Posted on 09/19/2007 6:51:42 PM PDT by Revel
The credit bubble is just starting to unwind, a credit-derivative insider says. And while U.S. borrowers are being blamed for the mess, they were really just pawns in a global game.
Jon Markman
Satyajit Das is laughing. It appears I have said something very funny, but I have no idea what it was. My only clue is that the laugh sounds somewhat pitying.
One of the world's leading experts on credit derivatives (financial instruments that transfer credit risk from one party to another), Das is the author of a 4,200-page reference work on the subject, among a half-dozen other tomes. As a developer and marketer of the exotic instruments himself over the past 30 years. He seemed like the ideal industry insider to help us get to the bottom of the recent debt crunch -- and I expected him to defend and explain the practice.
I started by asking the Calcutta-born Australian whether the credit crisis was in what Americans would call the "third inning." This was pretty amusing, it seemed, judging from the laughter. So I tried again. "Second inning?" More laughter. "First?"
Still too optimistic. Das, who knows as much about global money flows as anyone in the world, stopped chuckling long enough to suggest that we're actually still in the middle of the national anthem before a game destined to go into extra innings. And it won't end well for the global economy.
An epic bear market
Das is pretty droll for a math whiz, but his message is dead serious. He thinks we're on the verge of a bear market of epic proportions.
The cause: Massive levels of debt underlying the world economy system are about to unwind in a profound and persistent way."
Follow the link for the best explanation I have ever read.
http://articles.moneycentral.msn.com/Investing/SuperModels/AreWeHeadedForAnEpicBearMarket.aspx
(Excerpt) Read more at articles.moneycentral.msn.com ...
He laughing cause he knows how he will stamped the suckers and pick up some great bargin buys in the process.
An excellent article. I think what you’ve seen over the past two days on Wall Street is the mother of all dead cat bounces.
When various creators/sellers of derivatives allow their math to get away from common sense, you get what we have today:
A worldwide derivatives market (most of which is in the US) with a combined face value of $400 trillion, give or take a few bucks.
Methinks this author would benefit financially from a US economic collapse.
Is that you Mr. Pat Robertson? I am still waiting on that 1986 world economic collapse!!! :-)
LLS
Face value is meaningless for most derivatives.
For example, if I bet you $1 that the Dow will go up tomorrow, and you take the bet, the underlying value of our bet is the total amount of all the money that is used to buy Dow stocks tomorrow. But the most I can gain or lose is $1.
bump
5.56mm
I do, however, have a hunch, subject to revision as facts change.
Here is: nobody really expected a 1/2 point rate cut, pardon the hyperbole.
If the stock market cannot make new highs on that most unbelieveable move, I say it's over.
And yes, I believe there is a possibility we are facing a major depression. Again, it's just a hunch. If you think I'm given to this kind of chatter, check previous posts.
Of course I hope it isn't so. And of course markets respond to changing conditions, as they will this one. But there is a huge risk, structurally; it is an election cycle, which means politics will force the worst possible sorts of reactions to market difficulties; we're due for a correction of proportions somewhat relative to the run up (you can pick your time frame); the public mind, as evidenced by the collective dialogue, isn't what I would call "rational." Expect extremes.
As I say, it's just a hunch.
Wait. The super-capitalists will be along to tell us that's all new "WEALTH" not debt.
“Mother of all dead cat bounces” ? Yes, I agree with you. I post charts about this stuff at my web page. You can get there from my profile page.
Basically, the DJIA is forming a “top”. A major “top”. There really is not much more to it than that.
I still am not so pessimestic as to think we are in for economic ruin. In a year or two there will be a fantastic buying opportunity. Then later the market will be back where it is now.
Unless we lose the WOT.
One of the reasons the Fed cut the Discount rate.
That can’t fix it. It just stalls things a bit. But it also will make the effect worse in the end.
I have watched the derivitive market for several years. I have never understood why these instruments are not completley restricted or at least heavily regulated. They will someday unwind and there will be hell to pay far beyond 1929.
>>I think what you’ve seen over the past two days on Wall Street is the mother of all dead cat bounces.
Yes, the last two days were a great opportunity to lighten up on stocks and other USD-denominated assets.
While the article has a doomer side. It also presents cold hard facts that can’t be denied? Not your typical “The world is over” kind of article.
Face value does have implications here when you combine derivatives with debt instruments.
Remember when Orange County, CA went bust? Remember why?
When you buy a derivative and you’re on the losing side, the winner expect to be paid.
Because, ummm, I guess people feel like big boys ought to be able to do what they want with their money. Last time I checked, no one guaranteed one's investment in a hedge fund.
Google "sophisticated investor" if you'd like to get a handle on the spirit of the law.
“Wait. The super-capitalists will be along to tell us that’s all new “WEALTH” not debt.”
We know who they are....LOL
Really that is one of the most shocking paragraphs in the whole article. What is cool about the article is that by the time you get to that...You can really understand why that is true. This article is highly educational on how things work. Even if you don’t believe we are in trouble.
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