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$GJN – STRATS – Banks find another way to Screw the Public

Alexander P Morris — Fri, 03 Aug 2012 19:58:10 +0000

(NYTimes) $GJN, “The security in question was extraordinarily complex in its name and its details, but simple in its selling points. It was marketed in $25 units, a popular price point for debtlike securities sold to individual investors, and it promised monthly interest payments for as long as 30 years, at which point the investor would get the $25 back. Those interest payments would fluctuate with interest rates on Treasury bills, but could not go below 3 percent a year or above 8 percent.”

“Wells Fargo, the bank behind the security, now says that anyone who had read the prospectus should have understood that disaster was looming in June, when news related to the security was disclosed. But that disclosure — I’ll get to the details in a minute — had the opposite effect on the market. In New York Stock Exchange trading, the price leapt higher, on heavy volume, and stayed there for weeks.”

“The price per share was $24.88 on July 12, when trading was halted as investors learned they would get just $14.69 a share. Trading never resumed. .. The difference between market expectations and realities boiled down to one fact: Wells Fargo concluded it was entitled to a payment of $10.69 a share to compensate it for the profits it would have made over the next 23 years had the security not been redeemed.”

“That was disclosed, on Page S-12 of the prospectus supplement, and investors were warned that ‘this loss could be quite substantial.’ Wells Fargo thinks that was perfectly adequate disclosure, even though no examples were given to indicate the possible magnitude of the termination payment.”

” ‘It was a very conservative security,’ said one investor, a computer science professor who lost money on an investment he had thought was ‘a very nice, Grandma type” of security.’ ”

” .. The bank had hedged its own exposure to that swap, she said, and it lost money on that hedge. “Substantially all of that payment was used in connection with unwinding hedges,” she said of the $10.97 a share Wells Fargo received. She said the ‘securities were structured to meet investor demand at the time’ they were issued, ‘and the circumstances governing termination were fully disclosed to investors.’ She added that Wells Fargo might have had to pay money to investors on the swap if it had been terminated when interest rates were high, meaning the investors could have gotten a windfall instead of large losses. That strikes me as protesting too much. Under those circumstances, JPMorgan would not have wanted to redeem its security, and would not have done so. ”

So, if rates went UP, meaning that there was almost no chance of JP Morgan calling in the security early, investors might have MADE money?! Sounds like their “hedge” was put on diametrically opposed to any common sense whatsoever.

“Ed Hall, a lawyer and blogger who has written on Strats — and who brought the security to my attention — says he thinks it is obvious that the investors had no understanding of the risks. “Wells needed to place a clear warning at the start of the prospectus, rather than buried deep in the prospectus,” he said.”

Full Story: Buried in Details, a Warning to Investors (NYTimes)

(Stocks, Bonds & Politics) “If an adequate warning had been placed in bold and large type at the beginning of the prospectus, WFC/Wachovia would not have been able to sell those certificates to the public at $25. The deal would not have gotten off the ground. There may be a statute of limitations issue, but I seriously doubt that the average individual investor could have reasonably foreseen the events that led up to their loss of capital until WFC took their money in mid-July 2012. On that issue, it is relevant that GJN was trading near $25 up to the time of its delisting.” — Wells Fargo-GJN-Securities Act of 1933

Martin Armstrong on Market Predictions and Objective vs Subjective Analysis

Alexander P Morris — Wed, 11 Nov 2009 08:01:52 +0000

Martin Armstrong is the author of the Economic Confidence Model based on an 8.6 year business cycle theory inspired by the work of Nikolai Kondratieff. Two years ago, the cycle once again accurately predicted the peak of the last economic cycle years in advance. February 26, 2007 yielded some of the tightest credit spreads ever (easy access to credit), and the housing market had already begun its sharp decline.

He is currently in prison, indicted in 1999 on charges of defrauding Japanese investors. His trial would have made more sense had it taken place in “Alice in Wonderland”. Without getting into all the details here, just the fact that he was in jail for seven years for contempt of court should be enough to make any American cringe and wonder how that’s possible in the great ‘ole USA. He finally caved in and plead guilty in 2007 to the fraud charge. In return, he was given an additional five year prison term in addition to the seven he had already served! Now, if this were any ordinary American schmo, perhaps he could be written off for one reason or another as just another guy with a crazy “they’re out to get me” sob story. However, when you look deeper into the facts, and then consider that Mr. Armstrong was also one of the most respected financial research advisers to scores of powerful figures from central bank executives to heads of multinational corporations to heads of state, it really makes you wonder what’s going on with the “Rule of Law” — the real glue that holds our country together. Armstrong even authored the most insightful and thorough analysis of the 1929 crash ever assembled on behalf of the Reagan administration in the ’80s.

From his jail cell, Martin Armstrong continues to write some of the most insightful and interesting essays I’ve come across on a variety of topics from market cycles, to rule of law, to the history and cycles of politics and war. Since he has access to little more than an old typewriter (and no whiteout), you must understandably have a bit of patience with his “what I’m thinking about now” writing style. Would I be showing my age if I can still recall the nightmare of using a typewriter for school papers? It’s horrible.

Regardless, I’ve learned more useful knowledge about world history (and our own history) from Armstrong’s essays than I ever learned in school. And it’s more fascinating than you can even imagine. Everything’s been done and tried before. And here’s some food for thought… in the six thousand or so years of civilized history, can anyone find one example where socialism actually succeeded with a happy ending? But I guess that’s why most politicians don’t bother to learn any of history’s lessons. It would just interfere with their agendas and other questionable motives.

The following text is an excerpt from Martin Armstrong’s latest essay entitled “Objective vs Subjective Analysis” (pages 10-12). I’ve also taken the liberty of making some small corrections here and there to make the text more readable while still hopefully maintaining Mr. Armstrong’s full meaning and intent.

(read more...)

No Inflation? – You too can make a 2.2 Million% Percent return in the stock market!

Alexander P Morris — Tue, 18 Apr 2006 22:00:00 +0000

No Inflation? – So what’s up with the Exploding Money Supply! The fed inflates our money, reduces our buying power, but at least they can let us know the current level of M3!
Also, learn how you too can make a 2,210,369% return in the stock market!