Runaway Train
Research for Online Investors

by John Dalt

11/04/11

Jon Corzine resigned from MF Global this morning and hired a criminal attorney.  The FBI wants to look at the books for evidence client funds were used to cover losses from the proprietary trading desk.  Here is a guy that left Goldman Sachs under less than happy circumstances, served as a U.S. Senator, ran the state of New Jersey into the ground, and now has blown up a quiet brokerage company with his grand ideas of leverage and a “big bet” on European debt.

The forensics bookkeepers are seeking clarity; looking for $600 million in client money.  MF Global invested “idle” funds in securities or other instruments to make a small “safe” return.  Each month the brokerage would record an interest credit to customer’s accounts on the idle fund balance.  It looks more and more like some idle client funds went into distressed eurozone bonds that imploded in value last week.  If not directly, then to cover losses recorded on MF Global’s capital.

MF Global raised money in August.  Jefferies managed the sale of $325 million in five year unsecured notes to institutional investors that are now waiting on a bankruptcy judge to sort things out.  The offering had a sweetener for investors of an extra one-percent above the 6.25% return if Corzine took a job in Washington.  We wonder will the bankruptcy court count a federal jail in Washington as employment?

I had the chance for a nice dinner with a former Dow stock CEO last night.  I can’t name him or the company as I didn’t seek permission to share, but what a great guy.  Cut to the chase, he laments the increase in regulation and changes over the last few years.  The company has been through financial engineering and changed dramatically since he left.  Not looking back but observing the present business climate he was still upbeat, but cautious of the challenges to creating wealth in today’s environment.

Have you read the eulogy Steve Job’s sister gave at his memorial service?  It is touching and gives an insight into the man and his relationships.  Sometimes the passing of a friend, colleague or even a stranger gives us pause to reflect on our life and relationships.  What is important and where do we spend our time?  When we have to answer life’s questions, will our answers be pleasing to us?

The market is digesting economic news this morning.  The Labor Department’s jobs number was disappointing, but they revised September’s numbers up…so we have a wash.  The jobless rate dropped to 9.0% from 9.1%, but your editor’s observation is that is what happens when people give up and quit looking for work.

When we have this much volatility and headline risk, it is natural for the market to trade lower going into the weekend.  Traders want to exit profitable positions and investors want to hedge risk.  Papandreou faces a “no confidence” vote later today in the Greek Parliament.  Italian interest rates spiked to 6.43% this morning.  Prime Minister Silvio Berlusconi asked the IMF to monitor the government’s progress as they push through the third austerity package in six months.  The G-20 meeting in France concludes today.

Nobody is safe on a Runaway Train

Angela Merkel said hardly any of the 20 industrialized countries offered to participate in the eurozone bailout fund.  No one it seems wants to jump on a train loaded with dynamite with too many conductors.

The market is maintaining a ‘bullish’ stance.  Through all the bad news and uncertainty, we keep melting higher.  We know this will change but for now buyers seem intent on buying any dips.

Mailbag:
Papandreou foxed out the opposition beautifully.---Long-Term subscriber G.O.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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