Tag Archives: spoofing

Jun 9 2017

Bank Stocks Have a Completely New Risk


Armstrong Economics Blog/Banking Crisis

RE-Posted Jun 9, 2017 by Martin Armstrong

Spain’s Banco Santander is paying €1 to take over troubled rival Banco Popular, in a deal that illustrates Europe’s new system to rescue failing banks without burdening taxpayers or stressing markets. This is being cheered around the world because the shareholders lost absolutely everything. The bank which was valued in the collapse at €1.6 billion was bought for €1. Forbes wrote:

“This is an excellent example of how the resolution of troubled banks should be done. The shareholders who employed the management which caused the problem lose all their money. The depositors, who were and are not responsible for the bank’s troubles, are protected. And we don’t end up with some great smouldering hole in the financial landscape where Popular used to be, we get new capital raised instead. Further, no taxpayer has been harmed in this operation.”

 

Santander said Wednesday it will take over all the shares in Banco Popular, which had lost more than half their value since last week as concerns grew about the lender’s financial health. It will raise around €7 billion in a share issue to strengthen Banco Popular’s balance sheet. This “takeover” was conducted in an auction sanctioned by European authorities after the main banking regulator in the Eurozone, the European Central Bank, said Tuesday that it believed Popular was “failing or likely to fail.”

This was the first time the ECB had pulled the plug on a bank since it was given new powers aimed at preventing the rescue of banks from overwhelming government finances. European leaders had all agreed to move banking supervision to the EU level. Hence, the ECB took over supervisory responsibility on in November 2014. The collapse was caused by €7.9 billion in non-performing assets, including €7.2 billion in real estate. Banco Popular shares fell about 38% last week and then another 20% this week, to 0.32 euros per share before regulators halted trading in its shares. The bank had 305,152 shareholders as of the end of March.

The sale is “in the public interest as it protects all depositors of Banco Popular and ensures financial stability,” said the European agency that manages failing banks in the 19-country Eurozone, of which Spain is a member. The Spanish government had previously ruled out bailing the bank with taxpayers’ money. The Spanish Economy minister Luis de Guindos said the sale was “a good outcome” given the shortfall of the lender over the past weeks. He added that this takeover “ensures the maximum protection for depositors and the continuity of the bank’s activity.”

So now comes the €64 trillion question. If government will not bailout banks, then eradicating all value to shareholders attaches a completely new kind of risk to shareholders. If they were investors in a manufacturing company that went bust, the assets would go into bankruptcy and there would be a realistic sale of assets.  What has just taken place is that if the net asset value of the bank, its own building, property etc., were say even 20% of the share value, then the shareholder face a 100% loss in bank stocks compared to any other share investment. That leaves one poignant question? Why buy bank stocks at all?

A new risk has just been created. Instead of a bailout loan to bridge liquidity problems as was the case with the original elastic money development of the Clearing House certificates during the 19th century, we now have no government support for which elastic money was invested and bank shareholder are subject to total usurpation of their assets and denied the normal property rights attributed to a free society. The “elastic money” is now central banks trying to “stimulate” the economy solely by means of purchasing government debt.

Something is seriously wrong in the development. Shareholders rarely have full transparency in bank management to be able to make prudent and informed investment decisions. Welcome to the new crisis created by yet another solution.

Jun 6 2017

Is Spoofing & Front Running Market Manipulation?


Armstrong Economics Blog/Rule of Law

Re-Posted Jun 6, 2017 by Martin Armstrong

QUESTION: Any comments on the Deutsche Bank trader admitting to manipulating the metals markets?

JK

ANSWER: The way these people claim the metals are manipulated make it sound as if gold would be $10,000 but for the market manipulations. That is total and complete nonsense. The former Deutsche Bank trader David Liew has confessed to a completely new definition of market manipulation when in fact this was the way markets trade ALL THE TIME!. He told a US court that he had learned at Deutsche Bank how to manipulate precious metal prices on the derivatives market. Traders from other major banks were also involved in these so called manipulations.

What David Liew has confessed to is really absurd. He did so to get out of jail cooperating with the public prosecutor and they will say absolutely anything in such a situation. The accusations against David Liew are “spoofing” and “front-running” which has been going on for my entire career in finance. Floor brokers routinely engaged in “front running” so you had to engage in “spoofing” to send false signal to them just to be able to get a trade off.

I had to manage the Aristotle Onassis estate metal position. I had the biggest position in platinum in the world. To be able to trade that much, I had to prove to the CFTC that I actually had that physical metal. It took probably 6 months to get authority to trade at that level. When I picked up the phone to do the very first trade, every broker in London and New York already knew what I was doing and how much I had. The regulators told everyone off the record of course.

I was forced into “spoofing” because if I wanted to sell platinum, the market-makers would move the quotes assuming I was a seller. I would have to buy gold, then silver, in respectable size orders and then ask for the quote on platinum. They then flipped and assumed I would be a buyer and “front running” began. They would move the bid-offer up assuming they read me correctly, and then I would sell. I had to take intention losses on the gold and silver to sell the platinum. If you did not know HOW the markets traded, you were gone by the third trade.

This type of “manipulation” is within the trend and by no means changes the bull market into a bear market. The bigger your size, the harder it is to trade and you better know what you are doing. I would certain not want to trade today with prosecutors bringing criminal changes calling this type of trading “manipulation” when it does not alter the trend. This is how you trade and it has been how you play poker. To them, if you bluff and raise the bid and the guy who would have had the winning hand folds, that’s the game. Who has the better “poker face” as they say.

All the prosecutors are doing is destroying the marketplace. The net result of these type of prosecutions are against the public interest for they are destroying the LIQUIDITY. The more people who withdraw from trading, the greater the risk of FLASH CRASHES. If nobody is there, you will get bigger gaps than you have ever seen in history. This is interesting enough what our computer model is warning. We are in a huge bull market for panic style volatility.

 

May 28 2017

US to Sell Off its Strategic Emergency Oil Reserves


Armstrong Economics Blog/Energy

RE-Posted May 28, 2017 by Martin Armstrong

The US government plans to sell half of the Strategic Emergency Oil Reserves and gasoline. The days of OPEC embargoes of the 1970s are now long past. The government plans to increase its budget for the financial year by $500 million. Therefore, over the next decade, the government wants to increase financial leeway by as much as $16.6 billion. With the US at a net exporter level and the shift toward electric cars, it becomes questionable if we need the Strategic Emergency Oil Reserves any more.

We still see support at the $32 level on a yearly closing basis. To stabilize, we need Crude to close above the 2016 high of $54.51. Both the oscillators as well as our Energy models imply that the high is in place for the near-term in real value. As long as Crude hold above the $32 level on an annual closing basis, then moving forward in time, new highs in nominal terms becomes possible but not in real value terms.