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
In a sane world, the people of this country would pony up and take this lady out to an expensive steak dinner. Drinks included.
She is a racist
Don’t know where else to stick this so I’m taking this as a general econ thread. Pethokoukis interviewed Ryan and I liked this quick slap at NGDP targeting:
This is the dumbest thing you’ll read all day.
Original letter here: http://barnhardt.biz/
Along with the below update:
Heh . . .
Posted by Ann Barnhardt – November 17, AD 2011 2:26 PM MST
I just turned down a CNBC interview request.
Man, that felt FANTASTIC.
Amazing that that kind of article shows up on Market Watch, isn’t it, bh?
Wow. Flashbacks.
I was in NYC the day that Ahmedahammenamahammenahammena spoke at Columbia (one of the strangest days in my life, which is saying something) and I was treated to a rant in an almost empty bar that was almost identical to this one. Different names, different companies, same spirit. It came from a friend of mine who had just resigned (spectacularly) from Lehman. I remember it for two reasons 1) I thought he had lost his mind and 2) it was almost exactly one year later that Lehman went belly up.
I’m expecting the worst.
I made some ridiculous shit up, and then I drew a conclusion from it. Respect me!
You see dumb shit there from time to time but that piece really takes the cake.
Wait until she gets a chance to tell the White House operator, “Tell the President to try me again next week.”
Rex Nutting is a columnist and MarketWatch’s international commentary editor, based in Washington.
Link
And thus she’s also an understating grand master of understated understatement.
And so the game of very high stakes musical chairs reveals itself…
Jenga.
bh, I find the comments on the article to be enlightening. Even the diehard leftists are having trouble defending Nutting’s drivel.
BH: Wow. That is a 64 ounce Big Gulp of dementia. The only regulation the economy is in desperation for is a reinstatement of Glass-Steagall, with a helping of meaningful corporate and personal tax reform.
You all must laugh at me here, from time to time, when I defend the media.
http://www.youtube.com/user/AnnBarnhardt#p/u/14/Qeyrp-V3Jvc
In the above video: Ann Barnhardt to Lindsey Graham: “If you pick a fight with me the only way it ends is you sobbing in the men’s room.”
It’s impolite to laugh at the insane.
Fwiw, I’m getting the feeling that many people are moving towards supporting a new Glass-Steagall in regards to investment/banking separation.
Wow. She’s quite the fire cracker, ain’t she?
17 @ 14…
Don’t take it personally.
Carol Costello gives Nutting a run for his dumbassed money.
Did Glass-Steagall limit leveraging to some sane ratio, like 10:1? I’m too lazy to read the wiki that closely.
I’m not sure anyone should be leveraged at all, really, so 10:1 might be insane as well.
Jon Stevens Corzine (born January 1, 1947) is the former CEO of Goldman Sachs and of MF Global, and a one time American politician,
Corzine’s firm stole its clients’ money. Will he see any jail time?
Magic 8-ball says no.
Reserve requirements are set by the Fed, cranky.
VDH looks for silver linings.
Link
How does Glass-Steagall (which I don’t understand altogether) fit within the views of the founders regarding economic freedom and the limits of Federal power? Consonant, or not so consonant? Or is that sort of question unnecessary as yet, insofar as the decision whether to abide by their vision of limited political power — as over-against the propriety of Congress controlling prices, or wages, say — has yet to be made anew?
If you take only the aspects of Glass-Steagall that separated banking from investment and then only in the case of interstate banks, I’d say it could be consonant under the Commerce Clause.
Where it gets tricky is that conflict of interest isn’t fraud or malfeasance, it’s the environment that leads to these things. Is a law justifiable if it prevents crime rather than punishes crime? Probably sometimes yes and sometimes no. Probably depends on whether or not the environment made the later crime inevitable or not.
After reading that, I’m not sure I like my reasoning there. Guess I’d have to think about this more.
The only reason I ask such a sketchy question? I see the law was conceived in the 1930’s, when such meta-questions weren’t taken all that seriously. It’s a strange (extra! ha!) exercise to have to go through though, tying a facially rational proposal backward to a frame of government long ago abandoned for “better” ideas (at least from Woody Wilson’s p.o.v.), and one which we’d all have to work very hard reacquiring as a habit, that is, working away from a faithful depiction of the founding view toward what we see as a rational and necessary implementation of new law. It just isn’t done.
Heh. When I first read that, my brain thought you were defriending the media.
SdFerr,
Glass-Steagall was a rational solution to a recurring problem that seems–and seemed at that time as well, post-Depression–rather innate to human economic endeavor. It’s structure appears well within federal regulatory scope and, as I argue, is a profoundly classic liberal solution to the matter.
Market risk-based capital should be separated from funding that uses either consumer deposits or Fed overnight liquidity facilities.
In other words, go ahead Trader man and bet on CDO Cubed or buy up sub-prime loans from Alabama trailer parks, but use only your firm’s privately generated equity capital and whatever the market decides to loan you.
Let’s not socialize private mistakes in professional judgement. Or, it allows maximum freedom for speculators of all stripes without risking the capital of those who don’t consent (voluntarily) to this behavior.
her Youtube channel is something else. She is destined to be a highly popular stop for talk-radio sorts–I’m thinking Michael Savage–and a ready target for Media Matters.
A pistol, to be sure.
I’m pretty certain she is overstating the problem….but there is a problem in those markets. And for what it’s worth, she is probably understating the issues of crony capitalism, which as we all know, is about the only kind on offer these days.
Ann Barnhardt is a patriot of the first order
she shames us all
water isn’t wet
Link
I think I’m glad I’m no longer working at a bank, even if it was Wells Fargo, which didn’t take TARP funds (but was forced to absorb Wachovia, which is why I even had a job in the first place).
Maybe they’ll take pity on me when I can’t pay the mortgage anymore. “Hey, remember those awesome procedures I wrote for you?”
I’ll be over here holding my breath.
Come on, water doesn’t prevent dehydration, government regulations prevent dehydration. Just ask Rex Nutting.
Ann Barnhardt’s quite the firebrand.
She linked to me once; I smiled for a week. )
Bob Shrum comes to Corzine’s defense.
It comes down to this. He’s a good progressive and as such no matter what he did, or what the effects were of his actions, he did it for the right reasons (Party uber alles) and that is all that we should care about.
Whoa. :U I think I like this lady.
If I can ever stop laughing I am going to try to find another irony meter.
Bob Shrum comes to Corzine’s defense.
From what I’ve heard, it’s impossible for Corzine to have been unaware of what was happening, given his background.
So, is being a good progressive a complete counterbalance to overlooking (if not outright overseeing) your firm pillaging billions in user accounts?
There’s a question that needs answering. I don’t suppose Shrum is answering that kind of question, though.