The futures & options markets are no longer viable. It is my recommendation that ALL customers withdraw from all of the markets

ZeroHedge: Presenting the First MF Global Casualty

BCM Has Ceased Operations (source)
Posted by Ann Barnhardt - November 17, AD 2011 10:27 AM MST
Dear Clients, Industry Colleagues and Friends of Barnhardt Capital Management,

It is with regret and unflinching moral certainty that I announce that Barnhardt Capital Management has ceased operations. After six years of operating as an independent introducing brokerage, and eight years of employment as a broker before that, I found myself, this morning, for the first time since I was 20 years old, watching the futures and options markets open not as a participant, but as a mere spectator.

The reason for my decision to pull the plug was excruciatingly simple: I could no longer tell my clients that their monies and positions were safe in the futures and options markets – because they are not. And this goes not just for my clients, but for every futures and options account in the United States. The entire system has been utterly destroyed by the MF Global collapse. Given this sad reality, I could not in good conscience take one more step as a commodity broker, soliciting trades that I knew were unsafe or holding funds that I knew to be in jeopardy.

The futures markets are very highly-leveraged and thus require an exceptionally firm base upon which to function. That base was the sacrosanct segregation of customer funds from clearing firm capital, with additional emergency financial backing provided by the exchanges themselves. Up until a few weeks ago, that base existed, and had worked flawlessly. Firms came and went, with some imploding in spectacular fashion. Whenever a firm failure happened, the customer funds were intact and the exchanges would step in to backstop everything and keep customers 100% liquid – even as their clearing firm collapsed and was quickly replaced by another firm within the system.

Everything changed just a few short weeks ago. A firm, led by a crony of the Obama regime, stole all of the non-margined cash held by customers of his firm. Let's not sugar-coat this or make this crime seem "complex" and "abstract" by drowning ourselves in six-dollar words and uber-technical jargon. Jon Corzine STOLE the customer cash at MF Global. Knowing Jon Corzine, and knowing the abject lawlessness and contempt for humanity of the Marxist Obama regime and its cronies, this is not really a surprise. What was a surprise was the reaction of the exchanges and regulators. Their reaction has been to take a bad situation and make it orders of magnitude worse. Specifically, they froze customers out of their accounts WHILE THE MARKETS CONTINUED TO TRADE, refusing to even allow them to liquidate. This is unfathomable. The risk exposure precedent that has been set is completely intolerable and has destroyed the entire industry paradigm. No informed person can continue to engage these markets, and no moral person can continue to broker or facilitate customer engagement in what is now a massive game of Russian Roulette.

I have learned over the last week that MF Global is almost certainly the mere tip of the iceberg. There is massive industry-wide exposure to European sovereign junk debt. While other firms may not be as heavily leveraged as Corzine had MFG leveraged, and it is now thought that MFG's leverage may have been in excess of 100:1, they are still suicidally leveraged and will likely stand massive, unmeetable collateral calls in the coming days and weeks as Europe inevitably collapses. I now suspect that the reason the Chicago Mercantile Exchange did not immediately step in to backstop the MFG implosion was because they knew and know that if they backstopped MFG, they would then be expected to backstop all of the other firms in the system when the failures began to cascade – and there simply isn't that much money in the entire system. In short, the problem is a SYSTEMIC problem, not merely isolated to one firm.

Perhaps the most ominous dynamic that I have yet heard of in regards to this mess is that of the risk of potential CLAWBACK actions. For those who do not know, "clawback" is the process by which a bankruptcy trustee is legally permitted to re-seize assets that left a bankrupt entity in the time period immediately preceding the entity's collapse. So, using the MF Global customers as an example, any funds that were withdrawn from MFG accounts in the run-up to the collapse, either because of suspicions the customer may have had about MFG from, say, watching the company's bond yields rise sharply, or from purely organic day-to-day withdrawls, the bankruptcy trustee COULD initiate action to "clawback" those funds. As a hedge broker, this makes my blood run cold. Generally, as the markets move in favor of a hedge position and equity builds in a client's account, that excess equity is sent back to the customer who then uses that equity to offset cash market transactions OR to pay down a revolving line of credit. Even the possibility that a customer could be penalized and additionally raped AGAIN via a clawback action after already having their customer funds stolen is simply villainous. While there has been no open indication of clawback actions being initiated by the MF Global trustee, I have been told that it is a possibility.

And so, to the very unpleasant crux of the matter. The futures and options markets are no longer viable. It is my recommendation that ALL customers withdraw from all of the markets as soon as possible so that they have the best chance of protecting themselves and their equity. The system is no longer functioning with integrity and is suicidally risk-laden. The rule of law is non-existent, instead replaced with godless, criminal political cronyism.

Remember, derivatives contracts are NOT NECESSARY in the commodities markets. The cash commodity itself is the underlying reality and is not dependent on the futures or options markets. Many people seem to have gotten that backwards over the past decades. From Abel the animal husbandman up until the year 1964, there were no cattle futures contracts at all, and no options contracts until 1984, and yet the cash cattle markets got along just fine.

Finally, I will not, under any circumstance, consider reforming and re-opening Barnhardt Capital Management, or any other iteration of a brokerage business, until Barack Obama has been removed from office AND the government of the United States has been sufficiently reformed and repopulated so as to engender my total and complete confidence in the government, its adherence to and enforcement of the rule of law, and in its competent and just regulatory oversight of any commodities markets that may reform. So long as the government remains criminal, it would serve no purpose whatsoever to attempt to rebuild the futures industry or my firm, because in a lawless environment, the same thievery and fraud would simply happen again, and the criminals would go unpunished, sheltered by the criminal oligarchy.

To my clients, who literally TO THE MAN agreed with my assessment of the situation, and were relieved to be exiting the markets, and many whom I now suspect stayed in the markets as long as they did only out of personal loyalty to me, I can only say thank you for the honor and pleasure of serving you over these last years, with some of my clients having been with me for over twelve years. I will continue to blog at Barnhardt.biz, which will be subtly re-skinned soon, and will continue my cattle marketing consultation business. I will still be here in the office, answering my phones, with the same phone numbers. Alas, my retirement came a few years earlier than I had anticipated, but there was no possible way to continue given the inevitability of the collapse of the global financial markets, the overthrow of our government, and the resulting collapse in the rule of law.

As for me, I can only echo the words of David:

"This is the Lord's doing; and it is wonderful in our eyes."

With Best Regards-
Ann Barnhardt

Comments (19)

Best Response
Nov 18, 2011 - 6:16pm
MMBinNC, what's your opinion? Comment below:

The government doesn't ever try to eliminate moral hazard. At best they try to make it so it only applies to the extremely wealthy. lol I mean look at Fannie and Freddie, look at the bailouts, look at the regulations that encouraged lower lending standards. The government caused a huge problem that led to this crisis through moral hazard, and is just continuing the trend.

The CME is at least trying to mitigate moral hazard, but the problem lies not with the depositors (who are in this case those who deposit money to trade with MF), but with the institutions. Depository insurance is very distortionary, and the fact that it exists in some markets but not in others is BS. What we need isn't insurance but for these companies to have better reporting standards. I am against adding deposit insurance because it allows for more risk taking (one of the points of my long ass term paper this semester) but the fact that depositors are entirely unable to know the leverage and risk that their institutions are taking on(the leverage ratios of MF keep going up) will mandate it unless we fix reporting standards.

Reality hits you hard, bro...
  • 2
Nov 18, 2011 - 6:22pm
LIBOR, what's your opinion? Comment below:

He makes good points, but trying to blame Obama himself is a hugh stretch.

looking for that pick-me-up to power through an all-nighter?
Learn More

300+ video lessons across 6 modeling courses taught by elite practitioners at the top investment banks and private equity funds -- Excel Modeling -- Financial Statement Modeling -- M&A Modeling -- LBO Modeling -- DCF and Valuation Modeling -- ALL INCLUDED + 2 Huge Bonuses.

Learn more
Nov 18, 2011 - 7:34pm
Eddie Braverman, what's your opinion? Comment below:

Just as an aside, if you guys are really interested in the daily business of an Introducing Broker I'll do a post about it. It's like a poor man's hedge fund without the fees (although some IB's charge up to 20% transaction fees, so there's that).

Nov 18, 2011 - 9:55pm
UFOinsider, what's your opinion? Comment below:
Edmundo Braverman:
Just as an aside, if you guys are really interested in the daily business of an Introducing Broker I'll do a post about it. It's like a poor man's hedge fund without the fees (although some IB's charge up to 20% transaction fees, so there's that).
HELL YEAH MAN
Get busy living
Nov 18, 2011 - 10:40pm
MMBinNC, what's your opinion? Comment below:
Ann Barndhart:
The point of this piece is to highlight the absurdity of the false concepts of "moderate Islam" and "extremist Islam." There is no more "moderate Islam" than there is "moderate Nazism." This nomenclature is willfully manipulative propaganda and must be called out and corrected whenever and wherever it is used.

Or This article

Ann Barndhart:
As a direct result of inbreeding, the Muslim population is the only population on earth that is mentally and physically devolving. This inherent weakness makes Muslim populations more susceptible to nefarious, oppressive leadership and mass manipulation. The amount of objective evidence supporting this statement is colossal and obvious.

She is not a fan of Islam to say the least, but ignoring this stuff, her economic ideas are not off base.

Reality hits you hard, bro...
  • 2
Nov 19, 2011 - 9:35pm
monkeyc, what's your opinion? Comment below:
Ann Barndhart:
As a direct result of inbreeding, the Muslim population is the only population on earth that is mentally and physically devolving. This inherent weakness makes Muslim populations more susceptible to nefarious, oppressive leadership and mass manipulation. The amount of objective evidence supporting this statement is colossal and obvious.

why is inbreeding within a 1.5B population bad? I'm all for intermarriage from a societal standpoint, but there is no reason why its a big problem genetically. Even were much smaller population (jews for instance) to only marry each other (they don't), its still big enough that genetic drift and random mutation would be fine

You need like a group of

Nov 19, 2011 - 12:04am
West Coast rainmaker, what's your opinion? Comment below:

Not considering her political beliefs, I think she makes a valid point about the commodities markets. Why would you continue to participate in the markets if you could potentially find your assets unavailable, or worse, clawed back if your broker collapses?

Personal feelings about Corzine aside, the man was reputable. I mean GS CEO and a governor? Not exactly a shady, unknown CEO. If he was doing this, who else could be?

If using client money is a widespread practice, we might need another bailout. I actually think preemptively establishing a bailout fund would be a good idea just to keep the markets liquid. Of course, the backlash from another bailout kills any chance of that happening.

Nov 19, 2011 - 6:43pm
thurnis haley, what's your opinion? Comment below:

That's hilarious. Blame Obama for her own failures.

Nov 19, 2011 - 11:37pm
Time2Rush, what's your opinion? Comment below:

Are you f*kin kidding me? Check out her profile, she's a glorified cattle rancher. There is no 'evidence' of any kind in there, just some mindless drivel about how Obama is a communist and how we're all gonna die. This must be a joke.

Nov 20, 2011 - 2:03pm
UFOinsider, what's your opinion? Comment below:

It's good to see in depth analysis based on objective data points. I don't see any evidence of that in Ann's commentary, but hey, not everyone needs facts. Reality is so boring when it doesn't conform to the inbred biases of a country bumpkin from bumfcuk with no experience outside of bumfcuk.

Get busy living
Dec 30, 2011 - 11:11pm
DavidZ, what's your opinion? Comment below:

Earum blanditiis ducimus magnam ut. Neque eos adipisci facilis libero dolorem natus non placeat. Molestiae saepe qui veritatis enim.

Eos omnis odio minus alias molestiae praesentium ut. Veritatis unde qui impedit rerum voluptas. Possimus velit soluta ut ullam. Eum ea quas atque neque facilis eligendi. Vel qui error reprehenderit sapiente qui voluptatem. Blanditiis saepe nulla in quis nam earum ut. Voluptatum minima qui omnis ipsum repellat.

Repellat eum dolorum maiores. Rerum omnis doloremque sint aut laudantium facilis. Doloribus sit aut assumenda quisquam sed perspiciatis sint. Eveniet qui earum enim quod sequi mollitia. Voluptas fuga ad dicta dolorem aperiam.

Corporis commodi quia et laboriosam et sunt dolorem. Sunt sed quidem mollitia exercitationem omnis et provident aut. Cupiditate odio quo incidunt.

Start Discussion

Career Advancement Opportunities

September 2022 Investment Banking

  • Jefferies & Company (▲04) 99.6%
  • Lincoln International (= =) 99.2%
  • Bank of America Merrill Lynch (▲03) 98.8%
  • Financial Technology Partners (+ +) 98.5%
  • Evercore (▽02) 98.1%

Overall Employee Satisfaction

September 2022 Investment Banking

  • Jefferies & Company (▲12) 99.6%
  • Greenhill (▲07) 99.2%
  • Evercore (▲01) 98.8%
  • PJT Partners (▽03) 98.4%
  • Macquarie Group Limited ABN (▲20) 98.1%

Professional Growth Opportunities

September 2022 Investment Banking

  • Jefferies & Company (▲05) 99.6%
  • Lincoln International (▲03) 99.2%
  • PwC Corporate Finance (▲12) 98.8%
  • Bank of America Merrill Lynch (▲05) 98.5%
  • Houlihan Lokey (▲06) 98.1%

Total Avg Compensation

September 2022 Investment Banking

  • Director/MD (10) $613
  • Intern/Summer Analyst (317) $408
  • Vice President (38) $392
  • Associates (208) $257
  • 2nd Year Analyst (130) $163
  • 3rd+ Year Analyst (18) $159
  • 1st Year Analyst (433) $151
  • Intern/Summer Associate (83) $150