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Commodity traders lose the will to fight

2012-01-30T11:19:00.001-06:00

Tomorrow, January 31, 2012, is the deadline for submitting claims to the MF Global bankruptcy trustees. If you don’t ask, they won’t give your money back. Go here to file your claim.

And, where is it all the money anyway? Is it still a mystery or is it gone? Someone has $1.2 billion and no one has been charged with any crime! Trading volume – and, hence, brokerage firm and CME revenue - is down significantly as are customer funds deposited with trading firms. Not only was money stolen, but a key United States industry has been maimed.

Why isn’t Corzine in jail? Where’s Obama?

Not only was MF Global’s demise apparently rigged, the markets, themselves, are being rigged by the federal government. Federal Reserve Chairman Ben Bernanke (whose middle name, Shalom, means “peace” and “welfare” in Hebrew) has declared war on the free market system by promoting corporate welfare with his low rate crapshoot. He wants to force the federal funds rate to remain at, effectively, zero for the next THREE YEARS! Good luck CME in getting any action in your once dominant 90 day LIBOR contract.

There are less than a handful of occutards remaining outside the Chicago Board of Trade these days. There has been no impact on corporate greed from this once-promising movement as it has degenerated into a bunch of self-indulgent, disorganized, dirty, destructive mobs with no focus and no message. And where is the Tea Party on this? Nowhere. Only the gold hucksters are making money on commodities now.

Should Jon Corzine be in jail with Bernie Madoff?

2011-11-20T10:37:00.001-06:00

On June 29, 2009, high-profile Wall Street broker Bernie Madoff was sentenced to 150 years in prison for illegal use of customer funds. This year, the financial implosion of once-mighty MF Global (MFG) managed by another high-profile Wall Street broker, Jon Corzine, has revealed that over $600,000,000 in “good faith” customer deposits from his MFG brokerage firm are missing and were presumably used to purchase risky, junk-rated national debt from some of the European Union’s so-called PIIGS (Portugal, Italy, Ireland, Greece and Spain).

“Section 4d(2)3 of the Commodity Exchange Act ("Act") provides among other things that: (1) customers' funds shall not be commingled with the funds of the FCM; (2) an individual customer's funds may, for convenience, be commingled with the funds of other customers for deposit with a bank, trust company, or clearinghouse; (3) customers' funds may be invested in obligations of the United States, in general obligations of any State or any political subdivision thereof, and in obligations fully guaranteed as to principal and interest by the United States; and (4) the Commission may prescribe by rule, regulation, or order the terms and conditions under which these things may be done.” This quote from the Commodity Exchange Act specifically forbids two major criminal actions taken by Corzine’s MFG: customer funds were co-mingled with MFG’s capital and then invested in obligations that were not guaranteed by the United States.

Corzine's action, undetected by numerous responsible regulatory authorities from the CME Group to the Futures Industry Association (FIA) to the federal government’s Commodity Futures Trading Commission (CFTC), was clearly illegal. Even after the CME, whose stock fell sharply after the MFG bankruptcy filing and is trading near its 52 week low, provided an infusion of $300 million, MFG customers have still not recovered their funds. Is this condition systemic? Is customer money safe in any commodity futures brokerage account? The government and the exchanges are still trying to find the customer money that was stolen from the previously considered sacrosanct “segergated funds” accounts. Only that will restore confidence in the futures industry.

MF Global can't find $633 million of customer funds

2011-11-09T08:23:00.001-06:00

Is it possible that over six hundred thirty-three million dollars of customer money is nowhere to be found? MF Global accountant résumés are easy to find on Linked in, though. MFG's auditor, an independent accounting firm hired to sign-off on the accuracy of the books as a protection for stock holders, is PricewaterhouseCoopers LLP. How did they miss $600 million? Was anyone doing their job there?

It's also an embarrassment for the CME, the world's largest futures exchange, who has the responsibility to audit customer funds at its member firms. After it's rebirth as a publicly traded "for profit" corporation in 2002, the CME became more interested in customer deposits to cover margin requirements rather than in total customer deposits. In fact, when over 50,000 MF Global customer accounts were transferred on Monday to other clearing firms (primarily R.J. O'brien and Rosenthal Collins Group), the positions were transferred but only the funds required for margining the positions were transferred from MF Global customer funds. In other words, traders who were under-margined were more likely to get all their money whereas traders with extra funds in their account received only that portion of their money that was required to margin the transferred positions.

The Chief Financial Officer at MF Global is 34 year old Henri Steenkamp who spent his previous eight years as an employee of MFG's "what-$600-million?" auditor, PricewaterhouseCoopers. But there are plenty of others with oversight that dropped the ball on behalf of customers, too. There's the Securities and Exchange Commission (SEC) who, along with the FBI, is "investigating" things at MF Global. Then there's the Commodity Futures Trading Commission (CFTC). And what about the Futures Industry Association (FIA) that gets a piece out of every customer trade that takes place. Is there anyone looking out for the customer now? According to the 1970 Securities Investor Protection Act, brokerage customers are to be at the front of the bankruptcy payback line. The current thinking is that some of the customer segregated funds are just "gone" and customers of MF Global will not get all their money back. Sounds like a potentially big payday for lawyers coming up, though.

Too Big to Work: MF Global and Bankruptcy

2011-11-03T10:08:00.000-05:00

The modern business world of IPOs and M&A has produced mega-entities in the fields of banking, insurance, communications, health care and other critical industries. Too often, drastic and expensive action has been required to save the public from the consequences of poor – and, in some cases, criminal – management of organizational monstrosities that are said to be “too big to fail.” The 2009 government bailout of AIG, GM, Chase and other major American firms is the latest and most dramatic example of this dangerous concept. Perhaps the real problem is that these companies are “too big to work” – too big to be managed.

On Halloween, the markets were spooked when MF Global, the country’s largest commodity broker, filed its bankruptcy papers. There were frantic, last minute, middle-of-the-night attempts to find buyers and even to find customer money! How could this happen? What went wrong? The most efficiently run organizations have always been those run by individual entrepreneurs. These are the people that know their business intimately. They know their product; they know their employees; they know their cash flow. In many cases, they have to reconcile their operations to the market on a daily basis. Obviously, there are certain advantages in economies of scale when related businesses merge. But, when a corporation gobbles up competing firms and becomes an economic blob with armies of employees that require a multi-tiered management structure because it extends itself into diversified global markets, it becomes too big to work and bad things start to happen. Costs go up, quality goes down and competition is crushed. Instead of being bailed out, these giants should be broken up before their cancerous growth destroys our economic body.

MF Global and Jon Corzine represented the worst of all possible combinations: an organization that became too big to manage being managed by a man who was too small for the job. We can only hope that we are not similarly at risk on a national scale with our federal government.

Food Stamps at Restaurants Now?

2011-09-07T09:33:00.002-05:00

Free food from the government has gotten so big with over 47 million food stamp recipients that restaurants now want in on the action. And, recently, it was discovered that 30,000 students at the University of Michigan had figured out how to game the Supplemental Nutrition Assistance Program (SNAP as it is now called) and get free food. One big party as long as the rich guys keep paying taxes and the Chinese keep lending money for a zero percent return. Life is a SNAP!

Food Stamps at Restaurants?.

Gold Fever

2011-08-25T15:52:00.001-05:00

Was Anything Accomplished?

2011-08-01T23:58:00.005-05:00

Did our heroes in Washington really save us from the Armageddon they threatened? Maybe if interest rates went up a little it would scare people into buying before rates went higher. Maybe if some government checks weren't mailed people would run out and get or create jobs.

Obama caved in on everything just to push the problem into the future past 2012 so he wouldn't have to deal with it during his re-election campaign. The Right got to cut some entitlement programs (affecting peoples' welfare) and the Left got to cut national defense (affecting peoples' security). But the big federal government with all its bureaucracies gets to keep growing. More importantly, the "crisis" was "solved" before Obama's big 50th birthday bash on August 3rd and Congress' big month-long August vacation.

The Tea Party - modern day fiscal Jacobins in our budgetary malaise - continued to terrorize the Washington status quo with an economic guillotine and was the only group that stuck to its principles. The Left is still desperately clutching their beloved socialist tenets but Keynesian economics has failed them and may prolong the recession as it did the 1930s depression. Accountability is probably the only solution but the only accountability we have are rigged elections where politicians get to live and get rich off the system for most of their lives - and have the gall to call it public service.

Hot Stocks That Signal A Cold Economy

2011-07-11T08:51:00.001-05:00

As the Republicans try to reign in spending while the Democrats try to double down on the apparently failed trillion dollar stimulus by throwing more borrowed money at it (although Gov. Palin says "the sugar daddy has run out of sugar"), some stocks are doing quite well. Their successes, however, are indicators of an unhealthy economy. An article by Bernard Condon of the Associated Press indicates that ...

"-- Profits at pawn shop operator Ezcorp Inc. have jumped by an average 46 percent annually for five years. The stock has doubled from a year ago, to about $38. And the Wall Street pros who analyze the company think it will go higher yet. All seven of them are telling investors to buy the Austin, Texas, company.

-- Stock in payday lender Advance America Cash Advance Centers (AEA) has doubled from a year ago, to just under $8. Rival Cash America International Inc. (CSH) is up 64 percent, to $58. Such firms typically provide high interest loans — due on payday — to people who can’t borrow from traditional lenders.

-- Profits at Encore Capital Group, a debt collector that targets people with unpaid credit cards bills and other debts, rose nearly 50 percent last year. Encore has faced class action suits in several states, including California, over its collection practices. The Minnesota attorney general filed a suit in March. No matter. The stock (ECPG) is up 59 percent from a year ago, to more than $30.

-- Stock in Rent-A-Center (RCII), which leases televisions, couches, computers and more, is up 57 percent from a year ago to nearly $32. Nine of the 11 analysts covering the company say it will rise further and that investors should buy it."

Keep your powder dry.

Have a Happy Fourth of July

2011-06-27T21:34:00.000-05:00

Another look at Eurodollars

2011-03-21T09:24:00.001-05:00

With the nearby Eurodollar contracts so close to current three month Libor, the risk in the September contract is probably around ten basis points ($250 per contract). Any indication of tightening will move the nearby contracts 25 to 50 basis points.

Daylight Savings Time

2011-03-14T09:27:00.000-05:00

iTrade resets the time (minutes/seconds) on your computer every 30 seconds to the correct time based on the atomic clock. However, it is up to you to set the hour depending on your time zone.

iTrade Version 8.2

2011-03-02T14:21:00.000-06:00

We recently had to make some changes to maintain compatibility with the BarChart historical database format. This change restored the functionality of several iTrade features that were affected including the Focus window and the Spreads window.

To apply these changes, please click "Get Latest Upgrade" under "Help" on the iTrade main menu. A new zipped version will quickly download. Click the button on the pop-up dialog box to unzip. This will install iTrade version 8.2 on your computer and will re-start the iTrade program.

iTrade version 9.0 will be available in the near future. There will be many changes in version 9.0 and for many users it will eliminate all charges for exchange fees.

Thank you for using iTrade.

Greg Smith

The one way trade in eurodollars

2010-09-14T08:50:00.003-05:00

The Eurodollar futures market is almost daring you to short it - and it's been this way for over a year. At 99.50, you can't lose any more than 50 basis points or $1250 per contract. With the government printing money like there's no tomorrow and almost every economist talking about an inflationary bubble, the downside potential seems limitless - well, perhaps 5.00%, anyway. A 10 to 1 risk/reward ratio - can this be real? Perhaps. But there's one problem. Unless you think that bubble is going to burst SOON or unless you think that a Fed tightening is imminent, there is really only one force working on the Eurodollar futures market; and that is the force of convergence. Three month dollars (LIBOR), the underlier for the Eurodollar futures contract is and has been at 30 basis points. That equates to a futures price of 99.70. Currently, the price of every Eurodollar futures contract throughout the entire five year strip is cheaper than 99.70. Therefore, in the absence of any change in market conditions, Eurodollar futures will continue their slow, steady grind upwards to a 30 basis points LIBOR rate. When it finally moves, everyone will probably miss the first 100 basis point to the downside. Puts, anyone?

iTrade Mobile

2010-09-04T19:28:00.003-05:00

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