Attention investors, the pain train is about to hit-Monday

[KAG]

So without going into too much detail I truely don't understand the COMEX (commodities index) as of Friday night has approved a margin increase on everything! From what I've read it's goin to create hundreds of thousands of margin calls world wide starting Monday, wiping out a lot of people.'forced selloffs to cover margin calls could tank markets. I know as a precious metals investor I'm about to get kicked in the balls. Hard.
I guess we will see on Monday. I hope like most predictions on here I'm dead wrong.

[square]

Should bounce back as selloffs get picked up by those who aren't so overextended. It's not as bad as if it was dropping due to market valuation right?

[KAG]

Well what I've read seems to (I barely understand margins anyway) point to investors in CME will need to come up with billions $$$ overnight or the commodity gets sold from under them. That's ALL commodities and apparently this is a first. This was sparked by the MF Global investment house failure/shortage of $600 million. Either way this could really smash the markets next week, or it get papered over with more printing money. Good
Luck finding anything on this on main stream media but when Monday hits "oh what a surprise it will be, no one saw this coming" will most likely be a headline.
Seriously, I hope the people I'm quoting are wrong.

[Canuck223]

A margin call is a financing benchmark used by brokerages who extend credit terms to qualified buyers.

Brokerage A has a customer with decent credit. They could insist the customer keep a large balance in a brokerage account to cover purchases. Instead, they offer the customer spot financing to cover any difference between the customers balance on deposit with the broker, and the cost of recent purchases.

To limit thier potential liability, the brokerage uses a formula that limits the customers available credit to a set ratio. The amount of credit can not exceed a fixed dollar limit, nor a set value of the stocks or futures held in the customers brokerage account.

If the brokers margin is 25% and $10,000,000 for this customer, the customer has $7.5 on account, and he currently holds stocks worth $9.8M, all is well. (As in the brokerage will cover up to 25% of the value of the account)
If the customers stocks drop 2% overnight, he's still within the margin.
If the customers stocks were to drop 3% overnight, he'd have to come up with $98,000 before the close of the market that day, or the brokerage would have to sell off $98,000 worth of his stocks to bring his account within the margin limits.

It sounds like the brokerages are tightening thier margin limits to head off the percieved risk of a cascade failure.

[Mig29]

Should I bury my piggy bank then tonight before I go to bed??

Don't mean to diffuse the topic KAG....I'm glad I'm not an investor or have shares/stocks/assets and huge rrsp's...just my little piggy bank

[JakeYYZ]

Here is a link to the original notice, KAG.
http://www.cmegroup.com/tools-informati ... 11397.html
Here is a ‘clarification’ to the original notice:
http://www.cmegroup.com/tools-informati ... 11-400.pdf
The CME wanted to make sure that transferred MF Global customer accounts were not subject to higher “initial” margin maintenance requirements when receiving margin calls at their new clearing firm. Normally, margin calls require the customer to replenish their margin level up to the “initial” margin level. This rule change lowers the “initial” level so that the customer only has to replenish their margin level up to the “maintenance” level. They are lowering the initial margin requirements to AVOID triggering margin calls as they try to clean up the MF Global mess.
As you say, we will see Monday.

[KAG]

Here is what I read that is going around forums in the commodities sectors:

Update: Based on unofficial statements by the CME, it appears that the exchange has gone the way of inviting more risk by lowering Initial to meet existing Maintenance margin across the board. We will likely only know for certain on Monday. We suppose the proposed explanation will be to minimize margin exposure for onboarded MF positions. Of course, that this is very much counterintuitive at a time when risk is spiking and vol readings per SPAN are soaring, and instead is inviting even more risk, is apparently irrelevant to the exchange.

The most important news announcement of the day was not anything to came out of Cannes (as nothing did), nor from Greece (the merry go round farce there continues unabated). No, it was a brief paragraph distributed by the CME long after everyone had gone home, and was already on their 3rd drink. It is critical, because not only is this announcement a direct consequence of what happened with MF Global several days ago, but because also it confirms one of our biggest concerns: systemic liquidity is non-existanet. We confirmed interbank liquidity in Europe was at an all time low earlier today, and can only assume the same is true for US banks. But what is very disturbing is that this is just as true at the exchange level, where it appears the aftermath of the MF collapse is just now being felt. What exactly was the announcement. Unless we are completely reading it incorrectly, it is nothing short of a margin call for tens if not hundreds of billions worth of product. Because as of close of business on November 4, today, the CME just made the maintenance margin, traditionally about 26% lower than the initial margin for specs, equal. For everything. Which means that by close of business Monday, millions of options and futures holders will be forced to deposit billions in additional capital to the CME just so they are not found to be margin deficient, and thus receive a margin call. Naturally, since it is very unlikely that this incremental amount of liquidity can be easily procured in one business day, we anticipate the issuance of hundreds of thousands of margin calls Monday, followed by forced liquidations of margin accounts across America... and the world. Just like when Lehman blew up, it took 5 days for Money Markets to break. Is this unprecedented elimination in the distinction between initial and maintenance margin the post-MF equivalent of the first domino to fall this time around?

I'm a noob at this stuff, but from what people are saying this could be big. We shall see tomorrow.
Jake I hope your right, as I don't want to see my investments drop.

[JakeYYZ]

This is a rule change for all futures, not just commodities.
If as you say, this is a widely circulated opinion, correct or not, it’ll have an effect. One way to overcome emotions, errors and mistakes is to use Trailing Buy and Sell Stops to enter and exit without guesses, hunches, opinions or predictions...with Sell Stops, use your max-pain threshold or some such. I never sell. I get stopped out.
It's called managing risk. You’ll sleep easier.

[ragbagflyer]

What platform do you trade on Jake? I've been trying trying to find a brokerage platform that let's me enter trailing stop orders with loop and repeat functions. Thinkorswim through TD waterhouse does but it's good for US equities only, and it also doesn't work for registered accounts like my tfsa. I don't know why we get less features in Canada. It's annoying. Anybody know of a good app that gives real time stock info for Canadian stocks?

[JakeYYZ]

I use TD Waterhouse “Active Trader”. I trade S&P bull/bear ETF’s, Gold/Silver ETF’s and Oil ETF’s.
Works fine for me. I don’t know what a tfsa is..I can’t help you there. For real-time CDN quotes , try “Quote Tracker”. I have lottery picks in my RBC account, and can buy and sell through it. I haven’t used stops..they are lottery picks after all.

[cdnpilot77]

I don’t know what a tfsa is

Tax Free Savings Account

Anything you put in or subsequently earn interest on while invested through a tfsa remains tax free for life. Max cap of deposits is $5,000/yr per individual ($10,000 per couple) and funds can be withdrawn and replaced at anytime with no penalty or taxes incurred.

[JakeYYZ]

I’ll look in to that..meanwhile, what’s the downside (in your opinion)? Not the market, but this particular vehicle.

[cdnpilot77]

Contributions are not tax deductible like an RRSP

[cdnpilot77]

Some other benefits:

Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit. Funds can be given to a spouse for them to invest in their TFSA. assets can generally be transferred to a spouse upon death without incurring any type of estate tax.

[KAG]

Http://goldwars.blogspot.com/2011/11/cm ... ay-or.html

An interesting read.

Update, the CME released another press release to clarify what the first one intended, and calm a freaking out investment community. Watching the access markets and now the opening of the North American markets, looks like business as usual. Much to the releif of many.

Jake as for the TFSA I'm planning on opening a DRIP account and growing that account tax free. Not really any down side there.

[ahramin]

I don’t know what a tfsa is

Tax Free Savings Account

Anything you put in or subsequently earn interest on while invested through a tfsa remains tax free for life. Max cap of deposits is $5,000/yr per individual ($10,000 per couple) and funds can be withdrawn and replaced at anytime with no penalty or taxes incurred.

Incorrect. Funds withdrawn can only be replaced next calendar year. The current contribution limit for someone new to TFSAs is $15 000.

Anyone putting money in RRSPs without having their TFSA contribution maxed is either expecting a layoff or needs to learn math.

[cdnpilot77]

I don’t know what a tfsa is

Tax Free Savings Account

Anything you put in or subsequently earn interest on while invested through a tfsa remains tax free for life. Max cap of deposits is $5,000/yr per individual ($10,000 per couple) and funds can be withdrawn and replaced at anytime with no penalty or taxes incurred.

Incorrect. Funds withdrawn can only be replaced next calendar year. The current contribution limit for someone new to TFSAs is $15 000.

Anyone putting money in RRSPs without having their TFSA contribution maxed is either expecting a layoff or needs to learn math.

Correct, sorry... from the GC website "Full amount of withdrawals can be put back into the TFSA in future years. Re-contributing in the same year may result in an over-contribution amount which would be subject to a penalty tax"

[CL-Skadoo!]

Hey Nostradamus, the train's late.

[KAG]

Actually I'd prefer if the train was cancelled. Much to my releaf gold/silver are going up:)
The moral of this story is I think I need to not read some of these investment forums, frankly they scare me.

[robertsailor1]

Remember Yogi Berra when he said "making predictions is really tough, especially about the future" No one no matter how bright and informed can predict the future with any certainty.