Posted on 09/19/2007 6:51:42 PM PDT by Revel
They're either using stats that those traders have been giving the IRS, or they're talking about people who want to lose on the trades so their underlying activity succeeds. Like, I've been losing big piles of money for years with life insurance transactions and I got no complaints.
Excellent article on the coming bear market written for the layman—GGG
ping (excellent)
I found this section most intriguing:
When you add it all up, according to Das' research, a single dollar of "real" capital supports $20 to $30 of loans. This spiral of borrowing on an increasingly thin base of real assets, writ large and in nearly infinite variety, ultimately created a world in which derivatives outstanding earlier this year stood at $485 trillion -- or eight times total global gross domestic product of $60 trillion.But, then again, the expert is assuming those mortgages were only sold one time into the derivatives market. And I know people who will say mortgages may have been sold several times. Just like a Gigantic Ponzi scheme. The whole enterprise was criminal in nature from the outset. Who can tell about mortgages sold in lots of 50 - 100 in complex packages of debt paper containing hundreds of items?Without a central governmental authority keeping tabs on these cross-border flows and ensuring a standard of record-keeping and quality, investors increasingly didn't know what they were buying or what any given security was really worth.
And the piles of crapola were rigged to pass for prime "A+" paper.
The coming Congressional hearings are going to be fun to watch ! All those Wall Street power boys will be sweating like pigs . . . But what so I know, anyway? . . . LOL !
His talk about borrowed money borrowing money is nothing more than traditional velocity in wolf’s clothing.
I do agree, however, that there is what I call a “balance-sheet imbalance” in that the US has fewer hard assets against growing obligations. And China is poised to make things worse for us.
“...bulls bees in good shape...”
to say the least! One reason the market (S&P500 and the Dow) went up more this week than any other this year is that the put to call ratio was over 1.6...ie more bears than bulls. Another way of saying that is “more bears’ options expired worthless than bulls’ options”. For the Rio Lindans, that means more bears lost money than bulls. All the bets that the world would end before 9/21 are now off the table, and they’ll start placing their bets that the world will end by 10/19! The MMM will be complicit in plastering their faces all over our TV screens again this month! My recommendation....watch CNBC with the mute button ‘on’.
some hedge funds are down because they’re shorting! The plethora of ultraShort ETFs is helping this effort. long live the utraShorts! The problem with shorting is that the losses are infinite....whereas investing in equities offers an opportunity for FINITE losses (you can’t lose more than you invest).
“No one expected the rate cut, with the exception of everyone.”
I’ll Guarantee that the shorts were not expecting that (.5%) rate cut....least of all both the fed funds rate AND the discount rate! This is the second time that Bernanke has cut the shorts off at the knees. Hedge funds may continue to lose money if they keep misunderestimating Bernanke! Go Ben!
“what is coming is worse in size and scale than most americans living today have ever seen.”
You’re half right! that will be true for those who are short the market....so if you had said:
“what is coming is worse in size and scale than most of those americans who are short the market living today have ever seen.”
you’d have been completely correct!
How do adults use derivatives to "serve society"?
Also, I think that lifting the zero-plus tick rule in June on shorting has contributed to some of the market volatility since then. Markets are much more liquid than they were in the 1920s, but it is easier to mount a bear raid on a stock than it was before. This doesn’t affect the long-term valuation of a company, but the stock can have bigger moves in the short term.
It happens whenever an adult sells a financial derivative that some part of society needs enough to pay good money for --my personal rule of thumb is that I know I'm creating a valuable service when I see people willing to give me real money for it.
Here's an example of how it works with derivatives. Let's say Papa (not his real name) owns a few OXY shares and that are probably going up in price --though there's always this off chance that the price might go down too. Mama says she wants the money ready by vacation time, so Papa sells a futures contract to buy some of his shares at today's price, and puts the fee money in the bank.
If the price goes down he gives the fee money to Mama for the vacation. If the price goes up the contract purchaser will buy some of his shares at the contract price, and Papa uses that money for the vacation --not as much as he would have without selling the contract, but hey --he forfeited some profit and lowered some risk.
The purchaser of the option makes money either way too. He's bought the OXY futures along with a lot of others, and most pay off enough money to cover the fees on those that didn't. Adults measure risk and profit from it. Society's economy expands, taxes are paid, and wealth is created.
Hey, you've just described every protectionist on FR.
Airlines use derivatives to hedge their future fuel needs. Food companies use derivatives to lock in the price of their future commodity purchases. Farmers use derivatives to lock in their sale price.
This is what he knows.. and he's absolutely right.
So what? A derivative is not the same as a debt.
--and in the derivatives market they're all a bunch of losers.
Strange but true. There are so many situations where we can profit by losing, as long as we lose where we want to lose. Next time I hear from those that complain about the "trade deficit", I'll tell them that I hope they soon start making a "trade surplus" with their favorite life insurance company.
Since few if any can actually explain what the derivatives market is comprised of and exactly what is going on at any time, they can only guess at what circumstances may/will come about that will make their predictions come about.
As the saying goes, even a broken clock is right twice a day.
Actually a high level of pessimism is a positive for the markets. It is when optimism abounds that serious investors run for the exits. Recall the shoeshine boys and cab drivers in 1929 touting stocks to their customers?
http://www.lope.ca/markets/1987crash/
I'll leave you with this. It is a fact that 35 out of the past 3 recessions have been correctly predicted by economists.
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