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CME Issues Clarification On Margins: To Usher More Risk, Less Liquidity In MF Aftermath
Yesterday, in what is the worst-phrased and most misleading press release to ever come out of the CME, the exchange issued a notice that going forward all Initial margin would be equal to Maintenance margin. Our gut interpretation was that "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." Judging by the broad response, our initial reaction is what a prudent, logical human being would assume: after all, it is precisely the undercollateralization of customer accounts, and general underfunding at MF Global that is what brought that particular company down. Well, we wrong wrong. The CME, it appears has taken a page right out of the European playbook, and less than a week after an exchange-cum-Primary Dealer collapsed due to excessive risk taking, the CME has followed up its vague press release from yesterday by inviting even more risk in lowering the initial margin. Why is this a cause for even greater concern? As the CME itself says, "Initial margins are set to provide an additional buffer against future losses in the account" - so going forward that buffer has been reduced by about 30%. But what is the reasoning provided by CME: "The intent and effect of these changes is to decrease the size of any margin calls resulting from the bulk transfer of MF Global customers to new clearing members, not to increase them." So basically the CME is implicitly putting all of its existing and current clients and customers at further risk by onboarding the accounts of those clients who, like lemmings, held on to their MF Global accounts until after it was too late. Because while the lower Initial margin may apply to MF accounts, it will also apply to any Tom, Dick and Harry beginning Monday, who will suddenly see a 30% reduced gating threshold to put on a position. Any position, no matter how risky.
Naturally, if enough people suddenly jump to put on risk, and the market flips and all new positions end up underwater, who will bail out CME accounts if, like MF, there is just not enough capital on the balance sheet? MF Global?
That the CME has opted for this highly disturbing path is very troubling, and just as in Europe, where three months after the financial short selling ban, financials are trading lower than they have ever been, so the unintended consequences from this action will result in even greater stress to the system, as not a single local will leave any excess money in their account, and likely will force all specs to trade within a hair of triggering maintenance margin, due to fears of what may happen at the CME itself, now that is has implicitly onboarded moral hazard from the otherwise insolvent MF Global accounts.
It also means the systemic liquidity is about to drop to even lower and more depressed levels.
And completing the symmetry with the recent action out of Europe, we learn that said Initial Margin reduction is a "short-term accommodation" which will apply until further notice. As an indication, Europe has extended its short selling ban several times and likely will keep it until the bitter end. We expect nothing less from the CME, where the new benchmark will be one of even greater initial position leverage which is what this margin reduction effectively accomplishes.
Yet what is most troubling is the complete lack of care to the wording ot the initial press release, as if it was thrown together by a 1 month intern who had heard his boss scream something at them from the conference room. That an event of this systemic importance requires not one but two releases, which still leaves many questions open (why does this apply to non-MF accounts? How long will this last and why it is open ended - after all the MF onboarding is a several day event at most? What happens to new non-MF initial trades which cover just initial and immediately see margin calls as maintenance is breached due to the lack of a 25% initial buffer) is by far the most surprising, and unfortunately leads to questions about both the CME's professionalism and competence.
Here is the CME's clarification.
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more risk and potential infinite liquidity but
the distribution is skewed, perspective is everything.
infinite liquidity but the liquid has changed phase and
become gaseous?
i think einstein said something like that? ( re perspective )
the phase thing would go to boyle..
"For a fixed amount of an ideal gas kept at a fixed temperature, P [pressure] and V [volume] are inversely proportional (while one doubles, the other halves)."
.
the temperature is rising, the volume is decreasing and the
system is the container itself.
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[KR206] Keiser Report – Financial Rape & Pornography
We interview James Howard Kunstler about Jacobin uprisings.
http://maxkeiser.com/
....
discussion of reestablishing law in money matters. hahahahahhaaha ...
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Sex, Lies, and Subprime Mortgages
The sexual favors, whistleblower intimidation, and routine fraud behind the fiasco that has triggered the global financial crisis
By Mara Der Hovanesian
11/24/2008
http://www.businessweek.com/magazine/content/08_47/b4109070638235.htm
Could be this garbled communication from CME is the end product of the long week of compounding panic.
The canaries are gasping for air..
Probably 'cause they're trapped in positions where the only alternative is to hedge while the trustee(s) decide who gets what. CME is throwing them some Primetene Mist.
Starting to look like market-neutral to mildly bullish, however the CME release scared me last night and this AM. That said, TD ran a reasonable story based on a logical reading of the poorly worded CME announcement. In the recent past, margin adjustments have had an upward bias, liquidity worries have escalated, MF has had unknown impact on CME books, counterparty risk is the watchword. ZH does a good job. I rely on this site as one of the few viable alternatives to sickening MSM propaganda.
It will be fully forgotten by Monday open, 30 other market stories overlap it by then.
Keep in mind that the initial Margin MF was charging was shown to be as much as twice, and in some more than twice required.That could explain the below clip:
lowering the initial margin. Why is this a cause for even greater concern? As the CME itself says, "Initial margins are set to provide an additional buffer against future losses in the account" - so going forward that buffer has been reduced by about 30%.
So ..... no matter what they did, you are against it? Or think its not the right thing to do? Correct?
100% Incorrect
Raising maintenance margins would have been the right thing to do in this macro environment (yes, MF global filed last week) as it demonstrates prudent risk and capital management in light of a deteriorating overall liquidity environment. That was the whole point of the post, as well as commending the CME on realizing it. Granted, those who are massively leveraged would have been impaired but that is certainly a risk of the game.
Today's follow up, if you actually were to read the post, confirms that the exchange not only did not grasp what is going on, but as was noted, is transferring risk from one entity to another: from MF to each of its clients and customers.
I agree but not if you approach it from the perspective of someone who knows that to do such a thing en masse would cause liquidation of the entire debtmoney system in relatively short order.
The existing credit base cannot be repaid with future growth because that growth will not exist absent a quantum leap in energy inputs (IOW, another doubling), but in the meantime, what do you expect the bankers to do, accept reality? Nobody likes reality.
You most especially, it seems, with your constant recycling of half truths and misattribution of quotes taken out of context, or flat out lies about the context.
Dude: I've just been set free from the county correctional facility where I spent the past few months atoning for smacking my girlfriend around. You sound just like her. Man, I missed ZH. Recycling half truths is all that bitch does. That and blow the neighbor while I was at work.
Feminism is a failure that has damaged and destoyed more men and families than Hitler. That's an exaggeration but you get my point. While I don't believe in domestic violence, I fear the reprisals that are inevitable when this system collapses and the authorities can no longer act like nanny state idiots breaking the natural law that men have domain, not women. God made man bigger and stronger than women for a reason - you are the one in charge and are responsible - not them. As such, you should always be able to control yourself and never use your physical means against the weaker sex unless she attacks first.
In any event, you get to laugh your ass off at her having prepared for economic doom while she isn't. So you win in the end.
breathtaking.
you should get some disinfectant & band-aids on those knuckles toot sweet!
And you should read the Bible.
why? why on earth would I want to entertain a myth that degrades me as a human being? if you're an example of Bible-believer, you're a poor one that certainly doesn't live up to the "values" your god prescribes.
why on earth would I want to entertain a myth that degrades me as a human being?
Because it corrects the lie that Feminism has fed you. Feminism is the one degrading you, into a role you were not designed for. That's why you are always unhappy (go ahead and lie to me, but I know the truth - inside you are a mess - which is why you are combative and angry).
The truth awaits you, if you dare. Most do not have the courage.
The rest is up to you. There is no point in talking to you further, so I will ignore any replies you make.
Please tell me that you are joking
Heh, ghod forbid they should ever realize this but JLee and his ilk have more in common with some interpretations of islamic sharia than I bet they'd care to admit.
@ CA: you should read both old and new testaments. They will reinforce your convictions about the religion, rather than bring them into question as JLee asserts. Unless of course you're six years old and still want to believe in 'magic', or you seek a martyr to foist your regrets/fears onto. Or perhaps you simply want the license to behave however you wish; comfortable in the dogma that no matter how heinous your actions are in this lifetime as long as you truly repent on your deathbed all will be forgiven?
That said, the secular humanist values that the new testament attempts to appropriate for christianity are entirely valid, although inherent to humanity and not the property or invention of any religion. If the christian extremists like JLee here ever actually do embrace them, instead of wilfully ignoring the parts that are plainly contrary to their hatred and prejudices, the world could indeed be a much better place.
But I'm not holding my breath. Not while the likes of him 'doesn't advocate domestic violence' but will, out of fear for his own person, still implicitly support worthless cowards like Alabama 'Man' up there.
GoinFawr
I don't know who you are or why you feel it's necessary to jump into this conversation, but that is some awful and wrong advice you've given.
Please explain why this is your business.
Does my belief in "magic" as you call it somehow threaten you? Why would you be so afraid of "magic"? Unless of course the "magic" will bite your ass at the end
of time and you fear that so you must respond and try to discredit me. Would that be the reason?
Well, I guess that answers my first question.
"I don't know who you are or why you feel it's necessary to jump into this conversation, but that is some awful and wrong advice you've given."
I don't know or care who you are either, but anytime someone makes such patently regressive statements as you have someone else who is reasonable is bound to step up and say something; I just happened to be around. IE It's everybody's business.
Did you actually read my comment above? Your ego has mistaken all that is pertinent in it for impertinence.
'Awful advice'? Hunh. Same as you I advised CA to actually read the book(s) you think are so special, and I noted that they express some decent values that can be appreciated by anyone, anywhere, anytime. And you have a problem with that? If you're so confident that reading your 'glorious word' will bring people around to your faith you should be applauding me, not whinging about how what I write might make you look.
"Does my belief in "magic" as you call it somehow threaten you? Why would you be so afraid of "magic"? Unless of course the "magic" will bite your ass at the end...of time and you fear that so you must respond and try to discredit me. Would that be the reason? "
All believers threaten non-believers, it's what they've done throughout history, often with violence. Which is precisely what makes religious extremists of any stripe dangerous, especially when they harbour an outdated fundamentalist interpretation of their faith that they feel compelled to shove down everyone else's throats. Which is why it is far better for the religious to have an idea rather than a belief. Ideas can change, beliefs people will kill/die to defend (h/t to Kevin Smith). If your rabid belief 'bites my ass off in the end', will you zealots really shed a tear for me? No, I'm not afraid of the 'magic' at all; why would I fear what doesn't really exist, in my opinion? Violent fanaticism on the other hand...
The reason I responded negatively to your backward, paternalistic misogynistic machismo should be self evident to anyone born after Boadicea. I don't need to discredit you, you're doing a fine job of that all on your own.
but anytime someone makes such patently regressive statements as you have someone else who is reasonable is bound to step up and say something;
Laughable. But you fear "magic"? And claim you are reasonable. If you are "reasonable" you would not jump into someone else's business.
All believers threaten non-believers...
Laughable, self-reinforcing circular logic to protect yourself. The rest is not worth reading.
No more replies to you! And if you come back as someone else again, no more replies to them either! Conversation OVER.
Suits me. It'll save time having to read less of your narrow-minded, misapprehending claptrap. Don't think your obstinancy will stop me from pointing it out though, as this is not your own private forum so no one requires a written invitation to call you on it.
The existence of 'violent religious fanaticism' is not 'magical' in any way, it's just frighteningly ignorant, cowardly, atavistic, and disgusting; like your attitude towards women.
Entire shit house of paper fiat topples. If now when? Perfect window for chaos to go berzerk and goons step up with a new plan to assist us sheeple. Like bretton woods II, closing the gold window aug '71, QE to infinity and the like which takes the USDinker to zer000000000 buying power eventually. Why not put on the brakes now and purge the system? Has to happen at some point. Flush the whole corrupted ponzi and blame it on martha stewart.
Modern finance: where "No" means "Yes"
soooooo..
more leverage?
that is bullish!
20k stock market here we come!
10 year @ -0.25
monetary base growth of anohter 300%+++.
http://www.youtube.com/watch?v=2vIGazA67rU
enjoy the song!
I actually like this! I can't wait to start trading tomorrow evening!
Same as 1939! Yea everyone jump in on full margin! Its all good, after all it can only go up, right?
The CME is smart. There is nothing to worry about here. You complain when margins go up, when they go down, you just complain. Please show some professionalism as this is good for everyone.
Why is it banks have almost no "margin" requirment (as in reserves) and the average Joe is alway sbeing tooled by the CME?
Why is it Blankfein and associates are reimbursed for thier losses and yet the avergae Joe is not?
Why can't the average Joe go to the Fed window and grab...ooops, I mean borrow a few hundreds bucks at 0.00% interest.
Odd times...
Why?
Haven't you been paying attention?
Because the game is rigged in the house's favor.
Just like any casino.
That's why.
And there I was last night, thinking that the band on the Titanic had stopped playing for the current round of 'musical chairs', and that CME had grabbed the first chair. Now I'm thinking that CME sees little tufts of wool growing out of the backs of MFG sheep-entele and are getting the FNGs prepped for another shearing in the near future.
I think that the decision was abitrary without much thinking. It could even be that the secretary of treason and the chairman of the fraud have called and asked for this type of action to boost the stock fraud market.
Ahh man, after the last post about the margin hikes i went to the coin shop and sold half my silver. hoping it would crash so i could double up what i had. you know, go back and buy some more with what i cashed out in hopes of getting more. oh well, i can still get it back.
Zerohedge should be ashamed of itself for YET ANOTHER world is ending call which turns out to be nothing at all.
The bearish scenario is quite possible here, but seriously, objectively zerohedge is 0/100 for uber bearish calls.
Having predicted 10 out of the last 2 market calls this site should be renamed http://www,zeroedge.com
Hey dipshit, go read the original posting and tell me where exactly a call was made that the world was ending?
wtf.gov my penis is itchy - can you lick it please ? Please explain how it makes me a dipshit to disagree with you? Why are you so upset? Somebody has to take the other side of your trades right?
Surely an article "CME goes to DEFCON 1" is painting a bearish picture, right?
Do you actually trade with real money?
zerohedge consistently takes the uber bearish spin on every piece of news, consitently extrapolating the worst case scenario from every possible event.
Real traders know that bias is the enemy of real world results. Sifting the news for potentially bearish items, and chanting "the sky is falling" is the definition of bias.
You sir, are a fuckranaut. An astronaut, travelling to the planet fuckhead.
Why are you here, then? If you don't like ZH, the Yahoo boards await you with open arms. Not a bear or a doomsayer among them.
yes, yes, ZH should become a fucking echo chamber full of selection bias, shouldn't it? That would please assholes like you, right?
If you don't LIKE THE ECHO, then leave, right? Fuck that and fuck you.
TYLER - BAN THIS STUPID S.O.B.
Which one?
Convictscott - you are dishonest here. ZH articles do no such thing. Some of the commenters may but Zh just presents the data and scenarios.
Maybe Marketewatch would be more to your liking. Everything is rainbows, unicorns and candyfloss.
I don't disagree with your assessment here, but you also personally got fucking owned on every single one of your recent calls over at evilspec. So perhaps you might also be best advised to STFU immediately, and instead of spewing out logorrhea, let the real men trade while you watch and learn from the sidelines. Or not, and lose more paper. Whatever your fancy.
i liked it better when we had it wrong
just be patient....it will rain again ...
btw, great comments!
The problem with the original CME notice intrepretted in the most logical way is that it was quite possible and believable.
There is no crazy or sane action that can now be ruled out by TPTB as they make shit up as they go along to keep the balls in the air. So in the end what they were really intending was to invite more passengers onto to the Titanic. Though I tend to agree the original release was deliberately misleading either to increase acceptance of the genuine intention or to gauge market reaction.
The CME inadvertently gave us all a free life-boat drill. When TPTB do decide to move to 'resolve' major issues the consequences will occur so fast and be so accute that you wont have the luxury of time to sort yourself out. It wil be a now you see it now you don't, Wylie Coyte just looked down.
I'll go with that, with a couple of caveats.
First, although the 'balls in the air' analysis is true, nothing is inadvertent in this street theater. Spontaneity is not these morons' strong suite. It the hot air of Bernak and the DC political shills that hold those balls up, not any true talent for juggling.
Sometime in the last 6 months or so, ZH got weight with the criminal class. Take a look at the reads for yesterdays Defcon 1 piece. Thats a lot of lookins, u can feel the biteback -it's like a certain bunker in East Berlin, and all those comic Hitler rants that get put out on the Tube are happening livetime, somewhere in the continuity of government quarters of the Washington-Brussels Axis of Weevils.
My take is this: just like any in any wartime scenario, it's essential to probe the opposition positions. The CME release, with it's vagueness and multiple interpretation potential was crafted by the best minds your tax money can buy. They need to know what level of awareness and resistance there is to their strategic plans to strip assets from the private sector via a stealth program of incremental petty theft. And ZH is now the best place to gauge the weather.
The Wiesenthal headline proves the point. For those who might scoff at the notion that TPTB would be influenced by a mere blog, it's time to take off the dunce cap and put on your tin foil hats!
I believe that TD was caught out by this event, and todays' postmortem explanation is one of the weakest arguments I have ever read by him\them. That doesn't decrease my respect for the site one iota however: you are correct about them wanting to get more suckers aboard the sinking ship BUT ALSO -
the psychopaths running the show in Euro-merika are so pathetically insecure as to obsess upon their enemies to the extent of creating a scene to lure ZH into looking bad. If can't kill the message, go after the messenger.
That ZH qualifies as "the main enemy" at this point is testimony to the collective power we have gained here.
Also the original CME release gave the opportunity for ZH to discuss and role play/game plan the consequences of such an action, which was quite illuminating and valuable.
Maybe ZH should have its own genuine Life boat drills in the future just for the purpose of getting commenters to game plan certain possible actions of TPTB.
There is a bigger problem here.
Thing is it's not just MF Global.
The Derivative Death Star is imploding.
http://www.eikongraphia.com/wordpress/wp-content/DeathStar.jpg
Hal 9000 sings Daisy
http://www.youtube.com/watch?v=OuEN5TjYRCE
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HAL 9000 Interview
http://www.youtube.com/watch?v=Zf2lBfb1vXI&feature=related
.
I think that the CME either from the Whitehouse or very powerful financial institutions was told to not do what they where going to do. I read the article yesterday about the margin and compared to that day and today, it truly is alarming. They don't explain why the essential 180 (which I believe they where told to do). Them changing this tells me that there are alot more MF's out there (starting with Jeffries) that are to close or over the margin and anything that moves any small percentage will make them insolvent. Also another one might be that coming up with that 100% on margin would have seen massive liquidation starting Sunday in Europe and Asia and into the US.
the confusion in the interpretation was confusion about what is prudent for the macro market and and what is prudent for some very special players. this is another "market based" bailout. the market blew up some special friends so the cme decided it was prudent for them to bail out their special friends making everyone in the market share the risk when the whole market blows up anyway. it is a specific kind of kick to move the can down the road a bit further, like rolling the can back, then sideways to the other foot to avoid an obstacle.
DJIA will raise 300pts on Monday at least.
Wow. Handbags at 20 paces.
Jeez. People make mistakes. Deflate your egos and get over it.
Yo ZH, can we have the option to sort posts in reverse order? It used to be there. It'll mean that there will be less of the handbagging, as newer posts with more up to date info will be sorted to the top, and the long misdirected threads will be less likely to happen.
No.
Sacrilege is too busy making the Tyler Durden Ballon for the Macy's day parade.
I would like to see a forced anonymous system, so that ideas and arguments stand on their own, and egos have fewer methods to be inflated.
Our gut interpretation was that "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."
Dan Norcini came to the same conclusion in the KWN Weekly Metals Wrap yesterday.
This has the feel of a set up to me - the next time they want to smash down paper price of gold and silver, all the weak-handed speculative longs will be a hair's breadth from the first margin call.