If we get another MF Global folks the market will drop 5,000 DOW points and not bounce, as that will be that — in the grains, in the commodities, in everything.
And Ann Barnhardt has pointed out that the firm that used to clear Think Or Swim futures (but since the Ameritrade acquisition no longer does), Penson, might be that domino.
I have no idea what their liquidity position actually looks like. All I know is what I see in their stock price. But this does not look good, and as Ann points out there is now history with MF Global and the CME refusing to make good when their oversight fails and customer funds “disappear.”
In short don’t expect that you’re safe if Penson blows because there is no evidence you will be safe, and plenty of evidence that once again CME will step back and refuse to accept any responsibility for anything that happens to your money.
What’s worse is that Penson’s net capital has deteriorated markedly in recent months. We don’t have March’s numbers but February was down nearly 30% over January. Two months have passed since that time…..
Now it’s certainly possible that Penson could go under but customer funds would be protected and fine. That’s ok if that happens — businesses fail all the time.
But as I said at the time MF Global went down and customer funds were lost, if it happens again there will be no confidence remaining in the market, the break will be immediate and disastrous, and it is entirely possible that the proprietary trading of all brokerages will unwind and you will discover that there is no such thing as a safe brokerage in which to trade or invest as it is entirely possible that we will discover that all such banks and brokerages have enough proprietary exposure that they will all fail and you will lose all your money.
That simply must be the assumption you make until and unless it’s proved otherwise at this point in time.
Therefore if you are not, right now, playing only with money you can afford to lose 100% of, even if you’re right about what the market is going to do, then you’re a fool to be in the market at all.
And yes, this means you if you have a 401k, an IRA, or a pension whether private or public.
Our government has not and will not protect you. That has been proved over the last five years and all of the major political parties — including Democrat, Republican and Libertarian have refuse to stand up and demand that the crooks go to prison. In fact, they not only have refused to say that or do it they’re actively borrowing from the people they should be policing!
In 2008 and 2009 we had the opportunity to fix this as I was pounding the table on before the dislocation really took off — back to 2007. I called for the reinstatement of Glass-Steagall, nightly liquidity proof and no more games. Of course that wasn’t “politically correct” and would have exposed that all these firms were bankrupt already, so it wasn’t done. Then the dislocation came and you get rammed.
Now it’s about to come at us again, exactly as I expected it would, as we have fixed nothing in the intervening four years.
Don’t say I didn’t warn you if and when it happens because I most-certainly did.