Why Our Markets Are Going to Blow Up Again
Karl Denninger / Market Ticker
Read carefully for content folks:
Rochdale Securities LLC, the brokerage that employs bank analyst Dick Bove, is in advanced talks to save the firm after unauthorized trades in Apple Inc. (AAPL) went sour, said two people with knowledge of the negotiations.
…
Top Rochdale executives told potential investors that a trader bought $750 million to $1 billion in Apple shares last month without permission, the people said. The stock then dropped in value by a few million dollars and depleted the firm’s cushion against losses, the people said. Closely held Rochdale had $3.44 million of capital at the end of last year, according to a regulatory filing.
Ok, how?
This tells you everything you need to know.
The company managed to purchase, somehow, two hundred times its capital worth of stock, a leverage ratio of (duh!) 200:1, which means a 1/2% decline in value would wipe out the entire capital book.
With what did the firm clear that trade? Its good looks?
Margin? What’s that? 2:1? 5:1? 10:1? Oh no, there was no supervision at the exchange and clearing level at all. That much is clear because otherwise this trade could have never been made and it most-certainly could not have cleared at T + 3 settlement!
But it was and did, according to reports.
So again: How?
You think this is a one-off eh? That nobody else on the street has exposure like this, but things have moved “their way”? Based on exactly what? Would you care to present your evidence for this claim?
Let’s be clear, just in case you missed it:
This is yet further evidence that the entirety of the market is, at present, stuffed full of alleged “positions” for which there is no capital whatsoever — these positions are literally credit created out of thin air, and when, not if, something goes wrong the forced liquidation will lead to widespread destruction of firms and prices exactly as occurred in 2008 — but worse!
Remember, Lehman was only geared 30:1.
Get out.
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