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.

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

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

Full details

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

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

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.

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?

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

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

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?

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

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.

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.

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.

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

Why?

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

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.

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

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

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

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.

The Derivs market presents with a number of problems.

Firstly, it is fundamentally unregulated. Thus no one actually knows or can compute what total exposure value might be.

Worse, thus no one knows what the putative Downside is, if scenario A or B or C pertains.

Since these financial products have become ubiquitous, endemic and worse, systemic to the process of modern globalised banking, it isn't the risk potential of default, as they are effectively notional guarantees and thus don't actually exist.

The true risk is when systemic approaches unwind: as happened with MBS and Securitisation generally: now a new methodology for mortgage lending has to be developed, if markets are to regain their earlier volumes.

And with the UK house market, as an example, market volume and value of mortgage debt outsanding would take for ever to overtake its highest spot in the future if lenders were restricted to only lending out deposits they had taken in from investors saving up to apply for their own mortgage in the future.

Thus Derivs might be accurately described as a series of false premises built on other false premises, built on other false premises built on faith, hope and happenstance.

The only way the madness can and could enjoy a continuum is if the volumes continued to rise, on the back of the underlying increased volumes of real happenings (physical lending and borrowing of real money), which in turn needs Central Bank printing presses to churn 24/7.

As with so much in life, financial markets can stave off reality for a long time: using false optimism and yet more abreality.

Eventually, however, it stops; no more music and no spare chairs.

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.

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.

You know that this is wrong, don't you? Whoever wrote this doesn't know what they're talking about. Very few derivatives see any exchange of principle (That's why it's called the notional/nominal amount). In a swap you agree to swap flows of cash on such a basis, that each side is equivalent to the other at the point of initiation. All you do pay over small differences to maintain the status quo from that point onwards. Currency swaps are the exception. I wonder if options are included in this pretend figure? The writer of a call option is not exposed to the value of the strike price, they're exposed to the price of the stock minus that value. It too is priced on a 'zero arbitrage' price at the outset.

So in summary, this is all wrong. Yes a lot of derivatives are traded, yes the absense of legislation and regulators who understand the products is pretty ridiculous, but to add up the notional values is to make some kind of point is stupid, and it tells you nothing.

Until a bank fails and the whole lot brings the system to an crashing, juddering and amusing end.

Me, I can't wait.

My goodness there is a lot of ignorance here!

As I have said before in these forums, the value of outstanding derivatives is completely meaningless.

This is because in the over-the-counter derivatives market, traders very rarely sell a derivatives contract – instead they create a new one with the opposite characteristics. Interest rate, credit default and foreign exchange swap traders will have huge books were they to be measured in gross nominal amounts, but no one does because it would be idiotic – what is relevant is their net risk.

E.g.: Bank A pays 5.50% on a 5 year interest rate swap to bank B. The 5 year swap rate moves lower in the market to 5.45%. Bank B decides to take his profit and pays bank C 5.45% on a 5 year swap. The market then moves higher again and bank C exercises a stop loss at 5.55% which he agrees to pay bank A.

What has happened? Bank B and bank A have each made 0.05% over 5 years locked in, and bank C has locked in a 0.10% loss over the same period. No one has any risk at all anymore, but there are 3 interest rate swaps outstanding. If they were of $100m each, there would be $300m of extra swaps outstanding in the market – but they represent nothing.





What? All derivatives contracts are “in the money” to one or other of the counterparties! This is what makes this discussion so utterly ridiculous!

If you are talking about in the money options (which is a technical term referring to the relationship between the option strike price and the forward price of the underlying instrument), they make up a tiny proportion of the options markets, which in turn make up a tiny proportion of the OTC derivatives markets. On top of that, the outstanding amounts of in-the-money options are also irrelevant (see above).

Excuse me if I appear naive, but it seems to me that the only thing that matters is whether or not each and every one of these derivatives is or is not backed by real money - i.e. cash or an asset that can instantly be converted to cash. Apart from that, the whole lot appear to me as just card castles built on promises.


Edited for typos.

Excuse me if I appear naive, but it seems to me that the only thing that matters is whether or not each and every one of these derivatives is or is not backed by real money - i.e. cash or an asset that can instantly be converted to cash. Apart from that, the whole lot appear to me as just card castles built on promises.


Edited for typos.

Are you after some kind of award for number of useless posts which make no sense?

No that doesn't matter in the slightest - I mean, not at all in any way whatsoever - please, just read my post...

Why would you need to convert to cash?

What happens when one of the counterparties vanishes?

No that doesn't matter in the slightest - I mean, not at all in any way whatsoever - please, just read my post...

If, as you say, it doesn't matter in the slightest, then on what basis do these derivatives exist? They are, by your own admission pointless if they don't matter in terms of convertibility to cash. They become an exercise in pointlesness as does trading in them.

A counterparty is down the net difference in value owing to him (if it is owing to him, not the other way around) of all their derivatives (under ISDA netting agreements), and not the notional value of the derivatives - nothing like it.

And as the Bard might say, "Aye; there lies the rub!"

ALL of these financial engineering products are disconnected from underlying reality. Or chose to believe it does not exist.

They are aimed at squaring the financial risk circle: and as we know from John Merriwether's Long term Capital Management fiasco, no matter how smart you are (two Nobel Laureates on staff), nor how much capital you have access too, no one, repeat no one can obtain something for nothing; neither can they beat reality to infinity.

To listen to some of these guys and to read the rubbish they churn out, one would believe they are like bookies who take in bets at say 25:1 - and lay off the lot at 25:1! What would be the point?

If any financial contract is connected to a real underlying event (such as underwriting), then it enjoys a risk.

Derivs are simply a more interactive and complex way to underwrite risk.

Period.

Q.E.D They suffer a downside.

Otherwise it would be like taking out Road Risk Insurance for your non-existant car.

Fun, but stoopid!

What? All derivatives contracts are “in the money” to one or other of the counterparties! This is what makes this discussion so utterly ridiculous!

Yeah, and that's how I see it.

And what worries me most is that I may be the naive/dumb/stupid little kid that said "the emperor is wearing no clothes". After which observation, we all know what happened.

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

so i lend john 10

John lends me 10

john loses his 10 and goes bust.

Ive got johns 10 but that belongs to Johns receiver

I lose my 10.