Derivatives trading increases 27% - now at $681 TRILL.
roadrunner
Posts: 28,310 ✭✭✭✭✭
This from Sinclair's site today:
Derivative Trades Soar to Record $681 Trillion in Third Quarter
By Hamish Risk in London, Bloomberg
Dec. 10, 2007
Dec. 10 (Bloomberg) -- Derivatives traded on exchanges surged 27 percent to a record $681 trillion in the third quarter, the biggest increase in three years, the Bank for International Settlements said.
Interest-rate futures, contracts designed to speculate on or hedge against moves in borrowing rates, led the increase with a 31 percent increase to $594 trillion during the three months ended Sept. 30, the Basel, Switzerland-based BIS said today in its quarterly review. The amounts are based on the notional amount underlying the contracts.
Trading surged as investors bet on losses linked to record U.S. mortgage foreclosures and policy changes by the Federal Reserve and the European Central Bank to offset the credit slump. The Fed cut its benchmark interest rate by half a point to 4.75 percent in September, the central bank's first reduction in four years.
``The turbulence in financial markets led to the busiest trading on record,'' BIS analysts Ryan Stever, Christian Upper and Goetz von Peter wrote in the report.
Trading in stock index futures and options rose 19 percent to a record $81 trillion in the third quarter, as investors speculated on whether the credit-market losses would spread to the equity markets.
The Standard & Poor's 500 index rose 1.74 percent in the three months to Sept. 30. The Dow Jones Stoxx 600 Index in Europe fell 3 percent in the same period.
``Equity investors are using derivatives more aggressively as they have come to understand the more sophisticated instruments over time,'' said Jim Josephson, head of derivatives flow trading at Bear Stearns Cos. in London
A 27% increase in 3 months! And we are arguing about gold at $800 or coins/commodities in general being overpriced? I'm surprised that PM's weren't beat down on this news today. But the stock market did rise. Guess you can only blow up the financial world once, but multiples of that will ensure you really do it right.
Toss in the $10 Billion loss that UBS just reported in derivatives and the news is all good.
roadrunner
Derivative Trades Soar to Record $681 Trillion in Third Quarter
By Hamish Risk in London, Bloomberg
Dec. 10, 2007
Dec. 10 (Bloomberg) -- Derivatives traded on exchanges surged 27 percent to a record $681 trillion in the third quarter, the biggest increase in three years, the Bank for International Settlements said.
Interest-rate futures, contracts designed to speculate on or hedge against moves in borrowing rates, led the increase with a 31 percent increase to $594 trillion during the three months ended Sept. 30, the Basel, Switzerland-based BIS said today in its quarterly review. The amounts are based on the notional amount underlying the contracts.
Trading surged as investors bet on losses linked to record U.S. mortgage foreclosures and policy changes by the Federal Reserve and the European Central Bank to offset the credit slump. The Fed cut its benchmark interest rate by half a point to 4.75 percent in September, the central bank's first reduction in four years.
``The turbulence in financial markets led to the busiest trading on record,'' BIS analysts Ryan Stever, Christian Upper and Goetz von Peter wrote in the report.
Trading in stock index futures and options rose 19 percent to a record $81 trillion in the third quarter, as investors speculated on whether the credit-market losses would spread to the equity markets.
The Standard & Poor's 500 index rose 1.74 percent in the three months to Sept. 30. The Dow Jones Stoxx 600 Index in Europe fell 3 percent in the same period.
``Equity investors are using derivatives more aggressively as they have come to understand the more sophisticated instruments over time,'' said Jim Josephson, head of derivatives flow trading at Bear Stearns Cos. in London
A 27% increase in 3 months! And we are arguing about gold at $800 or coins/commodities in general being overpriced? I'm surprised that PM's weren't beat down on this news today. But the stock market did rise. Guess you can only blow up the financial world once, but multiples of that will ensure you really do it right.
Toss in the $10 Billion loss that UBS just reported in derivatives and the news is all good.
roadrunner
0
Comments
<< <i>This from Sinclair's site today:
Derivative Trades Soar to Record $681 Trillion in Third Quarter
By Hamish Risk in London, Bloomberg
Dec. 10, 2007
Dec. 10 (Bloomberg) -- Derivatives traded on exchanges surged 27 percent to a record $681 trillion in the third quarter, the biggest increase in three years, the Bank for International Settlements said.
Interest-rate futures, contracts designed to speculate on or hedge against moves in borrowing rates, led the increase with a 31 percent increase to $594 trillion during the three months ended Sept. 30, the Basel, Switzerland-based BIS said today in its quarterly review. The amounts are based on the notional amount underlying the contracts.
Trading surged as investors bet on losses linked to record U.S. mortgage foreclosures and policy changes by the Federal Reserve and the European Central Bank to offset the credit slump. The Fed cut its benchmark interest rate by half a point to 4.75 percent in September, the central bank's first reduction in four years.
``The turbulence in financial markets led to the busiest trading on record,'' BIS analysts Ryan Stever, Christian Upper and Goetz von Peter wrote in the report.
Trading in stock index futures and options rose 19 percent to a record $81 trillion in the third quarter, as investors speculated on whether the credit-market losses would spread to the equity markets.
The Standard & Poor's 500 index rose 1.74 percent in the three months to Sept. 30. The Dow Jones Stoxx 600 Index in Europe fell 3 percent in the same period.
``Equity investors are using derivatives more aggressively as they have come to understand the more sophisticated instruments over time,'' said Jim Josephson, head of derivatives flow trading at Bear Stearns Cos. in London
A 27% increase in 3 months! And we are arguing about gold at $800 or coins/commodities in general being overpriced? I'm surprised that PM's weren't beat down on this news today. But the stock market did rise. Guess you can only blow up the financial world once, but multiples of that will ensure you really do it right.
Toss in the $10 Billion loss that UBS just reported in derivatives and the news is all good.
roadrunner >>
The news, to a large extent, has been discounted.
I give away money. I collect money.
I don’t love money . I do love the Lord God.
MORTGAGE MELTDOWN
Interest rate 'freeze' - the real story is fraud
Bankers pay lip service to families while scurrying to avert suits, prison
Sean Olender
Sunday, December 9, 2007
New proposals to ease our great mortgage meltdown keep rolling in. First the Treasury Department urged the creation of a new fund that would buy risky mortgage bonds as a tactic to hide what those bonds were really worth. (Not much.) Then the idea was to use Fannie Mae and Freddie Mac to buy the risky loans, even if it was clear that U.S. taxpayers would eventually be stuck with the bill. But that plan went south after Fannie suffered a new accounting scandal, and Freddie's existing loan losses shot up more than expected.
Now, just unveiled Thursday, comes the "freeze," the brainchild of Treasury Secretary Henry Paulson. It sounds good: For five years, mortgage lenders will freeze interest rates on a limited number of "teaser" subprime loans. Other homeowners facing foreclosure will be offered assistance from the Federal Housing Administration.
But unfortunately, the "freeze" is just another fraud - and like the other bailout proposals, it has nothing to do with U.S. house prices, with "working families," keeping people in their homes or any of that nonsense.
The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value - right now almost 10 times their market worth.
The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.
And, to be sure, fraud is everywhere. It's in the loan application documents, and it's in the appraisals. There are e-mails and memos floating around showing that many people in banks, investment banks and appraisal companies - all the way up to senior management - knew about it.
I can hear the hum of shredders working overtime, and maybe that is the new "hot" industry to invest in. There are lots of people who would like to muzzle subpoena-happy New York Attorney General Andrew Cuomo to buy time and make this all go away. Cuomo is just inches from getting what he needs to start putting a lot of people in prison. I bet some people are trying right now to make him an offer "he can't refuse."
Despite Thursday's ballyhooed new deal with mortgage lenders, does anyone really think that it can ultimately stop fraud lawsuits by mortgage bond investors, many of them spread out across the globe?
The catastrophic consequences of bond investors forcing originators to buy back loans at face value are beyond the current media discussion. The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC.
The problem isn't just subprime loans. It is the entire mortgage market. As home prices fall, defaults will rise sharply - period. And so will the patience of mortgage bondholders. Different classes of mortgage bonds from various risk pools are owned by different central banks, funds, pensions and investors all over the world. Even your pension or 401(k) might have some of these bonds in it.
Perhaps some U.S. government department can make veiled threats to foreign countries to suggest they will suffer unpleasant consequences if their largest holders (central banks and investment funds) don't go along with the plan, but how could it be possible to strong-arm everyone?
More on that story at www.jsmineset.com It's one of the few places you'll here the skinny of the big D as it plays out.
The weapons of financial mass destruction are coming home to roost.
Makes CAC and the coin grading issues seem sort of trivial.
Full Mortgage sub-prime link
roadrunner
I give away money. I collect money.
I don’t love money . I do love the Lord God.
Also news to me that derivatives climbed 27% over the past 3 months. It's sort of like buying home insurance from a tornado as you hide in the basement with your house spinning away in the sky.
Got a fire? Toss on more fuel to put it out.
roadrunner
Sorting out the mess will be tedious, because it will take time to figure out who actually owes what, courtesy of SIVs, CDOs, etc. The brokerage houses are complaining because they want the government to give them a handout, like it gives to various other kinds of businesses and invidivuals.
But in terms of the overall market, the 'bad' loans are nothing that will upset the apple cart, though they are more than what we have come to consider to be normal. Add to the fact that we have an election coming next year, and the government will be bailing out quite a few loan holders to buy votes. Just another day at the office..............
"Seu cabra da peste,
"Sou Mangueira......."
First it was a few billion, then it was $15 Billion, then it was $75 Bill, no we're at hundreds of billions. It won't end until Trillions.
Derivatives will be at a Quadrillion in 3 months at the current rate.
Then we're talking serious money (lol).
Wall Street will be off by at least a magnitude if not 2 magnitudes, it's in their best interest. And Goldman wants us all to sell our gold because they predict a bad market in 2008....yet they carry the smallest short posiition on gold in years? One has to remove the self interest to get at reality. Again, when has Wall Street ever underestimated the effects of anything major? Underestimated 1929?
BoA money market fund (for big boys only) loses 70% ($20Bill) and is closed out to new "investors"
roadrunner
You make it sound like the amount of derivatives outstanding increased by 27%. I just want to make sure you realize this is not the case. In reality, the volume in derivatives that were traded in the 3rd quarter climbed by 27%. Very different. Volatility leads to greater turnover in any instrument, whether it is equity, debt, currency or commodity. This, by itself, is not cause for doomsday.
Who is John Galt?
It won't be more than a generation before people start talking quintillion.
<< <i>``Equity investors are using derivatives more aggressively as they have come to understand the more sophisticated instruments over time,'' said Jim Josephson, head of derivatives flow trading at Bear Stearns Cos. in London. >>
This is the real problem; they only think they understand these.
But even without that latest stat, the derivatives momentum is rolling downhill. It is hugely underestimated and nothing can really stop it. Business as usual, muddle through, and go with the flow aren't answers.
roadrunner
Who is John Galt?
<< <i>It would be typical for the wolves (Wall Street) to vastly underestimate the effect of this mess. Did they properly estimate the effect of LTCM when it went belly up and had to be bailed out?
First it was a few billion, then it was $15 Billion, then it was $75 Bill, no we're at hundreds of billions. It won't end until Trillions.
Derivatives will be at a Quadrillion in 3 months at the current rate.
Then we're talking serious money (lol).
Wall Street will be off by at least a magnitude if not 2 magnitudes, it's in their best interest. And Goldman wants us all to sell our gold because they predict a bad market in 2008....yet they carry the smallest short posiition on gold in years? One has to remove the self interest to get at reality. Again, when has Wall Street ever underestimated the effects of anything major? Underestimated 1929?
BoA money market fund (for big boys only) loses 70% ($20Bill) and is closed out to new "investors"
roadrunner >>
If we are lucky, this is the 3rd inning.
<< <i>The bigger fish are in this article.........and they will be gone after in time.
MORTGAGE MELTDOWN
Interest rate 'freeze' - the real story is fraud
Bankers pay lip service to families while scurrying to avert suits, prison
Sean Olender
Sunday, December 9, 2007
New proposals to ease our great mortgage meltdown keep rolling in. First the Treasury Department urged the creation of a new fund that would buy risky mortgage bonds as a tactic to hide what those bonds were really worth. (Not much.) Then the idea was to use Fannie Mae and Freddie Mac to buy the risky loans, even if it was clear that U.S. taxpayers would eventually be stuck with the bill. But that plan went south after Fannie suffered a new accounting scandal, and Freddie's existing loan losses shot up more than expected.
Now, just unveiled Thursday, comes the "freeze," the brainchild of Treasury Secretary Henry Paulson. It sounds good: For five years, mortgage lenders will freeze interest rates on a limited number of "teaser" subprime loans. Other homeowners facing foreclosure will be offered assistance from the Federal Housing Administration.
But unfortunately, the "freeze" is just another fraud - and like the other bailout proposals, it has nothing to do with U.S. house prices, with "working families," keeping people in their homes or any of that nonsense.
The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value - right now almost 10 times their market worth.
The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.
And, to be sure, fraud is everywhere. It's in the loan application documents, and it's in the appraisals. There are e-mails and memos floating around showing that many people in banks, investment banks and appraisal companies - all the way up to senior management - knew about it.
I can hear the hum of shredders working overtime, and maybe that is the new "hot" industry to invest in. There are lots of people who would like to muzzle subpoena-happy New York Attorney General Andrew Cuomo to buy time and make this all go away. Cuomo is just inches from getting what he needs to start putting a lot of people in prison. I bet some people are trying right now to make him an offer "he can't refuse."
Despite Thursday's ballyhooed new deal with mortgage lenders, does anyone really think that it can ultimately stop fraud lawsuits by mortgage bond investors, many of them spread out across the globe?
The catastrophic consequences of bond investors forcing originators to buy back loans at face value are beyond the current media discussion. The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC.
The problem isn't just subprime loans. It is the entire mortgage market. As home prices fall, defaults will rise sharply - period. And so will the patience of mortgage bondholders. Different classes of mortgage bonds from various risk pools are owned by different central banks, funds, pensions and investors all over the world. Even your pension or 401(k) might have some of these bonds in it.
Perhaps some U.S. government department can make veiled threats to foreign countries to suggest they will suffer unpleasant consequences if their largest holders (central banks and investment funds) don't go along with the plan, but how could it be possible to strong-arm everyone?
More on that story at www.jsmineset.com It's one of the few places you'll here the skinny of the big D as it plays out.
The weapons of financial mass destruction are coming home to roost.
Makes CAC and the coin grading issues seem sort of trivial.
Full Mortgage sub-prime link
roadrunner >>
Thanks
The recent stock market rally caused volatility as measured on stock options as measured by the VIX go down about 30% in a couple of weeks. The value of outstanding stock options and the dollar volume both cratered a similar amount during the time period. Will the newsletter crowd write about that? I doubt it, because it doesn't sell to their subscriber base. Does that mean the financial system is fundamentally more sound or less sound? Hardly. It just means that people placing their bets, and derivatives, when stripped away of all, are bets, are more willing to accept less money to take on the risk. When the trading swings widen again, the price of taking on risk goes up.
Chicken Little strikes again. Some day the Chicken will be right, but today is not that day.
<< <i>It would be typical for the wolves (Wall Street) to vastly underestimate the effect of this mess. Did they properly estimate the effect of LTCM when it went belly up and had to be bailed out?
First it was a few billion, then it was $15 Billion, then it was $75 Bill, no we're at hundreds of billions. It won't end until Trillions.
Derivatives will be at a Quadrillion in 3 months at the current rate.
Then we're talking serious money (lol).
Wall Street will be off by at least a magnitude if not 2 magnitudes, it's in their best interest. And Goldman wants us all to sell our gold because they predict a bad market in 2008....yet they carry the smallest short posiition on gold in years? One has to remove the self interest to get at reality. Again, when has Wall Street ever underestimated the effects of anything major? Underestimated 1929?
BoA money market fund (for big boys only) loses 70% ($20Bill) and is closed out to new "investors"
roadrunner >>
You buy anything with the words "enhanced, plus, or leveraged "and you take risks. Nothing new here.
I give away money. I collect money.
I don’t love money . I do love the Lord God.
<< <i>Hello,,,, what are you talking about? What is a derivative and why does this matter?
Thanks >>
Derivatives are financial instuments derived from normal instruments such as
stocks and bonds. Some might be just the voting rights for GM stock and these
are normally valued in ways which neither the buyer nor seller understand. Of
course people don't really understand other valuations either but the market
strives for efficiency and no one knows they don't undertand. When these de-
rivatives are bundled and then bet as
straddles and the like their movement and basis become impossible to understand.
They are thought up by people on Wall Street and the big banks who always get
a cut. Computers are often used to assess the value and to place the bets.
Unfortunately a computer has an intelligence just slightly below that of a rock. It
has no loyalty and doesn't care if everything goes to zero. It's wholly impossible
to predict how they will respond under all conditions which can arise.
Does the Dollar need to go lower yet in order to make the U. S. more competetive, bring back some of the manufacturing sector...etc, or are we half way to having our heads between our legs and kissing our arses goodbye in terms of the dollar?
Harlan J. Berk, Ltd.
https://hjbltd.com/#!/department/us-coins
The thing with derivatibes is that they have a finite life. Options expire every month and are replaced by new options. This does not mean that more derivatives were created. It is not surprising that volume increased as the markets became more volatile. My own trading increased by at least 50% in the last quarter. Derivatives offer the opportunity for leverage and in a volatile market leverage is king.
Knowledge is the enemy of fear
One recent article by a derivatives "progammer" (ie someone who creates them and understands the modeling) stated that we are in
the on-deck circle before the start of the 1st inning of baseball game. In other words, the race hasn't even begin yet. That's scary.
The notional value of derivatives is ever-increasing. While it's a zero sum game as to the number of "bets" made, it is not going to be
zero sum when it comes to cash it since it depends on the financial status of the loser to pay off the winner. If the loser is bankrupt,
both parties lose. Guess that could be called zero sum as well. Derivatives have risen from a few TRILLION bucks 20-25 years ago,
to pushing $500 TRILL today. Something that was supposed to spread out risk, has literally spread out disease.
roadrunner
I have virtually everything I own (except my home) invested in the markets, and I sleep very well at night, thank you. I have been doing just fine, and have been paying minimal fees. I am far from unique.
"Seu cabra da peste,
"Sou Mangueira......."
to pushing $500 TRILL today.
The problem is that "someone" gets a percentage commission for selling these, and it must be *quite* lucrative.
The problem is that the whole chain of command looks the other way, as long as they are rewarded with end-of-the-year bonuses for sales volume and profitability.
The problem is that the laws don't have enough teeth, the regulators aren't aggressive enough, and the consequences for institutional financial malfeasance aren't dire enough.
I knew it would happen.
<< <i>The problem is that the laws don't have enough teeth, the regulators aren't aggressive enough, and the consequences for institutional financial malfeasance aren't dire enough. >>
On the other hand, one could argue that the government is the problem. If they weren't so efficiently gutting the value of the dollar, fewer people would be so aggressive in their investments in *possibly dubious whatevers* in order to try to preserve the value of the dollars they currently hold.
Or not.
<< <i>Question for all to ponder:
Does the Dollar need to go lower yet in order to make the U. S. more competetive, bring back some of the manufacturing sector...etc, or are we half way to having our heads between our legs and kissing our arses goodbye in terms of the dollar? >>
Of course there are different sectors in the manufacturing sector. Some face competion abroad ( like autos) and some have little competion and their products may be in demand globally. ( widgets for oil service companies) Generally, a lower dollar makes our exports cheaper. Having said that, I also believe we are halfway to kissing our arses goodbye when it comes to the dollar but would not be surprised to see a rally.
I give away money. I collect money.
I don’t love money . I do love the Lord God.
<< <i>As volatility increases so does the value of derivatives. Derivatives, like futures trading are a zero-sum game. For every buyer there is a seller.
The recent stock market rally caused volatility as measured on stock options as measured by the VIX go down about 30% in a couple of weeks. The value of outstanding stock options and the dollar volume both cratered a similar amount during the time period. Will the newsletter crowd write about that? I doubt it, because it doesn't sell to their subscriber base. Does that mean the financial system is fundamentally more sound or less sound? Hardly. It just means that people placing their bets, and derivatives, when stripped away of all, are bets, are more willing to accept less money to take on the risk. When the trading swings widen again, the price of taking on risk goes up.
Chicken Little strikes again. Some day the Chicken will be right, but today is not that day. >>
RedTiger, I agree (to a certain extent). Derivatives that trade OTC may not be a zero sum game. In other words, everyone loses under certain circumstances. The monolines are great example. If these bond insurers are forced to raise capital (as a result of a ratings downgrade) and are unable to do so, the financial system could take a serious hit. The question then becomes, how many hits can it take? CDOs, SIVs, ABCP, monolines....what is the next shoe to drop?
I don't believe this is a Chicken Little argument because these are real losses and they are huge.