On July 15, the S&P 500 stock index closed at an all-time high of 1677.60. This is shortly after the market had a hissy fit when the Federal Open Market Committee (FOMC) minutes mentioned “tapering” of monthly stimulus, which meant the drive-up window distributing easy money (quantitative easing) was closing (See “Fed headed for tapering, but exit still far away,” page 21). But wait, no, said Federal Reserve Board Chairman Ben Bernanke later, we really aren’t going to ease off that much because the economy still needs help. The reduction of bond purchases continues to be contingent on the labor market and inflation, he said. So, the stock market, relieved that QE’s end was kicked down the road to 2014, went higher, happy in its cheap money bliss.
This is very much what one analyst called a “bizarro market” in our stock and bond outlook piece, “Good news: Fed plants seeds for rational markets,” (page 20), in that the market has been reacting to how the Fed responds to economic data, and not to the data itself. And although some analysts believe the Fed has changed policy, Bernanke says no. The Fed has been and still is watching the labor market and interest rates, and will “taper” QE as it sees fit. An increase in rates is well down the road and may happen only after the spigot has been turned off, he noted.
A return to normalcy with the negative correlation between the bond and stock markets would be welcome as the repercussions of 2008 continue to haunt all aspects of the markets and business.
Another event occurred right around the time Bernanke was clarifying the Fed line. On June 27, the Commodity Futures Trading Commission (CFTC) finally filed charges against MF Global (Inc. and Holdings), Jon Corzine and Edith O’Brien (see “First blood: CFTC files complaint against MF Global, Corzine and O’Brien, finally,” page 42).
These charges are civil only but do come with a significant monetary penalty. It appears the receivers for MF Global have approved the settlement, which basically is making all customers whole and then paying a $100 million fine. At press time, it was awaiting court approval.
For Corzine and O’Brien, who was assistant treasurer of the firm and — as we see through taped conversations — was in the thick of it, the road will be longer. Corzine’s attorney released a comment saying that all the CFTC’s allegations were without merit, but let’s be clear: they’ve got everyone on tape or e-mail. The CFTC shares conversations Corzine had in which it shows he was playing with seg funds like it was his own money. O’Brien appears to be his henchman in getting the money moved. “Merit” it seems, is in the eye of the beholder.
The anger at Corzine hasn’t subsided and truthfully many people, likely those who were hurt because of Corzine’s actions, want to see more than just a fine leveled at him. Although an anonymous source told the New York Post that the Department of Justice (DOJ) decided to drop its investigation of him, the DOJ has no comment. And there is one New York congressman calling to have Corzine brought up on perjury charges for contradicting what he said on tape vs. what he told Congress on the record.
Bernie Madoff and Russell Wasendorf Sr. both went to jail for stealing people’s money. They were blatant crooks who were clever about covering their tracks. Corzine was a business man who started with a bad business model and added some bad decisions to it in what was a precarious market. Money being moved around isn’t necessarily criminal, but it is negligent according to the rules. Several lawyers doubt there is enough evidence to send Corzine to jail, but add, he’ll never work in the financial markets again. That’s good for the financial markets, but doesn’t go far enough to warn future Corzines.