Total Notional Value Of Derivatives

[Justice]

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The notional value of all outstanding derivatives now totals approximately $1.144 QUADRILLION.

This appears to be Bank of International Settlement Spin to announce the largest gain in derivatives outstanding since they started to report. As of the last report it appeared that both listed and OTC derivatives was under $600 trillion. Now listed credit derivatives alone stood at $548 Trillion. The OTC derivatives are shown as $596 trillion notional value, as of December 2007. One can only imagine what number they are at now.

Well we hit a QUADRILLION. We have more than $1000 trillion dollars in all derivatives outstanding. That is simply NUTS because notional value becomes real value when either counterparty to the OTC derivative goes bankrupt. $548 trillion plus $596 trillion means $1.144 quadrillion.

It would be an interesting piece of research to see what the breakdown is of listed derivatives according to exchange to see if it adds up to the reported number. Spin is now everywhere.

This means that no OTC derivative house can be allowed to go broke. This means that whatever funds are required to rescue failing international investment banks, banks and financial entities will be provided.

Keep this economic law in mind. Monetary inflation proceeds price inflation and is its primary cause in economic history from Rome to present.

Nothing can stop the juggernaut of price inflation heading towards every nation like a runaway freight train down a mountain.

Gold is going to at least $1650. I am probably way too low with that estimate.

The US dollar will trade down to at least .5200 as measured by the USDX.

Gold is the easiest market to trade for the aggressive investor. Sell 1/3 when the market looks like a Rhino Horn which you will see with your French Curves at the point of the rollover.

Buy 1/3 back when the price of gold looks like a fishing line hanging off a fishing rod. Your maximum power down trend line will give you this.

First price goes to anyone that can divide $1.144 quadrillion by the earths population and convert the result to GBP.

When this beast blows we are facing a total economic meltdown IMHO

[Maggot_with_halitosis]

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First price goes to anyone that can divide $1.144 quadrillion by the earths population and convert the result to GBP.

When this beast blows we are facing a total economic meltdown IMHO

Don't forgot to mention that this is 100% correct, guaranteed.

[Gel]

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First price goes to anyone that can divide $1.144 quadrillion by the earths population and convert the result to GBP.

When this beast blows we are facing a total economic meltdown IMHO

About £66 for every man woman and child on earth.

[Thread Killer]

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First price goes to anyone that can divide $1.144 quadrillion by the earths population and convert the result to GBP.

1Quadrillion is 1,000,000,000,000

Population of earth is 6,602,224,175 (google on "world population")

Divide the two to get $151

Convert to GBP at 0.511561285 to get £77.48

Edited June 12, 2008 by Thread Killer

[FreeTrader]

Full details

First price goes to anyone that can divide $1.144 quadrillion by the earths population and convert the result to GBP.

When this beast blows we are facing a total economic meltdown IMHO

The usual utterly misleading, misinformed scaremongering claptrap from gold ramper Jim Sinclair, no doubt lapped up by his fanatic yellow-metal-worshipping acolytes worldwide.

Would Mr Sinclair care to explain to us how 'notional value becomes real value' when a counterparty defaults on an interest rate swap?

[bobthe~]

Gold is the easiest market to trade for the aggressive investor. Sell 1/3 when the market looks like a Rhino Horn which you will see with your French Curves at the point of the rollover.

Buy 1/3 back when the price of gold looks like a fishing line hanging off a fishing rod. Your maximum power down trend line will give you this.

I am not sure whether this is investment advice or taken right out of "the joy of sex".

[Converted Lurker]

1Quadrillion is 1,000,000,000,000

Population of earth is 6,602,224,175

Divide the two to get $151

is it not 151,000?

[bobthe~]

is it not 151,000?

Not on that sum, but I think the quadrillion as typed above was only a trillion, so you are probably right

[Justice]

Quadrillion = 1,000,000,000,000,000 but my calculator does not have that many digits

About £66 for every man woman and child on earth.

I think you are missing about 3 zeros of the end or did you forget the 'K' or maybe this is you

Edited June 12, 2008 by Justice

[Methinkshe]

There is no chance that the losses implied can be absorbed - it would take centuries. The only way out is inflation. Devalue the dollar - beggaring the holders of US debt in the process - let hyperinflation rip, then start again with a new currency a few years down the line as in Weimar Germany with the Rentenmark, but this time it will be global hyperinflation and a new global currency that will come to the rescue.

[General Melchett]

I am not sure whether this is investment advice or taken right out of "the joy of sex".

Excellent!

However, the Global economy does seem to be deeply, deeply screwed

[Justice]

The usual utterly misleading, misinformed scaremongering claptrap from gold ramper Jim Sinclair, no doubt lapped up by his fanatic yellow-metal-worshipping acolytes worldwide.

Would Mr Sinclair care to explain to us how 'notional value becomes real value' when a counterparty defaults on an interest rate swap?

I don't know can you

Sure these gold people go over the top i know but i also know something is very wrong with Silver as in the real stuff because you can not buy any bullion anywhere new the spot price just now so lets invent a new virtual metal, call it Zilver and start trading if the price need not be related to anything physical.

There is no chance that the losses implied can be absorbed - it would take centuries. The only way out is inflation. Devalue the dollar - beggaring the holders of US debt in the process - let hyperinflation rip, then start again with a new currency a few years down the line as in Weimar Germany with the Rentenmark, but this time it will be global hyperinflation and a new global currency that will come to the rescue.

Are you sure your not a member of the NWO

Edited June 12, 2008 by Justice

[Meerkat]

The missing ingredient here (before a Simpson-like 'Oh my God' reaction is warranted) is if there is any understanding how risk management works and what type of counterparties are involved in OTC derivatives trading. It is also obvious that the poster ignores that bulk of the notional gross volume is to hedge plain vanilla positions or simply cancel each other out - for example, Barclays sells 100mm of Brazil CDS to HSBC... as long as both banks are alive the net exposure to Brazil is 0 while it gets reported as 200mm in the aggregate gross statistics.

As far as risk mgmt goes, there is mark-to-market effect & margin calls and many of customers involved in derivatives have to either get out of the position or put up some cash to run a losing position. Also, should a counterparty become dodgy (like Bear Stearns), other institutions simply stop dealing with them and freeze credit lines and typically long before eventual destiny of the particular institution unfolds.

True that we have seen plenty of w@ankers, not bankers-action as of late. But to think that the whole industry is nuts and mad is somewhat far-fetched. The bottom line: the bazzillion notionol gross volume does not reflect the true risks and to find those, the poster should split that total amount into relevant parts to find out what the true ouright exposure is after cancelling out offsetting and hedging positions, and it will look nothing like a quadrillion. I'm not cheering up the industry here, but to have a go at it - please come up with relevant statistics.

Edited June 12, 2008 by Meerkat

[Methinkshe]

Are you sure your not a member of the NWO

One doesn't have to "be a member of the NWO" or subscribe to their policies to see what is likely to occur. I abhor the whole global government/global financial system agenda - but I can see it happening, and happening rather quickly.

[Tiger Woods?]

1Quadrillion is 1,000,000,000,000

Population of earth is 6,602,224,175 (google on "world population")

Divide the two to get $151

Convert to GBP at 0.511561285 to get £77.48

erm, you are out by 1000..1,000,000,000,000 is a trillion.

So, you are looking at £77,480 per man woman and child.

That is certainly a number to dwell upon, and one that makes me glad I own some of the yellow stuff.

Edited June 12, 2008 by D'oh

[Converted Lurker]

erm, you are out by 1000..1,000,000,000,000 is a trillion.

So, you are looking at £77,480 per man woman and child.

That is certainly a number to dwell upon, and one that makes me glad I own some of the yellow stuff.

yep that's where I was at.

Edited June 12, 2008 by Converted Lurker

[Joey Buttafueco Jr]

erm, you are out by 1000..1,000,000,000,000 is a trillion.

So, you are looking at £77,480 per man woman and child.

That is certainly a number to dwell upon, and one that makes me glad I own some of the yellow stuff.

"makes me glad I own some of the yellow stuff."

Why?

[Justice]

True that we have seen plenty of w@ankers, not bankers-action as of late. But to think that the whole industry is nuts and mad is somewhat far-fetched. The bottom line: the bazzillion notionol gross volume does not reflect the true risks and to find those, the poster should split that total amount into relevant parts to find out what the true ouright exposure is after cancelling out offsetting and hedging positions, and it will look nothing like a quadrillion. I'm not cheering up the industry here, but to have a go at it - please come up with relevant statistics.

You are right but the figure must still be in the 100's billions don't you think.

i can not see how anyone can come up with a true figure as to the losses but you sound like you could do a better job than me

"makes me glad I own some of the yellow stuff."

Why?

Because the BoE and ECB are printing money like no tomorrow and because the interest they pay on savings is below the real rate of inflation so gold (@ the right price) offers some protection against the printing presses.

if you want to upset the gold bugs just mention Silver has gone up faster then gold over the past few years

I've opted for a small amount of silver but i know you can not get the physical stuff anywhere near the spot price so whats going on

Edited June 12, 2008 by Justice

[why me]

Look at you lot egging each other on and and whipping yourselves into a frothy-mouthed hysteria.

These are only notional values and an unfolding would represent movements of money not wealth destruction. For every loser there would be a winner.

Get over it. The only problem lies in someone being too much of a loser. The total 'number' of these derivatives is irrelevant.

Edited June 12, 2008 by humanoid76

[Joey Buttafueco Jr]

You are right but the figure must still be in the 100's billions don't you think.

i can not see how anyone can come up with a true figure as to the losses but you sound like you could do a better job than me

People may be able to give their total exposures to each counterparty at the bank they worked at (not that they would give out such info), but you would be hard pushed to find someone that knew about even 5% of the total counterparties

[Tiger Woods?]

The missing ingredient here (before a Simpson-like 'Oh my God' reaction is warranted) is if there is any understanding how risk management works and what type of counterparties are involved in OTC derivatives trading. It is also obvious that the poster ignores that bulk of the notional gross volume is to hedge plain vanilla positions or simply cancel each other out - for example, Barclays sells 100mm of Brazil CDS to HSBC... as long as both banks are alive the net exposure to Brazil is 0 while it gets reported as 200mm in the aggregate gross statistics.

The critical point is "provided both banks are alive". Doesn't anyone remember the repercussions of what happened when LTCM failed? At the time there was a fear that there would be a huge crash in the financial system, and that was for a loss of on the order of 4.6 billion....or 0.0005% of the nominal value of these derivatives. Have you forgotten why Bear Stearns was sold to JP Morgan? Derivatives only sum to zero if all the counterparties still exist. Anyone who thinks that the size of the current derivatives market does not increase the risk of a major global financial meltdown is a complete theoretician and a dangerously ignorant blinkered fool.

The point is that, given this sort of leverage, how hard is it to believe that say, 0.1% of these nominal values became actualised? 0.1% is 1 trillion dollars. 0.01% is still 100 billion.

Edited June 12, 2008 by D'oh

[FreeTrader]

The critical point is "provided both banks are alive". Doesn't anyone remember the repercussions of what happened when LTCM failed? At the time there was a fear that there would be a huge crash in the financial system, and that was for a loss of on the order of 4.6 billion....or 0.0005% of the nominal value of these derivatives. Have you forgotten why Bear Stearns was sold to JP Morgan? Derivatives only sum to zero if all the counterparties still exist. Anyone who thinks that the size of the current derivatives market does not increase the risk of a major global financial meltdown is a complete theoretician and a dangerously ignorant blinkered fool.

There's still no excuse for VIs using the layman's misunderstanding of notional value to create apocalyptic meltdown scare stories. These numbers are meaningless unless put into context, and you're just as guilty in the way you've presented the LTCM affair. The point about LTCM is that the notional value of their exposure was $1.25 trillion which when the 60,000 positions were unwound (mainly by matching and netting off counterparties) resulted in a net loss of some $3.625 billion.

The likes of Jim Sinclair try to frighten everyone by suggesting that notional values will become real in the face of counterparty failure. On something like a CDS that may be the case (and I stress may be) but such swaps only form a small part of the OTC derivatives market.

The point is that, given this sort of leverage, how hard is it to believe that say, 0.1% of these nominal values became actualised? 0.1% is 1 trillion dollars. 0.01% is still 100 billion.

It's not that difficult, and I'm not arguing that there isn't systemic risk from overleveraging via derivatives, but there's a big difference between $1 trillion in losses and $1 quadrillion. The BIS publish the estimated gross market value of in-the-money contracts to determine current exposure. In the OTC market at end 2007 GMV was $14.522 trillion on notional of $596 trillion. Net exposure is significantly less than this due to netting arrangements, and we're probably looking at some $3-5 trillion.

[Justice]

derivatives seem to be the elephant sitting in the corner to me.

It's not that difficult, and I'm not arguing that there isn't systemic risk from overleveraging via derivatives, but there's a big difference between $1 trillion in losses and $1 quadrillion. The BIS publish the estimated gross market value of in-the-money contracts to determine current exposure. In the OTC market at end 2007 GMV was $14.522 trillion on notional of $596 trillion. Net exposure is significantly less than this due to netting arrangements, and we're probably looking at some $3-5 trillion.

So you put the loss at 1,000th of the face value !

i'm not saying your wrong, indeed can anyone know the real cost but a few figures to back up the theory would be usefull

[FreeTrader]

So you put the loss at 1,000th of the face value !

i'm not saying your wrong, indeed can anyone know the real cost but a few figures to back up the theory would be usefull

I think you misread my comment. I said $3-5 trillion on $596 trillion for the OTC market.

As for examples, I gave one - LTCM's loss was 345th of notional. If that scaled across the whole of the derivatives market (both OTC and exchange-traded) then we'd be looking at losses of around $3.2 trillion.

[Guest Bart of Darkness]

About £66 for every man woman and child on earth.

Well I can pay my share now if need be. Cheque OK?

I am not sure whether this is investment advice or taken right out of "the joy of sex".

Me neither, but it sounds damn saucy stuff. And I thought investment bankers were a gray, joyless bunch.