Why Our Markets Are Going to Blow Up AGAIN in [Market-Ticker]

Posted 2012-11-05 16:24
by Karl Denninger
in Investing

Why Our Markets Are Going to Blow Up AGAIN

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.

Ok, how?

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.

Get out.

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User Info	Why Our Markets Are Going to Blow Up AGAIN in forum [Market-Ticker]
Truthseeker Posts: 8505 Incept: 2007-10-07 NorCal	Jeebus. That's gonna leave a mark! Yikes. ---------- "...But people better realize that the worst-case scenario could actually happen.9/11 happened. This can happen. An economic 9/11, the likes of which we've never seen." Gerald Celente 2012-11-05 16:27:44 Permalink
Wearedoomed Posts: 3610 Incept: 2009-01-14 slightly red state	Genesis wrote.. With what did the firm clear that trade? No worries, they're covered. Bovine Dick has produced mass quantities of bull**** over his esteemed tenure, and they were planning to sell it off. ---------- Lies, all of it. 2012-11-05 16:32:08 Permalink
Mrbill Posts: 7905 Incept: 2008-10-19 North Carolina	I can't even imagine how this trade could happen. Pretty sure e-trade would balk at me buying a few mil in AAPL stock on my few thousand in margin. 2012-11-05 16:33:09 Permalink
Penguinzee Posts: 229 Incept: 2010-06-13 Tampa Bay, FL	...and with all the rumblings going on in Europe atm (Greece headed for ANOTHER "Do Or Die" date next week), this could easily flash over into the mother of all crashes, with positions like this on Gall Street... Karl is right, if you're not out of this market now, GET OUT!!! Unless you like losing your life savings to these idiots... ---------- Crime is far too lucrative a game to let the little people play.-popofthebright 2012-11-05 16:48:09 Permalink
Drench Posts: 28631 Incept: 2009-11-10	CNBC hires Bove in 3... 2... 2012-11-05 16:49:35 Permalink
Apotheoun Posts: 1421 Incept: 2009-08-14 MN Online	The theft is unreal. I firmly believe when it comes to assets, if you do not have it in your hands you really do not own it. You may think you own it and if you call for it you may get it, but whenthings go bad I truely believe you will have a whole lotta nada. ---------- "when despair is all you can see, the end is finally near." "Because there is some good left in this world, AND ITS WORTH FIGHTING FOR!" 2012-11-05 16:50:02 Permalink
Hstella Posts: 284 Incept: 2009-08-18 Colorado Online	So are we near the point, not where the markets crash, but where the exchanges and balabce of payment mechanisms crash? At a certain point, even good trades will be losers because the money that you should be getting paid simply won't be there due to counterparty failure. Here, the fundamental control weakness of the exchange makes me very worried about it's status as a counterparty. 2012-11-05 16:51:13 From PDA Permalink
Patentleathershoes Posts: 10003 Incept: 2007-09-13 On the Daisy Chain	Oh boy, I have to see if I can dig up the email exchange I had with Mr. Bove..... ---------- "An unborn child's property rights are protected by law. His right to life is not." Ronald Reagan 2012-11-05 16:51:53 Permalink
Usk Posts: 468 Incept: 2008-04-18 France Online	Unless customer funds were being ILLEGALLY used as collateral to back such a trade, where in the hell did the funds come from if they only had about $3.5 million in capital? This smells a MFC Global case number 2, a lot of people are going to be corzined again. 2012-11-05 16:57:37 Permalink
Cobra2411 Posts: 10515 Incept: 2007-06-26 Philly P.a.	Here's a little visual for y'all... ---------- Government: A device that allows you to get blind ass drunk and your children get the hangover. 2012-11-05 17:11:03 Permalink
Vegasradar Posts: 8721 Incept: 2007-07-11	Quote: Top Rochdale executives told potential investors that a trader bought $750 million to $1 billion in Apple shares last month without permission, UhOK Rochdale = ---------- Be the change you want to see in the world. ~Mahatma Gandhi 2012-11-05 17:11:16 Permalink
Cobra2411 Posts: 10515 Incept: 2007-06-26 Philly P.a.	Vega's don't you know that if a trade is profitable it's because they is so smart but if it goes the other way it was a rouge trader? I'll bet that's what they say about the capital requirements - it was a rouge trader; while not mentioning once that it's the exchange that's supposed to watch that stuff... Nothing will be done... They'll keep pushing till it explodes and then claim that nobody could see it coming. ---------- Government: A device that allows you to get blind ass drunk and your children get the hangover. 2012-11-05 17:14:39 Permalink
Rickyd Posts: 587 Incept: 2009-07-07 Ontario, Canada Online	Non-trading guy questions: Is there a way to find out these kinds of trades or do you need to find things in the newspaper after the fact? Is there a "legal" leverage limit on trading? ---------- "We have a crisis of values that is extremely deep" Professor Jeffrey Sachs of Columbia University 2012-11-05 17:18:28 Permalink
Etz Posts: 13922 Incept: 2007-06-26 LA	Quote: Top Rochdale executives told potential investors Must be a new term the ***ers coined for "taxpayers". ---------- Legal chicanery and beneficent darkness are the banker's stoutest allies - F.Pecora. 2012-11-05 17:20:21 Permalink*
Randy123 Posts: 5863 Incept: 2008-09-24 Earth	Couldn't happen to a better guy than Dick. ---------- China is the Enemy. Wake Up. New Normal. Same As The Old Awful. 2012-11-05 17:24:56 Permalink
Aquapura Posts: 144 Incept: 2012-04-19 Land of 10,000 taxes	I know I've asked this before but I'll say it again. In the ZIRP world where the heck is a retail investor to go for any kind of yeild? I have some money in dividend paying equities which out yeild anything I'd ever get from a bank. I play in some other speculations, but as someone in his mid 30's what would the best and brightest suggest supposing I have time on my side? Should I literally start stuffing the mattress with $100 bills? Also, I get a decent 401K match. Last thing I want to do is leave this "free" money on the table. Should I just let the contributions go into a money market acct? Can those break the buck like in 2008? At any rate, another crash might send my boss into chronic depression. I can't take another bout of him bitching about the value of his 401k like he did back in 2009. This is also the person that questioned me when his Northwest Airlines stock would be worth something again after they filed Chapter 11. Thank God I don't work in finance. 2012-11-05 17:59:04 Permalink
Steelhead23 Posts: 2074 Incept: 2008-09-09 Portland OR	I have to admit my ignorance here, but who exactly is left holding the bag? That is, let's assume this trade closes and Rochdale fails. They have a billion in liabilities and $3.5 million in assets. The guys on the other side of this trade will want their money - and from where I sit, the NYSE itself, serving as market-maker allowed the trade (can one have margin with the exchange itself?) and is thus liable for the shortage. Please somebody with some knowledge about this sort of thing - fill me in. Could the NYSE be dragged into the bankruptcy proceedings of a brokerage firm? ---------- "Give me control of a nation's money and I care not who makes it's laws" ~~Mayer Amschel Bauer Rothschild~~ Benjamin Bernanke For-profit commercial banks are a menace and should be eradicated 2012-11-05 17:59:45 Permalink
Johnny Posts: 1605 Incept: 2008-10-01 Kentucky	All they have to do is wait it out long enough for Apple to go back up... How many times have we used that same thought process on our own crappy trades we fell in love with?!?! 2012-11-05 18:17:45 Permalink
Ckaminski Posts: 1666 Incept: 2011-04-08 Online	Wonder if this was an algo that got 'caught?' 2012-11-05 18:33:42 Permalink
Jslique Posts: 472 Incept: 2008-07-28 Melbourne	But with the new Iphone 5 and the new I pad mini and the company has 100 Billion in the bank and to top it all off Cramer and the CNBS crowd pumping the stock like mad how could the price go down? Perhaps this rogue trader should have spent 10 minutes reading tickers every day. 2012-11-05 18:40:49 Permalink
Hilandstrata Posts: 176 Incept: 2008-10-19	but according to Credit Suisse the markets are more reliable now... http://www.zerohedge.com/news/2012-11-05.... 2012-11-05 18:43:23 Permalink
Frat Posts: 1939 Incept: 2009-07-15 NKY Online	"Nobody could have seen it coming!" Any of the times it happens. Even when people DO see it coming and say so. Nobody - NOBODY - could have seen it coming! ---------- We're ***ed. Where's Henry Bowman when you need him? 2012-11-05 18:43:51 Permalink*
Gates Posts: 6350 Incept: 2008-01-29 Scottsdale	Where do you go for yield? - rental properties... works until it does not then you are ***ED - you roll the dice and take your chances... and pray your timing is right. Alternatively, mattress money and stack pm's - the antithesis of KD's advice, sans the mattress cash:-) if we get to the point where TPTB tax gold at 90% they will have already tried gun confiscation... Last modified: 2012-11-05 18:49:28 by gates 2012-11-05 18:48:42 Permalink*
Crzymorse Posts: 1229 Incept: 2010-06-25 Maryland Online	If it worked out his bonus would have been epic. Top shelf babes, cars and vacation homes. If it fails you always use the "fat finger" excuse, how many zeroes. That wasn't a decimal point it was comma oh **** my bad. 2012-11-05 19:02:42 Permalink

Genesis wrote..

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