Greenberg Capital LLC Comments on :MF Global Customers to Recoup $546 Million (reprint)

MF Global Customers to Recoup $546 Million

(original source: TheEpochTimes)
Former chairman and CEO of MF Global Jon Corzine testifies Dec. 15, 2011, during a Financial Services Committee hearing on Capitol Hill in Washington. The committee found that Corzine personally ordered the transfer of customer funds to cover company losses. (Alex Wong/Getty Images)

Former chairman and CEO of MF Global Jon Corzine testifies Dec. 15, 2011, during a Financial Services Committee hearing on Capitol Hill in Washington. The committee found that Corzine personally ordered the transfer of customer funds to cover company losses. (Alex Wong/Getty Images)

The trustee of bankrupt MF Global Inc. settled a dispute with J.P. Morgan March 19 that will see $546 million returned to customers. Some experts think the settlement helps to return client funds quickly while others think J.P. Morgan got off too easy.

James W. Giddens, Trustee for MF Global Inc. said, “This is a significant milestone in returning assets to former customers … ending what would have been a costly, protracted, and uncertain legal battle.” He also said that the settlement avoids yearlong delays in returning money to customers.

The brokerage MF Global went bankrupt in October 2011 because of an outsized proprietary bet on European sovereign bonds that went sour. Theoretically, this should not have affected customers who traded futures and other securities with the firm.

Their accounts were segregated from the firm’s balance sheet, off-limits to claims by creditors, who pulled the plug on the firm’s funding after learning about the bet personally initiated by CEO Jon Corzine. When Lehman Brothers went bankrupt, client accounts were frozen for a while, but assets were left untouched.

MF Global was the first instance where the firm used client funds to plug the shortfall in funding. The Rolling Stone estimates that $1.6 billion in client funds were illicitly used to satisfy creditor claims to keep the firm afloat for just a little longer.

David Greenberg, president at Greenberg Capital thinks that the settlement does not go far enough in compensating the victims. Many professionals went out of business because they could not trade anymore.

“This money coming back, it’s nice, traders will be happy that they are getting the money back that should never have been frozen to begin with. However, it’s not going to make a difference in their lives right now. … This blew a lot of people out,” he said in an interview.

As for the people responsible, the House of Representatives Committee on Financial Services found that Corzine personally ordered the transfer of the funds, but the New York Times reported in August 2012 that criminal charges were “unlikely.”

Greenberg again thinks that panel hearings and investigations are not enough. He believes that using traders and risk managers at MF Global as witnesses would have been the best route to accumulate evidence.

“Everybody is once again celebrating a settlement which seems to happen a lot in Washington, they are very into settlements, rather than going after the culprits.” Despite multiple ongoing lawsuits, Greenberg does not think there will be a conviction of Corzine or other executives.

“I’ve learnt through experience, the longer it takes, the less likely there will be a charge. … They could have struck when the iron was hot.”

One of the creditors was J.P. Morgan, which also served as the custodian of the brokerage. Investigations by the Commodities and Futures Trading Commission (CFTC), the Securities and Exchange Commission (SEC), and the Justice Department could not definitively resolve where the customers’ money went.

Greenberg is one of the people who believes that some of the money went to J.P. Morgan with the bank’s explicit knowledge.

“I think J.P. Morgan got off easy. … If the government really wanted to go after them I think the settlement would have been much higher and some people would have ended up in jail for their actions,” he says.

John Roe of the Commodity Customer Coalition, an activist group, also thinks the customers’ money went to J.P. Morgan. Contrary to Greenberg, however, he believes that settling was the pragmatic approach that would ultimately save victims time and money.

“[MF Global Inc.] is getting out the most money with the least amount of litigation. Litigation is very expensive,” he said in an interview.

Nonetheless, Roe thinks that neither J.P. Morgan nor Corzine is “out of the woods.” “Whatever the Department of Justice is looking at in terms of sanctions or civil proceedings against J.P. Morgan or Jon Corzine or whomever, that can certainly still go forward,” he said, mentioning a class action lawsuit currently pending against Corzine.

The MF Global trustee is confident that ultimately all of the customer funds will be returned and Roe thinks that customers will get a 100 percent of their money back “sooner rather than later.”

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Why Are Gas Prices So High? Here Are A Few Reasons

Why Are Gas Prices So High?  Here Are A Few Reasons

As an oil trader, I would tell my friends when I get upset about how much it costs to fill up my car.  You know prices are out of control.  Over the years,  I have heard and experienced every excuse in the book for high gas prices.  During my career as a NYMEX crude oil Pit Trader, there have been many real issues for the spikes in gas prices – such as the Gulf War, strikes in volatile oil producing countries, natural disasters like hurricanes, refinery shut downs, and countless speculation issues.

There a few valid reasons why gas prices have spiked again.  Yes, global demand is up.  However, I do not think it is up enough to triple the cost of crude oil and gas that we are seeing.

Electronic trading has a tremendous impact on crude and gas prices.  Once the Exchanges went electronic, it allowed every fund in the world to trade products that were never before on their radar, and now there is too much money coming into markets that were never developed for this level of inflow.  The Energy markets have become more of a financial instrument rather than the supply and demand market that they once were.

CLICK TO ENLARGE

Another major factor for this spike is the refinery run rates.  I was in the crude oil pit in 1996, the average annual run rate was 94.1%  In 2001, it was 92.9%.  2006, it was 89.7%.  2011, it had dropped to 86.3%.  Anyone can see this trend and the direction it continues to head.

I remember when the El Paso trader would come into the options ring and buy a large volume of calls.  Then a day or two later there was an “unexpected” pipeline cleaning.   With this happening with the run rates, what incentive do they have to lower gas prices?  The lower run rate works in their favor.

There has not been a new refinery built in the United State in decades.  Additionally, more and more existing refineries are old and  shutting down.  Yet gas prices were an avoided topic by both parties this past election.  It is astonishing that this issue was not a significant part of either party’s platform.

Once again, it is clear that the powerful lobbyist in Washington has the nation’s leaders in their hands.  I always laugh when the gas companies say they are not the issue when it comes to prices.  They always seem to have record profits.

Most people keep their eye on crude oil prices.  However, the fact is crude could drop like a rock and gas prices can remain high.  The refineries need to be regulated and brought back up to full strength.  The roll over from winter to summer gas should not take as long as it does, and it is time for new refineries to be built in the East Coast, Midwest, and West Coast to take the pressure off the consumer.

Take a look at the link below at an interview I gave to CNN a little over 10 years ago.  War with Iraq, 2 million barrels off line and look where oil, gas and heating oil was trading – and you will understand just how off today’s prices are!

I look forward to reading your thoughts on this topic in the comment section!

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The Difference Between the SEC Handling of Heinz and Washington’s Handing of the Leak of the SPR in Oil is…

The Difference Between the SEC Handling of Heinz and Washington’s Handing of the Leak of the SPR in Oil is….

petro_reserve3462the SEC took action.  Below is an email sent to a contact in the White House on June 24, 2011 telling the President exactly how to find out which companies might have had inside information.  A contact in the White House was working on the jobs council.  I had also spoken with him about the run up in gas prices.  I realized that, after speaking with him for over 30 minutes, he didn’t understand what I was talking about. It was clear when he asked me how lower gas prices would add to the job market.  I asked him to direct me to the correct people, and I never heard back from him:

From: David Greenberg [mailto:[email protected]greenbergcapital.com]
Sent: Friday, June 24, 2011 4:42 PM
To:  John —[email protected]
Subject: Spr front running. Cftc

Please tell the President that if the CFTC wants to see if there was a leak of news of the SPR information, they need to contact the CME get the crude oil globex records and all orders should have a time stamp-  account number and clearing house.  This is an easy one- –

Also please look at this link from CNBC  http://www.greenbergcapital.com/media.html?id=CNBC-3000029469&sort=0

As far as ideas for jobs when the administration starts a mandate that all buses and trucks run on natural gas. We could start building a network of natural gas stations and terminals across the country.  This would help the energy crisis – put people to work, and help the country stay green.

David Greenberg

President Obama had just made the Statement after the massive sell off a moment before the announcement of the SPR release. The President announced he was going to find out who had the information and go after the speculators who are driving up the world’s oil prices.

The CFTC was one of the agencies that was placed in charge of finding out the information. 

The headline news story was never heard about again.  The real question is why Washington never came forward with their findings. Could it be that a major US trading firm had the information? A firm that might have connected lobbyist? Maybe the SEC was just lucky, the trading firm was not one of the big American banks, and it allows them to look like the hero.  What do you think?  Let me know in the comments below.
Watch an Interview I did on CNBC the night of the SPR release.

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Trading Tip #6 Hit the bid –Take the Offer and Just Do the Trade!!!

Trading Tip #6 Hit the bid –Take the Offer and Just Do the Trade!!!

I was away from my desk today and I wanted to short NFLX.  So, I called one of my brokers and told them to sell  ( Short ) NFLX at the market and hung up the phone. NFLX was emotiontrading at 175. 25 and I waited for the email on my execution, knowing that it wouldn’t  be exactly there, but I had hoped that it would be close. The email came and, yes, I was filled at 173.46. I had to laugh for a moment because it was trading $176.00 when I got the email. In response to my request for times and sales, I received an email showing me that the order was placed at 9:35, along with a note from my broker saying maybe next time I should use a limit order*.  First off all, I called to place the order at 9:32.  3 minutes to fill an order in this market is an eternity. In the pit, if an order took 3 minutes to fill the clerk would have 3 [email protected] and the broker would have 2 – by getting chewed out by the client.  And, most likely, the broker would have to adjust the client from money out of his own pocket.

Which brings me to Trading Tip #6 – Hit the bid –Take the Offer and Just Do the Trade!!! – if you want to get in or out of a trade, GET IN OR GET OUT.  Don’t try to get every last penny out of a trade. I can’t tell you how many people have said to me “I knew the market was going up but my order didn’t get executed.”  And “I missed the trade , but I was right.”  I would just look at them and say, Seriously? And whose fault is that? If you didn’t have the trade on – being right means nothing.”

When I was on the trading floor, the only time I bid or offered was when I wanted to test the market.  If I was short and wanted to test, I would  bid to see if the market came to me and took out my bid – if my bid did not get  hit, it showed me that my shorts might not be that great.

If you want to be long, get long! If you want to be short, get short! The best way to do this is simply by hitting bids and taking offers.  If you’re trading and 1 or 2 cents mean that much to you its time to re think your trading style.  Different trading styles will be talked about in future trading tips.  Everyone should have more then one style of trading.

*Limit orders can be used if you have a trade on and want to leave  a standing order in to get out at a specific price over the long term.  It is also used if you have a long-term entry price that you want to get in or out at.  But, if you’re actively trading, just hit and bid or take and offer and trade.

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Trading Tip #3 – If You Hear the Word “Hope”

Trading Tip #3 – If You Hear the Word “Hope”

THERE IS NO HOPE IN TRADING.  It is like I tell my executive coaching clients who trade – If your thoughts keep returning to “I hope it goes up” or “I hope it goes down”, GET OUT!!!  Get flat and take another look at your view of the market.  Hope is on a date with an old friend of mine and, trust me, it is not going well.  Too many traders are concerned about being flat and missing part of the trades.  Don’t be.  You can always get back in.  No one catches every part of a trade.  Being flat is the best and only way to think clearly, even if its just for a moment.  How many of you have been crushed in a down move by hoping the market would go back up or saying “ this market has to bounce“?  The most important thing about understanding market movements is that the market doesn’t have to do anything.  No one is bigger or smarter than the market, and if you think you are, in time you will be carried out like so many traders before you that you never heard about.
stockYes, there will be times that you get out of a trade and – the moment you do – the market will go your way.  DO NOT WASTE YOUR TIME GETTING UPSET.  I have a lecture named “[email protected]*ng Up and How to Deal with It”, and this is for not only for traders, but for everyone – because the simple and true fact is that everyone [email protected] up.
Traders need to understand that when I traded on the floor,  almost 60% of my trades were bad trades. I could have sat on my butt and kicked the crap out of myself, but if I did, I would have missed so many good trades.  So, if you get out and the market goes you’re way, don’t spend more then a second getting pissed.  Just step back in.
I will explain more  in  Trading tip #4 – Being Able to Admit When Your Wrong …. coming soon.

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Better Off? Electronic Trading vs. Open Out Cry

As the only exchange  Board member in the world that voted against electronic trading, I ask you: As traders and investors are we better off now with electronic trading then with open out cry?Electronic trading volumes are down. They got want they asked for – killing open out cry –  all the exchanges are done with their IPO”s  and people have cashed out.  What’s next for the markets?

Now what is next . . .

Exchange Weekly Volume Tracker as of 11/30

CME volumes were down -16% y/y (+12% m/m) in November; with IR -22%, Equity Index -16%, Energy -17%, FX -5%, Comm & Alt Invst -2% and Metals +11%.

ICE Futures volumes were down -8% y/y (-4% m/m). Swap Futures volumes were down -4% y/y (-9% m/m). CDS weekly cleared volumes were down -29% y/y (-48% m/m) in the US and -40% y/y (-31% m/m) in Europe.

US Cash Equity volumes were down -17% y/y (+2% m/m); with Tape A -17%, Tape B -31% and Tape C -7%. US Options volumes were down -21% y/y (+3% m/m).

European Cash Equity volumes were down -23% y/y (+1% m/m) at DB1, -22% y/y (-11% m/m) at Euronext and -6% y/y (-4% m/m) at LSE. Derivatives volumes were down -31% y/y (-5% m/m) at Eurex and  -1% y/y (+24% m/m) at LIFFE.

Asian Cash Equity volumes were down -9% y/y (+4% m/m) at HKEx, but up +7% y/y (+12% m/m) at SGX. Derivatives were down -8% y/y (-3% m/m) at HKEx, but up +22% y/y (+8% m/m) at SGX.

Latin American Cash volumes were up +12% y/y (+3% m/m) at Bovespa and +12% y/y (-4% m/m) at BMV. Derivatives were down -2% y/y (-11% m/m) at BM&F and -51% y/y (-34% m/m) at MexDer.

CME Group IR through Nov 30

MTD ADV: 4,573,645 (21 days)
Y/Y: -21.81%

QTD ADV: 4,379,664 (44 days)
Y/Y: -7.39%

CME Group Equity Index through Nov 30

MTD ADV: 2,685,385 (21 days)
Y/Y: -15.81%

QTD ADV: 2,516,519 (44 days)
Y/Y: -20.02%

CME Group Energy through Nov 30

MTD ADV: 1,504,996 (21 days)
Y/Y: -17.34%

QTD ADV: 1,587,969 (44 days)
Y/Y: -6.83%

CME Group Others through Nov 30

MTD ADV: 2,281,271 (21 days)
Y/Y: -0.66%

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Apple Stock Hit by Panic Selling: ‘Someone Yelled Fire’

Reposted.  This original article was posted on CNBC’s website yesterday.

Forget the “fiscal cliff.” The real panic on Wall Street is over Apple’s stock. Nearly every mutual and hedge fund has piled into Apple [AAPL  525.62    -11.26  (-2.1%)   ]during its spectacular rise over the past few years. Now, these same funds are scrambling for the exits as the stock goes through an equally spectacular decline.

Apple plunged to a six-month low Thursday as funds rushed to take profits on the stock before it’s too late. Shares are now off 25 percent since late September—shortly after the iPhone 5 launch and a month before the iPad Mini introduction.

The stock, once up 74 percent on the year, is still up 30 percent for 2012. That’s why Wall Street is getting out while it can.

“Someone yelled fire in the theater where the hedge funds were safely booking their year-end profits—and as traders do, they will trample you trying to be first to get to the exit,” said David Greenberg of Greenberg Capital.

More than 800 hedge funds and mutual funds counted Apple among their top ten holdings at the end of the third quarter, according to data from Insiderscore.com. That means the once unstoppable electronics innovator has likely been responsible for the bulk of investors’ returns this year.

Exxon Mobil [XOM  86.14   0.07  (+0.08%)   ] is a distant second among top holdings, according to Insider Score, with 20 percent fewer funds counting the oil company among its top holdings. Microsoft is a distant third with nearly half the funds counting the software maker in its top ten as Apple.

Apple was the classic case of no more incremental buyers of the stock,” said Enis Taner of RiskReversal.com. “No matter how bullish a story, you need new buyers of the stock each and every day, or it will go down. Simply put: Apple has run out of them.”

Besides panic selling, the world’s most valuable company faces the daunting fundamental task of growing a colossal revenue base at a fast enough rate to keep growth-oriented managers satisfied. The company booked $156 billion in revenue at the end of its fiscal year in September on higher sales of Macs, iPods, iPhones and iPads.

“The new product aspect has faded recently as the newer versions of their products provide less of a reason to upgrade,” said Stephen Weiss of Short Hills Capital. “While Tim Cook is a capable executive apparently, his background is in procurement and engineering, not innovation.  So who is driving this?”

Some investors and analysts suggest that Apple is going through the rough transition from a growth story to a value story. With a 2 percent dividend yield and a forward price-earnings ratio nearing 10, the stock could have this new class of investors salivating at these levels.

“We believe that Apple is transitioning from a hyper-growth story to a more traditional, high quality branded company story,” said Toni Sacconaghi of Bernstein Research. The analyst, who has an $800 price target on the stock, believes Apple’s next big announcements will be an increase in the dividend and share repurchase.

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MF Global – My email to the CFTC

This blog was originally set to post on 10/31/12,  due to Hurricane Sandy and the issues that we faced on Long Island, New York, it was delayed.

The following was an email I sent to Bart Chilton on the eve of the MF global Collapse. The actions that were not taken by the CFTC and the CME added undue risk into the markets –  many traders and introducing brokers never recovered from being locked out . While John Corzine is a free man, and the board members of the CME and commissioners of the CFTC point fingers and have conflicting stories, they are still in positions of power.  The real question is ’What lies ahead for investors?’ The markets with cleared swaps are only getting more complicated to regulate and the speed in which events happen will only get faster.  We have seen over and over that the regulators are still behind on understanding the futures markets.

As a former NYMEX Board and Executive Committee member, as well as an investor, I am deeply concerned about what lies ahead. The meltdowns of the past will seem small and slow in comparison to what is about to happen in the near future The time has come to reform the CFTC and the SEC with people who understand the new markets and how they are traded.

My email to Bart Chilton clearly points out what I thought would happen and did –

Bart,

I am sure you are up to your ears dealing with the MF Global issue . However, the Floor Traders both in Chicago and New York are being put in a position that is just unnecessary. They are not part of the issue, the funds should be in a seg account and they should be allowed to be moved quickly and with ease.

There is no more risk in these account then there were days ago and, if anything, the CFTC has caused all the accounts to have unlimited risk since they can not be managed by the traders. Liquidation only for these traders will, and can, do more harm in the markets. It will cause moves that are not with in the normal parameters of trading and many traders and companies could have major issues which could have easily been avoided .

In the end, none of the money in the traders account will provide help for the issues that MF Global now faces and lives will be destroyed.

Refco??? All the traders on NYMEX and CME got all their money back.  Can we all learn from the past to see where this is going and stop the pain to the people who had nothing to do with this?

This is the easiest part of the problem and the CFTC can and should handle this tomorrow.

I realize that many of the people you work with do not understand all clearing and exchange issue. However, after our conversations, I believe that you do and that you can see my point.

If I can help out in any way please let me know  .

Regards,

David D. Greenberg

President, Greenberg Capital

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CFTC Stuck on Position Limits

Earlier this week, Reuters published an article: CFTC staff recommends appeal of commodity limits ruling: source

CFTC web site fact:  The Energy and Environmental Markets Advisory Committee (formerly the Energy Markets Advisory Committee) has not met since September 16, 2009 and the only other meetings were May 13, 2009 and June 10, 2008.

While being a Board Member at the New York Mercantile Exchange (NYMEX), I remember the feeling of always banging my head against the wall when I knew the CFTC was looking into issues of trading improprieties. They always asked the wrong people the wrong questions. I often wondered whether they had their head in the sand for reasons we cannot talk about or if they were just always out-matched

I think it is a little of both.

The CFTC is definitely stuck on position limits when it comes to oil prices and speculation.

When oil was at $114 a barrel in July 2011, I spoke to Bart Chilton, one of the commissioners of the CFTC. I told him the position limits on WTI was not the major issue running the price of crude up. I explained to him there were also accountability limits that allowed traders to exceed their limits once they showed they had the excess money to trade.

However, that was also not the main reason why speculators could move the market to the high prices, I told him (and later also told Commissioner O’Malia) that the major factor in the oil markets was the ICE Brent Cash Settled Crude market.  At NYMEX, by expiration a trader needs to get out of their longs or shorts in the market and this brings a natural leveling off of the product.

ICE settles in cash. Meaning the trader would never have to be concerned about getting out of their longs (yes, this works in reverse in a down market).

Add to the fact that, unlike WTI Crude, there are no weekly reports of how much and where the Brent Crude oil is.  No one really understand their settlement procedure. Even when I was sent to London years ago to try to steal the Brent traders and bring them back to New York to trade – none of them could tell me how the market was settled!

NYMEX WTI Crude settles with the average of the last 20 minutes of trading the day of expiration.

I spoke to Chilton and O’Malia about the need to work together with the FSA, who is the London Equivalent of the CFTC and regulates the ICE exchange.  ICE is a London based Exchange that has their headquarters in Atlanta, and who bought a New York Clearing House that is regulated in London.

ICE only started a optional program to give the CFTC their large trader reports after the run up in crude to $147 a few years ago.

The CFTC was, once again, told a direct way to help stop the speculation in oil prices – they were told that position limits will not only not help but it will drive trading overseas – and the courts rule against it.

And they still can’t let it go.

Washington at its best right?

In time, I will go over conversations I had with them concerning the MF Global blow up and just how they didn’t look into leads that would have answered many questions that are still out there.  We will also be looking at the impending disaster that will come from new concept of the cleared swaps market due to the inability for the CFTC to regulate them properly since they have not even caught up to regulating the new electronic and HFT markets.  Stay tuned!

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High Speed Trading

“The SEC is still a ways from any new policies to address issues posed by high speed trading, especially because the new research office still needs time to do its analysis.” Mary Schapiro said.

I have often said on CNBC, FOX and other networks  and in lectures and speaking engagements that 4 out of 5 commissioners of the CFTC have no trading, clearing or exchange experience. It is time to get people who understand the new markets into positions to safeguard the public.

I have said before the markets have gotten away from the very people who invented and regulate them. In time if the regulators do not get together and regulate the markets as a “world market “ and realize that more than ever they are all connected then big bang theory in markets is what they will do a Harvard case study on when they look back and ask how could we have let this happen.  HAL comes to mind.

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