Saturday, November 5, 2011

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.

The CME Margin News Confusion

Dave in Denver at The Golden Truth - 59 minutes ago
It turns out that once again in the urge to be sensationalistic, Zerohedge shot from the hip and is now getting shot down. This is EXACTLY why I ALWAYS double-check anything zerohedge reports before I make any comments on it. I didnt even start researching this until a few minutes ago and it was apparent to me that it was a mis-worded statement that the CME clarifiied today. Tyler Durden does a good job with a lot of what he reports but he is an amateur in this market and shoots from the hip all the time. Here is the best explanation of the situation, which is a non-event. If anyth... more » 

Margin Call Process

Trader Dan at Trader Dan's Market Views - 1 hour ago
Many of those who read this site are equity traders and do not live in this exotic world of commodity futures trading as I do and others who read this site. Also, some are relatively new to the world of trading in general and perhaps are reeling at all this talk of "initial margin requirements", "maintenance margin levels", "margin calls", etc. I therefore thought it might not be a bad idea to provide a very brief explanation of what these things are so they can understand what all the fuss was about this past 24 hours as we sought to understand what was taking place as a result of ... more » 

ECB Issues Ultimatum To Italy, Threatens To Halt Bond Purchases

Three months ago, in exchange for the ECB's expansion of its sterilized monetizations of bonds to include Italian BTPs, allegedly the only backstop that has prevented Italian bonds from experiencing an all out collapse to date, Italy was presented with a list of strict "austerity" demands, among which were spending cuts, higher revenues and labor reform. Since then none of these has occurred... or will occur, simply because Berlusconi has no control over the government, yet neither does anyone else, although everyone in the local government enjoys having a scapegoat for the total chaos. It appears that the ECB has just made it clear that the status quo is about to end, unless Italy does in fact push with something. And unlike other cases, where politicians on both sides of the table are happy to spout rhetoric while knowing well that nothing will change, in this case, courtesy of Italy largely untenable debt profile in which €166 billion in debt and interest are due in 2012, the ECB will have no choice but to play hard ball. Reuters has just confirmed that, reporting that  The European Central Bank often discusses the possibility ending the purchase of Italian government bonds if it concludes Italy is not adopting promised reforms, ECB Governing Council Member Yves Mersch said. "If we observe that our interventions are undermined by a lack of efforts by national governments then we have to pose ourselves the problem of the incentive effect," Mersch said according to extracts of an interview with Italian daily La Stampa to be published on Sunday. In other words on Monday the market will have to not only digest the implications of what the implications of the Greek vote of confidence are (last we checked G-Pap is still PM, and likely will be for quite a while), but also what happens now that the ECB has issued an ultimatum to Berlusconi to get his house in order. The problem is that he can't. Not without stepping down, that is. At that point the Italian pseudo stability that everyone has been taking for granted knowing full well it is nothing but an illusion, will fall and expose all the rot underneath. At that point we will truly see just how "hedged" all those Primary Dealers are, who have perfectly offsetting short positions to all their longs.

Extreme Poverty Is Now At Record Levels  
11/05/2011 - 15:23
Yes, times are going to get harder and an economic collapse is coming. 
Bruce Krasting
11/05/2011 - 11:53
I vote, No Confidence. 

Saturday, November 05, 2011 – by Anthony Wile

Anthony Wile
A recently posted YouTube video, "EU: Treaty of Debt (ESM) - stop it now!" is attracting attention in the blogosphere because of shocking allegations about what the treaty means to Europeans.
You can click below to see the video. It is apparently a totalitarian pact for a new European empire to be implemented within one to two years. As we've suggested before, the new world order is being formed NOW. This is the time. Not sometime in the next decade.
I think the Internet has panicked the elites behind this particular conspiracy. They are losing ground every day, perhaps, and don't think they can wait any longer. They need to act before a popular consensus forms against them.
Well, here's a hint. It may ALREADY be too late. They should have shut down the Internet years ago. Around 2000. Arrogance is always dangerous, eh?
But now, with their authoritarian concepts available for all the world to see, they nonetheless strike again and again. The video – and I cannot confirm this, but reports suggest the validity of its contents – is yet further proof.
It explains that the European Stability Mechanism (ESM) calls for the creation of a fund of 700 billion euros that can be expanded at any time. It calls for a committee to administer this fund that is entirely above the law – one that can be neither prosecuted nor even questioned within a normal legislative venue.
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Saturday, November 05, 2011 – by Tibor Machan

Dr. Tibor Machan
You can't have both
For the last couple or so decades the universities and colleges where I have taught – and by all accounts, most of them in the USA – have had two mutually exclusive social objectives. (Yes, Virginia, higher education is now mostly embarked upon pursuing social policies, not so much educating students.) These two are equality and diversity.
On the one hand, there is a big push toward eliminating any kind of inequality in the way students are being regarded and treated. Everyone is equal, just as Barrack Obama's Vice President Joseph Biden insisted in one of his rallying cries. As he put it in the course of a moving eulogy for his mother (according to the Associated Press), "My mother's creed is the American creed: No one is better than you," he said. "Everyone is your equal, and everyone is equal to you. My parents taught us to live our faith, and to treasure our families. We learned the dignity of work, and we were told that anyone can make it if they just try hard enough."
Of course, Mr. Biden didn't mean we are all equal today or will be tomorrow. What he meant is that in a rightly ordered world, one ruled by him and his associates, there would be total equality among human beings, on the model of, say, ants in their colony (excepting the chief ant, of course, just as this would be and has been the case with any large-scale egalitarian experiment). I am not exaggerating. Just go and read Vice President Biden's comment in full (here) and check out the many very prominently published books on the issue denouncing such dastardly inequalities, among others, as being more beautiful than someone else. Take, for example, Naomi Wolf's The Beauty Myth from the 1980s and the recently published work of Deborah L. Rhode, The Beauty Bias (2010).
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