Archive for October, 2013
It just so happens I have both a “trick” and a “treat” for you today.
First, the “trick.”
Yesterday the House passed a bill titled The Swaps Regulatory Improvement Act.
The trick is, it’s not about improving the who-really-knows-how-many trillions of dollars swaps (derivatives) market.
Instead, the bill aims to reduce restrictions under section 716 of the Dodd-Frank Act. Section 716 requires banks to spin off risky swaps out of depository institutions to subsidiaries and affiliates.
Here’s what Rep. Jeb Hensarling (R-Tex.), chairman of the House Financial Services Committee, said on the House floor yesterday: “Section 716 requires financial institutions to ‘push out’ almost all of their derivatives business into separate entities, this not only increases transaction costs, which are ultimately paid by the consumers, it also makes our financial system less secure by forcing swap trading out of regulated institutions.”
WHAT? Now that’s tricky!
Transaction costs? Those are borne by the traders at the banks and hedge funds that trade those financial weapons of mass destruction, not “CONSUMERS.” Consumers don’t trade this crap; these are not consumer products. Consumers will only pay for these weapons of mass destruction if the banks that taxpayers – the consumers of the crap banks spew out when they fail – have to bail out the banks that trade this stuff!
But it passed.
The House measure passed by a bipartisan vote of 292-122, including 70 Democrats.
The trick was neatly exposed by Rep. Maxine Waters (D-Calif.), the top Democrat on the banking panel. She fumed, “This legislation will effectively allow banks to undertake derivatives trading with depositors’ money. If the banks lose money on this sophisticated trading, systemic risk could creep back into our financial system, once again putting the economy – and the American taxpayers – at risk.”
Now that’s scary.
Next, this could be a big treat for you and me…
Last week I told you I was going to break maybe the biggest investing story of the year.
I told you global capital markets are facing structural changes on a scale that’s so huge, virtually every big bank, and in fact almost all banks, and every major trading institution will be affected.
You aren’t hearing about this anywhere else, because it’s not obvious – yet.
Quantitative easing has masked the problem so far. But, as QE is tapered out and if deficits are reduced, we will face unforeseen capital markets dislocations, economic uncertainties, global volatility… and, of course, tremendous trading opportunities.
I’m excited. I love disruptions like this, because there’s always money to be made when the capital waves start rolling.
You heard it here first…
Sorry, you’re going to have to wait until Monday to get the lowdown from me on what’s really happening behind the scenes in the U.S. Treasury bills, notes, and bond markets. I’m pushing that release until Monday.
Don’t get me wrong – that is maybe the biggest news of the year. It has global implications, will change capital markets forever, and create tradable events with tremendous profits for investors to grab.
It’s just that we’ve got something even more incredible to talk about today… (and it’s good news, for once).
Yesterday’s jury finding in a Manhattan court that a bank and a bank executive are liable for fraud is a true watershed. This is something that hasn’t happened since investigations and settlements over what led to the financial crisis have been coming and going.
In a civil suit, Preet Bharara, the U.S. attorney for the Southern District of New York, scored a massive victory over Bank of America and one of its former executives. The defendants, instead of settling, were found guilty of fraud by a jury of four men and six women.
I almost couldn’t believe my eyes when I saw this…
I’ve been in this business, trading the capital markets, for more than 30 years, and in all that time, I have to say, I can count the number of worthwhile brokers I’ve known on one hand. And I’ve known thousands.
While there are good and even great financial advice-givers out there, they are the exception rather than the rule.
Most of these “brokers” are salesman.
That’s what they do; they sell you on the services their firms offer. They sell you on the cookie-cutter advice they shoehorn you into. They put you into one-size-fits-all “programs” (which is one of the fancy terms they use to describe the program they’ve devised for you) that are mere templates for suitability measures that you fall into.
You’re this age, make that much money, have that many children, want to retire at 65, and BINGO, they have a custom program to put you into to make all your dreams come true.
Because most brokers are salesmen, not market experts, their job is to sell their services, not construct individual investment programs for you, or you, or you, or you. They can’t. They don’t have the time and they don’t have the expertise.
These people who are supposed to be expert advice-givers are often clueless. And worse, there are different standards by which they are supposed to render their advice to you.
I’m going to tell you the truth…
There is so much to say about the United States government not defaulting.
I’d like to start with a thank you. But “How do you thank someone for taking you from crayons to perfume? It isn’t easy but I’ll try.” (That’s Lulu, from the movie “To Sir, With Love.”)
Thank you, Congress, for showing the world there’s nothing wrong with the full faith and credit of the United States and for showing the world that having full faith and credit in the United States government is a total bust.
An extension? Really? So, we go through this again in a matter of weeks? Thanks.
But let’s move on. Let’s talk about Janet Yellen – she’s far more relevant.
She’s about to become the most powerful person in the United States, or the world, for that matter.
It isn’t the President of the United States that has the real power. Presidents come and go. Congress’ pimps and panderers come and go too (and too many stay too long).
The power to make or break America, to enslave it or free it, is vested in one person: the chairman of the Federal Reserve Board.
Here’s the first action Yellen could – and should – take if she wants to save America.
Did you know paying customers can get economic data before it’s released to the public?
These numbers are things like unemployment figures, productivity measures, and Fed reports, to name a few. They move markets.
So of course the folks buying the data, or stealing it, or however they are getting it, want the numbers early to put on trades, or to take off trades that will tank, once the rest of the world gets them.
What’s crazy about this happening, and it’s been happening for longer than anyone knows, is that the government agencies that calculate the data that moves markets are just now figuring out – or I should say, just now admitting – “Hey, this data we’re releasing is being leaked before it’s supposed to be released!”
Here’s how you’re being played.
On Monday, we talked about Tom Hayes.
That’s the former big-shot trader at UBS and Citigroup who’s accused of fraudulently manipulating interest rates to make millions for himself and his bank.
Now we’re hearing news he just lawyered up with a high-profile new firm in the U.K. According to the Wall Street Journal, his new lawyers have a “reputation for mounting aggressive defenses in financial-fraud cases.” This means there’s a good shot Hayes is going to plead not guilty. And there’s a very good shot he’s going to get away scot-free.
Here we go again!
We’ve all had enough of bad actors in the financial services arena getting away with nothing more than a wrist-slap. Many of you have written to me here to voice that outrage, and I’m with you.
These guys have stockholders pay their lawyers, settlement costs, and billions in fines, and then pimp and pander their way back on the gravy train to amp up their schemes and bonus pools. It happens almost every time.
It’s got to change. And – surprise – there just might be some hope on the horizon.
I just found a ray of sunshine, emanating from (out of all places) the Securities and Exchange Commission. They have a new leader and a new strategy that may finally pierce the black hearts of the vampires who suck the economic life out of all of us.
Please don’t miss this.
Back in June, the U.K.’s Financial Conduct Authority said it was “aware of allegations” of manipulation in the biggest trading market on the planet…
The $5.3-trillion-a-day cash foreign exchange (FX) market.
Well apparently there’s more than just “awareness” going on.
The Swiss Financial Market Supervisory Authority (FINMA), according to its website on Friday, is “currently conducting investigations into several Swiss financial institutions in connection with possible manipulation of foreign exchange markets.”
The site goes on to say, “FINMA is coordinating closely with authorities in other countries as multiple banks around the world are potentially implicated.”
Without getting too complicated here, FX (foreign exchange) manipulation is pretty similar to Libor (the London Interbank Offered Rate) manipulation.
It’s not about a bunch of traders and brokers manipulating interest rates (or FX “fixings,” (in the case of the cash foreign currency trading markets) to throw the world off its axis. It’s about traders manipulating data, prices, rates, and “fixes” to profit individually, in most cases, and to benefit the bank’s balance sheet or liquidity needs in desperate times.
Here’s everything you need to know about the next big scandal…
Let’s start today with the biggest bunch of incompetents on everyone’s mind…
The United States Congress.
Q [re: “The Truth about the Government Shutdown“]: The shut down is another sign that our democracy and our republic is in trouble! What happened to the era when our politicians put the welfare of our country ahead of their party affiliation? ~ Jim
A: This country was founded on political principles, and not all of them were ever aligned. The grossest political battle I believe I’ve ever studied was the one between George Washington and Thomas Jefferson. Jefferson underhandedly tried to discredit President Washington by paying others to disparage Washington in the then “press,” while feigning his disbelief that anyone would write that about America’s beloved president. NO, I’m not kidding. Know your history.
So, is any of this new? No not really. BUT what is new is the MONEY that drives it. It’s not about political agendas; it’s about getting into office to become rich. It is disgusting. At least our Founding Fathers had real beliefs and not just belief in their own financial futures.
Q [re: “The Three ‘Horsemen’ of the Fall Congressional Session“]: Can you profit from this mess? ~ Jack
A: Yes Jack, I do believe there is a way to profit from the mess in Washington and what Congress is facing this session. There are going to be stocks and asset classes knocked down because of this and others bid up because of it. When it all gets straightened out, presuming it does, there will be buying and shorting opportunities.
One area will be Treasuries. There’s something going on with the Treasury markets that no one is talking about. There’s a huge problem brewing, and it’s going to create major disruptions. I’ll reveal this in a special report next week for my Capital Wave Forecast subscribers, and we’ll be taking positions based on what’s unfolding. I’ll pass some of those thoughts on to you here after my subscribers get the details and we take our positions. But suffice it to say, if I’m right about what’s happening, major changes in capital markets are afoot.
BTW, at Cap Wave we’re already short oil and short one of the big banks after their run-up. Both of those trades will pan out quite nicely if we get anywhere close to a default.
Q: I haven’t voted for an incumbent in 35 years, which means some times I don’t get to vote for many future thieves. Haven’t missed but one election since 1952. At 86 the thing I fear most is losing my pension and getting a bunch of treasury certificates to sleep on. ~ Harold B.
A: You are a great American, Harold. You make your voice heard by voting, and that you haven’t voted for an incumbent in 35 years begs the question, in retrospect, is there no one you would have wanted to be in office for any good length of time? I’d really like to hear your thoughts, especially with hindsight.
As far as getting a bunch of treasury certs, good luck with that. You’d be better off with those than what most pensioners are likely to get… a swift kick in the you-know-what. Matt Tiabbi (he’s GREAT) wrote a bare-knuckles piece on what’s going on with America’s pension plans from his perch at Rolling Stone magazine. I suggest you and everyone read it. You’ll want to get some treasury certificates on account of the fact that anything in pension funds that isn’t nailed down is being stolen by Wall Street. At least the Treasury can keep printing its IOUs and make you feel like there’s something in your retirement nest.
Next, Arem has a proposal for how to make Congress behave…