Critics always said that Ayn Rand exaggerated in writing Atlas Shrugged. But a real-life investment manager has followed Rand’s example.
Ann Barnhardt goes on strike
Ann Barnhardt. Source: The Blaze.
Ann Barnhardt, head of Barnhardt Capital Management, calls herself an old-school commodity broker. The commodity futures she has worked with until now are in cattle and grains. As she herself says, investing depends on honor and trust. So do the operations of investment brokers.
Your editor has had direct and less-than-salutary experience with some brokers, particularly in stocks. Brokers work on commission. That can lead them to recommend investments that might appear sound, but aren’t. The details of these experiences are irrelevant. What’s relevant today is that Ann Barnhardt stands out as always willing to be scrupulously honest with every investor. That includes a forthright and unflinching assessment of present and future market conditions.
(And of other issues besides. Only a month ago she provoked a lot of comment, some of it scathing, for her assessment of Islam and what it demands.)
This week, she abruptly closed her commodity brokerage business. She left this note by way of explanation. (Courtesy ZeroHedge.) As she described it, the entire commodities market is now untrustworthy and unsafe.
The immediate cause
The immediate event that prompted Barnhardt to quit was the collapse of MF Global Securities. That firm is now bankrupt—and the bankruptcy trustee has said that he would do all in his power to repay its debtors. This includes clawbacks—literally seizing assets that MF Global’s clients had earlier withdrawn to protect themselves. Barnhardt describes this in stark terms:
The futures markets are very highly-leveraged and thus require an exceptionally firm base upon which to function. That base was the sacrosanct segregation of customer funds from clearing firm capital, with additional emergency financial backing provided by the exchanges themselves. Up until a few weeks ago, that base existed, and had worked flawlessly. Firms came and went, with some imploding in spectacular fashion. Whenever a firm failure happened, the customer funds were intact and the exchanges would step in to backstop everything and keep customers 100% liquid – even as their clearing firm collapsed and was quickly replaced by another firm within the system.
Everything changed just a few short weeks ago. A firm, led by a crony of the Obama regime, stole all of the non-margined cash held by customers of his firm. Let’s not sugar-coat this or make this crime seem “complex” and “abstract” by drowning ourselves in six-dollar words and uber-technical jargon. Jon Corzine STOLE the customer cash at MF Global. Knowing Jon Corzine, and knowing the abject lawlessness and contempt for humanity of the Marxist Obama regime and its cronies, this is not really a surprise. What was a surprise was the reaction of the exchanges and regulators. Their reaction has been to take a bad situation and make it orders of magnitude worse. Specifically, they froze customers out of their accounts WHILE THE MARKETS CONTINUED TO TRADE, refusing to even allow them to liquidate. This is unfathomable. The risk exposure precedent that has been set is completely intolerable and has destroyed the entire industry paradigm. No informed person can continue to engage these markets, and no moral person can continue to broker or facilitate customer engagement in what is now a massive game of Russian Roulette.
Jon Corzine, of course, is the former Governor of New Jersey. He lost his job after his opponent, US Attorney Chris Christie, sent many of his associates to prison for stealing money from New Jersey. He earlier lost his job at Goldman Sachs, for simple incompetence. Barnhardt, of course, accuses Corzine of not merely incompetence but outright theft.
The ultimate cause
But one firm, even a den of thieves like MF Global, wouldn’t crash the system by itself.
I have learned over the last week that MF Global is almost certainly the mere tip of the iceberg. There is massive industry-wide exposure to European sovereign junk debt. While other firms may not be as heavily leveraged as Corzine had MFG leveraged, and it is now thought that MFG’s leverage may have been in excess of 100:1, they are still suicidally leveraged and will likely stand massive, unmeetable collateral calls in the coming days and weeks as Europe inevitably collapses. I now suspect that the reason the Chicago Mercantile Exchange did not immediately step in to backstop the MFG implosion was because they knew and know that if they backstopped MFG, they would then be expected to backstop all of the other firms in the system when the failures began to cascade – and there simply isn’t that much money in the entire system. In short, the problem is a SYSTEMIC problem, not merely isolated to one firm.
An Atlas Shrugged-type recommendation
Barnhardt quit the business for one reason only: she cannot in good conscience ask other investors to invest in commodities any longer. Her message to them: Get out. Now. She closes with this ultimatum:
Finally, I will not, under any circumstance, consider reforming and re-opening Barnhardt Capital Management, or any other iteration of a brokerage business, until Barack Obama has been removed from office AND the government of the United States has been sufficiently reformed and repopulated so as to engender my total and complete confidence in the government, its adherence to and enforcement of the rule of law, and in its competent and just regulatory oversight of any commodities markets that may reform. So long as the government remains criminal, it would serve no purpose whatsoever to attempt to rebuild the futures industry or my firm, because in a lawless environment, the same thievery and fraud would simply happen again, and the criminals would go unpunished, sheltered by the criminal oligarchy.
The parallels to Atlas Shrugged
Ann Barnhardt might not seem to be a direct imitator of a “striker” in Atlas Shrugged. She does not say anything like the message that Ellis Wyatt leaves on a burning hillside:
I am leaving it as I found it. Take over. It’s yours.
But she does say that she will not say that an investment position is sound, when it isn’t. To do that is to fake reality, and she will not do that. And she has another reason, like the one that Judge Narragansett, another character, cites as his reason to quit:
I could not have borne to hear the words “Your Honor” addressed to me by an honest man.
Even the reaction to her letter is a typical Atlas Shrugged reaction. Benzinga.com reports that James Koutoulas, of Typhon Capital Management, accuses her of “taking the easy way out.” But what does he recommend?
I think, within a couple of days, the CME is going to be forced to step up and make customers whole. Once that happens, we can talk about things like class actions to get people the damages back from forced liquidation, and all of that.
Therein lies the problem: The Chicago Mercantile Exchange cannot make customers whole. The problem is too big for that. And Barnhardt is thinking of more than one episode. Her problem is with a system that allows gross negligence, and even theft, to continue, and to repeat itself. (And she knows something else: when the collapse comes, as it must, she will get the blame. It’s not a matter of a false charge, but of selective application of the law. She thus has no logical reason to risk staying in a market that she knows will blow up in her face, nor asking anyone else to do so.)
Reality is an absolute not to be faked[.] Lies do not work.
That is the central message of Atlas Shrugged. Ann Barnhardt has embraced that message. James Kontoulas hasn’t. He still wants to pretend that “everything is going to be all right.” Barnhardt knows better. And so she is not merely imitating one of Ayn Rand’s characters. She is imitating Ayn Rand herself.