Jim Sinclair thread (News & Views)

[halight]

1650 $/oz 10 years before it hit the target is a good enough prognosticator of his abilities.

 

Halight please tell us about your investment preferences. Are you a trader? Or do you have a job?

 

 

 

Im B&H mate. I have a full time job and twin girls that are 3 and a half years old. So most of my time is taken up. I have a little time to find investments ideas. I do have a spread betting account. But I do not use it very often.

 

I turned up late to the Gold party. But I have a holding with bullion vault a few gold sovereign coins that iv had since the early 2000s.I did not buy them as an investment, but it has turned out as a good one. I have also now got 10 Silver Eagles

I do collect coins anyway. But the eagles are a bit of an investment.

[malvern hills]

Jim Sinclair continues:

“The BIS confirms, in the area of CDS’s the total outstanding is approximately $37 trillion. So I believe the reports being given about this just being a small and modest market event is false. As a market observer and having more than 50 years in the business, the real number is at least 50% or more of the existing $37 trillion that is related to Greece.

== ==

 

It seems to me, this is like comparing grapes with watermelons. I don't really know why JS is so prone to exaggeration, but it does seem to be a character flaw to me.

 

As I have explained before else where: when A sells a stock to B and then on to C, only C is left with an exposure,

 

But when A sells an OTC derivative to B and then on to C, they all three retain the exposure until the derivative contract expires. This is why the numbers look so g0dd@m big. But at maturity the face amount will not flow from C to B to A, only a the net difference, and differences between dozens, or hundreds, or thousands of derivative payments will be netted out, and only the very tiny net of net amount will be payable. $37 Trillion will dissolve down to a few piddling Billion of risk amongst parties that can afford it.

 

That will only NOT be true if one party has been very poor in its trading, and thus owes losses up and down the street to many others. AIG was a rare party like that because it was AAA rated for so long, and also as a largely unregulated party (outside banking law) ran its business in such a reckless fashion, losing tonnes of money.

 

I believed that JS is either lying, or he is stupid, or he is merely scaremongering to help ramp gold prices. After some time, I have come to the conclusion that he is scaremongering. Is there any real evidence to the contrary?

 

If you don't understand what I have said, is JS any clearer? Why should you believe him ahead of me, when I was a professional in the derivative field working for Chase, and he never had such a position?

 

Forget JS for a moment and lets think about what you are actually saying.

 

A cds contract shifts the risk of default on to somebody else. They also hedge that risk and so on. Each party hedges risk such that if a credit event were to occur each counter party would pay the balance of the risk it had not hedged.

 

But what I want to know is , does the cash exist in the system to pay everyone off? If that is the case then it seems to me that almost all risk can be eliminated which is of course impossible.

 

Isn't saying it all nets out to a low number like saying 'don't worry about your parachute, we have all got an umbrellas'?

[drbubb]

Why do you think these targets are baffling?

 

Another/ FOA said these very things in 1997.

His Angel Magnet targets, are nothing more than numbers squared:

41 x 41= $1,681, $1,764, 1,849, 1,936 etc.

I think these numbers are useless. More useless than information I get on astrocycles from Larry Pesevento, who some here find it easy to critize (for reasons I find mysterious), while Mr Gold's confusing and contradictory pronouncements are held in regard, providing a bizarre contrast, that I have never understood.

 

If you listen carefully to the interview, he contradicts himself, and is completely unclear about what direction he expects. I think he is simply trying to "have his cake and eat it too."

[drbubb]

...does the cash exist in the system to pay everyone off? If that is the case then it seems to me that almost all risk can be eliminated which is of course impossible.

 

Isn't saying it all nets out to a low number like saying 'don't worry about your parachute, we have all got an umbrellas'?

The net risk amount may be very small, a tiny percentage of the Face Amount of all those Huge Face Amounts ($37 Trillion) of outstanding derivatives contracts.

 

The real risk is if one party has written so many loss-making contracts that it might default on its obligations. Then losses might ripple through the system. That was the risk that AIG presented in 2008. It was a huge loser on many, many derivatives contracts. Partly because it stood outside the banking regulatory system, and many banks had taken insurance from it because they believed the fictitious AAA rating. When in 2008, the Fed looked at the quality of those contracts, they discovered that many were written at a loss.

 

The mistake the Fed made was backing 100% of AIG's contracts when it would have been more reasonable to guarantee 50-75% of the risk. The banks that had AIG contracts could have shouldered the rest.

 

The fact that derivatives havent blown up yet is pretty good evidence that the risks are being over-exaggerated by people like JS. Anyone who is an insider in that business, as I was up until about 15 years ago, will find many of his comments laughable.

 

(I invite any other derivatives experts posting here to back up or refute my comments !)

[malvern hills]

The net risk amount may be very small, a tiny percentage of the Face Amount of all those Huge Face Amounts ($37 Trillion) of outstanding derivatives contracts.

 

The real risk is if one party has written so many loss-making contracts that it might default on its obligations. Then losses might ripple through the system. That was the risk that AIG presented in 2008. It was a huge loser on many, many derivatives contracts. Partly because it stood outside the banking regulatory system, and many banks had taken insurance from it because they believed the fictitious AAA rating. When in 2008, the Fed looked at the quality of those contracts, they discovered that many were written at a loss.

 

The mistake the Fed made was backing 100% of AIG's contracts when it would have been more reasonable to guarantee 50-75% of the risk. The banks that had AIG contracts could have shouldered the rest.

 

The fact that derivatives havent blown up yet is pretty good evidence that the risks are being over-exaggerated by people like JS. Anyone who is an insider in that business, as I was up until about 15 years ago, will find many of his comments laughable.

 

(I invite any other derivatives experts posting here to back up or refute my comments !)

 

I get that by spreading the risk you can decrease the likelihood of one counterparty blowing up and causing ripple effects. What is unclear is how through this system risk gets eliminated.

 

For example:

Are you saying that if a total liability from CDS contracts, say Greece defaulting (ISDA notwithstanding,)was 100bn , then the total payout would be 100bn but split between all the counterparties such that none would renege on their contract.

Or are you saying once all the cross hedging is cancelled out then the net liability would be 5bn say, that would then be split between all parties.

 

If it is the former then the risk has not been eliminated only spread , if the latter it has almost vanished which to my mind is impossible, much like trying to destroy energy, it just shows up somewhere else in another form.

 

As I am a layman, perhaps the value of the risk is incorrect and it is only the 5bn and not the 100bn. Could you please clarify with an example Dr Bubb?

[BradleyWong]

Sinclair going on record: March 9th

 

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2012/3/9_Jim_Sinclair.html

GOLD:

"Central banks are aiming, not to break gold, but keep it from running away."

"$2100 is the magnet pulling on the Gold price now."

"$1760 is the area that banks want to keep it from running away."

"There is big buying support at $1650."

The way I heard it:

Sinclair has promised a weaker dollar, and that Gold will soon move above $1764, and probably clear $1735 by Tuesday.

I wish I had his confidence.

[drbubb]

The way I heard it:

Sinclair has promised a weaker dollar, and that Gold will soon move above $1764, and probably clear $1735 by Tuesday.

I wish I had his confidence.

With 36 hours to go, and Gold now below $1700, Sinclair's target is going to require and upmove of about $1 per hour. If we do see that, then I will be duly impressed. If it breaks $1650 instead, should I be unimpressed ?

[drbubb]

I get that by spreading the risk you can decrease the likelihood of one counterparty blowing up and causing ripple effects. What is unclear is how through this system risk gets eliminated.

 

For example:

Are you saying that if a total liability from CDS contracts, say Greece defaulting (ISDA notwithstanding,)was 100bn , then the total payout would be 100bn but split between all the counterparties such that none would renege on their contract.

Or are you saying once all the cross hedging is cancelled out then the net liability would be 5bn say, that would then be split between all parties.

 

If it is the former then the risk has not been eliminated only spread , if the latter it has almost vanished which to my mind is impossible, much like trying to destroy energy, it just shows up somewhere else in another form.

 

As I am a layman, perhaps the value of the risk is incorrect and it is only the 5bn and not the 100bn. Could you please clarify with an example Dr Bubb?

NO.

That's not the way it works at all!

 

With derivatives, you agree a contract, and pay nothing upfront. The amount you pay (or receive) depends upon the "Difference Amount" between the price at the inception of the contract, and the ultimate price.

 

Example: You "buy" an Oil swap at $100 per barrel, and the price settles at $110, then you receive $10 per barrel.

 

The problem is measuring the size of the Risk, and the second problem is extinguishing the risk prior to settlement. These two issues cause people to over-report and exaggerate the actual risk. I can explain if you like, but I will try to keep it short. Ask me a very specific question, if you do not understand.

 

Issues:

=======

A/ Measuring risk:

With an oil swap, people generally multiply the Number of barrels times the fixed price; thus: $100 barrel times (say) 1 million barrels might be a Oil Swap of $100 million. But remember what I said: the full amount is NEVER paid, only the difference, and thus, the actual liability will depend up how much the price moves away from the contract $100 price. It is unlikely that oil will fall to zero, or double to $200, so calling it a $100 million exposure may exaggerate the risk. And the difference can go either way, so you may "sell" an oil swap at $100 per barrel, and RECEIVE money because the oil price fell, to say $85. In that case the Seller of the swap would get $15 per barrel from the buyer. If it rose to $110, the buyer pays the seller $10.

 

B/ Extinguishing the risk:

These are Over-the-counter transactions, rather than transactions through a single central clearing house. Therefore, each contract is separate and stays alive until maturity. So if Bank B buys an Oil swap from Bank A at $100 per barrel, and then sells an identical oil swap to Bank C at $110 per barrel, then both sides remain alive until maturity. Bank B believes it has locked in a $10 profit ($10 million on 1 million barrels) on its two trades, but in fact it will carry an exposure of $210 Million until the contracts mature. Isn't it obvious that $210 million is an over-reporting of the likely risk? Can you imagine any circumstance when it would be so high as that? It takes some real imagination.

 

I hope these examples show why JS is engaging in scare-monering when he keeps talking about $37 Trillion as if it were a meaningful figure. It is not, and he is mis-representing reality by mentioning it without some qualifications.

[malvern hills]

NO.

That's not the way it works at all!

 

With derivatives, you agree a contract, and pay nothing upfront. The amount you pay (or receive) depends upon the "Difference Amount" between the price at the inception of the contract, and the ultimate price.

 

Example: You "buy" an Oil swap at $100 per barrel, and the price settles at $110, then you receive $10 per barrel.

 

The problem is measuring the size of the Risk, and the second problem is extinguishing the risk prior to settlement. These two issues cause people to over-report and exaggerate the actual risk. I can explain if you like, but I will try to keep it short. Ask me a very specific question, if you do not understand.

 

Issues:

=======

A/ Measuring risk:

With an oil swap, people generally multiply the Number of barrels times the fixed price; thus: $100 barrel times (say) 1 million barrels might be a Oil Swap of $100 million. But remember what I said: the full amount is NEVER paid, only the difference, and thus, the actual liability will depend up how much the price moves away from the contract $100 price. It is unlikely that oil will fall to zero, or double to $200, so calling it a $100 million exposure may exaggerate the risk. And the difference can go either way, so you may "sell" an oil swap at $100 per barrel, and RECEIVE money because the oil price fell, to say $85. In that case the Seller of the swap would get $15 per barrel from the buyer. If it rose to $110, the buyer pays the seller $10.

 

B/ Extinguishing the risk:

These are Over-the-counter transactions, rather than transactions through a single central clearing house. Therefore, each contract is separate and stays alive until maturity. So if Bank B buys an Oil swap from Bank A at $100 per barrel, and then sells an identical oil swap to Bank C at $110 per barrel, then both sides remain alive until maturity. Bank B believes it has locked in a $10 profit ($10 million on 1 million barrels) on its two trades, but in fact it will carry an exposure of $210 Million until the contracts mature. Isn't it obvious that $210 million is an over-reporting of the likely risk? Can you imagine any circumstance when it would be so high as that? It takes some real imagination.

 

I hope these examples show why JS is engaging in scare-monering when he keeps talking about $37 Trillion as if it were a meaningful figure. It is not, and he is mis-representing reality by mentioning it without some qualifications.

 

Ok now I'm getting somewhere. Thanks.

In your example buying a swap in going long the price oil and selling vice versa, and only the difference gets paid out according to which direction it goes. So JS is exaggerating for effect.

 

Just one more question with regards to sovereign bond CDS.

The buyer of the swap is going long the bond and the seller is short, is that correct?

[drbubb]

Here's how Bloomberg explained the situation

 

The International Swaps and Derivatives Association, a trade group of large financial institutions, euphemistically calls Greece’s debt deal a “credit event.” The rest of the world calls it what it is: a default. Still, no panic has ensued; no contagion has swept over U.S. banks. On Monday, the world’s bourses held steady. Yields on large, financially strapped sovereigns, including Spain and Italy, ticked up only slightly. The financial markets, it seems, are treating the CDS trigger as a nonevent.

 

All of this is a healthy sign that credit-default swaps remain effective instruments to transfer and hedge risk. Banks and other financial institutions rely on the instruments to protect against losses. Others use them as a way to bet on a government’s or a company’s ability to repay debt. Hedge funds especially like credit-default swaps because they offer a low- cost means of taking on credit exposure. A CDS can gain value even if no default occurs. A fund manager who thinks a bond might decline in value -- or that a CDS is underpriced -- can buy protection in anticipation that spreads will widen. If the view turns out to be correct, the fund reverses the transaction at a profit.

 

$32 Trillion Market

 

Whether you think any of that is a productive use of capital, credit-default swaps have become so ingrained in the financial markets, with $32 trillion in contracts outstanding, that any hiccup in their use could be disastrous. Concerns arose earlier this month that CDS were no longer reliable after an ISDA panel ruled that a Greek credit event hadn’t occurred, even though bondholders were accepting more than 50 percent reductions in value. But when Greece invoked a legal clause making the reductions mandatory for all private bondholders, the ISDA panel immediately moved to trigger the swaps.

 

One reason for the markets’ insouciance is that the amount of money expected to change hands is, in the context of derivatives, minimal. The gross amount of outstanding swaps on Greek debt is about $70 billion, of which only about $3.2 billion remains after buyers and sellers net out their positions.

 

 

/more: http://www.bloomberg.com/news/2012-03-12/credit-default-swap-time-bomb-failed-to-go-off-over-greece-view.html

 

Their explanation: "$70 bn nets down to $3.2 billion", is a little different than I had thought the numbers were.

But maybe my explanation above will help to clarify how that happens.

 

The bankers trick of calling a Voluntary restructuring a Non-event of default almost worked, but in the end the CDS insurance got triggered. I wonder if the holders of CDS will be so lucky next time.

[malvern hills]

Concerns arose earlier this month that CDS were no longer reliable after an ISDA panel ruled that a Greek credit event hadn’t occurred, even though bondholders were accepting more than 50 percent reductions in value. But when Greece invoked a legal clause making the reductions mandatory for all private bondholders, the ISDA panel immediately moved to trigger the swaps.

 

[/b][/i]

/more: http://www.bloomberg.com/news/2012-03-12/credit-default-swap-time-bomb-failed-to-go-off-over-greece-view.html

 

Still unsure, but the bit above is the important bit. It seems to me that the 3.2bn was paid out on that portion of the bonds that had their CAC's triggered. If it was to be paid out on all the bonds that were 'voluntarily' reduced in value, but had cds hedges, it would have been a great deal more.

[drbubb]

Still unsure, but the bit above is the important bit. It seems to me that the 3.2bn was paid out on that portion of the bonds that had their CAC's triggered. If it was to be paid out on all the bonds that were 'voluntarily' reduced in value, but had cds hedges, it would have been a great deal more.

I reckon that anyone with CDS insurance would have refused the "Voluntary" Bond swap.

 

There was much to lose

[50sQuiff]

The net risk amount may be very small, a tiny percentage of the Face Amount of all those Huge Face Amounts ($37 Trillion) of outstanding derivatives contracts.

 

The real risk is if one party has written so many loss-making contracts that it might default on its obligations. Then losses might ripple through the system. That was the risk that AIG presented in 2008. It was a huge loser on many, many derivatives contracts. Partly because it stood outside the banking regulatory system, and many banks had taken insurance from it because they believed the fictitious AAA rating. When in 2008, the Fed looked at the quality of those contracts, they discovered that many were written at a loss.

 

The mistake the Fed made was backing 100% of AIG's contracts when it would have been more reasonable to guarantee 50-75% of the risk. The banks that had AIG contracts could have shouldered the rest.

 

The fact that derivatives havent blown up yet is pretty good evidence that the risks are being over-exaggerated by people like JS. Anyone who is an insider in that business, as I was up until about 15 years ago, will find many of his comments laughable.

 

(I invite any other derivatives experts posting here to back up or refute my comments !)

 

This isn't the first time I've pulled you up on this, but it will probably be the last. You're just deceiving people - willfully I think.

 

The only reason why derivatives haven't blown up is because the Fed created and distributed $16 trillion in 2008. That's not conjecture. That is a fact that you're still in denial about. It's the only reason any of the major counterparties remained solvent and the whole system didn't unravel.

 

I know you helped to create this system but by what objective standard could this be considered a success? A sane person might call it the most disastrous abject failure in the history of finance. But fortunately for you Alan Greespan pledged that the Fed stands ready to create money "without limit" to backstop such foolish attempts to 'eliminate' risk. And create money "without limit" they will. All the holders of this virtual debt-wealth will be made whole in nominal terms. Perhaps that will be considered a success too.

[drbubb]

Oh gawd ! Give me an F---- break !

You tell me I am "in denial." The actual fact is that I probably know more about the reality of those businesses than many who write things that you have been reading.

 

How can you assume I am "deceiving people", when I worked as a professional in the area, and was even named a Global Derivative Superstar one year (seriously! I know it sounds funny) by one of the Finance magazines, by virtue of my position and reputation as an innovator.

 

There is so much nonsense put around the markets, that it is annoying.

 

All that money related to Bank balance sheets driven to distress by poor mortgage loans, and MBS. The low quality of these assets left "a huge hole" or potential hole in bank balance sheets. The derivatives were a side issue, though some tried to exaggerate the risks that they carried.

 

Meantime, The ACTUAL derivatives problems were mostly at AIG, where their risk controls were grossly inadequate. That's the way that I read the financial history of the time, not the horsefeathers put out by those seeking to fan the fears.

[BradleyWong]

The way I heard it:

Sinclair has promised a weaker dollar, and that Gold will soon move above $1764, and probably clear $1735 by Tuesday.

I wish I had his confidence.

 

Tuesday midday Gold price is $1,689

 

I suppose he is only human. Let's give him to the end of the week.

[50sQuiff]

Tuesday midday Gold price is $1,689

 

I suppose he is only human. Let's give him to the end of the week.

 

The funny thing is I listened to that same podcast. Eric King asked Sinclair "what price would put gold on a bullish stance," or something along those lines. Sinclair replied "$1735, and if it could manage it by the end of the week..."

 

I'm not sure how that tallies with your comments.

 

NO.

That's not the way it works at all!

 

With derivatives, you agree a contract, and pay nothing upfront. The amount you pay (or receive) depends upon the "Difference Amount" between the price at the inception of the contract, and the ultimate price.

 

Example: You "buy" an Oil swap at $100 per barrel, and the price settles at $110, then you receive $10 per barrel.

 

The problem is measuring the size of the Risk, and the second problem is extinguishing the risk prior to settlement. These two issues cause people to over-report and exaggerate the actual risk. I can explain if you like, but I will try to keep it short. Ask me a very specific question, if you do not understand.

 

Issues:

=======

A/ Measuring risk:

With an oil swap, people generally multiply the Number of barrels times the fixed price; thus: $100 barrel times (say) 1 million barrels might be a Oil Swap of $100 million. But remember what I said: the full amount is NEVER paid, only the difference, and thus, the actual liability will depend up how much the price moves away from the contract $100 price. It is unlikely that oil will fall to zero, or double to $200, so calling it a $100 million exposure may exaggerate the risk. And the difference can go either way, so you may "sell" an oil swap at $100 per barrel, and RECEIVE money because the oil price fell, to say $85. In that case the Seller of the swap would get $15 per barrel from the buyer. If it rose to $110, the buyer pays the seller $10.

 

B/ Extinguishing the risk:

These are Over-the-counter transactions, rather than transactions through a single central clearing house. Therefore, each contract is separate and stays alive until maturity. So if Bank B buys an Oil swap from Bank A at $100 per barrel, and then sells an identical oil swap to Bank C at $110 per barrel, then both sides remain alive until maturity. Bank B believes it has locked in a $10 profit ($10 million on 1 million barrels) on its two trades, but in fact it will carry an exposure of $210 Million until the contracts mature. Isn't it obvious that $210 million is an over-reporting of the likely risk? Can you imagine any circumstance when it would be so high as that? It takes some real imagination.

 

I hope these examples show why JS is engaging in scare-monering when he keeps talking about $37 Trillion as if it were a meaningful figure. It is not, and he is mis-representing reality by mentioning it without some qualifications.

 

I can't possibly comment on your Super Stardom. I'm too lost for words.

 

Your argument is basically "as long as the banks who underwrite derivatives continue to remain solvent, everything is fine with the derivatives system." This coming from a guy who created a forum dedicated to the unsustainable nature of the global economy! $16 trillion says your derivatives system is built on quicksand.

 

Obviously oil would never go to $200 in your scenario, just like US house prices never fall on a national scale But let's say oil does go to $200 and our derivative contracts pay out a flat $1 million for each $1 on a barrel of oil.

 

Let's say Bank A goes bankrupt due to losses on its mortgage portfolio. With oil at $200, Bank B had expected to receive $100m from Bank A, to net off the $90m it now owes to Bank C. But it doesn't receive anything, so all of a sudden Bank B has a net liability of $90m.

 

Now let's say we mark Bank B's balance sheet to market and it's struggling to liquidate assets in extreme market conditions. It can't make the payment on time without admitting it's insolvent. So Bank C - which was relying on the $90m from Bank B to pay Bank D on its mortgage derivative contracts - itself now has a net liability of $90m as other banks pull collateral.

 

Bank A needs $100m, Bank B needs $90m and Bank C needs $90m. Bank D, which hates the other three banks so it deliberately marks down certain assets to harm the balance sheets of its opponents. They all panic and liquidate assets at firesale prices, further destroying their own balance sheets. Trust starts to break down and the Saudis and Co start pulling dollar deposits. Liabilities are now off the scale and panic sets in.

 

Now we have two choices. The system implodes, almost every bank in the world goes bankrupt and DrBubb starts wondering why his brokerage account won't load or why HSBC aren't answering his calls. 50sQuiff triumphantly calls his father to say "See! That's why I told you to hoard cans of tuna and Lloyd Grossman pasta sauce!"

 

OR

 

The Fairy Godmother guarantees the purchase of Bank A by Bank B, explicitly prints $90m and gives it to Bank B to give to Bank C, which then gives $90m to Goldma... I mean Bank D. It then buys all the worthless assets from Bank AB, C and D at par and doles out billions of dollars to all of them. FASB abolishes mark-to-market accounting. Warren Buffets steps in to invest in Bank D. This stems the international run on the banks and some semblance of calm is restored. Oil drops to $100 and thanks to the support of the Fairy Godmother, the banks increase their oil derivatives by 30% because nothing can possibly go wrong. DrBubb thinks his system worked beautifully and retires to a sustainable paddy field community bordering the Korean Demilitarized Zone.

 

However trust in debt assets, debt-based currency and the system itself are irrevocably damaged. Gold's ascent resumes, characterised by a growing preference for physical outright ownership.

 

http://www.youtube.com/watch?v=Sxz6gYIiFHc

[fexx]

Oh god, not Bank A, B and C again.

Has it not occurred to anyone that they are responsible for most of this financial crisis?

 

(Well, at least you remembered The Capitals...)

[drbubb]

Your argument is basically "as long as the banks who underwrite derivatives continue to remain solvent, everything is fine with the derivatives system." This coming from a guy who created a forum dedicated to the unsustainable nature of the global economy! $16 trillion says your derivatives system is built on quicksand.

 

Obviously oil would never go to $200 in your scenario, just like US house prices never fall on a national scale But let's say oil does go to $200 and our derivative contracts pay out a flat $1 million for each $1 on a barrel of oil.

 

Let's say Bank A goes bankrupt due to losses on its mortgage portfolio. With oil at $200, Bank B had expected to receive $100m from Bank A, to net off the $90m it now owes to Bank C. But it doesn't receive anything, so all of a sudden Bank B has a net liability of $90m.

Well, at least you are talking about "Net" liabilities now. Rather than the huge GRoss face amounts of $32 Trillion, or $37 Trlllion that some are throwing around.

 

You recall Lehman Brothers, and its default?

It did not bring now the system, because when the banks got down to the Net liability amount, it was rather small and manageable. Banks have now had several years to think about a replay of this scenario, and I reckon that most of them (I cannot say all) are managing their positions much more carefully than they were in early 2008.

 

My point is that those huge Face derivative numbers are a red herring. There are big risks on bank books, but they are in the loan portfolios and in the sovereign debt holdings. Not in the derivatives that the ill-informed scaremongers (like - well you know who) like to talk about.

[drbubb]

Oh god, not Bank A, B and C again.

Has it not occurred to anyone that they are responsible for most of this financial crisis?

 

(Well, at least you remembered The Capitals...)

They probably are responsible. (Though they did not force people to take loans and speculate on housing etc - It took two to tango.)

 

But as I said about, it is more through their lending activities. Some (like- ...) do talk a lot about derivatives because they know they can "Blow smoke up people's arses", because few people understand the area. I suggest you not fall for that. Sure, there are occasional blow-ups on individual derivative trades, but the whole system has held up better than all the scaremongers predicted years ago. They are either lying, or havent taken the time and trouble to understand the risk.

 

Focus on the loan portfolios. And the bond holdings. That's were the real problems are, and where the Eur 100 Billion writedown on Greece came from. That compares with a Eur 3 Billion hit on Greek CDS. I think that is the right proportion of risk.

 

If I see something that makes me change my mind - if there's an article that really gets to the heart of derivatives and highlights a bigger risk there than I think there is, I will let you know that I have changed my view. But over these 3-4 years I have not seen that, just scaremongering.

 

I don't get why people want to attack my comments, which have proven accurate, and prefer to accept the words of those who seem to know much less. It's a strange old world.

=== ===

 

BTW,

I listened to the JS interview on Erik King again.

I still find it confusing. Perhaps they should supply a chart to go with it.

[Pixel8r]

I don't get why people want to attack my comments, which have proven accurate, and prefer to accept the words of those who seem to know much less. It's a strange old world.

It's probably to do with the manner in which you speak your words, it puts peoples backs up. You do come across as a very egotistical & opinionated sometimes, even though you are quite often completely wrong (gold maybe done here, be careful). Maybe if you didn't try to prove yourself so much things would become better for you, people come to forums for discussion not lessons from the master.

 

 

 

[Erewhon888]

http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html

 

Greg Smith is resigning today as a Goldman Sachs executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa.

 

Surprising accompanying cartoon

 

[chazza]

You recall Lehman Brothers, and its default?

It did not bring now the system, because when the banks got down to the Net liability amount, it was rather small and manageable. Banks have now had several years to think about a replay of this scenario, and I reckon that most of them (I cannot say all) are managing their positions much more carefully than they were in early 2008.

 

My point is that those huge Face derivative numbers are a red herring. There are big risks on bank books, but they are in the loan portfolios and in the sovereign debt holdings. Not in the derivatives that the ill-informed scaremongers (like - well you know who) like to talk about.

 

Thats incorrect. The system did not work. That is why the Fed backstopped everything. Thats is why the too big to fail got bigger.

 

Lets face it, the contracts work on a small scale basis, or when 'stuff' is contained, but when we experience tail events, they will bring down this system (or central banks will back stop everything).

[Ziknew]

...

Focus on the loan portfolios. And the bond holdings. That's were the real problems are, and where the Eur 100 Billion writedown on Greece came from. That compares with a Eur 3 Billion hit on Greek CDS. I think that is the right proportion of risk.

...

They will be auctioning these babies on Monday http://www.isda.org/companies/HellenicRepublicCDS/docs/ICM-14614675-v1-The_Hellenic_Republic_-_Initial_List.pdf

 

The Auction will set the final price of the Bonds and thus determine the payout.

 

If the Auction sets a price of say 30%, then only 70% of the net notional will be paid out.

 

I think there is more than one auction planned for Greece as there are a number of different types of bond. We will get a very good indication on Monday of the total payout.

[drbubb]

It's probably to do with the manner in which you speak your words, it puts peoples backs up. You do come across as a very egotistical & opinionated sometimes, even though you are quite often completely wrong (gold maybe done here, be careful). Maybe if you didn't try to prove yourself so much things would become better for you, people come to forums for discussion not lessons from the master.

And you find the comments of JS different?

 

He comes across as completely opinionated, and imho NOT the expert on derivatives he thinks he is. (Though I admit he is an expert trader, with far more experience trading Gold futures than I will ever have.)

 

I find the contrast on how people react to him to be incredible. But when I speak to actual experts on derivatives, they share my opinion of JS being a Flim-Flam artist, though they are less willing to put their (often strong) opinions on a public website as I do. So I come away thinking that Sinclair is speaking to the choir, and I am singing a different tune, and that irritates people who want to stay happily in their own comfort zones.

[drbubb]

Thats incorrect. The system did not work. That is why the Fed backstopped everything. Thats is why the too big to fail got bigger.

 

Lets face it, the contracts work on a small scale basis, or when 'stuff' is contained, but when we experience tail events, they will bring down this system (or central banks will back stop everything).

The Fed backstop was a guarantee of AIG's derivatives position (which I admit was a mess - they were outside the bank regulatory system, and using bizarre and inappropriate methods to value their derivatives.) Lehman's went bankrupt, and its derivative and other obligations were not backstopped by the Fed.

 

The Fed was dealing mainly with an excess of Fear. But they did not step in and take over derivative positions, only guaranteed those of AIG. As I said above, the mistake they made was guaranteeing 100%. They should have guaranteed 50-75% of the loss amounts - and then the actual amounts forked over would have been less. I think in hindsight even Fed employees would agree with my assessment.