Rochdale Securities LLC, the brokerage that employs bank analyst Dick Bove, is in advanced talks to save the firm after unauthorized trades in Apple Inc. (AAPL) went sour, said two people with knowledge of the negotiations.
Top Rochdale executives told potential investors that a trader bought $750 million to $1 billion in Apple shares last month without permission, the people said. The stock then dropped in value by a few million dollars and depleted the firm’s cushion against losses, the people said. Closely held Rochdale had $3.44 million of capital at the end of last year, according to a regulatory filing.
This tells you everything you need to know.
The company managed to purchase, somehow, two hundred times its capital worth of stock, a leverage ratio of (duh!) 200:1, which means a 1/2% decline in value would wipe out the entire capital book.
With what did the firm clear that trade? Its good looks?
Margin? What's that? 2:1? 5:1? 10:1? Oh no, there was no supervision at the exchange and clearing level at all. That much is clear because otherwise this trade could have never been made and it most-certainly could not have cleared at T + 3 settlement!
But it was and did, according to reports.
So again: How?
You think this is a one-off eh? That nobody else on the street has exposure like this, but things have moved "their way"? Based on exactly what? Would you care to present your evidence for this claim?
Let's be clear, just in case you missed it:
This is yet further evidence that the entirety of the market is, at present, stuffed full of alleged "positions" for which there is no capital whatsoever -- these positions are literally credit created out of thin air, and when, not if, something goes wrong the forced liquidation will lead to widespread destruction of firms and prices exactly as occurred in 2008 -- but worse!
Remember, Lehman was only geared 30:1.
From another user on the forum.... (credit to C4talyst)
Schumer and friends are trying to add a high-capacity (> 10 rounds) magazine ban to the cybersecurity bill. In the finest of Senate tradition, when you can't actually bring a bill honestly and pass it, you slip the crap you want into something else.
If this were to pass then high-capacity magazines would of course become extremely valuable.
So whether you own a gun or not, well.....
(Incidentally, the same thing happened after the former "assault weapon" ban. Pre-ban magazines and firearms got a lot more valuable in a big hurry......)
Supply and demand, you know.
Oh, and if you do own a gun the sponsors to which you should direct an appropriate response are:
Democratic Sens. Frank Lautenberg (N.J.), Barbara Boxer (Calif.), Jack Reed (R.I.), Bob Menendez (N.J.), Kirsten Gillibrand (N.Y.), Schumer and Dianne Feinstein (Calif.).
Here's my politically-incorrect response to all of them:
Morgan Stanley (MS) defended its role in Facebook Inc. (FB)’s initial public offering after a Massachusetts regulator subpoenaed the bank over talks between an analyst and investors about the social media company’s revenue outlook.
“Morgan Stanley followed the same procedures for the Facebook offering that it follows for all IPOs,” Pen Pendleton, a spokesman for the New York-based investment bank, said today in an e-mailed statement. “These procedures are in compliance with all applicable regulations.”
The question is twofold -- whether there was a breach of the "Chinese wall" that is supposed to exist between the research department and syndicate folks and secondly whether there was material research information provided to certain people but not others.
Whether the latter is actionable is somewhat tricky. An IPO has a "quiet period" where the firm and those involved in the offering are not supposed to be making public statements except through the registration documents. But Facebook filed an amendment to the S1 in which some changes were made.
I suspect there will be a load of fun around this event, given the poor performance of the IPO and the technical matters surrounding its trade, especially late confirms and similar problems. This, incidentally, also appears to have led to people being short when that's supposed to be impossible until the first trades settle (you can't short without a borrow, and you can't borrow shares that aren't yet in the hands of anyone.)
At least that's the theory; there are myriad reports that institutional clients and hedge funds are short and able to be short. Hmmmm... how do you short something you can't get a locate on as of yet because the first trades in the public market haven't settled? That's a question we ought to get answered as well.
This whole process stinks. I'd love to just simply stick up the "I told you so" banner and call it a day, but this entire mess outlines a few important facts, with the most-important being that Wall Street never gives a damn about you, the individual investor. The entire purpose of selling something is of course to make a profit, and in this case they sure did -- they maximized the amount the selling shareholders got, and the common man -- indeed, anyone who bought the IPO -- got the bag.
Have you figured it out yet America? What are you doing in this market, eh? Exactly how many times do you need to hear the touts tell you how "cheap" stocks are or how "investing" is something you should do -- and lose money -- before you wake the hell up?
If this isn't an object lesson up and down the line, from the apparent shorting of stock that doesn't exist in the public's hands yet to screwed up executions so nobody knew what they had to "late" updates to material information on the company's prospects to more, I don't know how much more clear it needs to be.
Don't worry, you only lost 26% in two and a half days if you bought at the open, or about 19% if you were lucky (dumb) enough to get an allocation.
That ought to make your whole year look good, right?
On today, Sunday 5/13, I pray: Please God, make the stupid stop!
With traditional safety nets such as company pensions and Social Security dwindling, many of the 78 million baby boomers are left trying to answer one question: “Who’s going to pay my retirement paycheck?”
Annuities are one investment that more and more prospective retirees are considering. These financial products are created by the insurance industry, and offer a lot more flexibility and advantages than other investments. Here are a few reasons why you should think about adding them to your retirement plan.....
And the article continues.....
There's a very serious missing element however: There is no discussion of the risk of business failure and the losses you may suffer if it happens.
Annuities are insurance products. You need to put very large amounts of money into them in order to obtain reasonable monthly payouts. That would be ok if you knew the money was safe.
The problem is that you don't.
There is no national program to guarantee annuities. There are, however, state-by-state "guarantee" funds of various sorts, most of which have similar limits and provisions.
Annuity Cash Surrender: $250,000 for deferred annuity contracts per contract owner
Annuity in Benefit: $300,000 per contract owner
Incidentally, Florida recently increased the limit through House Bill 159 in 2010 -- it was formerly $100,000 (as was FDIC insurance.)
That sounds like a lot, especially with the increase. It isn't. To receive $2,000 a month, for example, the typical fixed annuity will require $500,000 of contribution.
You're only covered for half on cash value and if your expected payout period is 20 years (65-85) you're only covered for about 60% of the benefit payout amount as well!
Are you a State agency?
No. The guaranty association is a private entity, with its membership made up of all the life and health insurers licensed in the state (in fact, under state law an insurer must be a member of the association to be licensed to do business). The association was created by the legislature to serve as a safety net (subject to statutory limits) for residents should their life or health insurer fail. By creating the association, the legislature was able to ensure continued coverage to residents affected by their insurer’s failure. The association does work in cooperation with the Insurance Department in fulfilling its role of protecting residents whose insurance company is being liquidated.
So what happens if there's no money in the guarantee association? For example, let's assume for the sake of argument that a whole bunch of insurance companies go under, and the reserves available to pay the claims are insufficient.
Well, it's a state-created agency, so you'd assume they'd have taxing power (although they call them "assessments") and they more or less do. However, there are limits on the assessment power in the statute, which means that it's entirely possible for enough insurance companies to be able to fail and the fund to not only be unable to pay but also unable to assess in sufficient amount to cover the deficiency.
And if this happens because reserves are inadequate, even if the fund knew it and under-reserved with knowledge of the deficiency, they're immune:
631.727 Immunity.—There shall be no liability on the part of, and no cause of action of any nature shall arise against, any member insurer or its agents or employees, the association or its agents or employees, members of the board of directors, the Chief Financial Officer, or the department or office or their representatives for any action taken by them in the performance of their powers and duties under this part. Such immunity shall extend to the participation in any organization of one or more other state associations of similar purposes and to any such organization and its agents or employees.
Isn't that special?
This is contrast to the FDIC which, at least in theory, has the backing of the Treasury on a "full faith and credit" basis, and in addition has the Prompt Correction Action Law which (again, in theory) should prevent the insolvency of the FDIC.
Oh, and as for the powers on prevention, the Florida agency's enabling statute doesn't use the word "shall" when it comes to examinations -- they instead use the word "may" -- so they're off the hook for any potential malfeasance (despite their statutory immunity) anyway before it occurs.
Be careful folks. Annuities have their place in a retirement planning scenario but remember that you are in effect betting on the continued solvency of a private company to make the payments, and that any "government backstop" is both state (rather than federally) operated and has no resort, generally, to the treasury of the state itself.
These products are frequently touted as having more return than a long-term CD or similar, and in today's ZIRP market that's true.
But there is no such thing as a free lunch, and these products are not an exception. There are risks, they tend to be under-discussed and not well-disclosed, and diving into such a product without carefully considering what happens if the firm fails and the guarantee fund is insufficient, either because you have purchased more than limit of coverage or the fund is short and cannot pay, could result in an ugly surprise when you are least able to afford it.
The EU summit "deal" is noise; we knew going in there would be no "grand bargain" and there isn't. Britain said "stuff it" (rightly so) along with a few others; those who went along did so pretty much at gunpoint.
The vassal state model may look attractive as an alternative to Mekosy, but they're nuts. What they'll ultimately get out of this is a war. Oh Archduke, is that you over there somewhere?
The internal issue for America is more-acute in the market sense. Texas Instruments last night warned on weakening demand and got clocked in the aftermarket. This morning Dupont issued a warning. Either standing alone could be looked at as company-specific. The two together cannot.
I said a bit over a year ago that PPI pressures would eventually filter through and hammer margins directly, and likely would result in cost-push pressures that ultimately would hurt the top line -- although perhaps not at the firms that had the cost pressures. In other words the deteriorating standard of living would eventually have to show up somewhere -- "charge it" only works for a while.
It appears that it now is showing up. This sucks, to be blunt, but it is very unlikely to be contained.
My macro-level view has not changed much; timing is everything in the markets and I still believe we'll more-or-less hold together until late in December -- another couple of weeks, and perhaps into early January, but in 2012 it's going to come apart.
Those who think that we'll get through the election will be wrong -- I'll go out on the limb and put that out there right now. No chance folks -- there's not that much dry powder available to anyone.
As such consider your positions carefully if you're long the market -- the wild gyrations are a warning -- overall "bullish" markets don't behave this way, but ones that are about to fall apart sure as hell do.
I expect a very profitable 2012 -- and not on the long side either.
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