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Are Wealthy Investors Losing Faith in Too Big to Fail Firms?

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#1 Russ Winter

Russ Winter

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Posted 09 July 2012 - 11:49 PM

With all the seedy bank behavior that has been exposed since the financial crisis, it’s stunning that there’s still dirty laundry left to be aired. We’ve had predatory subprime lending, fraudulent ratings, excessive risk-taking and even clients being taken advantage of in order to unload toxic mortgages. Yet even with these precedents, the Libor scandal still manages to shock. – Joe Nocera, “Libor’s Dirty Laundry,” The New York TimesWell before the latest rounds of banksterism, I have been wondering when wealthy investors and their advisers would lose faith in the big banks and brokers, and the sistema in general.  At least as far as the big brokers go, that process was underway, well before the JPM trading blunders,  the MG Global theft, Morgan Stanley’s bogus two notch downgrade,  the bungled Facebook offering, and the Barclays LIBOR scandal.And now just in the last few hours comes word that another futures broker, PFG Best has put it’s consumers accounts on hold, as “accounting irregularities” are investigated after the owner, “attempted suicide”.   Zero Hedge has bird-dogged an NFA affidavit indicating that $220 million is missing.  And the custodial bank, drum roll please, is JP Morgan.  Banks are like giant fuck you machines (The Daily Report).Posted ImageConsider that  Morgan Stanley Smith Barney, Merrill Lynch, Wells Fargo Advisors and UBS Wealth Management Americas control $2.1 trillion in $5 million and over accounts. No wonder there is so much rainbow and lollipop one-trick-pony-sistema investing going on.  My hunch is that these advisers as part of a script have overly piled clients into the income bond bubble, and income substitutes like farmland [Crops Burning Up] , REITs and other suspect asset classes like art, wine [Wine Bubble Blows Up] , and Lord who knows what else. When these markets really blow, I can’t even imagine how much wealth will be destroyed.Aggravating the bubble bursting scenarios is the retreat of wealthy Chinese.  Example: Wells Fargo sends a chill out in the gaming sector with its early read that July gaming revenue in Macau is trending low. Extrapolating out the first week of data shows growth of 0%-5%, below the consensus estimate of analysts of 7%. Decliners: MGM -3.6%MPEL -4.0%WYNN -1.1%LVS -1.9%.source: Testosterone PitPosted ImageThis article in Fiscal Times back in March describes how money from these firms was gradually being pulled out by investors. Now comes an update suggesting that advisers have been pulling $59 billion in assets, so far in 2012. My gut tells me this is just the beginning.I am using Ditto Trade as an alternative [Ditto Trade Invite], particularly as smaller and medium size investors are completely neglected, and many have no time or ability to track their investment.  Good interview here on the concept, which I think has merit. So far my Ditto trading accounts are up about 3% since launch at the end of June.The effect of the ECB mucky muck rate cuts appears to have stuffed more demand into Spanish short term bills, and to blow out the yields one year and out.  The 10 year hit 7.06% as I go to press. The same effect occurred in Italian yields. The beat goes on, as Slovenia’s yield clears 6.75%. Country says no bailout necessary.Posted Image

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