CNBC’s Rick Santelli talks with Mark Melin, Alternative Reality contributor and editor of Opalesque Futures Intelligence, about the SEC’s role in the MF Global investigation.
Melin says the SEC knew in May that “Corzine had sovereign debt exposure and they were the only people that knew.”
Credit where credit is due, here. Janet Tavakoli was talking back in November about the fact MF Global’s leveraged default and liquidity risk exposure to European sovereign debt was disclosed in a 10-K filing with the SEC for the year ending March 21, 2011. “The CFTC and other regulators had the information right under their noses, but it appears they didn’t understand that they were looking at a leveraged credit derivative transaction that could lead to margin calls that MF Global would be unable to meet,” Tavakoli wrote on the Huffington Post.
But Melin has more.
In August, three months after the SEC received MF Global’s 10-K, there was a $300 million bond offering floated to professional investors. None of those investors were told about or knew of MF Global’s European sovereign debt exposure, Melin has written, and he reiterated the point on Wednesday [Jan. 25].
“We should have transparency,” Melin says of the role of a regulator like the SEC in the case of a bond offering like MF Global’s. “Investors should be protected by regulators.”
‘De la discussion jaillit la lumiere’ … about good discussion and foundational investments.
As stated so eloquently in our disclaimer “The Thoughtful Arbitrageur” is not an investment advisor and you should not be seeking investing advice from a blog. We are attempting to inform, sometimes amuse,and hopefully give you the benefit of our fortunate experiences. Our subject this week is Bollore Group.
Our belief is that a sound portfolio is grounded by a core of strong fundamental holdings such as Bollore. Bollore is the type of equity that can anchor a portfolio for many years. Around these investments could be an array of various strategies designed to take advantage of a particular trend. Still you must seek, and go long, keystone holdings. Just as a good wine cellar requires everyday table wines combined with the more rare harvest.
One other caveat before we move on: Our ideas may not always turn out as anticipated. Still, we believe that our thesis leading to them is always well-thought-out. A smart investor could use our concepts in three ways: Agree with it, despise it or embrace the logic and find a similar play. For example, it is akin to informing a sommelier that while you agree with his recommendation of a California Pinot Noir, you would rather choose another label. In this way, you will derive the most benefit from our private communiques.
Bollore Group was founded in 1822 and is one of the 500 largest companies in the world. The company employs over 28,000 and is listed on Euronext in Paris. It is controlled by the Bollore family and is dedicated to freight forwarding and international logistics,with a focused interest in Africa. Among its other pursuits are fuel distribution, plastics, batteries, super capacitors and electric vehicles. Bollore also manages a number of financial assets including plantations producing rubber and palm oil. Finally, the company has media, advertising and telecommunications interests. This by virtue of its 28 % stake in Havas, 29% stake in Aegis PLC,and 90% interest in Bollore Telecom, a French WiMax operator. Media, Wi-Fi and battery-powered cars are the more sensational parts of the Bollore story. Nevertheless, it is logistical services and fuel transportation, especially on the African continent, that is the raison d’ĂŞtre of Bollore. Those comprise more than 95% of its revenue base. Started in 1927, Bollore controls the largest integrated logistics network in Africa. It is present in 43 African countries, with more than 22,000 employees and 8 million-plus square meters of offices, warehouses and container yards. To say that Bollore is the heart that pumps the commercial blood throughout Africa may be an understatement. Although we love the idea of diversifying into media for the influence it affords, and electric cars as a concession to green technology, make no mistake this is a logistics play. If you agree with the notion that these folks know something about a trade that they have plied for almost 90 years, and believe in the future commercial prospects of Africa, then this is your stock.
Let’s swirl this around our glass and take a look at the overall numbers. Bollore has a quite reasonable price-to-earnings ratio in the 9 area. This compares admirably with other stocks of its kind that trade at almost double that ratio. Its price-to-book is in the 0.8 range; again, half as much as the norm. The company pays out a near 2% dividend and traded at €157.85 (about $206.21) per share as of Jan. 20, 2012. It has traded recently as high as €178 and seems to be unfairly victimized by the entire European contagion. There is quite a bit of upside. Bollore has a market capitalization near €4 billion and has a great deal of potential. You should be aware that it is very thinly traded. This is why we see it as a vastly unrecognized long-term play of the buy-and-hold category. Patience will definitely be a virtue with this investment.
We feel that given its enormous natural resources, as well as its room for growth, Africa is the financial story of the next global economic period. While Africa has experienced disturbing incidents such as the civil war in Angola, and the more recent war in Darfur, the number of armed conflicts has steadily declined. Given more prominence to political associations like the African Union, which promotes peace and advanced living conditions in the continents’ poorer countries, Africa can realize its tremendous potential. There are, of course, obvious impediments to investing in Africa, not the least of which is finding the proper vehicle. However, Bollore offers the astute investor a sensible way to enter the region.
The management story is intriguing. Through numerous holding companies, the Bollore family controls the voting power. There is certainly no agency risk in this investment, as the family’s providence is tied to your interests. Led by scion Vincent Bollore, it is leadership reminiscent of traditional European dynasties that have ruled and guided that continent for generations. Vincent Bollore has proven to be a sharp, intuitive and aggressive manager. While in some instances family leadership may be a detriment, in Bollore it is a powerful asset. He is also a comic book aficionado with an extensive collection and we like that type of whimsicality. His guidance is all the more reason to favor this pick.
Thus, our latest choice—a precious French vintage that would sit proudly in your vault: Le Group Bollore 2012 .
Au Revoir,
The Thoughtful Arbitrageur
Edward Strafaci is not an investment adviser. Nothing he writes should be construed as investment advice or an endorsement of any particular security. From time to time, a family trust with which he is associated may have positions in the securities he writes about. When it does, he will tell you. What he writes is meant to inform and in some cases to entertain and amuse. HedgeWorld’s Alternative Reality is not an investment advisory site. As a general rule you should not take investment advice from blogs, anyway. Consult a financial professional for investment advice, not a blog.
Valuation Research Corp. hired Eric Wissinger as a managing director in charge of the firm’s new office in Pittsburgh, Pa. Wissinger specializes in providing valuations for hedge funds and alternative asset firms, according to a news release from VRC. Most recently, Wissinger was co-founder, principal and managing director at Commonwealth Capital Group, where he managed a private equity fund dedicated to alternative asset investing small micro-market industrial businesses.
You’ve gotten it from everywhere else- the hot shot managers, institutional titans and talking heads on CNBC have all weighed in on where they think 2012 will take investors. Now, it’s our turn in what has become our most read newsletter – the annual Attain Capital look back/peer forward – the 2012 Managed Futures Outlook and 2011 Review. We may be a few weeks late to the party, but the wait was worth it, as the added time meant more data and more interesting conclusions overall.
If 2008 was the managed futures party year, 2009 was the “hangover”, where the big drop in volatility following the historic 2008 volatility caused managed futures losses, and 2010 the “rebound” year, where managed futures avoided putting in back to back losing years. 2011 can best be described as “a whole lot of nothing.” There were ups, there were downs, and managed futures programs tried to capitalize on both side of these moves. But in the end, none of the moves extended far enough for managed futures to profit substantially from, leaving gains here, losses there, and so on. In short, a whole lot of nothing.
What trading atmosphere generated these results? Can we expect more of the same in 2012, or will the tides turn? To find out our take on what is in store for Managed Futures in the new year, click through.
Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.
The entries on this blog are intended to further subscribers understanding, education, and – at times- enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts.
The mention of asset class performance is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.) , and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices:Â such as survivorship and self reporting biases, and instant history.
Managed Futures Disclaimer:
Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.
Career placement agency Robin Judson Partners hired Alison L. Seanor as a managing director and senior recruiter. Prior to joining Robin Judson Partners, Seanor worked for seven years at a boutique search firm. There, she specialized in recruiting investment professionals and traders, according to a news release from Robin Judson Partners.
Why was disclosure of critical MF Global documents delayed? Â Why were time stamps amended?
Critical documents related to MF Global’s financial condition appear to have been delayed for release by the Securities and Exchange Commission (SEC) at an important time just before a MF Global floated a bond offering to professional investors.  While possibly a coincidence, approximately the same time the documents in question were finally made public, MF Global professional account holders were beginning to flee the company, leading to an eventual liquidity crisis and the firm’s bankruptcy.
The document in question is MF Global’s Annual Audited Report on Form X-17-A-5.  What is critical about this report is that it contained information regarding of MF Global’s risky sovereign debt trades, including some subtle, yet important, details that were not available anywhere else.  Had professional investors had this information weeks after the May 31, 2011 initial filing date, as is said to be typically the case with such documents, they may have avoided purchasing what ultimately became near worthless MF Global bonds.  Here is the critical timeline:
•May 31, 2011: The date the SEC acknowledged receiving MF Global’s 2011 Annual Audit.
Figure 1 (Above): Initial financial disclosure file stamped September 2, 2011 – well after the May 31, 2011 acknowledged filing date. MF Global floated an unsecured bond offering in August of 2011.
•August 2, 2011: MF Global sold $300 million of now nearly worthless bonds to professional investors.
•MF Global’s 2011 Annual Audit document was initially file stamped by the SEC as received on September 2, 2011 (see figure 1).  When the document was made public later weeks later, disclosing critical details of MF Global’s risky Sovereign debt position, professional traders were beginning to flee the firm.  This fleeing ultimately caused a crescendo of MF Global account holder liquidations.
•December 14, 2011: SEC removes the MF Global Annual Report
•January 3, 2012: SEC uploads a new copy of the Annual Report with a different file stamp date. Curious written notations that appeared in the replacement Annual Audit may indicate SEC interest in MF Global’s sovereign debt exposure–the very exposure FINRA was said to be negotiating with the firm over during the summer of 2011. (Figure 3)
While the SEC is said to have no definitive timeline for publishing Annual Audit documents, compliance consultant Bob English notes these documents are typically scanned and uploaded within two to four weeks from receipt.  “The process is: the documents are typically indexed and file stamped in the first week, then two weeks later they are scanned and uploaded to the public server,” he said.  MF Global Inc.’s 2011
Figure 2 (Above): Altered time stamp – taken off the SEC database in December of 2011 and replaced with a new time stamp indicating a May 31, 2011 filing date.
filing, due to the SEC on May 31, would have been anxiously anticipated by astute investors.  Rumors had been swirling throughout the futures industry the firm was in trouble, and industry participants could have used the information in the report for signs of trouble at the firm.  When the May 31 filing did not appear it may have raised questions, according to Mr. English.  Mr. English’s assertions regarding the delayed filing and document alterations are documented  in a Forbes article by Francine McKenna.  The key is to connect the dots.  There was a bond offering that appears to have been held under questionable circumstances.  There is significant “too big to fail” special privilege afforded to the president of a Futures Commission Merchant (FCM).  The New York Fed would have never considered an FCM to walk up to the discount window, and yet Mr. Corzine once again received special treatment, as he is receiving special treatment in the investigation into MF Global. Mr. Corzine has yet to be questioned by authorities, something which legal sources say is unusual.
To further point out special treatment, Mr. English points out that the document was held by the SEC concurrent with negotiations that FINRA and the SEC were having with MF Global over foreign sovereign debt exposure, which has now been widely reported after the fact.  “It appears as though someone at the SEC may have been holding the document while negotiating with Mr. Corzine over his sovereign debt exposure,” Mr. English speculated, noting that between the May Filing date and September release date FINRA and SEC negotiated with MF Global and finally demanded an increase of capitalization to support Corzin’s sovereign debt trade. He notes that the documents were de-indexed from the SEC database and then reposted–unusual activity given that a sampling of smaller brokerage firms found no instances of missing or amended audits.  “Astute industry participants may have been watching for the Annual Audited report of the broker unit,” noted Mr. English.  “That report did not surface until September at the earliest.  This is clearly out of the norm with respect to how the SEC usually scans and publicly posts these reports.”
After reviewing the charges, SEC spokesperson John Nester said: “Generally, broker-dealers that carry customer accounts publish audited balance sheet reports on their own websites at the same time they are filed on paper with the SEC and available for public inspection. The reports are also scanned for posting to the SEC’s EDGAR database, but there is no deadline that establishes when they must appear on EDGAR.  After it was posted in September, the MF Global report on EDGAR was amended to correctly reflect that it was filed May 31, 2011.”
SEC guidelines are apparently written with large loopholes regarding disclosure dates.  While Mr. Nester’s comments point to the fact that while it might not be technically a rule violation, the special treatment provided Mr. Corzine should at least raise questions.  As Mr. English notes in a survey of 20 mid-sized brokerage firms, there were no instances of pulling down documentation after the fact and changing of information.
Mark Melin is author of the book High Performance Managed Futuresand taught managed futures at Northwestern University. Â He currently consults with professional investors regarding development of uncorrelated investment portfolios.
Brilliant Transportation Chief Executive Richard Fertig, formerly the co-head of investments and managing director in the fund of funds group at Ramius Capital Group, says ground transportation was tedious and inefficient before he introduced his line of re-fitted, custom luxury Mercedes vans.
“We’ve had mobile board meetings,” Fertig says. “We have color mobile printers, so that if you have to change a contract or you catch something en route, you can modify your presentation….”
New York University professor and economist Nouriel Roubini, who predicted the 2008 financial crisis, talks Greek debt with Bloomberg TV’s Margaret Brennan. He discusses the prospects for an accord between Greece and its private creditors, which include banks and hedge funds.
“… [E]ven if they reach an agreement, but even if they reach an agreement, there’ll be so many holdouts that then they’ll have a problem…,” Roubini says.
Watch this excerpt of the full interview below.
Update: Greylock Capital’s Hans Humes tells Margaret Brennan he’s cautiously optimistic that Greece and its creditors will make a deal.
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