Looney Tunes

The cult of the Looney is normally something to be avoided at all costs depending on which particular commonal variety of 'loon' you are dealing with.  There are some which prove to be entertaining such as The  Monster Raving Loonies, or the more ubiquitous Looney Tunes which many of us were happily brought up on.

Once you step beyond the fun side of things the descent is pretty rapid into crackpots and the 'here's some padded wallpaper and self-cuddling apparel to enjoy for an unlimited time period'. Of course not everyone who ends up in a psycho-ward is nuts eh Bradley? and vice versa, there are plenty of people out there roaming around who perhaps should be voluntarily checking themselves in to a secure establishment for the general benefit of the rest of the planet.

With the above in mind, and a dumper truck of other caveats thrown in you will want to have a listen to this rant from Ann Barnhardt. To say her general views sit in the more extreme category is possibly this months understatement of the decade but just because what you sometimes do or say is utterly bonkers doesn't mean everything always is.

So why bother featuring this particular stream, well...mainly because its a very necessary wake up call. Often an impassioned plea has more affect than just a matter of fact delivery and unlike much of the other stuff she bangs on about 99% of this is bang on the money - especially pertinent is her title quote of "If you are still in these markets you are either stupid or on drugs". This is of course a U.S. centric appeal but given the level of fraud and manipulation in the entire financial system it is without doubt a canary in the coal mine for all (well along with several other canaries - in fact, given how many are appearing it seems the mine is also producing viagra).

The suggestion that you should remove your money from the system shouldn't be news to regular readers as we picked up on this theme in the first P.I. blog dated 11th May and have just retweeted this from the Motley Fool. In really simple terms the risk of having your money vaporised into thin air with little recourse to recover it seems to have increased dramatically and this is the point Ann describes in some detail.

So lets stick with it a second because the wider implications are to be ignored at your peril. In the U.S. a savings plan is called a 401K. Its like a UK pension scheme which is often invested in equities or government bonds. The idea being you can't touch it until you retire. Under normal circumstances its not a problem but what happens when every market is rigged, excessive fraud prevails, there is absolute fragility inherent within it and the whole financial system is one massive Ponzi scheme? The most sensible approach is to disengage or as the computer Joshua concluded in the film War Games:  'The only winning move is not to play'  And this, as several others have pointed out, seems to be about the best advice there is at the moment but why?

We've already mentioned the vaporisation of client money from MFGlobal (and now Peregrine Financial Group) in a previous post and Ann highlights the legal ruling with respect to Sentinal Management Group:

However, what is most frightening is the recent ruling in the Sentinel Management Group case by the 7th Circuit Court of Appeals. The court ruled that the Bank of NY Mellon be placed first in line ahead of customers seeking return of their money.

 

“That Sentinel failed to keep client funds properly segregated is not, on its own, sufficient to rule as a matter of law that Sentinel acted ‘with actual intent to hinder, delay, or defraud’ its customers.”- U.S. Circuit Judge John D. Tinder

 

This ruling shows that not only does the Bank of NY Mellon move to the front of the line, but that using customer segregated funds as collateral is no longer considered a crime, and that co-mingling customer segregated funds with proprietary funds is no longer considered fraud. This ruling implies that customer assets held at a bank or trust are the legal property of any counterparty to loans the depository institution takes.

This might all be about the U.S. but don't think just because you are in the UK you are necessarily  immune. Did you know that when you put your money in a bank it is no longer your property only your asset. You have loaned your money to the bank. If the bank fails you may not be entitled to your money back. There is an £85,000 per account per separate institution deposit protection scheme in place but remember - its not forward funded and governments can and do change their positions especially if cornered. Nothing to worry about there then.

There is a lot more than just the above to consider as is covered in OUCH! and we will return to this in later posts but sceptics might want to have one eye on the £130 million bet Rothchild has placed on the break up of the Euro. I will be more shocked if we don't have the mother of all financial panics this side of Christmas than if we do. Have you arranged yourself accordingly? Of course you haven't - because there is nothing to worry about, right?