Citigroup Just Cornered The "Precious Metals" Derivatives Market

To provide some contextual color, the Hunt brothers were prosecuted for trying to corner the silver market in 1980.  They achieved approximately a 10% long position in silver, trying to profit on rising silver prices.  A closer inspection reveals the government regulators changed the goal posts on the Hunt brothers, turning them from mere speculators to criminals.

Fast forward to today, and JPMorgan has carved out a 90% position in the COMEX gold exchange, while Citigroup has a 70% position in COMEX silver.  It is egregious that the Hunt's were busted for taking a 10% position, while JPMorgan and Citigroup are left unchecked, free to take massive, concentrated (short) positions.

Yes, the bullion banks will claim they are market makers providing liquidity by taking both sides of a trade, but they have been incessantly investigated for manipulating markets by taking outsized, concentrated positions in LIBOR, fixed-income, and commodities markets.  They used this exact same argument prior to the cratering of subprime mortage-backed securities.

In other words, they are not only Wall Street casinos, they are also placing their own huge one-way bets--and getting in trouble when those bets go sour.  These bets aren't hedges--they are wagers placed from their proprietary trading desks.  It is not a stretch to deduce they are up to the same shenanigans in the much smaller precious metals complex.

http://www.zerohedge.com/news/2015-07-04/why-did-citigroups-precious-metals-derivative-exposure-just-soar-1260?page=1

Citigroup's Gold "Expert" Demands A Cash Ban

Buiter is a shill for central bankers.  And that's being kind.

http://www.zerohedge.com/news/2015-04-16/another-shill-statism-central-planning-demands-cash-ban

Citigroup's Capture of Treasury Department Almost Complete

http://www.bloomberg.com/news/2013-01-08/citigroup-s-capture-of-treasury-department-almost-complete.html

Citigroup’s Amazing Abu Dhabi Adventure

http://www.bloomberg.com/news/2012-12-09/citigroup-s-amazing-abu-dhabi-adventure.html

Citigroup Predict Gold at $2,400/oz in 2012 and $3,400/oz "In Coming Years"

http://www.goldcore.com/goldcore_blog/citigroup-predict-gold-2400oz-2012-and-3400oz-coming-years

Gold Jumps As Citi Says Gold Sell Off Over, Reiterates $2400 Target

To all the top-callers in gold last week:  oops!

http://www.zerohedge.com/news/gold-jumps-citi-says-gold-sell-over-reiterates-2400-target

Citi Joins Goldman And JPMorgan In Settling Fraudulent And Misleading CDO Practices: Wristslap Costs $285 Million

http://www.zerohedge.com/news/citi-joins-goldman-and-jpmorgan-settling-fraudulent-and-misleading-cdo-practices-wristslap-cost

S&P Board Fires CEO For Telling The Truth, To Be Replaced With COO Of Citibank

You can't make this $hit up, and yes, it is $hit. 

http://www.zerohedge.com/news/sp-board-fires-ceo-telling-truth-be-replaced-coo-citibank

A Tale Of Outright Fraud From An Ex-Member Of Citi's Corporate Derivatives Team

http://www.zerohedge.com/article/tale-outright-fraud-ex-member-citis-corporate-derivatives-team

Citi: Central banks will dump USDollars

http://www.businessinsider.com/citi-central-bank-reserve-selling-2010-11

CME confirms no Fat Finger

At least they admit to no irregular trading snafus.

http://www.zerohedge.com/article/cme-issues-press-release-confirms-no-fat-finger-will-cnbc-issue-retraction-repeated-factless

According to Themis Trading:

Yesterday afternoon and evening all the business programming focused on how the markets were in turmoil, and Greece this, and overdue correction that, and fat finger the other thing. They couldn’t even recognize the story, as even the business media doesn’t understand that the markets are a changed structure and beast. The story is not a key-punch error. The story is a failed market structure. The market failed today.

Strange bedfellows

Lloyd Blankfein (Goldman Sachs CEO), Jamie Dimon (JP Morgan Chase CEO), Robert Rubin (former Citi and Goldman Sachs Chairman) are all staunch Democrats, dispelling the notion that Wall Street's big banking institutions are pro-Republican.

Now we have this:

http://jewsforsarah.com/

Citi executives say "I'm sorry."

Sociopathic, criminal,or ignorant? None justify the bonuses.

http://www.nypost.com/p/news/business/former_citigroup_ceo_chuck_prince_Bm6LUiJxit04atIsYKyEiJ

Citi can delay withdrawals 7 days

I earlier blogged about banks delaying redemptions from money market accounts, in case of a "broken buck." See this blog and this blog. Now Citi just announced to customers the bank can delay withdrawal requests up to seven days.

http://www.businessinsider.com/citigroup-warns-customers-it-may-refuse-to-allow-withdrawals-2010-2

Wall Street bonuses

Apparently Wall Street believes there is no moral hazard in paying out $100 billion bonuses--even as they struggle to remain solvent.

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6991008.ece

This should raise the ire of taxpayers and customers of Citigroup:

Citi, the last of the big banks to pay back the cash it received from the US government’s Troubled Asset Relief Program, is expected to clock up losses of about $8.5 billion.

Yet it is expected to pay out about $5 billion in bonuses to its investment bankers. It is expected to reveal it has paid its staff more than $30 billion in salaries, benefits and bonuses.

Meanwhile, much of America is either unemployed, underemployed, or barely hanging on to their jobs.

Robert Rubin on the economy

Wow, Robert Rubin finally speaks, after stepping down from his perch at Citigroup. According to a few independent thinkers, Rubin was one of the main instigators in the cause of the financial and economic crises we find ourselves in. The former Treasury Secretary formerly headed up Goldman Sachs and Citigroup, encouraging banks to leverage up their balance sheets to increase dubious earnings via the use of derivatives, which ended up being toxic assets. We all know how that drunken party turned out.

His progeny in the ensuing bank bailouts include former Treasury Secretary Hank Paulson (also, formerly of Goldman Sachs), top Obama financial advisor Lawrence Summers, and current Treasury Secretary Tim Geithner, among other well-placed government bureaucrats and bankers.

The editorial actually gives fair warning to the approaching storm, even if it lacks any mea culpa for past misdeeds. I guess omission is a form of honesty.

http://www.newsweek.com/id/225623/page/1

First, there must be sound fiscal and monetary policies. The United States faces projected 10-year federal budget deficits that seriously threaten its bond market, exchange rate, economy, and the economic future of every American worker and family. Those risks are exacerbated by the context of those deficits: a low household-savings rate, even after recent increases; large funding requirements for federal debt maturities every year; heavy overweighting of dollar-denominated assets in foreign portfolios; worsened fiscal prospects in the decades after the current 10-year budget period; and competing claims for capital to fund deficits in other countries.

The conventional concern here is that private investment will be crowded out, which would result in a reduction of productivity, competitiveness, and growth. In addition, the very early 1990s showed that unsound fiscal conditions can have a symbolic effect that broadly undermines business and consumer confidence. But finally, and far more dangerously, our bond and currency markets could react with severe distress to fears about imbalances in the supply and demand for capital in the years ahead or about the possibilities of inflation. Those effects have been averted so far by a number of factors: large inflows of capital from abroad into Treasury securities; concerns about other major currencies; the low level of private demand for capital; and the psychological state of the market. But this cannot continue indefinitely, and change can occur with great force—and unpredictable timing.

Read Matt Taibbi's scathing article on Obama's big sellout and the pandering to big Wall Street bankers--at the expense and hoodwinking of tax payers. Robert Rubin is a central figure in the web of lies, deception, and pilfering.

http://www.rollingstone.com/politics/story/31234647/obamas_big_sellout

Profitable bulemia

The scenario of banks downgrading each other's balance sheets due to opaque accounting of toxic assets is understandable--they are competitors after all. If misery loves company, one could argue perhaps they should be cheering each other on in their attempts to restore their balance sheets to solvency.

But there's an interesting twist in this game of mutual cannibalism: not only are they throwing stones at each other's glass houses, they are also betting on their own demise. Let me repeat: banks are profiting from bets against their own solvency.

Here's an excerpt from The Daily Reckoning:

But something magic happened in the fixed income trading group for Citi. This is pure gold if you like arcane financial statements packed with fictional earnings. If you dig into the quarterly report, you'll learn than fixed income trading revenues were boosted by a "net $2.5 billion positive CVA on derivative positions, excluding monoclines, mainly due to the widening of Citi's CDS spread.

That takes some sorting out. A CVA is a "credit value adjustment." As you can learn here, it's the credit risk premium of a derivative contract. Once you sort it out, you learn that Citi "made" $2.5 billion on a derivatives position designed to profit when the companies own credit default swaps spreads widen.

Or, in plain English, Citi profited because it made a bet that the cost of insuring itself against a default would go up. The credit default swap market is the place where you can bet on the credit worthiness of a firm, or, essentially, the chance that a firm might default on its bonds. Citi appears to have reported a $2.5 billion trading gain in the fourth quarter precisely because the market thought the company stood a good chance of failing (hence the widening CDS spread).

As far as we can tell, if you use this kind of perverted logic, the closer Citi gets to bankruptcy, the more money it would "make" on its derivatives. That shows you how bogus the quarterly number was. The company reported declining revenues in its core banking and lending activities. But thanks to fixed income and this handy $2.5 billion CVA, the company was able to report $1.5 billion in net income.

The financial bazaar has truly turned bizarre.

Fidelity Investments

Fidelity, the world's largest mutual fund in terms of assets, loaded up on shares of Citigroup, JP Morgan Chase, and Wells Fargo--in the 4th quarter of 2008. Shares of all 3 have tanked since then, which means investors and savers of 401K's and IRA's should be questioning: what the hell were they thinking?

Those who thought last quarter's precipitous market decline offered a good entry point have been proven wrong. In other words, what seems cheap can get a lot cheaper.

Meanwhile, many workers are being laid off, straining their qualified retirement savings plans even further. For those with liquidity issues, they should look into Rule 72T if they need to dip into their 401K's without incurring the 10% early withdrawal penalty.

More Unthinkables

The proverbial "other shoe" is dropping. Citigroup shares dipped below $2 and Bank of America shares are headed toward $3 amongst fears of bank nationalization, which completely wipes out shareholders (instead of just essentially wiping out shareholders). As financials are leading indicators, this does not bode well for the broader averages. The Dow Jones Industrial Average dipped and closed below November 20, 2008 lows, which means that support level now serves as resistance. The charts are basically breaking down toward their 2002 levels, as the technicals are deteriorating faster than you can say "Ponzi".

Gold touched above $1000 an ounce for the 2nd time in history since last spring, before retreating. Gold mining shares have essentially doubled since their November lows and still surging. I've been expecting pullbacks, looking for opportunities to add to my current positions, but the market just hasn't allowed me to. I'll just hold on and see if we penetrate the $1030 all-time high. If that occurs, then all bets are off and we could see a buying mania which would signal an opportunity to take some profits off the table. Long-term, the chart for gold still looks bullish, but locking in some profits just seems prudent to me, considering last year's stunning rise and subsequent collapse in gold.

Eastern European defaults are a huge concern, which would cascade toward western European banks with heavy exposure to the emerging countries in the Baltics. And with European banks even more leveraged than their US counterparts, this is analogous to the US subprime mortgage crisis--only worse and much larger in scope.

Unemployment is soaring with no end in sight, corporate earnings eroding, and consumer confidence shattered, markets are braced for the next shock, with the realization that this is not your garden-variety recession--this is an outright worldwide Depression, with no country spared.

The Dow/Gold ratio is at 7.5 and dropping, and that ratio usually dips below 5 and all the way to 2 at extreme recessionary lows. Hypothetically, gold at $1200 an ounce, and the Dow Jones Industrials at 6000 would yield a DJIA/gold ratio of 5. This is another indicator which has scary implications going forward.

The Volatility Index is climbing once again above 50, so hold on to your hat.

Oversold

Even tho I think financials have terrible fundamentals (too much toxic debt), I flipped Citigroup today for a one-day round trip profit of 20%. Regional banks should do okay, as they didn't leverage up on sub-prime mortgage-backed securities, like the big money center banks. But the landscape has changed for partially nationalized banks like JPMorgan Chase, B of A, Citi, and Goldman Sachs. So even tho I went against my investment principles, I repeated my flip of Morgan Stanley last quarter, doubling my money on that trade. The panic selling of Citi shares created an oversold condition, so I pounced. Probably not smart, but I'd rather be lucky than good.

I also nibbled at oil at $34/barrel with the ETF DXO, which leverages crude oil moves. No one is bullish on oil, so my contrarian instincts compelled me to dive in. This is a short-term trade for me, and if oil moves to my favor, I'll take profits. If oil keeps declining, I'll again go against my principles, sitting on it for however many months or years it takes for oil to rebound--I won't put in any stop losses. Oil is still in a secular bull market, so time is on my side.