(JonStewart) “Politician Jon Corzine saw Lehman Brothers as a cautionary tale; financial firm honcho Jon Corzine saw it as a dare.”

I don’t always agree with Jon Stewart, but he’s pretty much got it right on the money on this one…

(TheMarketTicker) “Let us remember that MF Global was just added to the primary dealer list in 2010! The bankruptcy does raise questions, however, about how the Fed picks the primary dealers — especially since MF Global was one of four firms added to the ranks after new, more stringent requirements were put in effect in 2010.”

Full Story: MF Global – Trillions in Bailouts, Loads of New Regulations, yet nothing has changed (vlogolution)

(PeterBrandt) “The media is missing the real story in the sad saga of MF Global. The story is not the big bet in Europe by MF Global that went south. The story is not the risk-taking ways of Jon Corzine.

The real story is the ineptness of federal regulators (so, what’s new). The real story is that speculators may end up holding an empty bag right under the noses of the U.S. government regulators responsible for their protection. The present administration appears unwilling to step up to the plate. The Obama administration bailed out AIG, Deutsche Bank, Fannie, Freddie and a whole bunch of other crooks along the way. But when it comes to protecting the integrity of futures markets, the powers that be (or should be) are MIA.

If segregated account holders of MF Global are stiffed it will be the end of market integrity as we know it. Free market lovers everywhere, do NOT under-emphasize the importance of this matter. The MF Global situation could be the leak in the dike that will flood the financial system as we know it. If segregated account holders in a federally regulated market are not protected, what is next?”

Full Story: Futures traders: Be concerned, be very concerned (PeterBrandt)

(PeterBrandt) “Futures markets and futures commission merchants (FCMs) are supposed to be highly regulated by the Commodity Futures Trading Commission (CFTC). If MF Global’s seg customers are not fully protected, it would be the equivalent of, let’s say, depositors of Chase bank or customers of Fidelity not being protected.

The failure of MF Global’s segregated account to be made whole would be the biggest financial disaster since 1929 and would spell the end of the futures industry as we know it. Folks in the financial industry should take this matter seriously — very seriously. Do not underestimate the importance of this matter.”

Full Story: MF Global — 2011′s version of 1929 (PeterBrandt)

(GlobeInvestor) “ETNs expose investors to the risk of losing all or most of their principal. That’s because ETNs are set up as unsecured, long-term debt obligations of the issuer, Ms. Pelant explains. ETF investors don’t face the same default risk because ETFs own a pro rata stake in a basket of stocks, bonds, or derivatives held by a custodian in trust and legally separate from the issuer, she says.”

“When Morgan Stanley’s viability came under question in September , its family of Market Vectors ETNs sold off dramatically. ‘The Market Vectors Remnimbi/USD ETN (CNY) plunged more than 25 per cent versus a 1-per-cent drop in a comparable ETF,’ observes Greg Newton, a veteran financial journalist who writes the NakedShorts blog.”

However, if the ETFs don’t actually hold the securities that make up the fund, and instead use synthetics or swaps rather than physicals, investors may also be exposed to much more credit and counter-party risk than they realize. And as Jeffrey Gundlach discussed at the recent DoubleLine Luncheon at the New York Yacht Club, “Never, ever take counterparty risk. It is the one risk you are almost never rewarded for taking. Unless you are running $800 billion dollars, there is no need to use swaps, synthetics or baskets – trade cash markets and avoid any trades that require a counterparty.”

(HistorySquared) “In light of the counter party risks inherent in ETFs, especially those that use synthetic swaps rather than the physicals, there might be an inexpensive way to express a bearish view on some of the European banks.

For example, in 2008 Lehman Brothers had several failed ETNs. ‘The three ETNs were Opta Lehman Commodity, Agriculture and Private Equity. In September 2008, these ETNs halted trading when Lehman Brothers failed. Currently, the final results are being sorted out, but it appears that Lehman ETN holders will receive 2 cents on the dollar from their original investment.’ ”

These are some clever lower-risk trading ideas for expressing a bearish view on the future solvency of a particular counterparty:

“Perhaps there are some far OTM options on some of the Socgen ETFs that are worth a look . Or a less risky trade could be long an ETF with physicals underlying the ETF that is issued by a more secure bank, and short the highly correlated Socgen ETFs. A potentially catastrophic event could be triggered by Deutsche Banks popular x-trackers.”

Full Story: ETFs as Tail Risk Trades (HistorySquared)

(Bloomberg) “ETFs that use swaps to clone stock, bond or currency returns have been criticized by regulators and firms including Fidelity Investors, which say clients risk losing money should the banks writing the derivatives become insolvent. Outflows from Lyxor are another blow to Societe Generale, France’s second-largest bank, whose shares have tumbled this year as the escalating sovereign-debt crisis squeezes lenders’ funding.

‘It’s an issue of counterparty risk related to the financial health of the backing bank,’ said Jose Garcia Zarate, an ETF analyst at Morningstar Inc. in London. ‘Fears over synthetic replication have been building up, and at the same time, fears of banks’ peripheral-debt exposure have grown. Put those two together: bingo!’ ” — Swap ETFs, Lyxor Have Record Outflows (Bloomberg)

(Mish) “We will not get to see the precise wording of Prime Minister George Papandreou’s referendum because enough cowards in the Greek parliament in conjunction with blackmail by Merkel and Sarkozy have put an end to Papandreou’s regime. Thus, the on-off on-off Greek referendum is once again set to ‘off’ this time permanently.”

(NYTimes) “Europe’s leaders should have paid more attention to the distress of ordinary Greeks and less to the distress of well-heeled European bankers. Rather than trying to punish the ‘profligate,’ they should have thought about the consequences of condemning Greece to years of negative growth, soaring unemployment and rising taxes with nothing promised in return except that maybe, a decade from now, its ratio of debt to gross domestic product might get back down to the problematic levels of 2008-9.

Greece needs to make serious, painful reforms, including doing away with antiquated labor rules, streamlining a bloated public sector and selling off poorly managed state assets. Mr. Papandreou was already making real progress. But it was becoming impossible to keep laying off thousands of state workers while austerity choked off any realistic possibility of their finding private sector jobs or to keep slashing social benefits and services while the numbers of poor and unemployed surged.

It is late but, we hope, not too late to avert a full meltdown. Europe’s leaders need to renegotiate the pending Greek bailout deal to emphasize reform and growth over unremitting austerity and offer other bailout applicants the same approach. If they want any of the money lent to Greece paid back, Athens needs room to grow and earn.” — Greece on the Brink (NYTimes)

(Mish) “Democracy Dies to Protect Banks – Indeed, resolution of this mess has been 100% about how to bail out banks at taxpayer expense even though banks brought this mess onto themselves by treating sovereign debt as if it had zero risk. Worse yet, banks plowed into sovereign debt trades with massive leverage.”

Notice the tight convergence of all Eurozone country sovereign debt interest rates before 2009. European banks and other investors placed foolish bets anticipating little or no additional risk. They priced in virtually no risk premium holding Greek bonds over German bonds.

(Mish) “Merkozy and the EMU ought to be spending time on developing a full blown Euro exit strategy for nations because there has never been a currency union in history that has survived without a fiscal union in place at the same time.”

Full Story: Eurozone’s Waterloo; Papandreou Forced to Cancel Referendum; Democracy Dies to Protect Banks; Germany’s Dilemma: The Eurocratic Nanny Zone Vote (Mish)

(MartinArmstrong) “The most important aspect is the economy. Screw that up and you get war, depression, and starvation. We then elect a whole bunch of people to posts and automatically assume these people have the (1) real intelligence ABOVE average to comprehend such complex subjects, and (2) they understand the right thing to do. Where did we ever get these ideas? Most of the staff members employed by politicians are smarter than the people they work for. But unless they believe an economic crisis is possible, they will not even look at the issue.” — Martin Armstrong, Happy Days Are Here Again

(Mish) Great article by Mike Shedlock on the Greek/Euro Dilemma – “Is there any reason Greek voters should not be given a choice? I think not. They may not make a wise choice but what is the likelihood that political hacks and political opportunists will?”

“Take a good look at Iceland. In repeated attempts, political hacks (with banker’s interests in mind) attempted to sell Icelandic citizens into debt slavery. A referendum saved the day. Sadly, voters were forced to repeat the referendum, and once again voters made the correct decision. .. Iceland is now in full recovery simply because it told the EU and IMF to go to hell.”

“Greece does not have an easy way out. However, its problems are no doubt far worse than if it told the EU and the IMF to go to hell two years ago.  Greece should have gone bankrupt long ago. Heck, it should not be in the EU in the first place, and the EU is primarily to blame even though Greece lied to get in.”

“(PeterTchir) If a leader in the Middle East finally gave into months of protest and decided to give the people a real say on an important issue, the Western leaders would be rejoicing. .. But if a fellow Western leader dares let his people express their wishes more directly than via “their representatives” they are all shocked and outraged. In the meantime other Greek politicians are busy taking advantage to gain power rather than helping their citizens.”

“(PaterTenebrarum) The eurocracy is at its heart deeply undemocratic – if it were up to the ‘technocrats’ leading it, national subsidiarity would have long ago become a relic of the past and democratic interference with their plan to erect a socialist super-state would be kept to a bare minimum. .. This can be seen by the fate suffered by previous referendums: when the Irish and French e.g. said ‘no’ and ‘non’ respectively to the Lisbon treaty, the referendums were simply repeated to get the ‘right’ result. As Stalin once sagely remarked, it doesn’t matter who votes for what anyway – what matters is who counts the votes. So far, the eurocrats have always gotten the results that they wanted, by hook or by crook.

Shall I tell you the truly terrifying thing about the EU? It’s not the absence of democracy in Brussels, or the ease with which Eurocrats swat aside referendum results. It’s the way in which the internal democracy of the member states is subverted in order to sustain the requirements of membership. ..

I wish I could convey the sheer horror that his proposal provoked in Brussels. The first rule of the Eurocracy is “no referendums”. Brussels functionaries believe that their work is too important to be subject to the prejudices of hoi polloi (for once, the Greek phrase seems apposite). Referendums are always seen as irresponsible; but, at a time when the euro is teetering on the brink, Papandreou’s proposal was seen as an act of ingratitude bordering on treason. ..

Eurocrats are prepared to pay any price rather than admit that the single currency was a mistake – or, more precisely, to expect their peoples to pay, since EU officials are exempt from national taxation. The peripheral countries are to suffer poverty, unemployment and emigration, the core countries perpetual tax rises, so that supporters of the euro can save face.”

“(DanielHannan) Euro-enthusiasts in Brussels and in Athens are ready to bring down an elected government rather than allow a referendum. Yet the funny thing is that Papandreou is a Euro-enthusiast. He fervently wants to remain in the euro, and had been planning to campaign for a Yes vote. His sin, in the eyes of Brussels, was not to hold the wrong opinions, but to be too keen on democracy. ..”

“Whose Skin Are We Saving? No eurocrat or politician outside of Greece gives a rat’s ass about helping Greece. The only skin they want to save is their own.  That realization coupled with my earlier proposal that Papandreou was tired of beatings, meetings, and riots is by far the most likely reason Papandreou decided to “walk away” from the mess via referendum.”

Full Story: In Praise of Papandreou’s Referendum Decision; Eurocrats Terrified of Democracy; Parade of Cowards (Mish)

As usual, this is more about bailing out the banks and protecting those who made foolish investments above all else.  It’s also interesting to note that while private bond holders of Greek debt was expected to take a 50% haircut, my understanding is that the ECB (who currently owns about half of all outstanding Greek bonds) would still be holding their Greek bonds at par.

This is not to say Greece is not also at fault.  There’s plenty of blame to go around.  However, to this day the War Reparations forced upon Germany after World War I are still largely blamed for leading Germany into hyperinflation and the eventual rise of Hitler.  And perhaps Germany eventually owning and/or controlling most of Greece’s key assets to pay back its debts is not something those “pesky” Greek citizens are willing to accept quite that easily.

Regarding Papandreou’s recent changes to his top military staff, while only Papandreou and his closest confidants know exactly what’s going on, given he called a referendum to offer the people a “say”, it would seem unlikely he is considering a “military coup”.  I would speculate his motive would more likely be to assure that the military will remain loyal to the “best interests of Greece”, as opposed to the “best interests of the European Union”.

(MartinArmstrong) “The most important aspect is the economy. Screw that up and you get war, depression, and starvation. We then elect a whole bunch of people to posts and automatically assume these people have the (1) real intelligence ABOVE average to comprehend such complex subjects, and (2) they understand the right thing to do. Where did we ever get these ideas? Most of the staff members employed by politicians are smarter than the people they work for. But unless they believe an economic crisis is possible, they will not even look at the issue.” — Martin Armstrong, Happy Days Are Here Again

(TheMarketTicker) “.. there’s really nothing more-serious than grabbing client funds internally, and it appears to have happened in the case of MF Global…  It’s black-letter wrong, and The ‘mainstream media’ outlets this morning are talking about this being a “risk management” issue. Nonsense. This is a trust issue and Corzine is a former Goldman guy and the former governor of New Jersey.”

“But this much we do know: This is not an issue of a firm that allegedly broke every rule in the book when it comes to the sanctity of customer funds. Rather it is a story of utterly failed regulation and oversight that continues four years after the collapse that initiated in 2007. It is the story of willful and intentional blindness by our government and the instrumentalities within it that are supposed to prevent this sort of crap from happening.”

“Let us remember that MF Global was just added to the primary dealer list in 2010! The bankruptcy does raise questions, however, about how the Fed picks the primary dealers — especially since MF Global was one of four firms added to the ranks after new, more stringent requirements were put in effect in 2010.”

“I have to ask: Was that a political addition and where in the hell were the examiners that are supposed to be paying attention to what these firms are doing? If this is the result of “more-stringent” requirements can someone tell me why I should believe that any of the other Primary Dealers are in fact solvent and why I should not believe that they’re all doing the same thing?”

“This is the continuing story, as I lay out in Leverage, of “two worlds” where one has the rule of law (you and I) enforced, where robbing a bank gets you a nice long prison sentence and some cops looking for bank robbers to stop them while in the other, inhabited by politically-connected and powerful men and women you can pretty much do anything you damn well please and nothing happens to you — in fact, you get rewarded with calls from The President of the United States and pick the pockets of the public with essential impunity.”

“There are no checks and balances and the banksters wield their briefcases like John Dillinger wielded his tommy gun.  There has been no reform since 2008.  Dodd-Frank was a joke, Glass-Steagall was not put back in place, and there was no prosecution of those who did wrong.

SEVENTEEN PAGES IN GLASS-STEAGALL – 17 PAGES – KEPT THE BANKING SYSTEM SAFE FOR FIFTY YEARS.

And now we have another collapse that appears to show that there is no regulation, there is no oversight and nobody in the government gives a damn when one of the primary dealers that the government charges with making an orderly market in Treasuries appears to have co-mingled more than half a billion in customer funds with their own trading book.”

Full Story: Can You Survive It Being Over? (TheMarketTicker)

Amazingly, the media has been parroting as to how MF Global proves that the Frank-Dodd bill actually worked!

(Mish) “In spite of that background, (or do I mean because of it), MF Global thought Corzine was a perfect fit. Indeed, those looking for reckless behavior, massive risk taking, and willingness to bet the farm on marriage, in politics, and in life, Corzine represented rare ‘impossible to pass up’ talent.”

Full Story: Regulators Investigate MF Global for Missing Customer Money; MF Global Goes Bankrupt Before Making 1st Interest Payment; Corzine’s Achievement Sheet (Mish)

(Bloomberg) “The Volcker rule, as written in the Dodd Frank Act, had ‘so many different exemptions and exceptions and loopholes that it almost became nearly impossible for the regulators to fashion a rule that can live up to its original intent,’ said Barofsky, a Bloomberg Television contributing editor.”

Full Story: MF Exposes Risk Volcker Wants to Curb (Bloomberg)

(ZeroHedge) ” ‘The most common mistake people make when buying property in Cyprus is to use a lawyer who has been introduced or recommended to them by a property developer,’ says Nigel Howarth who has helped foreign property buyers in Cyprus for more than 10 years. Foreign buyers are sitting ducks. They’re unaware of the local business culture and don’t suspect that their lawyers are in cahoots with developers–aided and abetted by the banks.”

“The country acceded to the Eurozone in 2008, but it’s already in a heap of trouble. A recent loan agreement with Russia of €2.5 billion will keep it afloat for a few months into 2012. Then it’s bailout and haircut time. On October 27, Standard & Poor’s cut Cyprus to BBB. The big problem: exposure of its banks to Greek sovereign, corporate, and bank debt. But not a word about the title-deed scandal and the billions that evaporated with it.”

“The scheme works this way: A developer takes out a mortgage on the land but hides it from foreign buyers. The bank retains the title deed as collateral. When the developer sells the property, the buyers’ lawyer, who is in cahoots with the developer, doesn’t perform a title search and doesn’t ‘discover’ the original mortgage. Buyers, assuming that their part of the property is free and clear, either pay cash or take out a mortgage. The developer pockets the money instead of paying off the original mortgage. The bank goes along because it can collect interest on one or two mortgages. But it retains the title deed as collateral for the original mortgage, and the buyer never sees it.”

“Throughout, buyers are told by everyone, including the government, that a buyer of immovable property is absolutely protected once the sales contract is lodged with the Cyprus Land Registry, and that they don’t need the title deed.”

“Proving fraud in court seems to be impossible. In a recent double-selling case, the judge ruled against the plaintiff: lodging of a sales contract at the Land Registry does not mean that buyers ‘automatically and in perpetuity have become the ‘owners’ (as they mean it) of the residence,’ she wrote. Hence, only possession of a title deed confers protection against double selling.”

“But the bank still holds the title deed as collateral for the original developer mortgage, and it has the right to foreclose on the property. Under normal circumstances, it takes a bank between 9 to 12 years to obtain control over the property. So banks extend and pretend until the developer goes broke. Then they move to recuperate a property that one or two other “owners” have paid for…. A nightmare. And no legal resolutions are in sight.”

“The numbers are stunning. In this tiny speck of a country with 803,000 people, about 130,000 properties are still awaiting their title deeds. If the average value of these homes is €150,000, then nearly €20 billion worth of properties might be in dispute, many of them with more than one mortgage and more than one owner.”

“The banks aren’t talking. And they aren’t writing down their assets to reflect the layers of mortgages that are worthless. Developers are going bust. The money they pocketed has disappeared. Expat homeowners who don’t hold title deeds are terrified of losing their homes, even if they paid cash. There are no legal processes in place to resolve this. Estimates of the missing money range from €3 to €6 billion—enough to take down all Cypriot banks. By comparison, the banks’ exposure to Greek sovereign debt is estimated to be €4.2 billion, of which only half will have to be written off.”

Full Story: Another Eurozone Country Bites the Dust (ZeroHedge)

One Big Lesson for Real-Estate Buyers: ALWAYS HAVE DEED IN HAND AND PROOF THAT IT’S REAL UPON CLOSING.  If someone or some entity tries to convince you it’s unnecessary, run for the exit and expect the coming debacle…

Best summed up by this comment by black swan on the BusinessInsider post:

“@Tom Hunter: ‘indicating that they will use additional asset purchases to help bring actual nominal GDP back to trend over time’

translation: this ship is sinking and we want to stick the taxpayers with trillions of dollars more of our impaired financial sewage, like we did with QE1, AIG and the GSEs, before we get stuck with it and go down with the ship. Allow us to sail away in our own ship, loaded down with looted treasure and flying the Jolly Roger, to the land of offshore accounts.”

In his latest US Economics Analyst note, Goldman’s Jan Hatzius offers up his suggestion for the next phase of Fed policy:

“With short-term interest rates near zero and the economy still weak, we believe that the best way for Fed officials to ease policy significantly further would be to target a nominal GDP path such as the one shown in the chart on the right, indicating that they will use additional asset purchases to help bring actual nominal GDP back to trend over time. The case would strengthen further if deflation risks reappeared clearly on the radar screen.”

Full Story: Goldman Advises The Fed To Go Nuclear, And Set A Target For Nominal GDP (BusinessInsider)

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...)]]> http://www.vlogolution.com/hot/2009-11-11-martin-armstrong-on-market-predictions-and-objective-vs-subjective-analysis/feed/ 4 http://www.vlogolution.com/hot/2006-12-12-m3-money-supply-figures-are-back-well-unofficially-and-the-fed-credit-cycle/ http://www.vlogolution.com/hot/2006-12-12-m3-money-supply-figures-are-back-well-unofficially-and-the-fed-credit-cycle/#comments Mon, 11 Dec 2006 22:00:00 +0000 http://www.vlogolution.com/hot/?page_id=56

Apparently it’s possible to extrapolate the current rate of the M3 money supply figures pretty accurately after all, even after the Fed decided to “de-emphasize” its role. Let’s see what the current rates would have been expected to be, and what they suggest for the economy and the stock market… I also discuss the credit cycle and the effects of easy credit and leverage on the transfer of wealth.
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