Category Archives: Finance

Madoff Fraud Hits Everyone..

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“NEW YORK – The list of investors who say they were duped in one of Wall Street‘s biggest Ponzi schemes is growing, snaring some of the world’s biggest banking institutions and hedge funds, the super rich and the famous, pensioners and charities.

The alleged victims who sunk cash into veteran Wall Street money manager Bernard Madoff’s investment pool include real estate magnate Mortimer Zuckerman, the foundation of Nobel laureate Elie Wiesel, and a charity of movie director Steven Spielberg, according to the Wall Street Journal.

Among the world’s biggest banking institutions, Britain’s HSBC Holdings PLC, Royal Bank of Scotland Group PLC and Man Group PLC, Spain’s Grupo Santander SA, France‘s BNP Paribas and Japan’s Nomura Holdings all reported that they had fallen victim to Madoff’s alleged $50 billion Ponzi scheme.

The 70-year-old Madoff (MAY-doff), well respected in the investment community after serving as chairman of the Nasdaq Stock Market, was arrested Thursday in what prosecutors say was a $50 billion scheme to defraud investors. Some investors claim they’ve been wiped out, while others are still likely to come forward….”

More at AP.

Comment:

I have been watching the unfolding of the Madoff story keenly. A fund manager in a European country confided in me recently that he feared his own extremely conservative fund might have unwittingly been exposed to Madoff’s fund. He thought he might have taken a big hit and being a conscientious guy was agonizing over how to repay his clients.

This is why I’ve avoided saying that any country’s banks are free of exposure (even India’s). No one knows for sure where a lot of the debt passed around the globe actually is – slicing and bundling risk separates it out.

Here are some pointers:

1. Be suspicious if you have had exceptionally high rates of interest. High returns usually mean risky investments.

2. Be suspicious if the product is marketed aggressively.

3. Be suspicious if the rate of return has been exceptionally stable, even if it isn’t very high. In the kind of volatile market we’ve had in the past few years, no one can be that good on a regular basis. (That’s what tipped me off about Goldman Sachs two years ago. I figured they couldn’t be doing all that well. Well, they weren’t.)
4. Be suspicious of alternative investments you don’t understand.

5. Be suspicious of traditional “safe” investments you do understand. Take a look at their fee structure. Many “safe” investments like mutual funds have horrendous fee structures that prevent you from making anything, after taxes.

6. Be suspicious of funds touted heavily by the mainstream financial press. They are in bed (some financially, some politically) with the financial establishment, or they are ignorant, or careless, or too much in awe of Wall Street, or overworked, or brainwashed, …..or all of the above.

7. Be suspicious of funds touted heavily by the alternative financial press. Just because they are right about the big crooks on Wall Street, it doesn’t mean they aren’t crooks too….who would be doing the same if they could get away with it.

8. Be suspicious of people who tell you they made huge killings on this or that and want to let you in on it. If they made that much money on it already, chances are there’s nothing left for you….

9. Be suspicious of very quick returns. Easy come, easy go. What goes up that fast can go down twice as fast.

10. Be suspicious of very slow returns. Locking up your investments forever guarantees that any mistake you make in picking the investment will last a life time.

Bottom line? BE SUSPICIOUS.

Neo-conomix – It’s Whatever You Want It to Be

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Writes Spencer Hahn:

Every week that I get The Economist (it is a free subscription through having tons of frequent flier miles), I know exactly what the editorial, entitled Leaders, will say. This week is no exception.Here’s my favorite passage: “This is a time to put dogma and politics to one side and concentrate on pragmatic answers. That means more government intervention and co-operation in the short term than taxpayers, politicians or indeed free-market newspapers would normally like.”

They have the nerve to call their publication a “free-market”! This reminds me of the lead-up to the American invasion of Iraq, which The Economist enthusiastically supported (“No war should be entered into lightly, or hastily, or on a slender pretext. In this case, however, none of that applies.” Leader, March 13, 2003).

Whatever the circumstances, you can always count on The Economist to toe the establishment line, while broadcasting its free-market “credentials.”

Jim Rogers Says Treasury and IMF are Unleashing Global Financial Holocaust

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Listen to Rogers calling our “dear leaders” in DC-NY incompetents and crooks.

http://www.youtube.com/watch?v=xIsHD7nwTbU (October 10, 2008)

He’s buying Yen, Franc, and commodities on dips (that’s a broad generalization…as always, do due diligence).

Why should savers who acted prudently bail-out high-rollers, crooks, and spendthrifts who borrowed money, lied and gambled with houses, bonds, debt?

He forecasts that monetary intervention by the IMF and G-7 will result in rampant inflation, currency instability all over the world. Apparently being a professor at Princeton (Bernanke), or chairing the world’s most powerful investment bank (Paulson) does not make you economically savvy.

So says Mr. Rogers. But nice Mr. Rogers is right out of his neighborhood at this point. He knows his finance. He does not know his political history. I don’t buy the Bernanke-Paulson comedy team argument. I think – as I’ve said many times on this blog..in my articles…and in my first book… something a bit more sinister is afoot.

Not wishing to have my links, ideas, and research picked and then not credited in the blogosphere (as well as msm), I will hold my tongue and tend my own garden….

Rubini Calls for Massive Reflation

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“New York University economist Nouriel Roubini writes tonight that the supposedly civilized world is on the brink of financial collapse and long economic depression unless the government finance officals gathering in Washington this weekend quickly implement a sweeping program of reflation,” notes GATA (the Gold Anti Trust Action Committee)

While I think Rubini’s diagnosis of the real estate glut is right, I don’t believe his program is correct from an Austrian point of view. It would be hugely inflationary, which would be good for precious metals, I think.  On the other hand, of course, the G-7 meeting could produce some kind of agreement on gold-backed currency. That would lead to a loss of interest in gold.

More Market Slaughter – Dow Under 8000 – First Japanese Company Hit (Updated)

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Round up of the news so far:

Yamato Life Insurance Co., a Japanese insurer, filed for court protection from creditors in the nation’s first bankruptcy in the industry in seven years, with debt exceeding assets by 11.5 billion yen ($116 million). It had exposure to US debt through its stock holdings. Japan says its exposure is limited, but I don’t see this as a good sign.

Notice, the first shoe to drop in Europe was also an insurance company, the Belgian Fortis. AIG was, of course, an insurance company and it sold insurance to banks all around the world.

The Tokyo index was down nearly 10%, along with big sell-offs in Asia, including a 9% drop in the Sensex in India and an Australian sell-off so bad it’s being called “Black Friday.” Trading was suspended in Vienna, following a 10% fall at the opening bell; Russian and Indonesian markets have been shut.

European stocks are down, with the UK’s FTSE-100 down 7.3%, German’s DAX down 7.7 %, and France‘s CAC-40 down 7.5 %. The collapse of Yamato Life Insurance pushed the Nikkei 225 to 9.6 %.

Market futures are pointing to more sell-off, with the Dow looking at a fall of over 300 points. Brace yourself for some more pain.

Update: As I write, markets opened 5% down (over 600 points) – anticipating Lehman CDS settlement and further damage to Goldman and Morgan Stanley, following downgrades by Moody’s. GE earnings came in in line with expectations, 10% down year-over-year.

Here are the stats at 10.14 AM

8,600.93
Trade Time: 10:12AM ET
Change: Up 21.74 (0.23%)
Prev Close: 9,258.10
Open: 9,261.69
Day’s Range: 7888.48 – 8668.39
52wk Range: 8,523.27 – 14,280.00

Japan has held off joining the near universal rate-cut, which is a good sign, and the yen is up against the dollar as investors are betting on it being healthier than European currencies. Yen is trading around 99 to the buck this morning after falling to around 97 earlier.

Pundits & Pols: Don’t Buy Gold; Stay in Cash Says, IBD; IMF to the Rescue (or Miscue?)

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“The same is true for gold, another refuge for cowardly capital. Buying gold amid a financial crisis means paying a premium amid a panic. What happens when that panic recedes? Your gold is worth less….” writes Investor’s Business Daily.

Comment:

Maybe so. Maybe not. But who is saying this? Investor’s Business Daily, which is in the business of selling stocks. Naturally, it wants you liquid and ready to jump in and buy. I’d like to go back and check what it was saying in June or July this year…

Meanwhile, President Bush will be addressing the market panic from the Rose Garden this morning. And the G-7 meet today to consider government guarantees of interbank lending.

The IMF has activated an emergency financial mechanism to help, says Dominique Strauss-Kahn, IMF chief, who has the ear of Hank Paulson.

And Robert Zoellick, World Bank chief (also an ex-Goldman Sachs man and formerly US trade rep) says poor countries will be hit hard. Maybe G-Sax should sell them some more junk bonds to help them out.

Treasury Now Partly Owns Fed

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Member banks within each of the 12 districts of the Fed elect 6 of the 9 regional board members and the president for that district.  Since the Treasury now intends to take minority equity stakes in some banks that it claims are struggling, (ostensibly for the purpose of preventing investors from pulling out), it will have partial control over the Fed. That means the Fed is now even less independent.

Propaganda Nation: Market Manipulation & Bank Banditry (Updated)

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Do Statistics Back Claims of Complete Credit Freeze?

“Many commentators claim, however, that virtually no transactions are occurring in this market. These claims are completely false. For the week that ended October 1, which is the most recent week currently reported, total commercial paper outstanding amounted to $1,607 billion. Yes, this amount was down from the $1,702 billion reported for the previous week, but is a 5.6 percent drop a good reason to panic? If we go back to March 2008, when nobody was talking excitedly about the commercial market’s “freezing up,” we find that the total amount outstanding, on average, was $1,822 billion, or only 13 percent more than last week. In March, the market was working fine; now it’s “locked up.” This sort of hyperbole, with which we are being bombarded hourly around the clock, is totally without a basis in the facts…..”

Robert Higgs, suggesting that some people are fomenting panic. He asks why.

Comment:

The answer lies in asking yourself:

Who has benefited so far? How? What do they want to happen?

Paulson Plan Premeditated?

Here’s Bill Engdahl tying up the loose ends of my piece on Paulson on how Paulson’s plan benefits the three new super banks, Goldman, JPMorgan Chase, and Citi and how they would be used to dominate global, especially European, banking.

Interbank Wars – Latest

The latest in Citi’s fight with Wells Fargo is that Citi has terminated negotiations and is planning to pursue breach of contract against Wells, so Wells is going ahead with its deal. Citi has Goldman Sachs connections: Rubin, Clinton’s Treasury Secretary and a former Goldman chief is a director. Meanwhile, with regard to Bear’s demise, here is a piece arguing that JPMorgan was involved in gold price manipulation under cover of their bail out of Bear this spring. JPMorgan chief Jamie Dimon sits on the Board of the NY Federal Reserve and as such was privy to the NY Fed’s actions re Bear Stearns.

Media Trix

Bill O’Reilly, not usually my favorite person, has been pretty good on standing up to the bail-out. This evening, he had a clip from an NBC skit on the sale of subprime mortgages to Wachovia by a couple, the Sandlers. It mocks Barney Frank’s role in eliminating oversight of Fannie and Freddie. Apparently the video was edited to remove the reference to Frank. The Sandlers had a long list of progressive groups they donated to (including Move On.org).

O’Reilly’s tack seems to be that the positions of those groups is undermined by the funding. That part is far-fetched, but it is time someone pointed out that not everyone affected by the decline in housing prices is an innocent. Many people made fortunes during the boom and are making more money from the bust.

Update – Market Moves Or CyberWars?

Another amazing day. I walked out of the house for 2 hours to buy a laptop for traveling, since my old one had mysteriously lost its internet connectivity. When I came back, the market was closing with a sell off, down 7% (679 points).

It began in the morning when
Paulson announced that insurance companies were in for trouble. That set off the selling in the bank and insurance stocks, including regional bank funds.

The whole thing was compounded by the fact that today was the day the ban on short-selling around 1000 financial and finance related stocks was lifted, so short-sellers were pouncing.

[Companies on the SEC’s list slid 18 percent on average during the ban, compared with 24 percent drop for all financial companies in the Standard & Poor’s 500 Index].

Then, General Motors had a bad day: Standard &Poor threatened to downgrade it (as well as Ford) to junk. GM shares got beaten down under $5; Ford was down over 20% too.

You had to wonder at the timing.

1) It’s the Jewish holiday, Yom Kippur, today. Recall that the selling began the evening of Rosh Hashanah. Remember that old saw – sell Rosh Hashanah, buy Yom Kippur? Markets are weaker at the time…

2) The declines came on the one-year anniversary of the closing highs of the Dow and the S&P. The Dow has lost 5,585 points, or 39.4 percent, since closing at 14,164.53 on Oct. 9, 2007. It’s the worst run for the Dow since the nearly two-year bear market that ended in December 1974 when the Dow lost 45 percent.

3) The decline is 7 years from 9/11

Anyway, when I got back the damage had been done.

[I ended up buying my computer at a shop that sold refurbished electronics in a rather shady side of town. A cop car was pulling away just as I walked in. But having just been a spectator to one of the biggest bank heists in history, I suddenly found the grungy looking characters hanging around rather harmless].

James Altucher, a trader, has this to say at The Street:

“The single biggest reason the stock market has fallen in the past five days is hedge fund liquidations. Of the top 20 hedge funds in the world, something like 18 are down 20% or more this year. They are getting redemptions, they are liquidating, they are selling stocks with reckless abandon to raise cash. Our job as good investors is to give them liquidity and take their bargain-basement merchandise off of their hands. Let’s get their selling over with so we can make money.”

Well, that’s evident. There was big selling, especially at the end, the kind from sell signals going off in program trading.

Morton Kondracke on FOX News in the evening was telling us sagely that it’s not a liquidity issue, it’s a confidence issue, and (get this) the answer is to create a global central bank. Right. The solution to a confidence problem is to give the markets to the confidence-men.

A note on cyberwarfare might be apposite hear. I dig it up from an old article I wrote that references Laurent Murawiec’s now notorious power-point presentation in 2002 advocating seizing Saudi oil fields. Murawiec is connected to Donald Rumsfeld’s Revolution in Military Affairs (RMA) which makes InfoWars central to the battle ground.

“In all these cases, IW involves creating phantom cyber-images, which can include phantasms of nonexistent trains, airplanes, stock market orders, and bank transfers; false impressions of the enemy’s troop strength and one’s own, of supplies and movements, of fake attacks and all-too-real defenses; and phantom images of the enemy’s leaders doing evil things on screen because one has video-morphed images of them doing them so.

“Information warfare is not about machines or even electrons. It is about people’s minds, society’s functions, and armies’ strategies. Cyberspace endows us — and our enemies — with new and extraordinary means with which to achieve our respective aims. “We have only begun to cyber-fight….”

More at “Tom Tancredo Takes Out Mecca: The Cyber Wars Playing Near You.”