Stuff That Doesn’t Add Up
Last week global capital markets gyrated in a fashion I’ve never seen before. Intra-day business-cycle-in-a-day movements in equity markets included disparaging collapses as well as stunning “flagpole” rallies.
It made for some gripping, televised, real-time, fantasy-land, main steam financial reporting.
I must admit, I became exhausted just watching / listening to it all happen.
By Thursday of last week, the mainstream financial press had “more or less” arrived at the conclusion that the wild-ride-proceedings we experienced earlier in the week was all the work of a “lone trader” - a junior employee working for French banking giant – Société Générale:
Société Générale - The Lone Trader Theory
After a rogue trader cost the French bank €5 billion, many are left to wonder about the lucrative but risky equity-derivatives business. Is this all a clever cover story for 'les SIVs de merde,' or did a lone bank trader, not even a central banker, wielding his Mannlicher-Carcano trading platform, almost take out the entire world's financial system without a proper bonus, a golden parachute, or even a corner office?
After a rogue trader cost the French bank €5 billion (equivalent 7.1 billion americanos), many are left to wonder about the lucrative but risky equity-derivatives trade. One of the biggest frauds in financial-services history apparently was carried out by a 31-year-old trader in Société Générale's Paris headquarters, whom multiple news sources have identified as Jerome Kerviel. The trader "had taken massive fraudulent directional positions"—bets on future movements of European stock indexes—without his supervisors' knowledge, the bank said. Because he had previously worked in the trading unit's back office, he had "in-depth knowledge of the control procedures" and evaded them by creating fictitious transactions to conceal his activity.
The fraud was discovered Jan. 20, a Sunday, which meant Société Générale had to start unwinding the positions Jan. 21 just as global equity markets were tanking on fears of a U.S. recession. "It was the worst possible time," says Janine Dow, senior director for financial institutions at the Fitch (LBCP.PA) ratings agency in Paris. SocGen, which also announced a nearly $3 billion 2007 loss related to U.S. mortgage-market woes, has had to seek a $5.5 billion capital increase and could even become takeover prey.
As I type up this account of last week's proceedings on Monday morning – with one eye glued to television’s business channel – there’s still lots of talk about the former but nary a mention of this:
Lawyer for SocGen trader: "He didn't steal anything"
updated 4:13 p.m. ET, Sun., Jan. 27, 2008
PARIS - A lawyer for the trader accused by Societe Generale of fraudulent trades costing billions said Sunday that accusations of wrongdoing against his client were being used to hide bad U.S. mortgage investments by the bank.
"He didn't steal anything, take anything, he didn't take any profit for himself," the lawyer, Christian Charriere-Bournazel, told The Associated Press by telephone, speaking of his client, Jerome Kerviel. "The suspicion on Kerviel allows the considerable losses that the bank made on subprimes to be hidden," he added….
Bad mortgage investments hobbling a financial behemoth? Has a familiar [truthful, perhaps?] ring to it, ehhh?
Interesting To Note:
The more conflicted mainstream financial reporting has become, the better the price of gold [and precious metals in general] has done!
Do you own some?
Overseas equity markets began the week on a sour note with Japan’s Nikkei Index taking it on the chin for 541 points to close at 13,087. North American markets had a decidedly more positive tone with the DOW up 176.70 to 12,383.90, the NASDAQ ahead 23.71 to 2,349.91 and the S & P adding 23.25 to 1,353.85. NYMEX crude oil futures gained .38 to end the day at 91.09 per barrel.
Interest rates were about 4 basis points higher across the curve with the benchmark 5 yr. bond finishing the day at 2.81% while the benchmark 10 yr. bond ended the day at 3.61%.
On foreign exchange markets the U.S. Dollar Index fell .32 to 75.58.
Precious metals advanced with COMEX gold futures gaining 16.40 to 927.40 per ounce while COMEX silver futures added .27 to close at 16.73 per ounce. The XAU added 2.93 to close at 188.47 while the HUI gained 6.44 to 467.96.
On tap for tomorrow, at 8:30 a.m. Dec. Durable Goods Orders data is due – expected +5.0 % vs. prior - .1%. At 10:00 a.m. Jan. Consumer Confidence data is due – expected 86.0 vs. prior 88.6.
Wishing you all a pleasant evening and healthy returns in your investment portfolios!
About Rob Kirby
Rob Kirby Archive
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|08/02/2010||The Extinction of the Bond Vigilantes||story|
|06/07/2010||Toronto G20 Summit||story|
|02/09/2009||Crime Scene Investigation||story|
|11/03/2008||Fudging, Fundamentals and the Electoral Cycle||story|