A “Rogue Trader” of Convenience

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.


Kris Sayce
Kris is never one to pull punches when discussing market developments and economic events that can affect your wealth. He’ll take anyone to task — banks, governments, big business — if he thinks they’re trying to pull a fast one with your money. Kris is also the editor of Microcap Trader — where he reveals the best opportunities he’s discovered in the markets. If you’d like to more about Kris’ financial world view and investing philosophy then join him on Google+. It's where he shares investment insight, commentary and ideas that he can't always fit into his regular Money Morning essays.

Kris Sayce is the Publisher and Investment Director of Australia’s biggest circulation daily financial email, Money Morning Australia.Kris is a fully accredited advisor in shares, options, warrants and foreign-exchange investments.

Kris has close to twenty years’ experience in analysing stocks. He began his career in the biggest wasp’s nest in the financial world — the city of London — as a finance broker back in 1995.

It’s there where he got his ‘baptism of fire’ into the financial markets, specialising in small-cap stock analysis on London’s Alternative Investment Market. This covered everything from Kazakhstani gold miners to toy train companies.After moving to Australia, Kris spent several years at a leading Australian wealth-management company. However he began to realise the finance and brokerage industry was more interested in lining its own pockets with fat fees, commissions and perks —rather than genuinely helping out the private investors they were supposed to be ‘working’ for.

So in 2005 Kris started writing for Port Phillip Publishing — a company which was more attuned to his investment outlook.

Initially he began writing for the Daily Reckoning Australia— but eventually, took over Money Morning. It’s now read by over 55,000 subscribers each day.

Kris will take anyone to task — banks, governments, big business — if he thinks they’re trying to pull a fast one with your money! Whether you agree with him or not, you’ll find his common-sense, thought-provoking arguments well worth a read.

To have his investment insights delivered straight to your inbox each day, take out a free subscription to Money Morning here.

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26 Comments on "A “Rogue Trader” of Convenience"

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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… Read more »

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.


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.


JB @ 1

I agree with you JB

Peter Fraser

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?


Leave Kris alone!

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… Read more »

if you have he time try and argue this !


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… Read more »
Peter Fraser
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.… Read more »