Saturday, October 15, 2005

REFCO--REPRO 1929

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By Elaine Meinel Supkis

I have been watching the news about the Refco derivative speculator enterprise going belly up. As with Enron, it began with naked greed causing the President of that company to heist $450 million. He obviously isn't working the hustings in Iraq where that is considered spare change. In Iraq, more than one "purchaser" for the war has absconded with many millions and instead of buying stuff for the government there, dissappear into Lebanon or the Cayman Islands.

WIth Refco, we are witnessing the October Surprise a la 1929. This organization promised to make tons of money for everyone without anyone lifting a finger. This magic money was supposed to just pour into one's bank account without any real function. Money making money.

But this machine is breaking down, what a shocker-oo.From the NYT:
Refco said today that it would unwind its securities business, and the Securities and Exchange Commission barred customers of two divisions of the commodities brokerage firm from withdrawing funds from for 20 days.
The insiders got their money out now the chumps get stuck, like with Enron, watching their money evaporate.
The shutdown of the securities business and S.E.C. prohibition were only the latest in a fast-moving series of events at one of the world's largest futures broker since it said Monday that it had failed to disclose transactions with its chief executive, who was suspended.

In a statement, the company said Refco Securities would "only be engaging in security transactions to the extent necessary to offset and effectively liquidate outstanding long and short customer and proprietary positions."
When the top of an organization is a criminal, all under him probably are, too. Ask Ken Lay.
Standard & Poor's cut Refco's credit rating on Refco's debt for the third time this week today, this time to "CC" from "B-" - both junk bond ratings - and maintained a negative credit watch on the rating, indicating that it may downgrade the company further.

"These announcements indicate that a technical default by Refco Group on its rated debt is almost certain to occur and that a payment default is highly likely due to Refco Group's negative tangible net worth and the deterioration of its franchise," Tom Foley, a credit analyst with Standard & Poor's, wrote in a note. "The 'CC' rating indicates a high vulnerability to nonpayment."
Ie: the money is gone. If you want to see it, go to the Cayman Islands or call up the call girls who spent some of it. They might give a freebie blow job.

From the NYT:

Mr. Bennett, smartly dressed and in good spirits, sat and chatted about the paintings on the office walls and the options that Refco had for moving when its lease came up at the end of the year. In riding a worldwide boom in the trading of commodities and derivatives, Refco was on top of its game: the company had successfully gone public in August, selling $583 million in stock and making Mr. Bennett and other top executives very rich men.

"He didn't seem to have a care in the world," said the chairman of the Philadelphia exchange, Meyer S. Frucher.

Mr. Bennett is no longer chief executive. Forced to wear a monitoring device on his ankle, he now faces a charge of securities fraud in connection with $430 million in debt that prosecutors say he hid from regulators and investors. His firm is rapidly sliding over the brink as customers flee and regulators and bankers look to pick up the pieces.

Wall Street's history is littered with abrupt financial collapses, but few have been as fast and furious as the implosion of Refco this week.
Few? Well, maybe the NYT reporter should read up about the 1929 Stock market collapse. Like this one, it was way inflated by realestate speculation and bizarre trusts designed to make money from money and of course betting on currency differences. Oops.

From Market Watch:
But now the possible collapse of the largest independent commodities and futures broker in the U.S. has top investment banks, regulators and exchanges scurrying to save a company that's quietly become an integral part of the nation's financial markets.

Experts said Refco's failure won't threaten global financial markets in the way Enron's collapse did in 2001 and the demise of hedge fund Long-Term Capital Management did in 1998. Still, the company's troubled tentacles stretch far and wide, from pork bellies to futures on stocks and bonds.
hahahaha. Experts said the same thing in Oct, 1929. They are always nearly uniformly wrong when things like this happen. They are paid to keep the rubes and outsiders deluded so more money can be stolen before the cops blow the whistle.
Refco processed 461 million derivatives contracts in its 2004 fiscal year, about the same amount traded on the Chicago Board of Trade and more than the volume traded on the Chicago Board Options Exchange and the New York Mercantile Exchange.

The company also cleared more than $9 trillion worth of U.S. Treasury bond repurchase, or repo, transactions and processed over $680 billion in the foreign exchange markets for clients.

The broker has more than 200,000 customers, including corporations, government agencies, hedge funds, pension funds, financial institutions and retail and professional traders.
OK, dear readers, what have I been yelling about all this time?

China just called in the chips, everyone. China is the buyer of government bonds that Refco was selling! Speculating on the rise in the yuan is what Refco was doing. The people working with Refco were all those clowns going to and from China, trying to make the yuan rise happen so that is would benefit them. They are the same clowns who were the traitors selling our debts to the fricking COMMUNIST CHIINESE PARTY so we could run lots of red ink so they could loot the Treasury via Iraq!

These traitors thought this game would run forever but the Communist party of China just cut them off, quite brutally and suddenly. This is why our Secretary of the fucking Treasury is over there, begging on his fucking knees! He knew they are all in hot water now and he wanted to keep this ball rolling and they made him eat dirt and then laughed at him.

Look at this yet again, $9 TRILLION IN US TREASURY BOND REPROS. Trillion. Think about this. How much does America owe the world? Guess! Maybe this is a typo! I don't know! If they meant billions, it is still a lot but trillions is...OUR ENTIRE DEBT!!!!

OK. Sigh. One thing our real rulers don't want is for us to see the actual bank accounts. They never do. For hundreds of years, they made a ton of loot lying about what is actually in the bank. This is why runs on the bank annoy them so much, there NEVER IS ENOUGH IN THE BANK! This is by definition. At this point, the amount in the bank is very little, hardly anything, probably as deep in the red as all our other operating systems, this means we are in total red alert territory.

Time to review the past: From The Crash:
On October 19 1987, the Dow-Jones industrial average suffered a major devaluation. The Dow lost over 500 points. Stock trading markets worldwide were all suffering similar declines. At the time, there was a lot of concern over what this meant to the overall economy of the world. The reason for this concern comes from the fact that the last time there was a large devaluation in the stock market, there followed a depression. Economists used a yardstick from the Jazz Age to evaluate this 'correction'; the yardstick was the crash of October 1929.The crash of 1929 continues to be a fascinating example of panic in high finance and is still a staple of Economics 101. This event involved all people, big and small, rich and poor, young and old. Everyone.
It began on Thursday, October 24, 1929. 12,894,650 shares changed hands on the New York Stock Exchange-a record. To put this number in perspective, let us go back a bit to March 12, 1928 when there was at that time a record set for trading activity. On that day, a total of 3,875,910 shares were traded. As you can see, Wall Street was a very, very busy place, as were markets world-wide. A big problem not mentioned so far in all this was communication.
*snip*
The ticker tape machine had gone through great amounts of perfections since its early applications in the 1870s-80s by Edison and others. Even at telegraphic speed, the volume was having an effect on time. Issues were behind as much as one hour to an hour and a half on the tape. Phones were just busy signals on hooks. It was causing crowds to gather outside of the NYSE trying to get in the communication. Police had to be called to control the strangest of riot masses; the investors of business. It is not yet noon.

The habit of lunch eased the panic somewhat and New York paused for a breath. There were rumblings of bargain grabbing to come in the afternoon, so maybe something could be salvaged. And it did comeback to regain much of the losses. For example, a stock like Montgomery-Ward opened at 83 and dropped to 50 and recovered to 74. This was typical for the big name companies. On Friday, the mixture of margin call bargains combined with sells that were waiting from the late tickers on Thursday led to a bit of a gain. The trading was about 6 million shares. There was a short session on Saturday which brought everything back to the level of Thursday.

The weekend was indeed welcome relief. It gave investors a chance to sort out their portfolios and plan for what might be a rough week. If we go back to our 100 shares of Red Wagon shares is worth about $13500-that's better than $9800 we were faced with before noon on Thursday the 24th! I think we wouldn't mind just sitting. Don't think I want to buy anymore right now. Our broker has called us and asked if we want to sell or put up the margin. Well we paid $1500 for the thing, why not cover the margin with $2500? It keeps our investment viable. We'll raise the cash somehow.
A good read, this site.

Well, the economic news sucks. We lost a major city, a major port AND crippled a very major industry, the energy sector. On top of this, there is a draining war and a budget crisis.

From Yahoo.com:
Consumer prices surged in September by the largest amount in more than 25 years as Hurricanes Katrina and Rita sent energy prices soaring at the fastest pace on record.

The Labor Department reported Friday that inflation jumped 1.2 percent last month. It said that 90 percent of that increase came from a record-setting 12 percent surge in energy prices which reflected gasoline prices that briefly topped $3 per gallon last month after widespread shutdowns of refineries and oil and natural gas platforms along the Gulf Coast.

The White House downplayed the report.

"The president has confidence in the Federal Reserve when it comes to monetary policy and their ability to address any inflation concerns," White House spokesman Scott McClellan said.

Meanwhile, the Federal Reserve reported that the devastating hurricanes sent output at the nation's factories, mines and utilities plunging by 1.3 percent in September, the biggest one-month drop in more than 23 years.
Geeze. I mean, duh! All the lies they told during September. Every pronouncement by nearly every expert and pundit was a lie. They lied. They weren't misinformed, they weren't blindsided. They lied so they could bail out before the rubes noticed their ship was sinking.

A quick review of my cartoons showing ships sinking, people flying off of cliffs, thrown out of planes, money burning, bubbles busting knows that this lying wasn't accidental. It was malicious and deliberate. I knew about Refco for several weeks now but didn't write about it because this isn't an investor's newsletter. If it were, I would charge money.

Maybe I should change this site! Heh. But writing about money frankly bores me. Concentrating on it would wither my soul.

But I just want to say, I was right, they were all 100% wrong, la-la-la.

Keep your eye on the Chinese. They are the ones holding the other end of the rope around our necks. They stopped feeding us more line.

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