The following was published for our subscribers October 31, 2011.
MONDAY, OCTOBER 31, 2011
- The discovery of insolvency at MF Global contrasts with recent news that problems in Euroland had been fixed.
- As it goes down, MF Global could rank as a rather big default. The attached WSJ article estimates it could be close to the eighth largest in a series that started with the post-2000 problems.
- Upon hearing about MF, the first thought was "another Bear Stearns" that announced a problem with one of its hedge funds on June 15, 2007. It turned out to be moderate in comparison to subsequent disappointments.
- Even if MF Global was a moderate failure it would be an alert.
- It is a big alert.
- In early October we had thought that the Dollar Index (DX) would weaken and this would rally most of the disasters. Although expected to be choppy, the action could have been favourable into the new year.
- In the strongest month in the S&P since 1974 - what might have taken three months took only three weeks.
- Sunday's ChartWorks noted that the Dollar Index was making an important low.
Most of the positive action likely to run into January has been accomplished in a sensational rally. News about the Euro "fix" was made as pretty as possible - prompting a huge short squeeze.
More detailed analysis of the "fix" suggests the book is not as attractive as the cover. There has been one day of general selling in stocks, commodities and corporate bonds. The DX closed at 75 on Friday and is now at 76.2. Rising above 76.7 would set a near-term uptrend.
As a monitor of good or bad things, the gold/silver ratio has turned up a little today. The low was 49.4 on Thursday and Friday. The advance has been to a little above 50. Not much, but if it rises through 53 it would signal another phase of the liquidity crisis.
Another item to watch is the attached chart on ten-year Italian bonds.
October 31, 2011, 10:38 AM ET
MF Global: Likely Among the 10 Biggest Bankruptcies Ever
MF Global, the brokerage run by former Goldman Sachs chief Jon Corzine, today filed for bankruptcy protection, becoming one of the highest-profile U.S. victims of bad bets on European government debt.
With the Chapter 11 filing, MF Global also is likely to be added to the ignominious list of the 10 largest bankruptcies in U.S. corporate history. Here is that list, according to research firm BankruptcyData.com, and based on the value of each company's assets before its bankruptcy filing.
Based on MF Global's disclosed assets in its bankruptcy filing, it is likely to slot in just ahead of Chrysler as the eighth-largest U.S. bankruptcy.
- Lehman Brothers Holdings, September 2008: $691 billion in assets
- Washington Mutual, September 2008: $327.9 billion
- WorldCom, July 2002: $103.9 billion
- General Motors, June 2009: $91 billion
- CIT Group, November 2009: $80.4 billion
- Enron, 2001: $65.5 billion
- Conseco, 2002: $61.4 billion
MF Global: $41 billion (as of Sept. 30)
- Chrysler April, 2009: $39.3 billion
- Thornburg Mortgage May, 2009: $36.5 billion
- Pacific Gas & Electric Co., 2001: $36.15 billion
Source: BankruptcyData.com; SEC filings for MF Global asset size
10-Year Yields: Italy
Link to November 4th 'Bob and Phil Show' on Howestreet.com: http://talkdigitalnetwork.com/2011/11/inaction-plan