First MFG(lobal), Now PFG: Who Is Next?

It seems the murky world of segregated accounts and FCMs is coming under the right amount of scrutiny once again. Atlas Ratings - who provide detailed ratings analysis on the entire spectrum of FCMs - had identified PFG Best in the bottom 5% of all FCMs (but with 4 other firms ranking lower on their proprietary rating scale - see below). As they note, almost across the board, PFG Best lagged dramatically in most categories. The only category where they did not have low marks was in regard to exchange penalties. The commodity exchanges had not penalized PFG very often for their clearing procedures or floor record-keeping, that much was done adequately within the company. Everything else we monitor showed weakness within the company:

• Their net capital ratio and the trend of that ratio was extremely weak.
• Their business is not diversified, they rely on minimal interest revenue, commissions and any proprietary trading.
• Customer assets growth has been weak, healthy companies attract and retain new accounts.
• PFG Best has had many CFTC & NFA penalties, these are major red flags. They failed to ID a massive ponzi scheme.

The big question - obviously - is who is next? The following table provides some clear indications of where the stress may just explode next.

CFTC Finally Gets The Memo: Regulator Sues PFG, Says Firm Has $200 Million Customer Fund Shortfall

MF Global 2 is now official. At least one can never accuse ex-Goldmanite, and current head of the CFTC Gary Gensler, as being behind the curve:

• U.S. COMMODITIES REGULATOR SUES PEREGRINE FINANCIAL GROUP
• FIRM HAS $200 MILLION CUSTOMER FUND `SHORTFALL', CFTC SAYS
• CFTC LAWSUIT FILED ONE DAY AFTER FIRM ANNOUNCES NFA PROBE

Hopefully, the CFTC's now meaningless action will help all those farmers whose money has just vaporized. Luckily, they can make it all up on record corn profits.

Jefferies Begins Liquidation Of PFG Positions, Will Keep Proceeds In Segregated Accounts

The MF Global playbook is playing out step by step:

• JEFFERIES HAS BEGAN AN ORDERLY LIQUIDATION OF PFG’S POSITIONS
• JEFFERIES DOESN'T EXPECT TO INCUR ANY LOSS IN RESPECT OF PFG
• JEFFERIES ALREADY LIQUIDATED SUBSTANTIAL PORTION OF POSITIONS
• JEFFERIES SAYS PFG POSITIONS SECURED BY CASH HELD IN MARGIN ACC
• JEFERIES TO KEEP PFG LIQUIDATION PROCEEDS IN SEGREGATED ACCOUNTS

Gold May Have Been Manipulated Like LIBOR - St. Louis Fed Starts Tracking London Gold Prices

Excerpt From MP John Mann and Bob Diamond's Testimony - A Mackie Messer Moment

US Futures Brokerage Accounts Frozen - Hundreds of Millions In Customer Money Missing

 

Biderman Blasts The Bernanke Put And Questions QE-Hopers

Scoffing at the smugness of a CNBC talking head suggesting he is long-term bullish because of the Bernanke Put, TrimTabs' CEO Charles Biderman empirically analyses the effects of QEs-past and just as we have noted again and again - highlights the fact that without at least a 15% drop in stocks, Bernanke will not ride to the rescue. Based on his analysis of wage and salary growth, he believes the US economy is now starting to contract in line with what is going on in Europe and the rest of the emerging world. Earlier this year in the US, portfolio managers hoped and prayed that what looked like rapid growth was real, "It Wasnt!" and, as we have noted, Charles adds that with earnings season starting we will see future guidance cut and this will kick the leg out from the bullish stool - leaving only the hope for another QE flush to save us. However, with the effects of Bernanke's beneficence diminishing with each round, he suspects that we will be lucky to see a 10% rally on NEW QE.

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Presenting The Real Lie-bor Submission Process

Submitted by Tyler Durden on 07/10/2012 - 11:25 William Banzai clarifies the process by which Lie-bor submissions are turned into entirely irrelevant (and yet massively important to trillions of dollars of derivatives) interest-rate settings.
 

 

 

 

S&P 500 Futures At The Cliff's Edge

Presented with little comment but as S&P 500 e-mini futures lose overnight lows, they are ponderously close to the post-Greek Election, post-Spain Bailout, Post-EU Summit ledge...

German Constitutional Court Says May Need Up To Three Months To Deliver ESM Verdict

Earlier today, when futures were soaring, we rhetorically asked whether "A German Constitutional Court Delay Today Cripple The EUphoria?" a delay which "could have  “serious economic consequences” for the  Eurozone as well as Germany, and  in turn would risk placing the entire  euro project “in question,”  Schaeuble warned." Specifically, in terms of timing we said "Judges during the hearing suggested a two-part decision was likely, first on the injunction in about three weeks, and then in early 2013 on the broader constitutional question." Moment ago, according to CNBC's Sylvia Wadhwa, the court has announced the delay could be as great as large as three months, which in turn would put the Schauble scenario into play.

Federal Reserve Admits It Knew Of Barclays Libor "Problems" In 2007 And 2008

Last Tuesday we suggested that "Now The Fed Gets Dragged Into LiEborgate" when we observed that "Barclays also cited subsequent research by the New York Federal Reserve staff members that, according to the lender, concluded that banks’ Libor quotes were systematically below their borrowing rates by 39 basis points after the Lehman bankruptcy. “Barclays own submissions for tenors of 1 month to 1 year Libor were higher than actual Barclays trades on 97% of the occasions when Barclays had actual trades during the financial crisis,” the lender said." It seems that unlike the BOE, which had no idea of any Barclays problems and was merely calling up Diamond now and then to make sure the bank's money market risk mechanisms were operational and to chit chat about the weather (as per the BOE at least), the Fed has decided to take the high road and openly admit it was well aware of Barclays' LIBOR "problems." And like that the Senatorial circus just got exciting, while that popping noise is bottles of Bollinger going off at every class action lawsuit legal firm.

Poland Pulls The Plug On Imminent Euro Entry

It seems increasingly the European leaders themselves (absent the self-referential peripheral political paeons) are getting the joke in Europe. Following Buba's Weidmann's rational comments this morning (via Bloomberg):

• *WEIDMANN SAYS CAN'T SOLVE EURO CRISIS WITH EVER BIGGER FUNDS
• *WEIDMANN BANK FINANCING (Bailout - kicking the can) COULD WORSEN WITH EURO CRISIS

Now, Poland's deputy finance minister is pulling back dramatically from their desire to enter the European union:

• *POLAND PLANS `OPPOSITE OF ACCELERATION' IN EURO DRIVE: DOMINIK
• *POLAND SAYS EURO-AREA STABILITY IS NEW CRITERION FOR EURO ENTRY

It seems there is some rational thinking occurring in Europe - no matter how algos react to recycled headlines.

The Global Economy - It's All About Increasing Leverage

If we look at the global economy with unclouded eyes, we reach this conclusion: "This whole thing is about leverage." If leverage doesn't increase, the system implodes. But since collateral is disappearing from the global economy like sand castles in a rising tide, and disposable income has stagnated, there is no foundation for more leverage. As a result, the State/finance cartel has only one choice: increase leverage by whatever means are left. There are only two:

1. Allow banks to claim phantom assets as capital/reserves
2. Lower interest rates so stagnant income can leverage ever greater quantities of debt

The State/finance Empire and its army of academic toadies (economists) must cloak this reliance on leverage from the citizenry, lest they grasp the precariousness of the entire financial system. As the economic Establishment is discredited by reality (that their sputtering reflation policies have come at an unbearable cost is now undeniable), their attempts to discredit their critics become increasingly comic: only PhD economists in the employ of the Empire are qualified to comment on the Empire's policies, etc.

Eminent-Domain 'Transfer Of Wealth'-Program Challenges Remain

The debate around San Bernardino County’s proposed program to use eminent domain rights to seize ownership of underwater mortgages has continued to heat up since we first wrote about it here last week. As Barclays notes, the county (along with two other cities in the area) has formed a joint powers authority, which would not need permission from the respective city councils unless they need public money. There are conflicting reports of the path that such an authority would take and the role of private investors. However, the most likely path seems to be that the authority is funded by private investors and it uses this money to buy current loans that are underwater at a "fair price" and then refi the borrower into a new private or more likely into an FHA mortgage. So, this program, if implemented, is likely to be a transfer of wealth from existing investors in these loans to the city governments and the newer investors led by venture-capital firms. Barclays does note though that there are many challenges to such a program including the legal issue of whether eminent domain can be used to seize financial assets in this fashion, especially if the primary beneficiaries are private investors at the expense of existing investors, which include, among others, pension funds and mutual funds and the fact that new mortgage origination is likely to suffer with new mortgagees bearing the costs of such a program in the form of higher mortgage rates/less credit availability.

The Lieborgate Circus Comes To The Senate

Just out from Bloomberg, where we find that our own corrupt politicians have just discovered that gambling went on for years and years, and nobody had the faintest clue!

• SENATE BANKING COMMITTEE TO ASK GEITHNER, BERNANKE ABOUT LIBOR

Surely the wristslapping will be so profound, Geithner is already soaking his arm elbowdeep in vaseline. In other news, go long AMZN as Senate (and soon Congress) just bought out Amazon's entire inventory of "Libor for corrupt morons"

China Crude Imports Plunge To December 2011 Levels

Following months of ever higher Chinese imports, no doubt predicated by stockpiling and hoarding reserves, in June Chinese crude oil imports plunged from over 25 million metric tons to 21.72 MMTs, the lowest since December, or about 5.3 million barrels a day, down over 10% from the previous month's record import. While the number was still quite higher than the 19.7 million tons, the sudden drop is concerning, especially since the price of Brent slid materially in June, and if anything should have resulted in even more imports if indeed China was merely stockpiling crude for its new strategic reserve facilities. Which begs the question: was the demand actually driven by the economy, and just how bad is the economic slowdown over the past month if not even stockpiling at preferential prices can offset the drop in end demand?

From Q2 Macro Weakness To H2 Earnings Slump

June macro data is giving a 'cleaner' picture of the economic state of our great nation. With seasonal affectations (unusually warm weather and the rebound in auto production) out of the way, June macro data has very much surprised consensus to the downside as BofAML's economics team notes that 14 of the last 20 June indicators has come in below expectations. Over the next several weeks we will get more 'hard' data for June. The most important will be retail sales, industrial production and the durable goods orders report. Retail sales look likely to disappoint as weak chain store sales offset the modest tick higher in auto sales. And given the collapse in the ISM, we expect manufacturing production and durable goods orders to be soft. This data will determine if the FOMC has enough ammo to ease aggressively on August 1st (or wait til September 13th) which we expect to only be an extension of forward rate guidance to mid-2015 from late-2014 (and not the panacea of NEW QE). BofAML remains more concerned with the consensus outlook for H2 - particularly Q4 (with 14% YoY EPS growth expected despite just a 1% GDP growth rate) - as the recession in Europe and high level of uncertainty ahead of the US fiscal cliff will likely lead to slowing growth in H2. And for those hanging their hats on the housing recovery, it will not be enough to save the rest of the economy - Housing construction is now only 2.3% of GDP compared to more than 6% prior to the crisis. This means we need a decisive turn to significantly matter for GDP growth. In addition, we believe it would take a sustained period of price increases to reverse the negative wealth and confidence effects of the housing collapse. Households remain skeptical about the home as a store of wealth or an investment.

Global Influences

The global economy is an entangled affair, make no mistake in your calculation here, and the numbers from around the globe are telling and will affect both the U.S. bond and equity markets. Much of the financing for the Emerging Markets was provided by the European banks and as they pull back and reorganize based not just on Basel III but based upon problems of the sovereign where they are domiciled the situation exacerbates. Two of the world’s financial axises are slowing and troubled and to not think that this will not affect America will lead you to conclusions causing you to play the Great Game badly. What did the meeting of the European Finance Ministers accomplish; not much. They nodded to the Spanish banks and agreed to inject $30 billion by the way of the sovereign, increasing the debt of Spain, with veiled promises of a new ESM fund which would lend money directly to the banks at some point in the future and this point is highly subjective depending upon to whom you listen. The Spanish claim within days or weeks while the Germans indicate it may be sometime next year. There is now a “maybe-maybe” timeline in Europe for almost anything as the weaker nations prod the stronger nations for more money. 

Today’s Items:

First…
France in Negative Territory
http://news.yahoo.com

For the first time, despite France’s debts and the wider eurozone disaster, suckers err… consumers are flocking to France’s short term bonds; such that, France is selling than with a -0.005 percent interest.  Despite the dropping rates, France’s economic outlook is stagnant with the first half economic growth being the big goose egg.

Next…
Argentina Bans Buying Dollars as a Way to Save
http://www.silverdoctors.com

Argentines tend to convert their pesos into greenbacks as a hedge against high inflation and to protect against potential currency devaluations; however, that changed with the country’s Central Bank formally banning the buying of U.S. dollars, by its slaves err… citizens.   With the ban from buying dollars, the Argentina Central bank may have unintentionally helped protect Argentines from the coming dollar devaluation.

Next…
Gold in Lockdown
http://www.mineweb.com

Paul Mylchreest, an analyst that has nearly always been correct on the world’s economic system, believes we are heading into a truly mega-financial crisis.   He believes that the current economic system will implode within 6-12 months.   He is preparing for a U.S. dollar devaluation, as are the Chinese.   From the loss of the US AAA credit rating to Operation Twist, everything is leading to a catistrophic collapse. His investment strategy is in physical gold, silver, and Maslow’s hierarchy of needs.

Next…
25 Signs The Collapse Of America Is Speeding Up
http://www.infowars.com

Here are a few…
1. Homicides in Chicago are 38 percent ahead of where they were last year at this time.
2. Thieves are stealing identities and filing fraudulent tax returns on a scale never seen before.
3. The percentage of U.S. households that contain a married couple with children has fallen from 44.3% in 1960 to 20.2% today.
Let us hope for the best, but let us also prepare for the worst.

Next…
The States Can Still Kill Obamacare
http://spectator.org

The main stream media would like the people to believe that Obamacare is a done deal; however that is no where near the truth.   States can refuse to implement the law’s insurance exchanges.   Not very many states have a large stash of cash just laying around to set up these state financed insurance exchanges, or state bureaucracies.   In addition, Washington is unlikely to cough up the money – facing another debt ceiling and the downturn in the economy.   Without these insurance exchanges in place, Obamacare cannot work; thus, it will fail.

Next…
Big Pharma Criminality No Longer a Conspiracy Theory
http://www.naturalnews.com

Drug and vaccine manufacturer Merck, using mafia tactics like bribes and kickbacks, was caught red-handed, by two of its own scientists, faking vaccine efficacy data by spiking blood samples with animal antibodies. Sounds like pretty much like our banking system.

Next…
Media’s War On Right to Bear Arms
http://www.nytimes.com
http://www.infowars.com

The media, along with George Soros, appears to be stepping up their attack on the 2nd amendment.   The progressives know the second amendment is the only thing standing between us and their dream of a leftist dictatorship.   They simply will not understand that they will be one of the first ones, with their families, killed by the state.

Finally, Please prepare now for the escalating economic and social unrest. Good Day

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