional reserve lending, investing on margin, etc.). No one "learns" because the purveyers of each wave are either promoted up or kicked out, and the next wave of creditor enthusiasts repeat the pattern, only with new tools and more confidence.
But as you say, every dollar of debt is owed and must be resolved on someone's balance sheet.
The weight of the unrepayable debt is so ugly I don't think even those that know what's happening can aptly imagine the crushing pain that is coming.
the system was creditworthy as long as the aggregate economy was growing
It's called Debt Deflation bitchez!!!
CME lists margin for 3186 products. How can they increase margin for all products simultaneously? - this will require trillions.
Something does not compute
Maybe someone copy & pasted all the numbers from one column into the other by accident. /fat finger
Yes, but the real story is the system is so complex and so close to the edge of the cliff because of can kicking that some fat finger can come along and push it over the edge. Then, like the assassination of Archduke Ferdinand, everybody will say, "how did it all happen because of this?" when the real answer is it was just time for the lemmings to jump.
Is it time for the dollar collapse now? Or do we have months? Or Years?...
My vote is in the months category.
My guess was Jan or Feb of 2012, but I don't know either, I'm just guessing how many jellybeans are in the jar.
How far is KreditAnstalt from Erste Bank and Dexia besides rhyming in time and fashion?
http://www.robertsinn.com/2011/11/05/margin-misunderstandings/
How many traders out there are swinging $170,000 of silver exposure with less than $25,000 of equity in their accounts? This is already a leverage ratio of nearly 7 to 1, are there really hundreds of thousands of traders out there leveraged up to the razors edge? Use your brain, there may be a couple hundred margin calls followed by liquidations on Monday but these will mostly be smaller accounts in which inexperienced traders have blown themselves up. Moreover, it is not clear that these liquidations will have a directional impact upon markets – Remember, futures markets are zero-sum games in which there are both longs and shorts.
Remember, remember the 5th of november.....big, bad, blatant dominoes to fall.
COMPARING THE SILVER MARGINS TO THE 2 YEAR TREASURY
After reading the post here on the what the CLOWNS at the CME-GROUP are doing, I decided to do a little research on margin histories of silver and the 2 year note. I put together a very interesting post at the SilverGoldSilver blog if anyone would like to see the comparison.
Here is the link: http://www.silvergoldsilver.com/index.php?option=com_smf&Itemid=39&topic=579.msg3032
I find it fascinating that the CME-Group is lowering margins on the 2 year treasury futures, but raising them on silver. If you take a look at the post, you will see that silver margins have not been lowered since the price decline....BUT ARE STILL BEING INCREASED....LOL
It's time to be in physical and out of paper.
I find it fascinating that the CME-Group is lowering margins on the 2 year treasury futures, but raising them on silver.
Pretty obvious the complex doesn't want capital...er, leveraged digi-fiat...to migrate away from the statist currency into real money.
mayhem_korner....yes I do realize that. Maybe facsinating wasn't the appropriate word. Anyhow, it is extremely interesting to see this comparison:
2 YEAR NOTE $500 Margin / $200,000 contract = 0.25%
SILVER 5000 oz $18,500 Margin / $170,000 contract = 10.8%
Both of those margins are based on the Maintanence margin on Sept 26, 2011. You have to spend 43 times more Dollars to maintain 1 Silver Futures Contract than you do in maintaining (1) 2 Year Note futures contract.
FAIR AND BALANCED....
How does the volatility of the two products compare? That seems to be the relevant question.
tmosley....are you aware that MORGAN STANLEY purchased $8 trillion in Interest Rate Swaps in Q1 2011? This may be part of the reason why they are in so much trouble. Anyhow...this buying of interest rate swaps gave the market the ILLUSION of a continued strong bull market in US Treasuries after the downgrade.
The governent is hiding VOLATILITY in US TREASURIES by the huge bloated interest rate swap market. 85%+ of all derivatives are interest rate swaps. With that kind of leverage and hedging...it's easy to see why at face value the US Treasuries are less volatile than silver.
Who on earth had that much debt to swap? And how on Earth can Morgan Stanley possibly have that much debt to start with?
I know very little about this market, only what I have read on the wiki, and even that is difficult to understand.
tmosley....Rob Kirby explains it all in detail with great graphics and links in the article below:
Derivatives: A Capital Markets Gong Show For Whom The Bell Tolls
http://news.goldseek.com/GoldSeek/1309532700.php
and actually I understated their increase in derivatives that quarter. It was not $8 trillion, but $9.1 Trillion
tmosley....Rob Kirby explains it all in detail with great graphics and links in the article below:
Derivatives: A Capital Markets Gong Show For Whom The Bell Tolls
http://news.goldseek.com/GoldSeek/1309532700.php
and actually I understated their increase in derivatives that quarter. It was not $8 trillion, but $9.1 Trillion
good article (s)
How Trading and Performance Bonds/Margins Work: An Example
Suppose a trader established a position to buy (go long) a September E-mini S&P 500 futures contract on June 13, when the contract was trading at 1050.00 points [This number is for demonstration purposes only – it is not meant to reflect the current value of the S&P 500]. Suppose also that CME at the time required an initial performance bond of $4,000 to trade that contract, with a maintenance bond of $3200.
If the price variations of the contract bring the account balance under $3200, the trader will have to deposit additional funds to bring the account back up to $4,000. The trader’s potential gains and losses change each time the settlement price of the contract changes, with the final gain or loss determined when the trader either offsets the contract by selling it, or when the contract expires.
http://www.cmegroup.com/clearing/cme-clearing-overview/performance-bonds.html The current initial margin is $5,000 and maintainance $4,000. For stocks, S&P5 500 and E-minis trade on the CME. SPY on AMEX. DIA on NYSE.Holy Moose, this is a rather "interesting" read:
Some former customers of MF Global Inc. (MFGLQ) scrambled Friday to sort through newly unfrozen funds--and awaited word on whether they will have to put up additional capital to back their market bets.
http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=20111104...
That would put your balls in a vice. Sure instills confidence in the system. not.
Groucho says the magic word tonight is:
DE-LEVER (the goods)...send it in to Mr. Potter. The wonderful life needs refreshing.
http://www.reuters.com/article/2011/11/04/us-berkshire-idUSTRE7A37B62011...
Berkshire Hathaway Q3 profit falls on derivativesIf this is true, does it mean PMs will pllummet as everyone scrambles to sell since they cant meet their margin call(s)?
I got lots of dry powder waiting for a day like this...
Me too. I sold on the euro-rip spike, and have been waiting for a MFD.
Meh, there is a certain security in holding PMs in your hand. Last PM order I made took forever. If there is a crash because of this, I'm guessing it'll be hard to buy physical, let alone for the paper price. I spent this morning loading my magazines. Talk about calming and inner peace.
Last PM order I made took forever.
Delivery time is a coarse, but decent indicator of the stress in the markets. I've been taking delivery of PMs for years from a handful of dealers, and have noticed since about Feb/Mar of this year that the delivery time for almost all of them has extended, some significantly. A couple times I've gotten delivery about 3 days after a smackdown of the paper price, which causes me to wonder how healthy their inventories are.
Agreed. I own some speed loaders but find it much more relaxing sliding those brass, copper and lead little beauties over and down the follower. The compression of the spring is a music in its own rite. I wish I were more poetic so to do proper justice to the ceremony of the prepper.
Agreed Cossack. Nothing like the click clack sound (and serenity) of loading 7.62 ammo into a 40 round mag.
Fun to stack those too
Physical PMs may be going on sale - if you can find a dealer willing to sell it when the spot/futures gets monkey hammered.
www.pmbug.com
I'll have a lot more dry powder when I cash in my shorts on Monday.
Bye bye gold the deflation monster cometh
Central Banks use gold to leverage their trades. You take gold down and the Fed has that much less under assets. Can the Fed aford a margin call right now?
Maybe gold falls $35 on Monday. So then it evens out on Tuesday. Watch a mid week bounce, and then at the end of the week it goes apeshit as everyone realizes no one has the physical.
Central Banks use gold to leverage their trades. You take gold down and the Fed has that much less under assets. Can the Fed aford a margin call right now?
Maybe gold falls $35 on Monday. So then it evens out on Tuesday. Watch a mid week bounce, and then at the end of the week it goes apeshit as everyone realizes no one has the physical.
Which economic textbook defines deflation cometh as "a mercantile exchanges manipulation of position limits on futures contracts"?
Stagflation is the best we can hope for kitco. Hyperinflation would require bigger cajones than Bennie boy has shown yet. It would kill banks and the welfare state if repudiation ocurred. Central banks and governments will allow starvation and deflation if necessary to save their fiat. They have no power without a fiat system.
why is this false dichotomy constantly trotted out?
Governments in the 20th century went hyper in abundance; big countries. Rampant inflation was the rule, not the exception. Places like brasil, italy, you name it. They have the fiat because they have the guns. The FRN is meaningless when you can issue FRN2. You guys keep acting like the FRN is sacrosanct. Brazil is on its 3rd currency in the past 20 years and I know people who grew up there during this. They have old pictures on facebook. Guess what, they are SMILING. They are not stacking fucking ammunition and living like fucking zombie apocalypse in The Road. They had ordinary lives and friends and did shit with themselves.
Nice false dichotomy you have there yourself. One can't be prepared AND happy? One is either living a "normal life" or they are "living in a zombie-proof bunker"?
But then, you are totally miserable, so I guess it is understandable that you can't understand how anyone else could possibly be happy while also knowing what you know. You think your misery comes from knowledge, when in fact it comes from your personality.
prepared for WHAT, moron? A future that ISN'T COMING?
You're NOT prepared; that is my fucking POINT. I should have spelled it out more clearly so that even an idiot of your calibre might have had a shot at grasping it.
Two words: Carrington Event.
Which future does the great and mighty Trav proclaim is not coming?
What does the future look like, o wise one?
In order for the Bernank to allow deflation, he would have to allow depositors to lose their money, leaving physical cash to maintain some value. There are absolutely no signs that the Bernank will allow granny to go to the bank and not get her money.
If your market maker doesn't close your account first.
Roger that -- hand over fist buying to commence once the elevator heads down towards that $26 support line for SLV if it gets that far
Perhaps, but which group of traders has been conditioned to weather margin calls while everyone else has not? You might see PMs fall, or they may even rise, but you would certainly see everything else plummet. There are unintended consequences to playing the margin hike game too much, and we just saw that with the iron floor below gold at $1600, and we may be seeing the same result at $1700 because it's looking pretty strong too. If you beat a dog over and over, you just make a tougher, meaner dog. They have been beating gold traders for a decade, and the dog smells blood.
I wish that big dopey Kiwi cadd, who had worked for Tiger Woods, would shove a belly putter or 3 wood up Warner Beffert's arsehole.
Mother Fucking Global panic, bitchez.