• Tag Archives Derivatives
  • Deutsche Bank: The Market’s Current “Metastability” Will Lead To “Cataclysmic Events”

    With the VIX slammed at the close of trading on “quad-witch” Friday, sending it just shy of single-digits once again and pushing stocks back in the green in the last seconds of trading, the much discussed topic of (near) record low volatility simply refuses to go away, which means even more attempts to i) explain it, ii) predict what ends the current regime of “endemic complacency” and iii) forecast the “catastrophic” damage to markets when it does finally end as JPM’s Kolanovic did earlier this week, when he set the bogey on a modest increase in the VIX from 10 to just 15.
    Overnight, applying his typical James Joycean, stream-of-consciousness approach to capital markets, Deutche Bank’s derivatives analyst Aleksandar Kocic penned his latest metaphysical essay on this topic, which covered most of the above bases, and which postulates that far from “stable” the current market equilibrium is one which can be described as “metastable”, the result of widespread complacency, and which he compares to an avalanche:”a totally innocuous event can trigger a cataclysmic event (e.g. a skier’s scream, or simply continued snowfall until the snow cover is so massive that its own weight triggers an avalanche.”
    He also inverts the conventionally accepted paradigm that lack of volatility means lack of uncertainty, and writes that to the contrary, it is the ubiquitous prevalence of uncertainty that has allowed vol to plunge to its recent all time lows, keeping markets “metastable.”
    How does the regime change from the current “metastable” regime to an “unstable” one? To Kocic the transition will take place when uncertainty, for whatever reason, is eliminated: “Big changes threaten to explode not when uncertainty begins to rise, but when it is withdrawn.” He also points out that while there is punishment for those who seek to defect from a “complacent regime”…

    This post was published at Zero Hedge on Jun 17, 2017.


  • EU Wants to Order All Euro Trading Moved from London to Paris

    The European Union is preparing the legal basis to take over London’s extensive trading business with euro derivatives. This is just another complete failure of bureaucrats to comprehenmd market function. Perhaps they should also outlaw euro trading in the USA and Asia. That would be real smart. Then they can all sit down and play cards with euro themselves and guarantee it will never be anything to anyone else no less convertible worldwide.

    This post was published at Armstrong Economics on Jun 15, 2017.


  • THE SUN RISES ON THE PRECIOUS METALS SECTOR…

    We ‘went walkabout’ over the past several years, largely deserting the Precious Metals sector for other greener pastures, because it has been performing so poorly, apart from a dramatic flurry during the 1st half of last year. However, the latest charts suggest that a major bullmarket is incubating in the sector and that it won’t be much longer before it starts. This being so it is time for us to return to take positions ahead of its commencement. We will now proceed to look at the latest long-term charts for gold, silver, Precious Metals stocks and also the dollar to identify the signs of the impending major bullmarket in gold and silver. On the 8-year chart for gold it is now becoming apparent that a large Head-and-Shoulders bottom is completing, that started to form way back in 2013, so this is a big base pattern that should lead to a major bullmarket, and given what is set to go down in the debt and derivatives markets it should easily exceed earlier highs. With the benefit of this long-term chart we can also put the sizeable runup during the 1st half of last year into context – it was the advance to complete the ‘Head’ of the Head-and-Shoulders bottom. This being so we can also readily understand why it then gave back about half of these gains – it dropped back to mark out the Right Shoulder of the pattern, and the good news is that with this late stage of the pattern now approaching completion, we can look forward to more serious gains soon. The new bullmarket will be inaugurated by the price rising above the 1st zone of resistance shown, although it will then have to contend with another major zone of resistance in the $1550 area. However, if the credit markets are coming apart at this time, this shouldn’t prove to be much of an obstacle.

    This post was published at Clive Maund on June 03, 2017.


  • Assume the Brace Position

    My friend and British investor extraordinaire Jim Mellon, who made a large amount of money traveling the world doing real estate, is now focused on thinking about and investing in life extension and its derivatives. But he’s also worried about what happens when a lot of people live longer and how we pay for it. He shares my concern about the demographic bubble that we are already in becoming even worse as we live longer than we expected. Further, he points out the same thing I have about the massive move into passive investing and how it is dangerously turning into a bubble in its own right.
    In place of passive investing, which he calls ‘a sort of pass the parcel game for investment morons,’ Jim suggests we focus our attention and money on ‘Juvenescence’-style investments – that being the title of his about-to-be-released book on investing in the age of longevity. Why not, he says, ‘benefit from the very things that will keep you alive to an age that would have been regarded as science fiction just one short generation ago’?

    This post was published at Mauldin Economics on MAY 31, 2017.


  • Another Rigged Market: Scientific Study Finds Systemic VIX Auction Manipulation

    To the list of ‘rigged’ markets (e.g. Libor, FX, Silver, Treasuries…) we can now add VIX (which explains a lot) as two University of Texas at Austin finance professors find “large transient deviations in VIX prices” around the morning auction, “consistent with market manipulation.”
    ***
    As Bloomberg reports, in addition to being an index that is much quoted in articles about market complacency, the VIX is used as a reference price for derivatives: If you want to bet that stock-market volatility will go up, or down, you can buy or sell futures or options on the VIX. These products are cash settled: The VIX is not a thing you can own, so if your option ends up in the money you just get paid cash for the value of the VIX at settlement.

    This post was published at Zero Hedge on May 25, 2017.


  • Deutsche Bank Woes Deepen in Monte Paschi Fraud Case

    Deutsche Bank AG, on trial in Milan for allegedly helping Banca Monte dei Paschi di Siena SpA conceal losses, must face accusations that it was running an international criminal organization at the time.
    Prosecutors used internal Deutsche Bank documents and emails to persuade a three-judge panel to consider whether there were additional, aggravating circumstances to the charges the German lender already faces related to derivatives transactions. The material included a London trader’s “well done!” message to a banker who is now on trial, evidence seen by Bloomberg shows.
    Allowing prosecutors to argue that the alleged market manipulation crimes were committed by an organization operating in several countries could lead to higher penalties if they win a conviction. Giuseppe Iannaccone, a lawyer for Deutsche Bank and some of the defendants, sought to block the move at Tuesday’s hearing, saying there wasn’t a clear connection between the original charge of market manipulation and the alleged aggravating circumstances.
    ‘The trial for Deutsche Bank managers becomes more problematic after the judge’s decision,’ said Giampiero Biancolella, an attorney specializing in financial crime who isn’t involved in the case. ‘If proven, the aggravating circumstance may increase the eventual jail sentence for the market manipulation to a maximum of nine years.’
    The German bank and Nomura Holdings Inc. went on trial in Milan in December, accused of colluding with Monte Paschi to cover up losses that almost toppled the Italian lender before its current battle for survival. Thirteen former managers of Deutsche Bank, Nomura and Monte Paschi were charged for alleged false accounting and market manipulation.

    This post was published at bloomberg


  • Deutsche Bank Sued For Running An “International Criminal Organization” In Italian Court

    Having been accused, and found guilty, of rigging and manipulating virtually every possible asset class, perhaps it was inevitable that Deutsche Bank, currently on trial in Milan for helping Banca Monte dei Paschi conceal losses (as first reported last October in “Deutsche Bank Charged By Italy For Market Manipulation, Creating False Accounts“) is now facing accusations that it was actually running an international criminal organization at the time.
    In the closely watched lawsuit, prosecutors used internal Deutsche Bank documents and emails to persuade a three-judge panel to rule that there were additional, aggravating circumstances to the charges the German lender already faces related to various derivatives transactions. As Bloomberg reported overnight, the material included a London trader’s “well done!” message to a banker who is now on trial.
    The reason why prosecutors are seeking expanded charges against the German banking giants is that by allowing prosecutors to argue that the bank’s market manipulation crimes were committed by an organization operating in several countries would lead to higher penalties if they win a conviction.
    Predictably, Deutsche Bank’s lawyer, Giuseppe Iannaccone, sought to block the move at Tuesday’s hearing, saying there wasn’t a clear connection between the original charge of market manipulation and the alleged aggravating circumstances. ‘The trial for Deutsche Bank managers becomes more problematic after the judge’s decision,’ said Giampiero Biancolella, an attorney specializing in financial crime who isn’t involved in the case. ‘If proven, the aggravating circumstance may increase the eventual jail sentence for the market manipulation to a maximum of nine years.’

    This post was published at Zero Hedge on May 18, 2017.


  • Financial Weapons Of Mass Destruction: The Top 25 U.S. Banks Have 222 Trillion Dollars Of Exposure To Derivatives

    The recklessness of the ‘too big to fail’ banks almost doomed them the last time around, but apparently they still haven’t learned from their past mistakes. Today, the top 25 U. S. banks have 222 trillion dollars of exposure to derivatives. In other words, the exposure that these banks have to derivatives contracts is approximately equivalent to the gross domestic product of the United States times twelve. As long as stock prices continue to rise and the U. S. economy stays fairly stable, these extremely risky financial weapons of mass destruction will probably not take down our entire financial system. But someday another major crisis will inevitably happen, and when that day arrives the devastation that these financial instruments will cause will be absolutely unprecedented.
    During the great financial crisis of 2008, derivatives played a starring role, and U. S. taxpayers were forced to step in and bail out companies such as AIG that were on the verge of collapse because the risks that they took were just too great.
    But now it is happening again, and nobody is really talking very much about it. In a desperate search for higher profits, all of the ‘too big to fail’ banks are gambling like crazy, and at some point a lot of these bets are going to go really bad. The following numbers regarding exposure to derivatives contracts come directly from the OCC’s most recent quarterly report (see Table 2), and as you can see the level of recklessness that we are currently witnessing is more than just a little bit alarming…

    This post was published at The Economic Collapse Blog on May 15th, 2017.


  • $500 Trillion in Derivatives ‘Remain an Important Asset Class’: Hilariously, the New York Fed

    Oh, and the unintended consequences of trying to regulate a monster.
    Economists at the New York Fed included this gem in their report on a two-day conference on ‘Derivatives and Regulatory Changes’ since the Financial Crisis:
    Though the notional amount [of derivatives] outstanding has declined in recent years, at more than $500 trillion outstanding, OTC derivatives remain an important asset class.
    An important asset class. A hilarious understatement. Let’s see… the ‘notional amount’ of $500 trillion is 25 times the GDP of the US and about 7 times global GDP. Derivatives are not just an ‘important asset class,’ like bonds; they’re the largest ‘financial weapons of mass destruction,’ as Warren Buffett called them in 2003.
    Derivatives are used for hedging economic risks. And they’re used as ‘speculative directional exposures’ – very risky one-sided bets. It’s all tied together in an immense and opaque market interwoven with the banks. The New York Fed:

    This post was published at Wolf Street by Wolf Richter ‘ May 13, 2017.


  • US Equity Volatility Is Near 90-Year Lows

    In a world where US political risk appears to be rising and nuclear threats with North Korea come amid persistent tensions in the Middle East and with Russia, worldwide market volatility appears to have blinders on. A Bank of America Merrill Lynch report out Wednesday, noting a ‘fearless VIX’ dropping to 90-year lows, stands with mouth agape as it explains the market action. While low volatility could persist throughout the summer, the falling asleep of market volatility is not a ‘new normal,’ the report predicted as Global volatility spreads home.
    Global Volatility – CBOE VIX Index Reaches ‘Historic Floor’
    The CBOE VIX index, a measure of option trading activity used as a proxy to gauge market uncertainty or fear, traded below the 10 level on Monday.
    This ‘historic floor’ has only been hit nine times since 1990, the BofA Global Equity Derivatives research team noted. The report, titled ‘Global Equity Volatility Insights – US equity vol near 90yr lows; what’s driving it and how long can it last?’ pointed to the historical marker: only 3% of the time volatility had been lower since 1928.

    This post was published at FinancialSense on 05/04/2017.


  • TBAC(o) Road: Treasury Borrowing Advisory Committee Against Mnuchin’s ‘Ultra-long’ Treasury Bond Idea (Competing with Japan, France, Italy)

    This is a syndicated repost courtesy of Confounded Interest. To view original, click here. Reposted with permission.
    While Treasury Secretary Mnuchin has been pushing extending the maturity of US Treasury Bonds beyond their current longest maturity of 30 years, the Treasury Borrowing Advisory Committee (TBAC) issued a warning against issuing ‘ultra-long’ Treasury bonds.
    Lastly, the Committee commented on the demand for ultra-long debt, noting that the regular and predictable issuance policy should remain the central consideration to minimize Treasury’s funding cost over time. While an ultra-long is most likely to be demanded by those with longer-dated liabilities, the Committee does not see evidence of strong or sustainable demand for maturities beyond 30-years. The Committee recommended that further work be done to study these demand dynamics to get a better sense of where an ultra-long bond might price, which could be above or below the longest maturity debt issuance based on the pricing of domestic ultra-long derivatives, ultra-long bonds abroad, and theoretical models.

    This post was published at Wall Street Examiner by Anthony B Sanders ‘ May 3, 2017.


  • Banks say gold price-fixing data errors entitle them to do-over

    Barclays and three other banks told a New York federal court Monday that they didn’t waste its time when requesting a second shot at tossing a case over their alleged conspiracy to manipulate the price of gold, saying investors’ use of flawed data in the suit justifies a do-over.
    Barclays Bank PLC, HSBC Bank PLC, Societe Generale, and the Bank of Nova Scotia again asked the court for permission to renew their dismissal bid, fighting against investors who say their suit still supports allegations of collusive trading even after admitting the complaint included flawed data analyses.
    “Plaintiffs’ suggestion that defendants ‘should accept th result’ of the motion to dismiss and ‘move on’ despite newly discovered falsehoods that go to the heart of plaintiffs’ claims is not only wrong on the substance, it is also procedurally improper,” the banks said.
    Investors originally filed their putative class action in March 2014, alleging the banks conspired to manipulate the London gold fix, a benchmark used to determine the price of gold and gold derivatives. A New York federal judge upheld claims against the banks in October, finding there was circumstantial evidence that they agreed to restrain trade.

    This post was published at GATA


  • Readers Pummel New York Times Writer Over His Big Bank Stance

    Andrew Ross Sorkin, the New York Times business writer who created a meme against breaking up the big Wall Street banks out of a mountain of grossly inaccurate facts, was pummeled by readers yesterday for doubling down on his out-of-touch position.
    Sorkin’s latest article was addressing the recent comments by President Trump and his Director of the National Economic Council, Gary Cohn, indicating that they are taking a look at restoring the Glass-Steagall Act – the depression era legislation that separated banks holding insured deposits from the high risk investment banks that underwrite and trade risky securities. The Glass-Steagall Act protected the nation’s banking system from its passage in 1933 to its repeal in 1999 during the Bill Clinton administration. It took just nine years after its repeal for Wall Street to implode in the same epic fashion as 1929 – 1933.
    Millions of Americans understand that the unprecedented concentration of deposits, assets and derivatives at four mega banks (JPMorgan Chase, Bank of America, Wells Fargo and Citigroup) which are also key players in the Wall Street casino, is diverting capital into dodgy transactions and away from the real economy. The subpar economic growth of 2 percent or less since the Wall Street implosion of 2008 (when the first three of these banks became even larger by gobbling up their failing peers) is clear evidence that the Wall Street machinery is misallocating capital to the wrong arteries of commerce.

    This post was published at Wall Street On Parade on May 3, 2017.


  • Is the City of London about to Lose its Crown Jewel?

    Where will nearly 1 trillion-a-DAY in euro-clearing operations go? But other finance operations might not go to the usual suspects.
    The UK economy’s prize ‘asset,’ the City of London’s gargantuan financial services industry, is at the top of the menu of the forthcoming Brexit negotiations. For Britain’s Prime Minister Theresa May, safeguarding the City of London’s operations is a top priority. But for the EU’s negotiators, those operations represent both a valuable asset to covet as well as a huge bargaining chip in the forthcoming negotiations.
    One area of activity that European authorities, both political and monetary, seem determined to get their hands on, at pretty much any cost, is the City’s vast clearing operations.
    The U. K. is estimated to handle 75% of all euro-denominated derivatives transactions, equivalent to around 930 billion of trades per day. It’s also home to roughly 90% of US dollar domestic interest-rate swaps. Clearing is a huge business for the City of London. The world’s largest clearinghouse for interest rate swaps, LCH, is based there and is majority-owned by London Stock Exchange Group Plc.
    It functions as a middle man collecting collateral and standing between derivatives and swaps traders to prevent a default from spiraling out of control. As Bloomberg reports, the role of clearing houses like LCH in global finance has become far more entrenched since the 2008 Financial Crisis and the inexorable expansion of derivatives trading.

    This post was published at Wolf Street on May 2, 2017.


  • CryptoGold and Thieving Banksters

    In order for the central bank ponzi scheme of fiat currency to work, especially on a global basis, the central banks learned early on that gold was the enemy of their scheme and, therefore, must be eliminated from the monetary system. The first real step was Executive Order 6102 in 1933. This was just 20 years after the hijacking of the United States.
    This was one of the major first steps to eliminating competing currencies with the Federal Reserve Note / U. S. dollar owned by and sold to the U. S. Treasury through the Federal Reserve Bank.
    I’m ask on a regular basis ‘when is the economic collapse going to happen?’ I answer this question the exact same way every time. You can either look to 1913 when the United States was hijacked by the Federal Reserve System or you can use the 2007-2008 derivatives meltdown that is still ongoing. It is a process, not an event. Below are some of the known steps to keep the power in the hands of the thieving central banks and strip us of all our remaining freedoms, sovereignty and dignity we have left.
    It’s not uncommon for hard money realist to be in the cryptocurrency camp. Personally, I have never been in favor of cryptocurrencies as they play into the hands of the banking cabal. Once the banksters move society to a digital currency and outlaw physical cash our enslavement and permanent indebtedness will be finalized. While there are a number cryptocurrency advocates, that I respect, it seems they are overlooking the fact that central banks are known thieves, liars and have never allowed a currency to compete with their criminal operation. Why would that change simply because of the internet?
    That’s why the guys from bitcoin drive me nuts. Because they think ‘Oh this is how we’re going to be free’. No, you’re prototyping Mr. Globals digital currency. ~Catherine Austin-Fitts Source
    We first reported about a new central bank cryptocurrency in August 2016 – Digital Enslavement – Central Banks Cryptocurrency Has Arrived. This new cryptocurrency was designed specifically for central bank settlements using the blockchain for three of the criminal banks that operate outside of any national sovereignty – these banks are beholding to no one except their owners, the BIS. UBS, Deutsche Bank and BNY Mellon. There are two other entities involved with the development of this cryptocurrency but it appears they are not part of the global enslavement team.

    This post was published at GoldSeek on 2 May 2017.


  • Goldman Sachs Prepares to ‘Better Weather Future Disasters’

    Regular prudent savers & government guarantees to the fore.
    Wouldn’t it be great if a big hedge fund could borrow for five years at a fixed rate of 2.05%, just barely above the cost that the US government pays for five-year debt (1.81%)? It’s especially great considering that inflation, as measured by the Consumer Price Index, is 2.4%. In real terms, the rate on this five-year loan would be negative.
    Or borrow at 1% daily rate? This would be way below the rate of inflation. And on the rare occasion that creditors gang up on you and try to get their money back all at once, the Fed steps in as lender of last resort. You can rely on that. So no biggie.
    You could lend this money out at 5% or 7% or, if you’re into credit cards, at 21%, for example, and keep the difference. Or better, you could bet with this money on the riskiest trades, some of them long-term illiquid deals that might take a decade or longer to unwind. Or you could play with highly leveraged derivatives.

    This post was published at Wolf Street by Wolf Richter ‘ Apr 27, 2017.


  • Where There’s Smoke…there’s central bank manipulation — Chris Martenson

    Central banks around the world have colluded, if not conspired, to elevate and prop up financial asset prices. Here we’ll present the data and evidence that they’ve not only done so, but gone too far.
    When we discuss elevated financial asset prices we really are talking about everything.
    We’re talking not just about the sky-high prices of stocks and bonds, but also of the trillions of dollars’ worth of derivatives that are linked to them, as well as real estate in dozens of countries and locations. All are intricately linked together. For instance, stocks are elevated, in part, because bond yields are so low. Same for real estate.
    These are important questions to consider because if central banks have been too involved and gotten themselves mixed up in trying to ‘wag the dog’ by using elevated financial asset prices as a means to drive economic expansion — then the risk is a big implosion in financial asset prices if their efforts fail.
    The difficulty, as always, is that you can’t print your way to prosperity. It’s never worked in history and it won’t work this time either. You can, however, print (or borrow) to delay a correction, after which a boost in real economic growth (or additional income) had better materialize to save your bacon. But if enough growth does not emerge to both pay back all the old outstanding loans plus all the newly created debt and currency, then you’re going to experience a worse correction than if you had not tried to print/borrow your way to prosperity.
    As I’ve outlined before, that economic boom the central banks have been staking everything on been MIA the entire time during the ‘recovery’ following the Great Recession. And there’s no sign of it showing up any time soon.

    This post was published at Peak Prosperity


  • The Chicken Or The Egg?

    Zerohedge put out an interesting article yesterday: Why ‘Nothing Matters’: Central Banks Have Bought A Record $1 Trillion In Assets In 2017. Please note this is $3.6 trillion annualized rate so far this year.
    ***
    What jumps out at you should be the quadrupling of the their balance sheets since 2007 from $3.5 trillion to over $14 trillion.
    So what exactly does this mean? Basically, to keep the system from imploding upon itself the world’s central banks had to ‘create’ over $10 trillion of liquidity by purchasing assets onto their balance sheets. This is puts forth a ‘chicken or the egg’ question, or actually two as you will soon see.
    First, central banks have been buying everything …including stocks, to prevent the markets from turning down. It is safe to say they understand that with the leverage and derivatives outstanding they cannot allow markets to correct (or God forbid actually enter bear markets). They understand the ‘size’ of the derivatives markets is so large, NO ONE can withstand a downturn and actually be called upon to perform their ‘insurance payments’.

    This post was published at JSMineSet on April 22nd, 2017.


  • Where There’s Smoke…

    Central banks around the world have colluded, if not conspired, to elevate and prop up financial asset prices. Here we’ll present the data and evidence that they’ve not only done so, but gone too far.
    When wee discuss elevated financial asset prices we really are talking about everything.
    we’re talking not just about the sky-high prices of stocks and bonds, but also of the trillions of dollars’ worth of derivatives that are linked to them, as well as real estate in dozens of countries and locations. All are intricately linked together. For instance, stocks are elevated, in part, because bond yields are so low. Sam for real estate.
    Here are three questions most alert investors are asking:
    Question #1: When will financial assets ever ‘correct’ and fall in price? Question #2: How much does overt propping by the central banks have to do with today’s elevated prices? Question #3: How much does covert propping by central banks play a role in these inflated markets? These are important questions to consider because if central banks have been too involved and gotten themselves mixed up in trying to ‘wag the dog’ by using elevated financial asset prices as a means to drive economic expansion — then the risk is a big implosion in financial asset prices if their efforts fail.

    This post was published at PeakProsperity on Friday, April 21, 2017,.


  • Distracted Nation “Buys The Dip”

    The military frolics of spring have distracted the nation’s attention from the economic and financial dynamics that pose the ultimate mortal threat to business as usual. Note the distinction between economic and financial. The first represents real activity in this Land of the Deal: people doing and making. The second, finance, used to be a minor branch – only about five percent – of all the doing in the days of America’s putative bigliest greatitude. The task of finance then was limited and straightforward: to manage the allocation of capital for more doing and making. The profit in that enabled bankers to drive Cadillacs instead of Chevrolets, but not much more.
    These days, finance is closer to 40 percent of all the doing in America, and it is not about making anything, but getting more than its share of ‘money’ – whatever that is now – and what ‘money’ mostly is is whatever the people engaged in finance say it is, for instance, Fannie Mae bonds representing millions of sketchy loans for houses of vinyl and strand-board built in places with no future… or stock issued by the Tesla corporation… or the sovereign IOUs of the US Treasury.
    The list of things that pretend to be ‘money’ these days would be long and shocking and the sheer churn of these instruments among the banks and markets ‘produces’ the fabled ‘revenue streams’ beloved of The Wall Street Journal. What happens when the world discovers that these instruments (securities and their derivatives) represent falsely? Why, bigly trouble.

    This post was published at Zero Hedge on Apr 17, 2017.