Ever added to a losing position? No, me neither. There we are talking about risking no more than 1% of our capital per trade and a former Goldman Sachs co chairman treats his company and crucially OTHER PEOPLE’S MONEY like a pot at a Las Vegas poker table and goes full tilt and all in. Now we can talk about the comparisons not being equitable, they’ll be using a sophisticated funky algo, we ‘at best’ use Expert Advisors, but the principle is still the same, they ‘bet the farm’.
Apparently Jon Corzine, the CEO of MF global bet $11.5 billion on European sovereign debt in his bid to rebuild profits at MF Global Holdings Ltd., almost twice the net amount disclosed to investors, and relied on short-term hedges that left the firm exposed to larger losses if they couldn’t be rolled over. Now how does that differ from the rogue investors at Societe Generale, or UBS? In terms or morals and ethics they’re in the same ball park, but as a former New Jersey senator and governor Corzine will no doubt have all his ducks in a row legally and escape critique and punishment…won’t he?
Corzine joined MF Global in March 2010 with a plan to remake the company into an investment bank in the image of Goldman Sachs Group Inc., where he had been co-chairman before entering politics, He ratcheted up his wager on the debt of countries including Italy and Spain, booking gains along the way, according to filings. The short-term hedges matured before the bonds, meaning the net amount at risk could increase if investors lost confidence in either European sovereigns or MF Global and new hedges couldn’t be bought.
Poor risk management had hurt MF Global before Corzine’s arrival. The company’s shares fell 40 percent in two days in February 2008 after it lost about $141 million on unauthorised wheat trades by an employee in Memphis, Tennessee.
Let’s give the floor and allow the last comments from Josh Galper the managing principal at Finadium, a Concord, Massachusetts, investment research and consulting firm. Josh believed Corzine’s strategy might have ultimately proven “very profitable” had the firm been able to hold the trades to maturity. The firm’s collapse stemmed from a cash shortage, with trading partners and lenders seeking more collateral after the credit downgrade, rather than actual losses on the bonds, Galper said.
“If MF Global had bought the same trade without leverage, there would have been no issue,” Galper said in an interview. Moving aside the funky algorithms MF will have used, versus the strategies retail traders employ, the same principles apply; leverage killed his bet and he had a margin call that killed the company…
Italy may be forced to pay above the 7 percent threshold that prompted Greece, Portugal and Ireland to seek aid when it auctions as much as 8 billion euros ($11 billion) in bonds today. The Rome-based Treasury aims to sell as much as 3.5 billion euros of a three-year bond, 2.5 billion euros of 2022 bonds and 2 billion euros in 2020 bonds. Italy had to pay more than 7 percent in debt auctions yesterday and on Nov. 25. Today’s results are due shortly after 11 a.m. Rome time.
Italian bonds have fallen today as the nation prepares to sell this debt. The 10-year yield rose 12 basis points to 7.35 percent as of 8:34 a.m. in London. Similar-maturity Spanish yields rose 1 basis point to 6.59 percent, while, while French yields rose 4 basis points to 3.65 percent.
The Stoxx Europe 600 Index slid 0.7 percent at 8:59 a.m. in London, following a 3.8 percent jump yesterday. Standard & Poor’s 500 Index futures were little changed, erasing an earlier gain of 0.7 percent. German 10-year yields decreased two basis points to 2.28 percent and Treasury 10-year yields rose one basis point to 1.99 percent. The euro pared an earlier increase against the dollar and yen. Copper fell 1.3 percent in London, while oil retreated from a one-week high in New York.
Bank shares were the biggest contributors to declines on the Stoxx 600, which snapped a two-day advance. Germany’s DAX Index retreated 0.8 percent, France’s CAC 40 lost 1.2 percent and the U.K.’s FTSE 100 Index slipped 0.7 percent. Moody’s said it’s considering lowering debt ratings for European banks amid the potential removal of government support.
Moody’s have made a significant announcement concerning the ratings of all subordinated, junior-subordinated and Tier 3 debt ratings of 87 banks in countries where the subordinated debt incorporates an assumption of government support. They were all placed on review for downgrade the ratings company said in a statement today. The subordinated debt may be cut on average by two levels and the rest of the debt by one grade, it said.
Market snapshot at 10:00 am GMT (UK time)
Asian markets rallied in overnight and early morning trade, the Nikkei closed up 2.3%, the Hang Seng closed up 1.21% and the CSI closed up 1.37%. The ASX 200 closed up 1.08%. European bourse indices have, with the exception of the DAX, fallen moderately after yesterday’s intense rally. The STOXX is currently down 0.26%, the UK FTSE is down 0.27%, the CAC is down 0.37% and the DAX is up 0.35%. The SPX equity index future is currently up 0.4%. ICE Brent is down $0.10 per barrel at 108.92 and spot gold is down circa $3.78 an ounce at 1708.
The euro was little changed at $1.3327 at 8:53 a.m. London time, after gaining 0.6 percent yesterday. The currency fell 0.2 percent to 103.73 yen after rising as much as 0.5 percent. The yen climbed 0.2 percent to 77.79 per dollar.
Economic calendar data releases that may affect the afternoon session sentiment
Tuesday 29 November
14:00 US – S&P/CS Home Price Indices September
15:00 US – Consumer Confidence November
15:00 US – House Price Index Q3
House prices feature heavily today. A Bloomberg survey gives a median consensus of -3.0% year-on-year for the composite-20, from a previous reading of -3.8% for the Case Schiller index. A survey by Bloomberg predicts a change of -0.1% month on month unchanged from last months figure for the Q3 figure.
Consumer confidence is expected to rise, A Bloomberg survey of economists forecasts a figure of 44, as compared with the previous reading of 39.8.