As the END GAME approaches, rumors, speculation, and plain old misinformation will rule the day. With global economies plunging, and financial markets schizophrenic due to unrelenting bad news and government interventions, investors are on edge regarding the next “shoe to drop.” It’s gotten to the point that I have a hard time finishing a thought, much less a paragraph, before the next jarring headline emerges.
Last night, the internet was abuzz with chatter of the CME’s announcement that maintenance margins would match initial margins as of Monday afternoon. Per the ZeroHedge article below, this was universally interpreted to mean maintenance margins were being raised to the level of initial margins, and thus margin calls would be issued to any underwater account as of the close of trading Monday.
Fortunately, the CME issued a clarification this afternoon, stating that instead of raising the maintenance margin, they will be lowering the initial margin. This change will also make initial and maintenance margins equal, but with the OPPOSITE EFFECT of loosening credit, and thus increasing the allowable risk-taking of frenetic hedge funds and black box algorithms. Moreover, they specifically cited the MF Global bankruptcy as the reason behind the change.
“The intent and effect of these changes is to decrease the size of any margin calls resulting from the bulk transfer of MF Global customers to new clearing members, not to increase them.“
Yes readers, covering another paper failure over with yet more paper. It’s quite amazing the CME could have put out such an ambiguous press release in the first place, as the current market environment is hair-trigger, to say the least.
While on the topic of misinformation, there is plenty to go around this weekend, very little of it positive. Coincident with hearing of the CME press release misunderstanding, I learned that MF Global’s missing $658 million, which apparently emerged from the ether Friday afternoon into a JP Morgan account, may not be there after all.
The MF saga will likely continue for some time (in the worst case, triggering a major market disruption), so I think I’ll just wait and see on this one. Clearly, there is a whole lot of FUBAR going on in Europe and the States, and consequently, “official” communications are becoming less and less reliable.
To wit, last night the big “Breaking News” was the Greek government achieved a political “victory” when it survived a no-confidence vote by the scant margin of 153-145. While in the gym yesterday evening, CNBC was touting this as a major positive catalyst, a breakthrough of sorts sure to usher Greece through its woes.
Of course, nothing about Greek politics these days is remotely positive, and today’s news is far less sanguine, suggesting escalated infighting within the Greek government. Irrespective, it’s the MATH that matters most, and the MATH states Greece WILL default, likely sooner rather than later.
While frustrated at being whipsawed this weekend, the new era of confusion is upon us, and it is my job, and duty, to WARN you to the best of my ability. The CME press release was fortunately misinterpreted, but draconian actions such as what was initially intimated can emerge at any time, and WILL do so as economic, political, and social conditions worsen.
Consider today’s drama to be a test of the “financial emergency broadcast system.” Think long and hard of the damage such actions would have caused to your financial well-being, and take action to reduce your exposure to such risks.
I hope I didn’t scare you, but believe me no one was more worried than myself!
P.S. Like I said, I can’t finish a paragraph before the next “horrible headline.” Per below, if the ECB stops buying Italian bonds, who will? More about that on Monday…