The Derivative Monster

The "derivative monster" still lurks in these financial waters.  I just finished Michael Lewis' latest bestseller, "The Big Short", which chronicles the details behind the mortgage meltdown.  At the core of the crisis were collateralized debt obligations (CDOs) a form of derivatives.  I still think that derivatives will be the core of the major meltdown that still lies ahead.  The reason is that a small "bet" can control a significant amount of dollars.  It has been reported that $700 TRILLION of derivatives exist worldwide. These options have way too much leverage.

I'm confident on the "what", but the "when" is very unknown.  This financial casino can only keep the gamblers at the table for so much longer.

Weiss Research's team just released this in a report:
-Fact: The U.S. derivatives that helped cause the last debt crisis are merely being shifted around like deck chairs on the Titanic.
-Fact: Nothing whatsoever is being done about the derivatives monster overseas, which is more than TWICE as big.
-Fact: Most important, despite months of debate and thousands of pages of legislation, the two biggest risk-mongers of all — the Treasury and the Fed — didn't even get a slap on the wrist. They got more power.

Every contraction cycle needs a culprit.  Derivatives will be the blame for this one.

"Jim Puplava posted a great article on the banks last year...especially focused on those with large derivative positions. JPM Chase has an incredible derivative position."
Random Roving, August 18, 2002 (pre-blog email days)

The wild ride continues!!
"In February this year he ranted every week on his radio show about 'naked short selling', 'credit default swaps', and 'derivatives'. I was originally unfamiliar with these terms and was amazed last week when they became front page news."
Random Roving, September 30, 2008

"We've just seen the beginning of the derivative implosion. Remember, Warren called them 'weapons of mass destruction'."
Random Roving, January 1, 2010

Aristotle & The Story of Thales

"Aristotle described the story of Thales, a poor philosopher from Miletus who developed a 'financial device, which involves a principle of universal application.' Thales used his skill in forecasting and predicted that the olive harvest would be exceptionally good the next autumn. Confident in his prediction, he made agreements with local olive-press owners to deposit his money with them to guarantee him exclusive use of their olive presses when the harvest was ready. Thales successfully negotiated low prices because the harvest was in the future and no one knew whether the harvest would be plentiful or poor and because the olive-press owners were willing to hedge against the possibility of a poor yield. When the harvest-time came, and many presses were wanted all at once and of a sudden, he let them out at any rate he pleased, and made a large quantity of money."
Source: Wikipedia

Now you understand today's financial markets.

The Storm Series

I stumbled upon http://www.financialsense.com/ back in 1999 and was extremely impressed with Jim Puplava’s diverse content and his weekly radio show. I’ve listened to it since then on a weekly basis. His forecasts of the future have been amazingly accurate. In 2000-01, he wrote a series of papers entitled “The Storm Series”. I found that he had significant data supporting his forecasts and most of all, it made sense. I’ll recommend reading it again: http://www.financialsense.com/series2/perspectives2.html

Puplava called $140/barrel oil and $1000/ounce gold. In February this year he ranted every week on his radio show about “naked short selling”, “credit default swaps”, and “derivatives”. I was originally unfamiliar with these terms and was amazed last week when they became front page news.