Last year proved to be difficult to describe. The economy didn’t experience a double-dip recession as some had feared, though recovery is too strong a word to describe it. The Eurozone did not implode, but not for lack of trying. The U.S. government did not default, even though it tried. Politics became more dysfunctional and we grow weary of an election still eight months away. Taking the cake is the MF Global failure that has the integrity of the futures industry teetering on a precipice.
War on terror: While we hesitate to celebrate a death, the Navy SEAL operation that resulted in the death of Osama Bin Laden on May 2, 2011 was definitely a top as the undisputed leader of Al Qaeda had been at large a decade after unleashing the 9/11 attacks that forever changed our world. His attack on 9/11 killed nearly 3,000 people, many of them in our industry.
Economy: By no means is the economy flourishing, but we spent much of 2011 talking about a double-dip recession. That has not happened and while the jobs picture has not been great, there has been job growth; 1.9 million jobs have been added despite a net drop of 280,000 public sector jobs.
Arab spring: While still an unfolding story, the fact that popular uprisings have led to the end of oppressive regimes without all-out wars is a top. Tunisian and Egyptian leaders have been removed and there is hope for democratic reforms. Unfortunately, that is not the case in all Middle Eastern nations experiencing popular uprisings.
Equities in like a lamb, out like a lamb: While 2011 was one of the more volatile years in equity markets, at the end of the day the major indexes were up slightly. The CBOE VIX index opened 2011 in the teens and closed at 22.65, despite spiking near 50 this summer.
MF Global: The failure of the eighth largest futures broker constituting the eighth largest bankruptcy on record shook the futures industry, but it was not the worst bit of news.
Industry integrity: On the same day that MF Global filed for bankruptcy, it revealed that a last-ditch effort to sell the firm to Interactive Brokers Group failed when a shortfall in the futures customer segregated accounts was discovered. This truly was shocking as segregation is the benchmark of futures regulation.
Lack of leadership: How can one event count for three bottoms? The failure of a large firm, while significant, has become routine in the last decade and U.S. futures customers have come to expect a smooth transition, ala Lehman Brothers and Refco, when a firm fails. That didn’t happen this time and people are looking for answers. So the bankruptcy is a bottom, the violation of segregation is a bigger bottom and the performance of so-called industry leaders — which have customers still waiting to be made whole more than two months later — is perhaps the most concerning long-term aspect moving forward.
Political partisanship: That some folks actually were rooting for the U.S. government to fail to meets its obligations would have been unthinkable just a few years ago; but it was going on.
Japanese earthquake/tsunami: On March 11, a massive magnitude 9.0 earthquake hit off the Northeast coast of Japan, triggering tsunamis. The disaster caused an estimated 15,844 deaths and left more than 300,000 people displaced. It also damaged several nuclear power plants, leading to a meltdown at the Fukushima Dai-ichi plant.
SIGNS OF THE TIMES
Go figure: Standard & Poor’s, one of the rating agencies whose failure to see the risk in mortgage-backed derivatives had a direct impact on the 2008 credit crisis, downgraded U.S. credit. The street responded by buying U.S. Treasuries.
Please sir, may I have another? In a cruel twist of fate, Standard & Poor’s issued its coveted AAA rating to securities backed by subprime home loans. This came after the agency stripped the United States of the top rating.
We are #2: China Futures Association reported in May that China had overtaken the United States as the world’s largest commodity market. In another downgrade, China surpassed the United States in the number of iPhones sold.
Stock on the rise: The Green Bay Packers announced its fifth stock offering in team history amid its 15-1 season, putting up 250,000 shares at $200 apiece. Unfortunately, the “stock” is non-transferable and won’t help you get Packers tickets.
But my watchdog ate my homework: Ever wonder why it took 10 years for the Securities and Exchange Commission (SEC) to catch up to Bernie Madoff after his Ponzi scheme was basically handed to them? That’s right, the SEC didn’t get him, his sons turned him in. The Rolling Stone revealed — thanks to SEC attorney-turned-whistleblower Darcy Flynn — that the regulator had routinely been destroying records of preliminary investigations, so-called “matters of inquiry.” Rolling Stone pointed out that many of the destroyed files “involved companies and individuals who would later play prominent roles in the economic meltdown of 2008.” The SEC directed its enforcement staff to stop destroying documents from closed cases.
OFF THE CHARTS
Our long national nightmare is over: In May the Associated Press reported that that CEO pay in 2010 exceeded 2007 levels, rising 24% on the year and averaging $9 million for companies in the S&P 500.
Occupy this: Tired of stories like the above and the super-rich dictating policies in Washington, protestors first rallied near Wall Street in what would turn into the Occupy Movement around the world. While some have cast it as the liberal version of the Tea Party, Tea Partiers have looked less than kindly upon the comparison. The movement helped spark actions such as Bank Transfer Day.
Prepping for the show: In January, the SEC settled charges with New York broker Paul Chironis for defrauding the Sisters of Charity, a congregation of mostly elderly nuns. Chironis was charged with churning and agreed to pay $350,000 to the sisters. Without admitting or denying the allegations in the civil action against him. Chironis agreed to an order barring him from any association with a broker. Too bad, sounds like he has quite a future on Wall Street.
How much? While much of the world still is recovering, pockets of extravagance are beginning to turn up. Just before the holidays, a British newspaper reported that a London hedge fund banker threw a holiday bash for just nine employees that had a bar tab of £71,000, or about $113,000.
Say it ain’t so, Rudy. The man whose life inspired the feel-good movie of the 1990s, “Rudy,” settled a lawsuit with the SEC for participating in a pump and dump scheme. Daniel “Rudy” Ruettiger paid more than $380,000 to settle charges while neither admitting or denying wrongdoing.
When is enough actually enough? Miami International Holdings announced plans to launch the 10th U.S. options exchange. The firm is hoping to launch in Q2 of 2012 and has said it hopes to expand into equity trading after establishing itself in options.
Inflation: The Indian-made Nano was touted as the world’s cheapest automobile when it retailed in 2008 for $2,500. But an Indian businessman has given a Nano a gold and gem encrusted makeover, raising the value of this promotional car to $4.68 million.
Putting the long in long bond: What a difference a decade makes. In 2001 after two consecutive balanced budgets the U.S. Treasury decided to stop offering 30-year bonds (the long bond). In February the Financial Times reported that a member of the U.S. Treasury Borrowing Advisory Committee has recommended the Treasury begin offering 50-year and perhaps 100-year bonds.
EXIT STAGE LEFT
Sorry to see you go: Apple founder Steve Jobs unveiled the iPad 2 in March 2011 to much fanfare. In October Jobs died of a long illness. In an era when billionaire bankers bailed out by taxpayers are awarded higher and higher bonuses to the chagrin of most people, Jobs’ spirit of innovation was celebrated in boardrooms as well as Occupy protests.
Godspeed piggy: CME Group delisted its frozen pork belly futures contract in July. Long past its prime and ready for the slaughterhouse, the belly contract still was synonymous with the CME because it put the Merc on the map.
Not sorry to see you go: Rarely has the world ridded itself of three figures who caused as much pain and chaos in our world.
Jon Corzine: For the time being Corzine makes this list for destroying the eighth largest futures commission merchant by overleveraging a foreign sovereign debt position in an attempt to play with the big boys and ignoring warnings to reduce his position. Not sure if pinstripes are in his future, but he deserves a tar and feathering.
Commodity Futures Trading Commission: The agency meekly acquiesced as the MF Global Inc. liquidation was put in the hands of the Securities Investors Protection Corporation and has offered little help in getting customers their money back.
Managed Funds Association: Hello. You claim to represent the managed funds industry. A lot of commodity trading advisors could use some advocacy.
Speculators: Called "locusts” in Italy and parasites by the World Sugar Committee, spec traders also were saddled with new limits by global regulators.
Kweko Adoboli: At least the 31-year old equities trader at UBS in London said he was “sorry” about the $2.3 billion loss he hid from the bank. That’s more than the banks said after we bailed them out.
FIGHTS OF THE YEAR
Judge Jed Rakoff vs. SEC: In what looked to be a routine filing this October, the SEC charged Citigroup with negligence in selling a $1 billion investment product tied to housing in 2007 without telling investors it was betting against it. Citigroup agreed to pay $285 million and be on its way, “Without admitting or denying wrongdoing.”
What wasn’t routine is that it would be sent to Judge Jed Rakoff of the Federal District Court in Manhattan for approval. Rakoff had disallowed an SEC settlement with Bank of America in 2009 on similar grounds. He rejected this one noting that if the charge was true, then the penalty was not strong enough. In ordering the case go to trial, Rackoff wrote, “The SEC, of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency’s contrivances.”
The SEC appealed the ruling and Rakoff later issued a supplemental order claiming the SEC filed a “materially misleading” request seeking an emergency halt to further proceedings.
MF Global vs. butt-covering inertia: The MF Global bankruptcy proceeding has been an eye opener for former customers of the firm. First they found out that the safeguarding of customer segregated funds had been violated, then they watched as very few people in the industry had a sense of urgency regarding helping them get their money back. The SIPC-appointed trustee was rolling out a typical bankruptcy claims process after completing a transfer of positions and 60% of the margin to hold those positions. The Commodity Customer Coalition (CCC) screamed loud enough to have the bankruptcy judge order the trustee to meet with them and the trustee “found” a sense of urgency.
Biggest loser uh winner: Bloomberg reported in February that a Weight Watchers options investor purchased a block of 4,273 slightly out-of-the-money $45 calls a few days before the company released better than expected earnings projections. WTW stock rose 42% to $63.86 on Feb. 17, increasing the value of the calls 20-fold and increasing the value of the $400,000 investment to $8.2 million. Hmm.
The obfuscation award: Jon Corzine piously stated under Congressional testimony that he actually reduced leverage in proprietary positions while head of MF Global from 37-1 to 30-1. It took CME Group Executive Chairman Terry Duffy to add in later testimony that Corzine also increased the size of proprietary positions from roughly $1.5 billion to $6.3 billion.
Consistency award: Apparently Fed Chairman Ben Bernanke was getting tired of having to roll out a statement every six week that the Fed would keep its rate at zero, so in August he told everyone to get back to him mid-2013ish. The Fed, which dropped its benchmark Fed funds rate to 0-0.25% in December of 2008, said rates likely would remain there until at least June of 2013.
Duh award: A U.S. government inquiry determined that decisions made by BP to save money contributed to the Deepwater Horizon disaster.
The no-fair award: Three hedge fund managers from Greenwich, Conn. won a $254 million Powerball jackpot.