Apple sauced, big perps still gaming the market

Sudden, massive margin increase to blame for Apple smooshing?

WASHINGTON, December 6, 2012 – In yesterday’s column, and indeed for quite some time, we’ve been detailing our suspicions that the stock, bond, and futures markets—always susceptible to hanky-panky even in the best of times—have been subject to unusually blatant manipulation in recent years as Great Depression II lumbers on with no apparent end in sight. In yesterday’s column, we detailed the highly suspicious and seemingly coordinated bear raiding that’s been going on in the precious metals. Yesterday, 2012’s onetime market darling, Apple, had its recent rally smithereened in one trading day as the stock tanked as much as 6% in just one day before it recovered slightly. In one short day, the stock of mighty Apple was transformed into Apple Sauce.

The immediate problem appeared to be the reaction, or overreaction, of trading clearinghouse COR Clearing in response, or alleged response, to the unveiling of a trading scheme meant to manipulate the profitability of a massive trade in Apple stock (AAPL).

Background: Brokerage and clearing houses retain broad discretion in setting margin requirements for traders, both individual and corporate. Margin is simply the amount of credit, based on an assessment of an individual portfolio, that such a firm or firms are willing to extend to their customers. At most times, for example, futures contracts can be traded on substantial margin, with investors only having to pony up 10% of a given transaction in actual cash, letting the other 90% ride on the house for better or worse. The house, of course, gets to charge interest on this “loan,” just like any bank, for the duration of the trade. There are many other details to this, but you get the picture.

Stock trading margins are somewhat less generous. In normal times and for normal stocks, standard margins are about 30%. Allegedly, after detecting the large, manipulative, and perhaps fraudulent trade in Apple stock, COR apparently decided to protect itself—and penalize its traders across the boards—by jacking up Apple’s margin requirement from 30% to 60%.

For the uninitiated, buyers on margin have to maintain, more or less, enough stock and/or cash to maintain that normal 30% margin. If a long position in a margined stock erodes significantly as its price goes down, the brokerage house will ask for enough cash to get the investor back on the hook for at least 30% of the stock’s new value. (Again, it’s actually a little more complicated but the details aren’t necessary in this example.) This “call for cash” is otherwise known as a margin call. And, unlike your regular bank, which sends moderately gentle reminders at first if you happen to be in arrears on, say, your credit card balance, when you get a margin call, the broker wants that money RIGHT NOW. As, within 24 hours generally. That’s what’s known as a “margin call.” If they don’t get the moolah, they have the right and obligation to start selling out your positions without your permission until the correct margin balance is maintained.

Of course, when COR Clearing jacked up their margin requirement by an instant 30%, mass quantities of margin calls went out, probably blindsiding a large number of investors in expensive Apple stock. You could say that Apple got “CORed,” but we’re too dignified for that.

It’s not clear whether other brokerages or clearinghouses joined in the margin rate increase. But within minutes of this news leaking out, a massive liquidation in Apple stock commenced, probably (though not certainly) the biggest single reason for yesterday’s Apple stock collapse. The downward cascade continued even into after-hours trading yesterday. (The stock seems to have very slightly recovered as of this writing, circa 10:45 a.m. this morning EST.)

A lot of other things have been going on in Apple recently. In the first place, certain elements of the market are convinced that the company’s glory days are at an end now that the Second Coming of the god-like Steve Jobs has drawn permanently to a close. Pundits are waiting for the blockbuster successor to the iPhone and the iPad and they’re not seeing one on the horizon. The company has slightly missed its numbers for two quarters in a row. So all the brilliant financial gurus and talking heads who three or four months ago were calling for Apple to hit $1,000 per share within days are suddenly just convinced that its glory days are over.

Whatever the ultimate outcome of this largely baseless speculation, one fact about Apple stock is abundantly clear: If you’d bought a batch of its shares even a year or a year-and-a-half ago, shut your eyes tight, and just held onto it, you have profited obscenely and beyond avarice. It’s a nice place to be. And that’s just where a significantly large number of traders, hedge funds, mutual funds, and S&P/tech oriented ETF QQQ (incredibly overweight Apple) have been for quite some time. In brokerage parlance, Apple stock has been dramatically “over-owned.”

But with 2012 drawing to a close, and with the fiscal cliff non-negotiations promising to end in a stalemate and a resulting massive capital gains tax increase in January 2013, it’s likely that only a moron would want to wait to book these huge profits in Apple next year when Obamanation can potentially come in and take a good chunk of them away. So selling before the end of the year makes perfect tax sense whether you still like your Apple stock or believe the gloomsters who’ve already consigned Apple to the dustbin of corporate history. And, until its recent brief rally, after a sickening 3-week 25% plunge, selling Apple and booking those profits in 2012 has been the trendy and the logical thing to do.

So, with a tendency to hit the sell button already hanging in the air, Apple’s recent rally, while fun, has been tenuous at best. And when COR’s ham-fisted margin reaction hit the tape, any investor who’d been wavering—or who was too leveraged—instantly hit the silk whether voluntarily or involuntarily due to a margin call.

While the stock market, historically, has never exactly been a safe place, individual investors were at least reasonably assured that regulatory agencies were operating in the average investor’s best interests, protecting him or her from the instinctual predations of the big guys with fancy lawyers and accountants on their payrolls.

But by the end of the 1980s, these interests had begun to chip away at regulatory safeguards in place since Great Depression I. And by the time the Clinton Administration and the Republican Congress tag-teamed Glass-Steagall into final oblivion in 1999—essentially removing all curbs on banks that had prevented them from getting back into riskier businesses banned since the 1930s—America’s rapid slide toward Great Depression II was already set on its disastrous course.

The Maven has always favored capitalism. But, contrary to his usual libertarian inclinations, he’s also generally favored keeping 1930s-era financial regulations largely intact. Bankers, money traders, and fat cats with nothing better to do are genetically programmed to game any system in order to fleece the rubes (small investors) as well as their arch-enemies in the moneyed class, just for the hell of it. Rules and regs put in place in the 1930s to end such practices (including the late-lamented and much missed downtick rule) kept trading relatively safe for over 50 years. Banking and investing de-regulation simply let the foxes back into the investing hen house and guess what? They engineered a re-run of 1929 in 2008. Who’d ‘a thunk it?

The current re-engineering of those 1930s regs in the current legislative mess known as Dodd-Frank—cobbled together, interestingly enough, by the two Congressman who’d arguably been engineering the 2008 debacle for at least a decade or two—is a complex joke that still protects the perps while screwing the small investor.

Meanwhile, it seems that all our financial regulators are asleep at the switch, looking the other way at wealthy miscreants as they await their lateral and upward moves into the private sector when they retire, as double-dippers, from the Federal government. Say, after all, if you’re going to retire in just a few more years, why torque off the thieves you want to work for afterward, eh?

The recent action in gold and silver, and yesterday’s still largely unexplained pancaking of Apple stock continues to ratchet up the Maven’s Disgust-o-Meter to needle-pinning highs the Maven has never seen in his increasingly long lifetime.

Allegedly, only “the rich” invest in stocks and bonds. But in point of fact, anyone who’s in a union or corporate pension plan, defined benefit or not; a 401(k) that invests in a choice of funds; or the various IRA and Keogh plans available to individuals—anyone involved in these vehicles is actually a stock investor, too. And as the little-guy investor class, you—and the Maven—are getting continually screwed, more and more every day, by wealthy thieves who should be in jail but who are being protected by toothless Federal regulators and by the exchanges that fear a loss of the huge business these blackguards conduct.

Add to this the huge market swings caused by HFTs, the bulk of whose trades are canceled and therefore phony and manipulative, and you have a level of fraud that approaches that of the Social Security Trust Fund Ponzi Scheme.

Voters essentially voted for more of the same in November by essentially re-electing all the politicians who’ve done nothing about it since 2008. We are seriously beginning to wonder: has some new, mysterious prion been slowly digesting voters’ brains?

For now, we’re going back to our original advice before we conducted a couple of failed precious metals adventures last week: time to fade out of the market, go mostly cash—or gold bullion on downdrafts if you’re really nervous—and wait out this December’s nonsense. As we learned yesterday, even America’s mightiest company is no longer a good place to hide.

Meanwhile, for those who still believe in at least the metaphorical goodness of the “real” Santa Claus, a Happy St. Nicholas Day to you. Hope you remembered to put your wooden shoes out on the porch!

Ancient Russian icon depicting the original St. Nick. It’s his day today, in case your forgot. Will he replenish the money we all lost this year? Probably not, as he likely took the vow of poverty that we did not!

Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate. Stock investments currently include positions mentioned in recent articles. The maven is now out of IAU and SLV for reasons outlined in yesterday’s column but does still have some small positions in foreign stock ETFs while continuing to acquire attractive IPOs and secondary offerings for 31-day holds only.

Any positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.

Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.

References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.


Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.

Follow Terry on Twitter @terryp17


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Terry Ponick

Now writing on investing, politics, music, movies and theater for the Washington Times Communities, Terry was formerly the longtime music and culture critic for the Washington Times print edition (1994-2009) before moving online with Communities in 2010.  



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