- Money Morning Australia

A “Rogue Trader” of Convenience

Written on 16 September 2011 by Kris Sayce

Overnight, stocks were up… a lot.

And gold was down… a lot.

Why? Has the world changed? Have central bankers figured out the perfect solution to fixing the global economy and financial system?

Er, no. The Financial Times (FT) reports:

“The world’s main central banks took bold concerted action to pre-empt a looming dollar funding crisis in Europe, sparking a rally in Eurozone bank shares and the euro.”

If we didn’t know better we’d say the FT has turned into the Central Bankers’ press office.

But that wasn’t the only big news to hit the market. In fact, in terms of column inches across the two biggest financial newspapers – the FT and Wall Street Journal (WSJ) – another story made a bigger splash.

It was news that Mr. Kweku Adoboli, a trader at Swiss banking giant, UBS, had racked up a USD$2 billion “rogue trading” loss for the bank.

Forget five central banks bailing out Europe (again). Instead, the financial press decided to devote most of their journalistic talent on… finding out what Mr. Adoboli had written on his Facebook page!

But to us, the bigger story is the coincidence of Mr. Adoboli’s alleged crime and the central bank intervention occurring on the same day. OK, let’s just say it: it’s not a coincidence…

Diversionary tactics

The market needs any diversionary tactics it can get. But diversions from what? Well, let’s check out the deal struck by the five central banks? The WSJ notes:

“The action addresses an acute shortage of dollar availability as U.S. lenders withhold funds out of concern that the European banking system is overexposed to the region’s government-debt crisis.”

In other words, even the corrupt U.S. banks have more sense than to lend money to Europe’s zombie banks. It proves that things must be bad.

And why should they lend to Europe. They know there’s no need to risk their own capital when central banks have shown they’ll bail out any bank at the drop of a hat.

Proof of that is in the following quote from the WSJ:

“On Wednesday, the ECB [European Central Bank] said two banks had tapped it for $575 million, only the second time in six months that the ECB had doled out dollar funding. The names of banks that tap the ECB are kept confidential.”

So, three years after the financial world almost collapsed… the financial world is still almost collapsing.

As Slipstream Trader, Murray Dawes wrote in a note to your editor this morning:

“It looks like the world’s financial system was closer to the edge of oblivion than even I thought. In the end this is another case of ‘kicking the can down the road’. But the fact is you can’t solve a solvency crisis with liquidity. If Greece brought Europe this close to the edge I hate to think what’s coming next. My advice: use this rally to get out of risk assets. If you don’t there’s a chance you’ll regret it!”

We can always rely on Murray to get to the point on these things.

The banks are in trouble. But the authorities don’t want you focusing on it. So, on queue comes the diversion… Mr. Adoboli.

But that’s not the only coincidence. When looking for a fall guy, it’s important they pick on a guy based in Europe. This is because white collar fraud typically attracts softer sentences than U.S. white collar fraud.

If you’re gonna commit fraud, do it in Europe

For instance, Société Généralé “rogue trader”, Jerome Kerviel lost USD$7 billion for his bank from the Paris office. Last year he was sentenced to five years jail.

Now compare that to Lance Poulsen, CEO of National Century Financial Enterprises. His firm collapsed in 2002. Here’s the judgement from the United States Court of Appeals for the Sixth Circuit:

“The district court sentenced Poulsen to 360 months [30 years] in prison to run concurrently with the sentence in the Obstruction Case [sentenced to 10 years prison].”

Mr. Poulsen was accused – and convicted – of a USD$2.8 billion fraud… and is off to jail for 30 years.

Or how about recently convicted insider trader, Raj Rajaratnum.

He’s due for sentencing next week. His hedge fund made over USD$60 million from insider trading. Odds are he’ll get a sizeable sentence – a recent case involving a USD$10 million insider trading profit, saw the accused get a five-and-a-half year jail sentence.

Prosecutors in the Rajaratnum case are gunning for a 20-year plus sentence!

What we’re saying is, if the banks are going to offer up a sacrificial trader… make sure he or she works in Europe. Because odds are they’ll get a soft sentence and be out before the next Rugby World Cup comes round.

And that way, the banks’ top brass can sleep a bit easier knowing their fall guy only has a couple of years of playing dodge in the showers.

But really, what this coordinated central banker/rogue trader story is about is the masking of more banking bailouts… more taxpayer dollars going on the line… and the continued devaluation of paper currencies.

No such thing as a “rogue trader”

Think about it. Who really understands what the central banks have done… not the average man in the street… and we’ll guess the hot-shots on Wall Street or Collins Street don’t get it either.

All the market needs to know is the central banks are doing something. But they don’t want the market knowing too much. Hence the convenient appearance of a rogue trading “beard”.

The fact is we can’t get a claim paid for a $2 newspaper without our office manager boxing us about the ears asking for a receipt!

So to expect us to believe that a trader at one of the world’s biggest financial institutions could trade billions of losses without the deficit appearing on a profit and loss, or position statement somewhere… well, put it this way, it’s not likely.

We’re right with Murray Dawes on this one. The market is on the edge. And ironically, we also agree with Geoffrey Yu, director of foreign exchange at… UBS. He told the WSJ:

“This [central bank intervention] doesn’t change anything. It helps the banks for the next couple of months, but that’s it.”

In short: stocks have rallied, gold’s been slammed. That means it’s time to sell one and buy the other.


P.S. Slipstream Trader Murray Dawes feels the ASX may be on the verge of a squeeze. In his new free video market update, Murray will take you through what’s happened in our market recently and where he thinks it will head. To view the video, simply click here to visit Slipstream Trader YouTube channel.


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26 Comments For This Post

  1. JB Says:

    I miss the good old days where Kris was the Editor of Money Morning and he wrote such inspiring daily issues where he’d stick it to the government, the banks, the property sector etc etc.. basically every sector involved with the ripoff of average citizens.
    I could hardly wait for each day’s newsletter, and would devour it at work within a few minutes of it arriving in my inbox.

    But then something happened… Kris went all meek and mild on us, and his articles became less ‘controversial’ and much less interesting… Somebody had obviously interferred with his writings and had spoiled what was an excellent newsletter through this interference. Most newsletters then became more focused on selling the subscription publications… and it became BORING …

    Its been many months now since i’ve read Money Morning on a daily basis and could not wait for my next “Kris Sayce fix”.
    I still read it every now and then, but invariably am disappointed that the “old Kris” is still not back, and the newsletter remains boring and more of a ‘spruik’ for the other subscriptions.

    Also, i noticed that Shae Smith is now the editor of Money Morning… no disrespect to Shae intended, as i enjoy her writings as well… but what exactly is Kris’s position there now??

    I’m a massive Kris Sayce fan and would love to know what the hell happened to the winning formula that you had happening there with Kris as editor and writing his daily jewels!??

    Whatever has caused the change over there – just wanted you to know that the ‘new’ version sucks!

  2. DM Says:

    I haven’t followed the story but I find it unbelievable that a trader can be allowed to lose $7b before he gets found out – everyone of his superiors, all the way to the CEO should be similarly charged. Then, these organisations might put in place some effective controls. There’s no point in just throwing the trader in the clink – the executives will find some other puppet for the next time.

  3. lb Says:

    The ECB intervention is like putting a high octane premium petrol in the tank of an old clunker hoping that it will perform like new again.
    It will NOT work unless Greece is prepared to undergo a major structural change otherwise, ECB is just dreaming.

  4. TONY Says:

    JB @ 1

    I agree with you JB

  5. Peter Fraser Says:

    How is your silver going JB. Have you made that fortune that you couldn’t lose on yet?

    What did you guarantee again, was it $200 per ounce?

  6. neil Says:

    Leave Kris alone!

  7. SG Says:

    But ‘if’ we are turning Japanese expect things to get boring no extremes just a whole lot of morbid boring slow negatives (real) with no end in sight.

    But Pete how is your 5% doing………….We must be getting close surely……..with no end in sight….even with NSW little changes of late that will promote a lull after Christmas, and nothing personal before I am just find myself too emotionally obligated to question your change of tack (a little or aggressively trying to convince everyone ‘nothing to see here more along’) .

    I have a call, interest rates down before Christmas and more after…..can anyone guess why ?

  8. SG Says:

    if you have he time try and argue this !


  9. Ben Says:

    Silver could get to $250 per ounce, However I think $60 in the next few months and then maybe $80-$100….That would see me out, I brought in at around the gold/silver ratio of 80-1
    Along time before the Bill Bonner crew started pushing silver ownership. Now it was only a month ago that I seen a google adwords advert from Agora suggesting silver hit $250 per ounce in 2011…..Today I recieved moneymorning (US editon) saying that ” Dont sell your silver until it hits $150 ” – So which is it, Wait until it could hit $250 in 2011, Or wait until next year and wait until it gets to $150 before selling ?
    Alittle confused, You bet….Anyone else ?

  10. Peter Fraser Says:

    SG – we are close. My call was actually 5% to 10% and in Perth and Brisbane I expect we are about 7% – not absolutely sure on that.

    I also expect the market to level out until Xmas and the fall a little more in the 1st half of 2012, and then very gradually move upwards, but it will be brittle for a long time.

    The caveat on that is one of JC’s black swan events, which is possible.

    As for the video – mate it’s 5% fact, 90% gross exaggeration, and 5% pure BS, but it was interesting. There are thousands of very plausible theories out there. A lot of the truther style videos have some genuine concerns and questions, but then they overdo the BS with outrageous claims of conspiracies.

    The danger is that every now and then, a genuine conspiracy will be given insufficient scrutiny due to the excessive conspiracy theories on the internet. It’s a modern “boy who cried wolf” syndrome.

    But you may have a different opinion.

  11. AG Says:

    The UBS rogue trader lost the money in a punt on the swiss franc. The swiss recently intervened to set a 1.20 franc per euro. A lot of people lost a lot of money. Who is the real criminal here?

  12. TRB Says:

    Peter Fraser I’m surprise that you want take a cheap shot at JB on the silver market.
    We all know on this site that the bloggers love precious metals, I will not comment when I know the emotional suckers have been trap by the irrational herd and losing money.
    I just do not like kicking traders when they are down.

  13. JB Says:

    PF @ 5
    Yes Peter, I have made a fortune on silver over the last couple of years – in fact I’ve doubled my money. Thanks for asking ;)

    Not sure when silver will reach $200/Oz, but given that that baffoon Bernanke is still leading the show I’m pretty sure it wont be too far off.

    While gold and silver continue to appreciate relative to real estate – I’ll keep buying…

    How are your real estate investments going??

  14. JB Says:

    TRB @ 10
    No worries there mate.
    Silver took a big hit after Easter, but that would only really be an issue for those who went all in at that particular point in time and who HAD TO sell their silver again shortly thereafter…
    It’s quite hard to fathom out why anybody would be in such an unfortunate situation, but i guess there could be a couple of TRADERS who found themselves there.

    For PM INVESTORS such as myself – who have been buying PMs for years now, such drops are a mere blip on the radar.
    Silver has recovered most of that drop already anyhow and the price has found a new stable level just under $40 (AU).

    I’m sure there are traders out there who have more than doubled their money over the past two years or so, but there will be many more who have lost more than they’ve gained.

    I’m very happy with having doubled my money over the last couple of years and i look forward to redoubling it many times over during the next 5 to 10 years…

    I suspect that those who are all in on residential real estate in Australia will fair somewhat less well! how’s that for a euphemism? lol

  15. SG Says:

    Yeah cheers Pete but i was talking about the real content of what the ex-assistant secretary of housing had to say not some sub-plot as support for other things that were being said.

    I don’t remember you upgrading your estimate on housing…..yeah 5% that was it, not a little bit more here, a little bit less there. just plain ole vanilla 5%, and the Perth market had changed direction was the only resent update i noticed when you were pressed for information or felt you needed to offer it up. Not saying anything but a least now you have got your yard stick out in the open.

  16. MG Says:

    PF @ 5 – Hey PF… I dont mind telling you how my physical silver position is going.

    My purchases 6mth ago are up 17%… My purchases a year ago are up about 90%…. And my purchases about 2yrs ago are up 140%. This bull market is just starting baby!! Feel free to ask me next year how my latest purchases are going when silver should be close to that US$200 mark… But you could probably work that maths out yourself.

    Also dont kid yourself about property prices when the RBA start to cut rates early next year. With China growing +8%pa and India picking up any slack (also the wealthier populous of both nations continuing to buy up plenty of hard-assets like gold and silver), and Australian unemployment sub 6% you dont need to shake that “Lucky 8-ball” to figure out all signs point to a PROPERTY BOOM! Perth, Brisbane and regional Queensland seem like no-brainers to me….

    Just my 2 troy ounces…

  17. Abby Says:

    sh1t4brains @ 5 & 10

    Still struggling with the verbal diarrhea I see!

    I guess the property lobby are paying you enough to continue your disinformation campaign – no matter how moronic the message sounds…

    How’s the EQUITY MATE ??

  18. Drood Says:

    Hey Abby , i think you got the wrong person…….you need someone that gives a f@#k.

  19. Abby Says:

    They must be paying him a lot as I note he is STILL using sockpuppets

  20. SG Says:


    You may be interested in this


    But do you have anything real on Peter or is just a guess ?

  21. Peter Fraser Says:

    SG and Abby – I’m a real person and I don’t use sock puppets. Paradoxically those who accused me of exactly that, used many sock puppets. Anyone who wanted to contact me in person can easily do that, and some have, even one of them who I had many phone conversations with, who stood by while his mates accused me of being/using a sock puppet. He knew the truth but didn’t have the fortitude to say anything. People are strange.

    JB – actually I’m glad that you have done well with silver. Someone losing money doesn’t help me in anyway, so why would I wish ill on others.

    MG – I expect property to pickup a little for Xmas, but there won’t be a boom in Brisbane and Perth, and honestly I don’t want one. I expect that in 2012 it will slide just a little more and then rise ever so slowly for some time, at lower than CPI pace. Note that although unemployment is low, it is higher than the official figures, although employment numbers will ramp up in WA – property in Qld and WA is a better bet than Victoria over the next 5 years IMHO.

    SG – if you want me to find an old blog where I stated my expectation I could. I think I did start at about 5% and the around the end of 2010 I changed it to 5% to 10% nominal. But really I don’t care if I’m out a few percent – what does it matter. I have been way more accurate than Steven Keen or Harry Dent, and I’m not even in that business. You have to understand that it is hard to sell a book titled “Nothing Much will happen to House prices for Years” so an author has to change that to “The End of the World is Nigh” to get a buyer interested. It’s just marketing I guess.

    In 10 years house prices will be higher than now, so anyone with quality property and little debt will be well ahead of most people. Not that you guys will believe me.


  22. SG Says:

    What are you talking about Peter I passed on an article and a video about KMPG, In than a fellow from this big Australian accounting firm is rallying support for people to get out there and spread ‘happiness‘ to counter the ‘negative’ like this quote below;

    “Mr Salt advocates that these groups should seek out and counter ‘extreme’ views. “

    I was asking Abby if what she said was had any foundation or not………..so what are you on about ?

    We all know you like banks and real estate and can’t sit still if someone has an alternative view. But sometimes you also offer a ‘completeness’ to topics as things can get carried away. I don’t think you use multiple names but if someone had good reason to think otherwise I would like to hear that good reason, or, if there was no good reason it should get ignored.

  23. Peter Fraser Says:

    Sorry SG I misinterpreted.

    That Bernard Salt stuff was discussed on the Australian Property Forum. I can’t give you the link as they don’t allow links to bear forums here. Funny policy for a bear site like this.

  24. JB Says:

    Peter @ 21

    Thanks, but I have felt in the past that you were mocking me for my beliefs in purchasing gold and silver as a means to protect myself from the thieving bankers and politicians of this world.

    In any event, here’s an article on Australian housing I think you and others here would enjoy…



  25. Peter Fraser Says:

    Well JB I was mocking you, but mainly for your statement that you can’t lose on silver, and it was a certainty to go to $200 (or words to that effect)

    On a personal level, I wish no-one any malice, and I wouldn’t like to see you lose money.

    As for house prices, I think that the rent comparison that the Economist uses is way too simplistic, and I don’t have a lot of faith in Demographia – they exaggerate. Yes I know that the Bulls exaggerate too, but 2 contradictory exaggerations don’t make anything right. It is understandably reactionary, but factually unimpressive.

    I don’t think house selling prices are that much above a realistic level (depending on the area) but I do think that vendors expectations are well above a realistic level. There is a significant gap between vendors expectations, and sale prices.

    For example in your area, the Gold Coast, house prices are probably too low, but that won’t change while we have 7 years of supply in apartments, no real demand, and a suffering tourism industry.

    In most capital cities the genuinely “special houses” that should attract high prices are selling below replacement in many instances, but the low end and even the lower middle section of the market (sorry about the contorted language) are probably about 10% above fair value, because that fabled oversupply is in all the wrong areas. A surplus on the Gold Coast doesn’t help someone wanting a home in Sydney.

    Don’t sell your home, although I did offer you money for it tongue in cheek, because the cost of selling and buying again is too high, and in time it will all turn around. The Gold Coast is a special case, and it will take years, but you have to live somewhere, especially when you have children, they need stability.

    Does that answer the question?

  26. Fly Me to The Moon Says:

    PF@ 10
    “…As for the video – mate it’s 5% fact, 90% gross exaggeration, and 5% pure BS, but it was interesting. There are thousands of very plausible theories out there. A lot of the truther style videos have some genuine concerns and questions, but then they overdo the BS with outrageous claims of conspiracies….”

    A new high in glibness – congratulations!

    One can draw 3 conclusions from your comment:
    1. You’re incredibly well-read and you know immediately when something is fact or not
    2. You never actually watched the video
    3. It so offends your world view, that its easier just to dismiss it with bogus percentages of credibility

    I think its fair to say that option 1 can’t be the case. Option 2 is possibly closer to the truth. Most likely I think its option 3.

    No one can listen to this and have anything close to a knowledge of what is true and what isn’t. What I find most laughable is your undwindling faith in your perceived wisdom and knowledge. I suppose you would argue that “its just my opinion”, but you do have a tendency to be so sure of yourself that you just come over as an arrogant pr*ck :)


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