Are We About To Reach That "Margin Call" Moment, Again?

Authored by Mark St.Cyr,

Over this past weekend the movie “Margin Call” (2011, Lionsgate™) made its way back into the rotation on my cablebox.

For those who have never seen this movie, regardless if you are involved in stock trading, it is a must watch on so many levels, be it general business, corporate leadership, department interactions, skullduggery, familial, as well as personal backstabbing, the list goes on. It is absolutely loaded with a plethora of take-aways of the real-life-lesson variety. I say this because I have been involved around, in, as well as been at the receiving end of the proverbial “poisoned dagger.” Not on Wall Street, but within other fields.

I can tell you with point-blank certainty that many of the situations and scenarios contained, or played out in that film, are applicable (as well as happen in-kind everywhere) to getting a condensed lesson in what happens in real-life at the top of the game of business. i.e., When you’re playing for, “all the marbles” as they say.

Margin Call was nominated for an Oscar®, in my view, not only should they have won, but swept them. But that’s just me.

I’ve written about this movie before using one or two scene constructs, then applying what was addressed to today’s “markets” or business environment.

There are many scenes within this movie that people think (as well as believe) would never happen in real life. Yet, I’m here to tell you, not only do they, but many of those scenes I’ve witnessed, near script-like, in other situations during high dollar/value negotiations or situations.

The boardroom scene played out by Jeremy Irons (John Tuld) when he addresses one of his underlings as to tell him what is concerning him and to explain it in plain english, or as if he were (paraphrasing) “…speaking to a young child, or golden retriever” is just one. And is far more true-to-life than many may realize, let alone understand at first glance.

In other words: No jargon, no formulas, no big words, no bullsh#t. i.e., “Tell me so that even my dog would understand.” Trust me when I tell you, again, there’s far more real-life contained in that entire exchange than there is movie fiction. The entire movie is an allegorical lesson for life at the “high stakes” table. And those of us that have been around a bit, and played on those higher levels, agree. (via my own conversations with others)

The ruthlessness, along with the soul-dead responses portrayed and played out in other scenes, is far more true to life than fiction. Which brings me to the reason why I felt the need to elaborate on it today.

Over the last few weeks I have been barraged from friends and colleagues asking me for my interpretation of what is currently taking place in the “markets.” The questions have all had the same underlying theme, i.e., “With all this good (earnings, tax cuts, N.Korea, and more) why are the “markets” not higher?”

When I probe them a bit what I’ve found, almost to a person, is the reason for their consternation is they’re trying to wrap their heads around what the mainstream business/financial media is propounding and what the “market” is doing. Which for all intents-and-purposes – has been nothing. i.e., We’re now in May, and the best the “market” could do after all those “fantastic!” earnings was get back to break even for 2017.

When I repeat the same answer that I’ve been trying to in grain into their reasoning for years, many of them seem to still not want to hear it. And others just don’t. After-all, if it was purely the Fed. they muse, that would mean everything is a mirage. And they just don’t want to make that leap.

It’s understandable, it’s a very hard concept to understand if one doesn’t want to undertake the due diligence themselves to incorporate all the potentialities. But that doesn’t mean those potentialities are not there!

As of late my go-to response, as to back up my assertions, has been the following:

“What you need to realize is this – If I were wrong and they were right, then the “markets” should at the least, be at, or above the previous high water mark.

But what seems to be playing out is the exact opposite, in other words, I’m correct and they have been selling you smoke-and-mirrors. And what’s really concerning you, is there are cracks forming everywhere that you seem to be aware of, yet don’t want to consider. What you seem to be asking for is another mirror, or more smoke, as to just pretend it’s not happening.

Again, what you seem to not want to ask yourself is the fundamental question, which you should, and that is: Is it not funny how this all is happening – with near precision timing – now that the Fed. has reversed course?”

Which brings me back to the movie, because it is their response that is the most troubling. That response? “Well, that just means the Fed. will step back in as they’ve always done, right?”

The answer (and I’ve given) to that question is: Yes, no, maybe. And, at what level? And, will it work? And, if not, then what?

Many (as did I when I was younger) don’t entertain, let alone fully comprehend, just how separated and detached many view their positions when it comes to the human toll that can result via those very decisions. It happens in politics, business, and yes, even families. But right now I’m speaking directly to “markets” and we have a very real-life expression taking place as to show anyone who cares to look, just how detached the people “in charge” (e.g., Federal Reserve) are with any perceived “concern” for your money, investments, et cetera. To wit:

An “Audible Gasp” Was Heard When The Chicago Fed Unveiled Its “Solution” To The Pension Problem

“An audible gasp went out in the breakout room I was in at last month’s pension event cosponsored by The Civic Federation and the Federal Reserve Bank of Chicago. That was when a speaker from the Chicago Fed proposed levying, across the state and in addition to current property taxes, a special property assessment they estimate would be about 1% of actual property value each year for 30 years.”

Here’s what I opined in April of last year for the possibility of what was more than plausibly on the horizon. Again, to wit:

“Are 401K Holders About To Feel A Savers Pain?”

There’s an old truism people forget all too often. It has many variations and is attributed to even more, its core meaning goes something like this:

“If the government can give it to you, than it can also take it away.”
Some of you might be wondering if I’m talking about the current “tax” advantages that have made these vehicles so popular over the years. To that I’ll say no, not at this current time. But I feel that will be the least of worries coming down the pike in the not so distant future.

No, what I’m directly addressing is what is now emanating from the one and only non-government, privately held institution, directed by a consortium of non-elected, Ivory Towered, policy wonks: The Federal Reserve.

And those emanations are anything but 401K holder friendly.

If you combine the latest discussions emanating via Fed, officials, along with current gyrations within these “markets,” what you have is the resulting amalgamation of policy wonks channelling the Sorcerer’s apprentice, tinkering with spells and devices they have no true fundamental understandings with (e.g., all academics) all seated around a “monetary caldron” known as fiscal policy. And the resulting fiascos are beginning to show.

The real trouble with all of this?

People, far too many ordinary, as well as well-intentioned business leaders think or believe – they actually care about what happens to you, your family, or your business. Hint: They don’t.

Well, not from their position of power, that is.

The above scenario that played out in Chicago, just days ago, should be signal enough to drive that point home. For some it may be their first realization, and I get that. Yet, nevertheless, for those trying to pay attention, the clues are far too obvious and blatant to be ignored.

So I’ll end here with another scene from the movie Margin Call, which I believe sums up how one should interpret precisely how the Fed. views the possible collateral damage it may wreak amongst the populace via its monetary policy decisions.

In the beginning of the movie as the firm is getting ready for what will be unannounced, immediate purge of employees, Paul Bettany (Will Emerson) makes his way to Kevin Spacey’s (Sam Rogers) office to try to console him, where Roger’s is visibly holding back tears.

The initial reaction for thinking that this sudden jettisoning of personnel, without any notice, must be troubling him to his core with what will obviously be a true gut-wrenching shock and ordeal of work, life and monetary upheaval to those being jettisoned. The obvious conclusion or assumption is that this must also be taking its toll on Spacey.

The twist comes when Bettany is told that the reason for the tears is not for the sudden human toll the company will now systematically doll-out across its employees. No, the reason for the tears are because he just got some truly bad news: His dog is dying.

Hint: Your 401K, your savings, your home, your business, your __________ (fill in the blank) are a lot of things, but one thing it is not, is this: Anything they’ll (The Fed.) shed a tear for or over.

And the proof of that statement will be made manifest in the “markets” as we continue the year. And if you want any further proof in that?

Just ask any savers, retirees, or others over the last decade how many tears the Fed. shed as interest rates were cut and held at the zero bound. Hint: 0

Comments

johngaltfla glenlloyd Tue, 05/15/2018 - 17:54 Permalink

Most people and fans of "Margin Call" and "The Big Short" were left with the impression that all of the crap that went thermonuclear meltdown in 2007-2008 was banned or eliminated.

Then again, there are a lot of suckers that believe the bullshit propagated by BBGCNBSFBN also.

The truth is nothing has changed and this time, it's all of our asses when it crashes as the final backstop is your personal property.

In reply to by glenlloyd

Yellow_Snow Tue, 05/15/2018 - 13:16 Permalink

'Margin Call' is a great movie...  but there are so much reasons, without being a conspiracy theorist, that demonstrate that this current financial system is doomed...

In 2016, I decided to completely exit their 'system', and reinvested everything into crypto and blockchain tech...  there have been (mostly) ups and downs...  but the satisfaction of knowing I am out of their 'system' of fraud is priceless...

Endgame Napoleon Yellow_Snow Tue, 05/15/2018 - 14:25 Permalink

He made me want to see the movie, although some say things get the meanest when stakes are the lowest, like in cat-fighting call centers full of moms with unearned income from spouses or government, covering their major household bills. 

Stand back—holding your impenetrable shield, manufactured with Made-in-America steel—when those low-earning mommas unleash their pit-of-hell methods for bullying out the non culture fits. 

All too well, at this point in life when it does less good, I see the point about the gap between how things actually work in the world and the hype in business and in government.

The world ‘is a stage,’ but things do not go down according to the set director’s plan among the players in the magical markets or in the [perfect] social-engineering projects of big government.

It does not happen like the true believers on the left and the right claim for one reason: flawed humans control the whole thing.

And those humans are mostly indifferent to anything but their own set of circumstances. It does not matter whether it is the pinnacle of Wall Street or a Main Street in a country town.

People in charge, or people with the winnings, mostly just don’t care about the myriad injustices in the system unless it hits them, but a few of them get a tingle of sadistic joy from needling those who get the short end of the stick. 

You think I liked it when, after 5 years of cutting personal expenses to the core and struggling to pay back a business loan, my ex and I finally got it paid off, and a momma with a bigly-cubed divorce settlement pranced into the shop, announcing haughtily that she just wanted to let us know that she was putting a shop steps away from ours.

Pausing to savor the reaction that she thought I would display, she made that completely unnecessary announcement. I would never have walked into someone’s shop to extract some kind of pleasure out of something of that sort.

This was a niche-market business in a minuscule town, with an overload of competitors struggling to survive in that little town, and she knew that even a small loss of customers would nullify a chunk of our hard-won profits. We had to live on what that shop made. 

She, on the other hand, had many hundreds of thousands in unearned income, and as result, she closed her shop a ton to indulge in mom-pampering activities. Her work was also slovenly, and her shop closed quickly. 

Darwinian indifference does not shock me like the superfluous glee that some nice-family people get from flaunting injustice. They play games with the losers just for the **** of it—just because they can.

It happens in workplaces, too, along with the vast stretches of self-serving indifference.

My theory is that, if the dispensers of injustice strut around and say outrageous stuff when bullying out someone who has met the sales-generation and account-retention numbers every month with zero days of absenteeism, because it distracts from their back-watching gangs of frequently absentee non-quota-meeters, which is often the real reason for office-job cutthroatery.

Churn and burn is what they call it. Use them and lose them. Nothing matters to babyvacationing managers but the overall numbers, and they can always find more hardworking quota meeters in the fields where I am qualified to work.

So, they use you to bump up their numbers and then churn you, keeping the absentee crony parents who watch their backs. They’ll churn the few hardworking parents just as quickly. They probably regard them as competition for the management job, whereas the vast pool of give-a-care, frequently absentee moms who can afford to work for less pay due to spousal income, child support that covers rent or welfare and refundable child tax credits up to $6,431 help them cut their labor expense without competing with them. 

It does not work as sold. As long as a few churn-able chumps are churned, it works for a few in the top slots, along with the least hardworking underlings in their back-watching pack. That is how it really works. Okay. No need to be extra nasty about it, though, yet quite a few of these nice parents-in-charge, with their desks plastered with cutesy baby pics, get a kick out of being b*****z. I have thought exactly the same thing, time after time, asking myself how life could be worse than movies that satirize life. Maybe, these office b*****z are trying to outdo the movie stars. 

In reply to by Yellow_Snow

snblitz Seasmoke Tue, 05/15/2018 - 14:02 Permalink

Odds are your gold is doing great. The longer you hold it the better it will perform.

Say your gold goes to $10,000 an ounce.  Has your purchasing power gone up?  Or did housing, stocks, and food go up a comparative amount?

Many people think they are rich because their "investments" have gone up as measured in dollars.  However, often their "investments" have not gone anywhere in terms of purchasing power. 

Calling something an investment because it is measured in a currency that it losing its value is a fool's errand.  "Investments" should be things that increase your purchasing power.

To validate all this all you need to do is look over a slightly longer time horizon.

https://www.finitespaces.com/2018/05/05/why-stocks-housing-and-gold-are-not-really-investments/

 

In reply to by Seasmoke

gdpetti snblitz Tue, 05/15/2018 - 16:56 Permalink

Yeah, gold is doing the same as it did last July and Dec.... same pattern testing the lows.. punching down to see who they can screw over and collect the sell orders, then it pops back up... that day or the next or two... .same pattern... higher lows, higher highs... it's already reversed course, and I rather doubt the paper traders will give anyone else a chance to really buy in that low... it could all retest in-house and intraday... doesn't matter when you are in a circle-jerk contest... which only ends when the markets end... which ends with the OWO... the Fed is no different than the rest of the establishment.. following orders... that's what they do best... isn't that obvious? Does anyone seriously think Trumpy, the Fed, McCain et al are in charge of anything? Can they get in the way and do damage? Of course.. free will is the #1 law of our 'verse... which is why the SG like to use all these memes and  memeos... to get the herd to herd themselves over the cliff.

Out with the OWO, in with the NWO... the SG doesn't need their puppet show anymore.

In reply to by snblitz

Endgame Napoleon Seasmoke Tue, 05/15/2018 - 14:38 Permalink

If I had any gold, I wouldn’t sell it, but I would buy a little BitCoin, too, just in case. The future is gonna future. I think people should buy stocks in a few companies, just because they believe in the companies, not to be strategic. I am sure that is one of those naive, not-the-way-life-really-is strategies that would not work. But it seems hard to see how you could lose—even if you did not win bigly—by owning some of the world’s oldest store of value. When the economy is especially uncertain, there is a bigger chance to lose than to win, so why would that be the time to sell gold? 

In reply to by Seasmoke

atlasRocked Tue, 05/15/2018 - 13:41 Permalink

To stop socialism, we must stop the rewards of socialism.

Remember, all the benefits handed out by Washington makes the voters scared or jealously protective of exposing the crimes of their benefactors. 

Just like an employee jealously defends their employer, and Facebook gets users to give all their personal info up - for a free app!  

So, too will a recipient of government bailout money defend government malfeasance, or hide it, or refuse to acknowledge it, even when they are only subsidized in modest amounts, bailouts, “tax breaks,” or freedom of prosecution from crimes.  

Endgame Napoleon atlasRocked Tue, 05/15/2018 - 14:50 Permalink

Because of out-of-control lobbying, there is really no way to vote against any of it. How could “congress critters” refuse to come to the assistance of what is, in effect, their customer base?

When you have a business, that is how you rightly think of your customers—your bread-and-butter. You treat them like royalty. 

You should. They do not have to buy things from you. Lobbyists do have to buy things from the Swamp Monopoly. 

You cannot have effective representative government when lobbyists get the red-carpet treatment from congress due to the boatloads of money they donate to campaigns.

Lobbyists—and the sometimes bailed-out companies that they represent—are treated like royalty by congress. 

Congress treats them like a businessperson treats the repeat customers that keep her shop afloat. Because.....human weakness.... Those subject to bailouts are represented more than the voters in a representative government. 

In reply to by atlasRocked

ElTerco Tue, 05/15/2018 - 13:45 Permalink

The correlation of the markets with Fed actions is "In your face" clear. Anyone not acknowledging the manufactured economy/markets is delusional.

Ben A Drill Tue, 05/15/2018 - 13:56 Permalink

Ronald Reagan gave a speech about welfare and our growing debt problem and the devaluation of the dollar back in 1964.  Just went to the Reagan Library yesterday.

therover Tue, 05/15/2018 - 13:57 Permalink

Watched 'Margin Call' again last night.

Love when Jeremy Irons tells the kid to talk to him like he's a small child...or a Golden Retriever.

GreatUncle Tue, 05/15/2018 - 14:02 Permalink

If you realise for the FED the only game in town ever was too inflate the economy faster than the growth of debt.

There is no other option, nothing ... has been the same since 2008.

Now rate rises collapse the economy so at some point they well have to use QE to inflate it again like a set of lungs.

Police every breath you take ... https://www.youtube.com/watch?v=OMOGaugKpzs

Sting is the Central Banker ...

 

MrNoItAll Tue, 05/15/2018 - 14:28 Permalink

The FED operates on the "Machiavellian Principle" -- i.e., the greatest good for the greatest number. They don't give a damn about any one particular individual, we're all just numbers to them. They do the math, they run the stats, and they determine that if they do "X" instead of "Y", that a slightly better statistical outcome will be achieved. Right now, the FED is working in concert with other global central banks to try to keep this damn economic system afloat when it is full of holes, wood rotting, joints separating -- basically falling apart. For the global economy to completely fall apart right now would be bad for everybody, so they sacrifice the "weaker" (less training, less income) ones in order to keep things "good enough" for the majority. Eventually, they won't have any choice and they'll have to pull the plug and push the reset button. Until then, slow grind downward is the best they can do.

Kendle C Tue, 05/15/2018 - 14:28 Permalink

It's not that they don't care, it's that they hate you. Right at the Boomer retirement peak approach, bam, zero interest on savings. Currently, boomers are puking up their principle, for indebted students living at home, few RV's on the road, those are getting eviscerated at resale, being gas hogs. Many puke up more principle at the Mengele hospitals, no wonder they're sick. Why are bad fats good now...maybe they're hoping you'll just die. Try to downsize and the smaller dump townhouse costs more than decrepit house that's costing you so much to maintain. Move to an adult mobile home park and Libor guarantees your space rent will be through the roof, then, try to get out of that trap. The closest we get to being cared for is by getting fucked.

Endgame Napoleon Kendle C Tue, 05/15/2018 - 15:38 Permalink

The Boomer generation would have been better off if they had objected when companies started offshoring millions of breadwinner jobs (and potential SS contributions) to Asia.

Many of them are also feeling the consequences of assortative mating, which concentrates two high-paying (or decent-paying) jobs under fewer roofs, halving the size of the college-educated middle class.

Boomers cheered for that “have-it-all” mentality, which certainly did result in some massive houses for a few assortative Boomer mates.

After 40 years of fake-feminist policies, the dual-high-earner,  skilled talent cannot take enough time off to be fired due to the layers of womb privilege that accrue to the celebrated working parents. 

The spouses of an assortative mate  often makes plenty to support the household in style while the other spouse raises the kids, rather than letting $9-per-hour babysitters with NannyCans, $10-per-hour daycare workers or......elderly grandparents raise them, not just during work hours, but during their libertine number of excused and lengthy vacations for busy-working parents.

But both spouses take a family-friendly job, in which they are above firing even when taking eleven, excused, two-week vacations, in addition to PTO & pregnancy leaves. Automation is the real reason why high-wage and low-wage working parents get away with all of that crony absenteeism.

But thanks to assortative mating, there are just not enough white-collar jobs that cover rent that soaks up more than half of monthly pay for many of the Boomers’ college-educated kids.

There are also not enough jobs for the non-college-educated, although corporations prefer non-college-educated (and non-licensed) womb producers for most of their low-paying positions. They prefer women with “somethin’ comin’ in” for “voted-best-for-moms” jobs that have absolutely nothing to do with motherhood. 

They prefer those women because—due to spousal income, child support that covers rent or monthly welfare that covers rent and groceries and refundable child tax credits EITC up to $6,341—they can accept low pay and part-time hours that keep them under the earned-income limits for welfare. 

As one Boomer with a good-paying government job explained, he helps his young, non-college-educated, single daughter who has two kids, but does not need to help her with rent since government pays part of her rent in a nice, mixed-income apartment, which is in a safer area than most single, childless college grads can afford. 

Government also pays for her groceries. And her low wages from part-tîme work are also boosted up by bigly child tax credits, letting him indulge her with a new SUV.   

It is a little different for non-womb-productive / non-welfare-eligible citizens, working full time, particularly since a maximum child tax credit equals 3 to 4 months of wages in many full-time jobs.

Due to the potpourri of welfare products that reward sex and reproduction in single-earner households, more men than women are living under their mommas’ thumbs in adulthood.

For men, this problem would be less extensive if Boomers did not support the welfare-reinforced illegal immigration that undercuts their sons in the labor market in the same way that welfare-buttressed single motherhood helps to undercut non-womb-productive / non-welfare-eligible women who do not have “somethin comin’ in” from governent to make the low pay palatable. 

Wages have not risen perceptively in 40 years.

Many Boomers think, well, it is not me that is undecut in the labor market by womb-productive / welfare-eligible immigrants, so their objections must just be racism. Boomers are indirectly affected in many cases, though, due to underemployed children.

In reply to by Kendle C

Ink Pusher Tue, 05/15/2018 - 15:42 Permalink

It will be like massive dominoes falling in a carefully prearranged concentric downward spiral design...

*Survival of the scummiest of course being hailed being the new mantra.

Catullus Tue, 05/15/2018 - 15:52 Permalink

My favorite part about Margin Call was that executive leadership is both clueless about what actually goes on and aware of how various stakeholders think. People at this level do not sweat details. They just get in a room looking for leverage and try to fuck the other person. It’s truly a job for a psychopath 

Batman11 Tue, 05/15/2018 - 16:14 Permalink

“Stocks have reached what looks like a permanently high plateau.” Irving Fisher 1929.

The markets have a way of removing everyone’s faith in the markets.

The Harlequin Tue, 05/15/2018 - 17:36 Permalink

I found Margin Call to be repetitive and obvious. We all know the story, a precognition of looming disaster impels scumbag A to get their hide out of the arena of combat first and fast, regardless of the consequences on scumbags B, C and D and much less the fallout on innocent investors, savers and taxpayers. I prefer The Big Short, firstly for it's episodic approach using vignettes and characters based on real (oddball) people, but secondly (and more importantly) for it's complete tear-down of the entire Ponzi scheme that resulted in the GFC of 2007/08. It's funny, it's REAL, and it makes you want to BE THERE when it happens again...SOON!