Category: Richard De Graff

POOR RICHARDS REPORT
Chapter 19
The Sins of Our Fathers
Once when I was a young man of 26 I had the opportunity to visit the floor of the NYSE. A wily trader of about 60 years of age pulled me aside and warned not to commit the sins of the past. “If you do” he whispered in a tragic voice, “the government will take over our business and the free spirit of our country will vanish.”
As it was, I was having hard time making a living because “I hadn’t been through THE CRASH!” Do I proceed to learn everything I can about the later 1920’s and 1930’s that was possible for my little pea brain?
The tales of the survivors were amazing for the positive individuals and horrific for the greedy. It was also bad for the unsuspecting public who were conned into believing there would be “a chicken in every pot.” That mantra would haunt the Republican Party for a generation. It also haunted President Herbert Hoover until President Harry S Truman invited him back to the White House and asked him to take charge of the Marshall Plan in rebuilding war torn Europe after WWII.
Since the stock market Crash of 1973-74 I have sadly watched all the past safeguards that had been put in slowly drain into the gutter of despair on its way to the sewer of despotism under the false guise of “freedom”. The poor and “have-nots” will require more from the wealthy and they in turn will vanish.
This can be stopped if you, dear reader, will contact your elected representatives in each country with some of these ideas presented to you. WE have a chance because in the United States both Houses are controlled by the same party, and members of the opposite party can be swing voters to provide “veto – proof Laws”. This is true for almost every democratically elected country in the world today.
We must act now to preserve our freedoms and independence.
1. The Congress must advise (mandate for 6 months or more) that all margin accounts be raised to 100%. This means cash for cash. Before you scream bloody murder please take this into consideration; If you are on margin at 50% you stay there until you make a change. If you make a same day substitution you remain at 50%, but if you wait one day then you lose the 50% margin. This puts the onus on the short term traders, because if they pick the wrong security as a substitution they will receive a margin call. The rule of thumb is “do not meet a margin call with cash” – the security is telling you something – sell.
This will shut down the manipulators overnight. The ones fleecing us will scream the loudest.
2. Revert back to the fraction system for quotes. This system allowed market makers to make money off the spread between the bid and ask price. This allowed the market makers to try to “support” their stocks in down markets which in turn reduced volatility in the market place.
Also, and more importantly, it shuts down the “casino” aspect of the market place in general. Just look at the internet for brokerage firms that offer new accounts 100 “first free” trades. Nothing is “free” in this business and all this does is tempt the new account to try a “lottery type” trade by buying thousands of shares of a penny stock. Back in the 1920’s and 1930’s these firms were called “bucket shops.”
Also, reinstate the Uptick Rule for short sales. This was Joseph P Kennedy’s brain storm as first chairman of the Security Exchange Commission. Before this rule there were “pools” that would spread dis-information about a security that caused the small investor to sell(including unwary funds) while the traders stood on the trading floor buying all they could. Today JP Morgan does the same thing in Gold and Silver manipulation in commodities with High Frequency Trades(HFT’s). Then when the pools had their fill they would release positive information that would cause buyers to come back in at higher prices and the “pools” sell at a tidy profit.
By using the uptick in price of the security one would have to wait. If the security was already selling off it would discourage the short seller. There is also another caveat to UPTICK Rule. One has to be on Margin and receive permission to sell short with the firm he is doing business with. The firm must then find the same security in one of its margin accounts. Then the firm “lends” that security to the short seller who then delivers it to the buyer if the short sale is transacted. Also the short seller must pay all dividends declared to the lender. The biggest risk is if another company tries to acquire the company. So your downside risk on a short sale is if the stock goes to zero (theoretically) that is its profit potential, but your loss potential is unlimited. (If the stock gets acquired in a bidding war.)
Now traders will complain that short sellers are providing liquidly to market place. It is their liquidity that they care about. Not ours.
A respected service for market timing that must go unnamed measures what they call 90% down days. Those are days when 90% of securities traded are down and also 90% of the volume was on the downside for the exchanges with the NYSE in particular. This, in theory, would wipe out all the potential sellers and within a three day period the market rebounds on higher volume that would indicate that the market had turned positives. Since the Uptick rule has been dropped the number of 90% down days has increased dramatically without a positive long term rebound in the markets. Recently these down days have been few. My reasoning is that HFT traders are doing the major portion of business on the exchanges by themselves. I mean computer versus computer written by programmer.
Computers have been taking a bad rap. It is not the computer’s fault. It is the programmer or person in charge of the computer. We must find a way to regulate what goes in and what comes out. Just the way society takes care of their laws. Computer programmers that operate in the grey area of laws are not working for the “common good” of society, but for their own aggrandizement. Their fortune is coming out of our pockets. A thousandth of a cent is not much unless you add up millions of shares every minute or so. High Frequency Trade programs are like a dentist telling you this will hurt only a “little bit”.
This government, in collusion with others, have forced the public to invest in stocks or bonds as they have kept interest rates low and have even forced savings banks to invest only in 90 day treasury bills (Yes, there is one in Connecticut USA doing this) while the major bankers have been using our funds to invest for their benefit – not ours.
This is just the first of many reforms for our betterment.

POOR RICHARDS REPORT
Chapter 18
Multinational Bank Fines
There are billions of dollars being fined by formally lax government agencies across our globe. The recipients of these fines are the large multinational banks who made themselves “too big to fail”!
Well I have news for them. They are not too big to fine! The moneys collected should be distributed to the underfunded agencies to make them solvent and then the excess funds should be used to buy bonds and retire them.
In the United States direct obligations can not be called until they mature. But that would not stop the government paying back the monies they have been stealing from the Social Security System since LBJ. This would be an easy way for Congress to make the System solvent for an extra few years down the road.
Doing that would sure as hell guarantee their reelection without “smoke and mirrors” accounting.
These toothless agencies would once again regain stature and bring honesty back into mainstream Washington D.C. politics.
This would also insure that the banks would actually be paying the fines too.

POOR RICHARD’S REPORT
Chapter 17
Big Banks Are Really Bad
One item that needs particular attention is that computers can work wonders only depending on who is programing and running them.
Banking has the same problem. Who is running the bank? It is not the computer running the bank.
When Bill Gates made Microsoft Windows for every computer worldwide that turned on the greed machine, wannabees wanted to make as much as he did or least become a billionaire. Today these wannabees are thinking short term instead of long term. Bill Gates had a goal. Improve the world of computing.
Timothy 6:10 states it very clearly in a single sentence for us humans. “For the love of money is the root of all kinds of evils.”(English Standard Version) It does not say “money is the root of all evil.” It is how one makes money – not how much- that counts.
Individuals who had huge egos and no morals abound in history. Men who waged war with
no regard for life like Genghis Kahn and Napoleon were mass murderers in reality. That is why Harry Truman, President of the United States after WWII, insisted on the Nuremberg Trials of Nazi Party Members to make sure that 100 years from now they did not become folk heroes. Money was not their primary focus in life.
Truman, Churchill, Eisenhower, Reagan, Mustafa Kemal Ataturk were world leaders who had goals to do well for the people during crucial times in the twentieth century to name a few. Money was not their primary goal.
J P Morgan was the most powerful banker. He set the standards and companies he backed are still powerful and remain leaders in their respective industries.
Sadly, his bank, one of the most powerful and most fined, has him spinning in his grave. They call him “pin wheel JP” in bankers heaven.
When banks become too large managers tend to inflate their figures to their superiors, just like communist countries. Then a “rogue” trader makes a mistake and the cover up begins, ending in apparent suicides maybe?
JP Morgan manipulates almost every market they are in. They are fined billions. This allows them to take part of the fine as a tax deduction. If they had to go to a real court, the Judge and Jury would probably break the bank up into five different businesses, or better yet merge their divisions with smaller banks.
They have been behind the manipulation of gold and silver markets since 2008 when they bought Bear Stearns. The monies from the Quantitative Easing (QE’s) done by the misguided Federal Reserve, has been hoarded by most banks because the velocity of Money as measured by the Federal Reserve is down – not up. With all that money supposedly being pumped into the economy, the velocity of money should be soaring. I believe, and I could be wrong, but JP Morgan Chase has been using these funds for shorting silver and gold contracts and then buying the low price metals in the Exchange Traded Funds and taking delivery to the metals. This is in direct violation of commodity rules of fair trading. They then deliver these precious metals to commodity brokers to whom they owe stock. They have actually sold high and bought low by breaking existing laws or operating in the very grey areas. JP Morgan is operating immorally and dishonestly for a world leading industry.
The US Government and the Federal Reserve have been frantically trying to get the economy moving and to fight deflation. All they have to do is stop the manipulation in Silver and watch the metal fly to the moon. Silver is used in practically everything beside coins.
The precious metals will stay down or go lower with minor blips up, until JP Morgan Chase is called before a Congressional Investigating Committee for Criminal Activities.
Moral: Governments and Central Bankers should tighten controls on their bankers or else the Bankers end up running the Government.

Libor
London Inter-Bank Offered Rate
Major banks and their traders have been rigging the overnight interest rates for years. This is what we have to pay for various services.
Each country has its own investigation and as the fines roll in and the cover ups are exposed it will get worse for the international banking industry. The public is supposed to be able to trust their bankers.
Where is all those billion dollars in fines actually going?
This is just the beginning for the international banks worldwide.

POOR RICHARDS REPORT
Chapter 16
THE REAL MEANING OF THE 2014 ELECTIONS
Our forefathers who wisely founded the United States of America had the farsightedness to glimpse into the future and see when their leader would come under fire. They wisely set up checks and balances. The President would be elected every four years and the House of Representatives every two. Also only one third of the senate would stand for election every two years along with the House.
The final check would be the Supreme Court of the United States which would decide if the laws passed were constitutional. The Congress and the President would decide who would sit on the court. Their term was for life.
What is amazing about the document is that it was formed by citizens from all walks of life. There was no gridlock.
Gridlock is when the house passes a bill and the senate ignores their bill, or votes it down. In England the Prime Minister can call for a new election. It is interesting that their Prime Minister has to answer questions in their Parliament meetings.
Every member of Congress has a committee or is on one. Each committee is made up of 14 members. Ideally seven from each party, with the Speaker of the House deciding to break a tie vote. So when the house is lopsided to one party the majority has time to do other things and can skip meetings.
I was once fortunate enough to be with Congressman McEwen from upstate NY when he was one of few republicans that won in the Goldwater political debauchery in 1965. He was one of three republican members on the committees and had to meet every day at a hearing while democrat members met once every 7 days.
In his office his secretary had urgent messages pinned in his chair. In order for him to sit down he had to pull the pin out and read the message and give her an answer.
So the minority party members are the ones who have their work cut out for them.
Now, all the illegal manipulation going on in the market place has been able to have a free hand because of the gridlock. Basically, the senate refusing to hold hearings has stonewalled many reforms that the house wanted. The house knew they would get nowhere if they passed a bill.
Now consider our Social Security System.
Millions of retired citizens depend upon their Social Security check. The lady who interviewed me asked
“What happen to you in 1974?”
“That was the year of my divorce. How do you know all about that? ” I asked.
She then spun the computer around triumphantly with a big grin. It had all my earnings from day one. She then told me when I would get my first check and the amount.
When I started to think about it, I was amazed how well the government worked. Imagine what would happen if Tuesday’s pay did not come until Friday? Riots? What would happen if the welfare checks came late? I have heard that Walmart is crowded at 12 AM on the first day of each month as millions line up to use their welfare tickets for food.
My point is that these systems work for the everyday folk like us.
So this gridlock has made millionaires and billionaires who have taken advantage of the system. This system which has operated without reform. There were the last money makers from the railroads until the government took over. There were thousands of trusts set up with Boston Banks (When Boston was the financial center) that could only invest in railroad growth stocks. Many of these investors were known as “Robber Barons”.
Wall Street must now reform itself or the Congress will. One of the worst crimes for a broker or brokerage firm or trader to do is called “front running”. That is when they know a large order is coming and they buy or sell ahead of it. That is what High Frequency Trades (HFT’s) do. Except they front run everything for a profit.
This is just one little item that the congress must address in order to satisfy the public demand for better government.
So, come March I expect to see many inquires start in both houses about illegal positions in commodities, as well as reforms in the Dodd Frank Act and Obama care.
It takes a 2/3 vote in the senate to override the President’s veto, so only the most controversial parts will be examined. That way they will be able to attract moderate democrats into the fold.
The United States, I believe,
is heading for the “middle of the road” politically. In the beginning it will be a rocky road for everyone.
Just remember LBJ hit the social security funds in his guns and butter program, but the paychecks were still coming on time. Time is running out because the checking accounts are becoming empty.

POOR RICHARDS REPORT
Chapter 14
A REAL HONEST TO GOODNESS PANIC
It might start at 2:30 in the afternoon EST and just dribble down to about 126 point drop in the S&P 500 Index which will require a 15 minute trading halt. That is when the circuit breakers take over. It is exactly 3:20pm when the market resumes and immediately starts it’s slide. By this time traders are trying to unload their holdings in stocks, and by 3:25PM the market is down over 20% . The market then shuts down for the day. It would be a historic day in finance when the Circuit breakers were finally used.
Market gurus would frantically search for a reason… and then a clerk in a back office would make an unofficial announcement. Their computer had had a double order by mistake and it kick started their computer high frequency trading programs. So the first 126 point drop was computer driven. Then individual and margin orders kicked in other computer driven programs.
This is dangerous. Computer driven programs are taking over the markets instead of individual investors so that the owners can make billions while we quake in our boots.
No one can really tell you when the selling will start or the exact top of the individual markets, but when it starts, the slide will be a doozy, because all the safeguards have been tossed in the recycle bin by our representatives who received payola from delighted lobbyists.
The Dodd–Frank Wall Street Reform and Consumer Protection Act was signed into federal law by President Barack Obama on July 21, 2010 at the Ronald Reagan Building in Washington, DC. Passed as a response to the Great Recession, it brought the most significant changes to financial regulation in the United States. With this reform, the protection of the individual investor was severed for the protection of the “banks”.
The “continuing education courses” that qualified financial analysts must take contain true false questions. When they are answered wrong the test can be retaken immediately. That is proof of how confusing the D-F ACT is. 800 pages long with 3000 pages of footnotes trying the clarified rulings.
This Act should be trashed completely and the reforms that I will express in the next chapter should be implemented post haste.
When the next day dawns we will find out the other markets all over the world have also sold off as everyone wants cash.
In the United States stocks open with the symbol BW –OW. This means bid wanted and offer wanted. Name your price. Finally offerings are made and transactions ensue at various levels depending upon the company and the dividend. A week later most securities are selling around their book value* or less and several hedge fund managers may have died mysteriously. Unemployment rises to the teens and soup lines appear all over town. Police stop arresting because the jails are full and they release most as harmless vagrants. Several companies announce that their debt will be in default due to “market conditions”. Trading hours are shortening to 10am – 3pm for the weekday. Pension plans falter and deflation rears its ugly head. Calmness overcomes most of the country as people line up for credit or are off to sell household items or treasures for food and clothes. We start a barter system as efforts are made to recall our elected officials.
Soon people become more realistic and self-reliant. Neighbors start helping each other and protecting mutual interests. Greed disappears; as a show of wealth brings social disapproval. Armies start marching against each other, but stop because of no pay no food. The planet earth is in chaos.

All the above can happen unless we institute the reforms mentioned.
We must reform the “banks” and the entire industry before it is too late.

*Book value: if the company sold everything for cash that is what one

POOR RICHARDS REPORT
Chapter 13
DERIVATIVES: A WITCHES BREW

Way back when, in the 1990’s, a leading financial paper of the salmon color discussed the pros and cons of a new financial instrument: Derivatives.
There were five articles on the subject. Two were favorable and two unfavorable. To my suspicious mind the cons outweighed the pros.
The fifth article had an editorial bent in which they flatly stated that the reason it was approved was because everyone was going to make money except the buyer. Caveat Emptor! True enough, at every tumble in securities there usually was a derivative involved.
My definition of a Derivative (DD-Dirty Diaper) is that one takes an unmarketable security and meshes it with a good one. My definition of an unmarketable security is one with questionable long term strength and few shares or debt outstanding. They usually sell at a huge discount to the market because of the risk involved.
The issuer of the DD’s can express high optimism in their creation because the unmarketable has been marked up to par. Dear reader, there are monstrous commissions involved here. Just look at the quarterly earnings of the major banks. Obscene!
That is why major institutions keep calling for TRANSPARENCY. They want to know how much credit (sloth) is involved. In other words, they want to know how bad they are being taken.
When Bill Gross left Pimco to be with Janus Corp it is a fact that billions of bond transactions were done at Pimco as investors wanted out since Mr Gross left. It is rumored that Pimco is left with many bonds that have a DD attached to them and Mr. Market does not want to pay a “fair” price for them.
The “professionals” are finding all kinds of way to keep their filthy ball rolling. This, I believe, will lead to many bond defaults. George Soros, leading hedge fund manager, has already visited the President of Argentina because they are about to default on his holdings. That is when we will perhaps hear a “big bang” ! When one country gets away with it, so will the others. Debt obligations used to be far and few between. The amount of AAA credit can be counted on one hand. Over twenty years ago one needed hands, feet, and an half an extra person to count AAA credits.
The partial answer to stopping these defaults is to ban DD’s completely and let one’s outstanding debts mature when due.
Short Sales
Short sales used to be and can be a very dangerous trade, because ones losses were unlimited on the upside. Basically one is selling high and hoping to buy back at a lower price. Before the rule was changed one had to find a stock in the firm’s back office that was available for a short sale. The seller had to wait for an uptick in the same security before doing the transaction. All this was done on margin- which is also using other people’s money. When one buys a stock for cash all one can lose is the cash. If one sold short a $10 stock and it goes to $150 one has lost $140 if one did not buy back the stock before that. If the stock declared a dividend then the short seller must pay the dividend to the owner of the stock one sold short.
Joseph P Kennedy , JFK’s father, was the first Chairman of the SEC (Securities Exchange Commission) and the first rule he passed was the short sale rule. The market then calmed down and order was restored.
I believe the hedge funds and the “banks” are responsible for the demise of the short sale rule. It allows them to sell short and deliver later. The reminds me of the “bear raids” of the 1920’s before the crash of 1929.
It is purported in certain respected newsletters and established business papers that JP Morgan was short so many silver contracts on the COMEX (Commodities exchange) that under their rules it would have taken them over 100 days to cover (buy back) their short sales.
Since they have knocked the price way down what they purported to do was buy the depressed silver from the Exchange traded funds (in the US) and deliver that silver to the COMEX. Highly unethical and illegal, but then they swamp the under staff legal division with all kinds of legal arguments for which they have paid a battery of legal eagles (lawyers).
The hedge funders and “Banks” will argue that they are providing liquidity to the market place with HFT’s, derivatives and short sales. This is true on a short term basis, but when the bell rings and the trumpets sound and us little guys want out and we force the bank to send us our dough. This forces them to sell and if they sense a “big bang” then they will find no chairs when the music stops.
Then there will be no liquidity, high volume on the downside, and instead of a rebound, one will find quicksand because there are no rules left.
Panic starts when billionaires become millionaires for a short period of time before they become one of us.
Remember it is not how rich one is, but how one makes their money.