Friday, May 01, 2009
Derivatives = nil sum
FT: Derivatives investors face $1bn bill after Syncora halts payouts
Banks and other investors face a bill of more than $1bn after a large US bond insurer became the first since the credit crisis struck to cease paying out claims, an event expected to trigger payouts on billions of dollars of credit derivatives
Posted by devo @ 11:33 PM (2602 views) Add Comment
76 Comments
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1. devo said...
51ck... but... but .... derivatives ARE nil sum.
flashman et al ... yes, yes, derivatives ARE nil sum ( er, we think)...
Just thought I'd save you the effort of posting, guys.
lol
2. mountain goat said...
I watch with bated breath as this untested 21st century financial insurance system fairs under the pressure of more and more defaults from the recession.
3. devo said...
AIG has moved to stave off the risk of default on $234bn of derivatives by........
wait for it........
... persuading a senior executive at its troubled financial products division to rescind his resignation and remain with the stricken insurer to unwind the complex trades.
Haaaahaaaahaaaahaadehaaaa!!!!
http://www.ft.com/cms/s/0/f70c7736-3453-11de-9eea-00144feabdc0.html
4. flashman said...
morning devo: some derivatives are nil sum
5. flashman said...
Whilst we're at it, when I recently said that oil could go to $30, some poster called crustyatemyhamster said that it was the most moronic thing he'd ever read on the HPC site. Prices were in the teens in the late 90's and got to $34 a few weeks ago. In the post war period the median price of oil has averaged $19.04 per barrel (adjusted) in 2007 prices. As this is arguably the worst depression since the war and many consider that it could get worse, why did he consider my comment worthy of such abuse? Who knows what goes on these peoples' heads?
The problems faced by Internet forums are similar to those that confront democracy. There is free speech for everyone but I suppose a necessarily evil is that the staggeringly ignorant, and the malicious have an equal voice.
I have recently been abused on several threads that I have not been involved in (devo and crustatemyhamster are repeat offenders). Surely this is unacceptable behavior to the contributors and the moderators? This site is dying at an alarming pace (the contributor and reader count is plummeting) and I have been made aware of information that implicates the behaviour of the infantile posters like devo and krustyatemyhamster. I have often returned fire when abused (I have never been the first to abuse). Perhaps I shouldn't … but it's very hard to take abuse from the likes of devo and krustyatemyhamster, without reply.
6. flashman said...
An honorable mention should go out to braindeed
braindeed's recent attacks on crunchy and techieman were ludicrous and cringeworthy. They are very big boys indeed and can handle someone like braindeed with easy but I have no doubt that many readers were turned off by it. My point is …...
ARE YOU AWAKE MODERATORS?????
7. cyril said...
@flashman - I've noticed how the activity on this site has changed as the crash has progressed. A few years ago the news posts attracted hardly any comments but there are many more now. And the subjects posted are more varied (not always about house prices). I wouldn't take it personally because internet blogs always attract a few wierdos. Do you remember Glorious Sunshine?
8. flashman said...
cyril: you're probably right. I don't remember glorious sunshine but I like the name. Calling them 'weirdos' sums it up better than my 480 paragraphs. These 'weirdos' often make the assumption that they represent the HPC site and are in the majority (they often use 'we' in their abuse). I'd be willing to bet that there is an army of silent non posters who think rather poorly of them. Referendum results often surprise. I am fanatically committed to cheering on the house price crash but I often have a slightly different perspective to some other members. I suppose that is bound to be antagonistic to some
9. Ebob_1 said...
Flashman,
Keep posting the valuable content. I am most silent on ths site, but login frequently to get views on key issues. There are many 'weirdos with and without agendas'.
I would imagine the silent majority will be able to discern valauble content from rants, mostly through reasoning and logic.
10. little professor said...
flashman - I've been here for a while, and far from dying, the site's number of posts and comments has been increasingly steadily over the last three years. Check out the news blog archive for yourself to compare two years ago to now.
Getting upset about random internet strangers insulting you is a bit silly - it really doesn't matter, why do you care what they think?
11. Britishblue said...
Flashman: There are so many internet blogs that people have the choice to go where they want to. that's why blogs that are focused do better.
I for one would like to see guidelines that only see posts related to house prices being put up here rather than all and sundry. If if it wasn't about house prices an articulate comment that related the article contents to a cause and effect on house prices. We are seeing up to three articles posted by one person with no mention of house prices in the article.
With an election coming up next year I can see that this site could get reduced to a political squabble site rather than a house price crash site and it would be easier to get good house price information from google alerts.
12. techieman said...
flash @ 5 - because he was long? Some posters are im afraid beyond redemption but doesnt that just add to the colour of life? Once you suss them out you can just move on. Anyway we do have free speech here - actually i take the opposite view that is that no comment should be removed (but i understand thats the legal framework here - we have free speech until it isnt).
As for your point re oil - my view (for what its worth) is that we have a bit more down and then we kick off to the upside. Whether the upside will cause the shape to be V shaped or bump along the bottom for a while i really have no clue. Personally i think on an investment side (rather than a trade side) I would be happy to put some reasonable sized sums aside each month and get some pound cost averaging on actually (effectively) buying the stuff. ETF or whatever i spose. Anyway there will be time for that - unless we aren't due new lows and the views of others are right.
If they are right and i / you am / are wrong fair enough!
13. techieman said...
flashman you should do some searches for the glorious one and for greenbay. When i first joined the site the crash hadnt started and Greenbay in particular (an upper echelon BTLr - according to him..... erm in Wales....hmmm) was always saying there would never be a crash and everyone on this site were losers etc. Those debates were i found interesting.
If there is a blip up (and assuming its just a blip against the trend before more losses) - then it will be fun to see the bulls come back. Otherwise the site must degenerate a bit otherwise it would just be posting and then everyone would agree. Thats WHY there is 50+ posts most times someone raises "bonuses" as an issue.
14. flashman said...
lp: I am comparing more recent data (don't forget silent readers) and I don't care what they think but I do care about the insults. One of the biggest problems, this country suffers from, is a lack of manners. Turning a blind eye to loutish behavior is almost as bad as the loutish behavior.
Anyway, I have said my piece and will bow out. Anyone with a seething grudge against city workers ... feel free to shoe horn in any abuse you care to indulge in.
LOL, snigger, bless
15. mountain goat said...
I struggle with the name calling, wish people would be more polite and respectful. Probably I have a too timid disposition for an anonymous site like this. But agree that the freedom of speech is valuable enough to protect. I hate it when the moderator pulls whole threads I have contributed to.
16. techieman said...
and anyway as for Le crunch - i have been "savaged" by him too on that thread - while i was trying to support him. Why? - beyond me! Screws seem loose all over the place - perhaps thats just the state of the economy that cause people to shoot first and ask questions later. To tell the truth though what difference does it make if someone calls you a w*nker, t*sser etc online - there is no point in responding in a like manner.
Now of course if that was in a live environment then its a different story. As you know flash if you are in a pit all day - you sort of suss out which battles to (literally) fight and where and when to step aside.
17. flashman said...
techie: I don't really have a view on oil prices. Not my area of expertise I'm afraid. At the time I was just raising the possibility that oil could feasibly go down as well as up. I think the argument might have been something like oil would definitely go up, ergo there would be inflation. I take your point about freedom of speech. Well said, but I do think that manners are important and can always cohabit with freedom of speech
As you know, us traders are sensitive souls.
18. techieman said...
MG - without creeping too much i think that although we (you and i) disagreed on some of your early posts, i can respect you and other peoples positions if they are divergent and are eloquently argued. If someone says "you are wrong because erm erm i know you are a t0sser" then whether they have a valid point or not they really only shoot themselves in the foot, and ridicule the value of their position.
Relative to you you in particular- i think you have very interesting researched the points and taken a stand based on the research. Whether that research is right or wrong is for you to find out. Personally i have over the years been able to change my views on all sorts of stuff. dogma is the enemy!
19. techieman said...
flash no i am surprised at your position re manners. We live in the real world. For example i was in a cab in france once (i know a bit of french) and we were staying in the Marriott etoile. In any case we had to go to a rue just off the champs elyees [sp]. To do that you have to dodge around that roundabout at the arch de triompe [sp]. Its an annoying journey for a cab driver - particularly one that had been waiting in a queue for half an hour but they know that dont they?
In any case during the ride he starts muttering about foreigners being shit etc. So i said in french is there a problem does he know where our place is etc. to which he turns round and says of course i f*cking know - in English!!
(fair point really - i suppose my intonation could have sounded p1ss taking, it wasnt but there you go) . Anyway for the french there would just be a parisian shrug. For me (suited and booted and with a briefcase) - nope that wasnt gonna cut it.
When we got out the cab i threw the money at him - and grabbed him by the old scruff of the neck and told him never to speak to any customer like that again. He was really shaking - and he was a fair sized bloke.
Im not saying this to demonstrate how hard i am im just saying that different cultures are different. In france they just toot when someone cuts them up and gestulate and never get out of the car. For us we tend to want to get out the car and at the very least remonstrate. Who is right and who is wrong? Probably the french but we are what we are!
Here you just have to accept you will possibly be called names - does it matter really? Nope. Anyway time i was off for a meeting with my misstress TESica COwley.
20. mountain goat said...
TM - yes that first arguement with you was about me defending inflation, whereas now I am usually the one arguing that we are getting more deflation! Glad you not too frustrated with that thread a few days ago.
21. flashman said...
techieman: You don't seem to accept it. In fact you frequently rail against it. On Thursday you fought to the bitter end and I suspect you only joined the thread to have another go at braindeed. I wont placidly agree that assaulting a French cab driver should be accepted as the way the Brits carry on. I refuse to get used to it.
William of Wykeham: "manners maketh man". The British used to be renowned for our manners.
22. techieman said...
MG - nope not frustrated a bit saddened to be honest, by a totally unfounded reaction there. If there is a perceived ambiguity i will do what i can to rectify it. Thats just my way - if i disagree with someone i have no problem putting my point of view. The funny thing on that thread was that i never expressed an opinion about the subject matter - same here really! So people were having a go at me at their perception of my persona and not my view even though i did my best to explain my position. Ok so do i need to run along to a psychiatrist and pay him to make sure i am a decent person or do i just ignore the negativity and/or the people making those remarks on the basis of there being little advantage in doing otherwise?
My chequebook remains intact!
23. last_days_of_disco said...
You guys are funny. This is an internet blog site. You should be quite willing to accept the opinions of others as being their right to be wrong. While I agree with the need for basic decorum I don't think there is any need to "moderate". I have often had a go at the tin foil hat brigade and they can have a go at me. I am quite happy to be ridiculed for what I write, I signed up for that risk when I started posting.
Passions can flare and that is ok, sometimes a moderator is required to cool things down, but I have never seen it intefere with reasonable debate. I still learn a lot from people's posts (like techieman and friends -- or enemies ;-)).
-----
I don't believe hedge fund trades are a nil sum because they give people the illusion (delusion?) that they have magiced away the risk and hence they are relying on the counter-party to still be in business. This is the reason they are weapons are mass financial destruction because far from reducing correlation in a down turn they actually act in the opposite directions making things worse not better. They are intricately linked into the the whole system of leveraging up. They made it possible by giving people a warm fuzzy feeling which allowed them to take disproportionate risks.
The Hedgies like to boast that they are dedicated to doing risk, that is their business and hence they are better than everyone else at it. I am sorry that is all nonsense. Loads of Hedgies have gone to the wall who are supposedly such experts on risk. Its all a myth that worked in the boom times and is being exposed for the hubris it is in the downturn.
24. stillthinking said...
Did I go to the toilet at the wrong time? What flaming are you all going on about?
I think the site probably does have less posters obsessed with house prices, which is a good thing as done to death and happening, and the ones left plus new people are more interested in economics and finance.
25. techieman said...
flash - you are sort of right. I only joined to point out that b/dead should be ignored because he doesn't add anything to a debate. he says things like "go play with the traffic", then degenerates to name calling. Its not the first time i have crossed swords but it will be the last - i will just ignore anything he says whether relevant or more likely not. I know why he has this disrespect but without knowing someone or at least meeting them, or unless they have upset you in a physical sense then how can you raise a personal attack - pointless? Relative to the bonus debate i really think that's been kicked to death here! - so yes I only looked at the thread because there were so many contributions.
Probably B/dead is amusing down the pub as a one off - but it just doesn't work here. Flash - i think my story was probably a bit unclear. I am all for manners - and personally i am very polite, but when someone isnt then no in real life i dont accept it, since i can, lets say, point out the error of their ways. But here you have to accept it and rise above it. I'm a bit like Rock Hudson in Giant (in the diner) - i stand for what i believe in even though its often easier - and less painful -to turn the other cheek.
I give people chance to rectify their mistakes but at a point in time lines in the sand must be drawn. No point bashing your head against a brick wall and asking people to be polite when you give them no - shall we say - incentive to do so. Just dont respond in a like manner - else you are as bad as they.
Enough of that then! Sounds like its a bit "me me " - forgive my indulgence.....please :-).
26. techieman said...
ST - http://www.housepricecrash.co.uk/newsblog/2009/04/blog-perhaps-a-little-underpinning-23159.php is what we are talking about specifically, but being polite or not on the site and whether that matters is what we are referring to generally.
27. flashman said...
techieman: I dont know if you're aware of it but there is, ironically a fair amount of ambiguity in your comments @ 20
i.e. You said "If there is a perceived ambiguity i will do what i can to rectify it".
You then go on to create a fair amount of ambiguity
@ 17 you told me "Here you just have to accept you will possibly be called names - does it matter really? Nope"
then @ 20 you said that you were "a bit saddened to be honest". That sounds like it mattered to you
@ 20 you said "The funny thing on that thread was that i never expressed an opinion about the subject matter - same here really! "
You then go on to say "though i did my best to explain my position"
I promise you that my intention is not to have a go at you, but maybe you don't realise? My perception is that you are truly upset by the attacks on you but you are manfully denying it. Ironically that's very British.
28. techieman said...
As for the title if all derivatives were properly traded on an exchange and enough safeguards re marked to market and adequately margined, then the risks are very small. Towards the end of an upturn the rulebook goes out the window - hence these
"more exotic" derivatives with counterparty risk being a large part of doing the biz.
Flash - what happens with counterparty risk with the Forex market? Ive only ever traded forex through the contracts on the US exchanges. Is there a bigger spread for companies with a larger perceived counterparty risk? Do you now detail / monitor open positions between different parties? [of course i realise that the net position of that party may differ from the gross position with you?]. I may be showing my ignorance here but i think these are interesting questions.
29. flashman said...
techie: just to demonstrate that I am every bit as puerile as braindeed, I am a childishly amused by your "I'm a bit like Rock Hudson in Giant (in the diner) - i stand for what i believe in even though its often easier - and less painful -to turn the other cheek. "
He was a closet homosexual who didn't stand for what he believed in and as for turning the other cheek. A bit alarming when talking about a bandit
Sorry it's the sun
30. techieman said...
hey Flash @ 25 - i will explain the points you raise. to rectify the ambiguity...:-).
I wasnt botherd by b/dead's posts just saddended that Le crunch totally misunderstood my position, and saddened that although i tried to explain at length what that position was that it was not accepted by him. Maybe its my powers of explanation that are the problem? I really dont know - of course its sad when you fall out with someone, when you think you have created a bond - even though you may not agree with everything they say. Thats like you and me disagreeing about Ralph Nelson (EW) fair enough, but we dont start calling each other names - of we did and fell out that would sadden me too.
I never expressed my opinion about the subject matter of the thread - i.e. bonuses, but i did my best to explain my position to Le crunch relative to a triangular spat with b/dead.
More upset that i thought maybe i was coming across as not the person i actually am. I mean when you KNOW you have good intentions and they are thrown in your face you wonder if you have expressed them without clarity. You can re-red the thread and you be the judge.
31. techieman said...
Flash @ 27 - yes that was a lob for you (or anyone else) to smash! - Obviously not sunny enough for you to miss the smash! I realised when i wrote that about the potential inference, and was going to remark on i myself..... but im sure you know the scene and you know what i am talking about. Easy joke too about turning the cheek. 15 - love to you Flash!
Should we move the discussion on to being PC (or not) on this blog in view of that?
32. flashman said...
techie: We work a little bit differently but to answer your question (I think) yes positions are monitored but there isn't normally much difference in the spread. Every contract theoretically carries the risk that the counterparty will not live up to its contractual obligations or will default. For example there is always a risk of default if the provider didn't hedge out the transaction with another forexliquidity provider but the use of margin accounts tends to eliminate the counterparty’s exposure to any customer losses
33. flashman said...
techie: it is sunny enough but I can't go out because I have to take one of my children to a party in a minute. Such is the life of us high flying city types
34. techieman said...
flash you are very lucky, i have no kids only nieces and nephews. Have a good time!
35. flashman said...
you too techie
36. crunchy said...
techie. lol Get over it son!
37. crunchy said...
144. crunchy said...tech how does it feel to try and come across as superior taking the piss out of two people whilst trying to defend them both.
You are a sad fu?ker indeed. The only people that were wound up were you and the loser. Trying to be too smart is always a massive drawback.
134. crunchy said...Love it! lol.
Laurelle & Hardly ..... Two losers in one day is not bad. The really sad thing was braindeed just let it happen in all the excitement.
That is even more sad.
All that effort. What a waste! Good thread otherwise and of course a brilliant victory for me.
This was the last post on that thread. If anyone can be bothered to read it you will realise that tech and brain were on a wind up mission.
Not so innocent techie are you?
I put in a good debate on that thread and for that reason it just got nasty. This site is suffering from sore losers and wind ups. It's funny really I used to work in an envoiroment where the more money you made the more people would argue. As this crash is unwinding it seems to me the same is happening on here. Calm down, call it quits and move on.
Jealousy, envy, snobbery, have no place on this site. Lets just agree to differ and read some good clean comments that are kept on topic.
I have no more to say on this subject.
38. titaniccaptain said...
I really think I have an idea on how to get this crash out of the way very quickly and get affordable housing at really knocked down prices very quickly.......
39. mark wadsworth said...
@ Flashman, good call on oil. But would you rather trade on the rational assumption that the price will drop below $19.04 or on gut feeling depending on the day's charts? I've tried both techniques, and funnily enough, the latter works better (it just requires nerves of steel, which I don't always have).
And yes, the World Wide Interblog is awash with people with terrible manners, which is a pity.
40. braindeed said...
21. last_days_of_disco @21
Ah, an idealist I see - nice sentiments, and hard to disagree with.
There are a lot of egos in here, as you say - trouble is, most have a rather too inflated view of self and don't seem able to deal with abstract or complicated issues that may need to be resolved by reflection, compromise, or exercising their brain cell. I read a lot of posts that are screamingly monochrome, with no concession to complexity of the backcloth.
Munchy still seems sore, and Tetchieman is still trying to convince our artist (closet) friend he didn't snigger at his failure to spot (initially) the little mnemonic I slipped in – despite the fact that this represents an even greater insult to his intelligence than the initial indiscretion (do yourself a favour…….read that again, Tetchieman – a couple of times if necessary).
Having lit the blue…..I shall retire with dignity.
Tetchieman
Offers
Simplistic
Solutions,
Evading
Reasonable
Sophistry
41. Hotairmail said...
Nil sum. Yes but - as someone said earlier it all depends on counter party risk.
What I would add is that if the profits of underwiting cds 'insurance' has already been paid out to shareholders and staff - then the money ain't there feller...you've been done on a mega scale. Those profits bought a lot of champagne, cars and condo's. One half of the 'nil sum' has already been paid out. It's gone.
42. flashman said...
hello mark: We tend to analyse a market so that we can make a general 'direction' decision. This decision frequently doesn't correlate to the long term rational market direction. Once the direction is decided we look for good opportunities to trade in that direction. The entry/exit decisions are based on experience and if you like, gut feeling. We don't really have a preference for the short or long term trades. It just depends on how things are going.
Sadly, it's a long time since I had any serious insight into oil
I have recently been studying land value tax. Very interesting. I have some questions but will wait to hijack a suitable thread.
43. flashman said...
last_days_of_disco @ 21
I actual agree with most of your sentiment but I have to say that most trades are nil sum because a margin call is made which means that even if someone wants to default they cant. The trade is closed out for them before they cant pay. For most types of trading you have to have money in an account to cover the loss. Long before a traders account is wiped out, the trade is closed out by a third party and the money handed over to the 'winner'. Of course this is not the case with the now famous AIG products
The funny thing is that 'hedgies' as you call them don't actually hedge risk because hedging is designed to preserve money. They want to make money.
When you talk about 'hedgies' (lets call them traders) boasting about being good at risk, that opens up a can of worms. When a hedge fund goes belly up because of a fall in the market, then that is a tell tale sign that they are incompetent or maybe dishonest. Almost all trades can be long or short so if they go bellyup in a downturn it is because the morons were what I call 'buysiders'. These people only go long and consider themselves geniuses when the market rises for a prolonged period. They always leverage up to the hilt and they have very little skill. You are correct to be scathing of these people.
On the other hand there are many hedge funds that have done extremely well out of the downturn. These are the skilled professionals. Fortunately there are far more good firms than bad. It is in fact very easy to hedge against a loss. It is when dodgy traders shoot for the stars with a total disregard for what is sensible, that the carnage starts. Most of these people work for banks and not hedge funds
Incidentally, a way of spotting a bad fund is if they don't periodically close their doors to new investors. There is always more money than there are good trades so if you endlessly recruit new investors then you are deliberately investing in crap or covering up losses ponzi style. Anyone with six months experience knows this, so I don't know how they got away with it for so long
44. letthemfall said...
Some stunning examples of hypocrisy above - or amnesia.
45. bellwether said...
Hey Flashman hope you are well. Good to see you are still posting. The site (or my interest in it) depends on people with something to say, and to be honest I only really look for news that I might have missed and posts from yourself, TM (who as you pointed out before I love) stillthinking and a few others.
I'm always surprised you give a f*** about the likes of braindeed etc, there's a sensitive soul in there somewhere!!
46. flashman said...
Hi bellwether. I am good thanks. I am also surprised. I never thought of myself as particularly sensitive but I think I might be. Perhaps I am out of my comfort zone or something. Part of my rational for posting on this thread was that I was genuinely interested in what people thought about it. Regarding TM and your love for him, I noted with rising excitement that he was an admirer of Rock Hudson. Maybe we should have a duel over who gets to have a crack at the sexy beast.
47. icarus said...
er... any opinions on Syncora? (Just pulling your chains).
Flashman @6.48. ...'you are deliberately investing in crap or covering losses ponzi style. Anybody with six months experience knows this'. There must have been lots of signs like that that any savvy regulator would have sussed
48. bellwether said...
It really is begining to look like the only way to resolve matters, because OMG he is such a DREAM, he's like the quarter back - of my heart !
49. bellwether said...
Incidentally Flash the trading is going ok, still adopting a positions without stops and making money but only marginally tho seem to be making less mistakes/rash decisons. Mind you about 6 foot under on the wrong side of usd/sterling and think it might get worse if equities rally contiues - hoping for an out next week as to date seems to turn around £1/$1.50.
Actually remember you saying that 1/1.50 was the historic norm for £/$ - does that sound that right?
50. flashman said...
icarus: at the risk of sounding like a nutter, I have often suspected some sort of government collusion. I know it is popular to call the regulators morons but they are usually quite sharp.
One of the great excuses being made is that the 'instruments' traded were so complicated that the traders didn't understand them. What is even more convenient is that the press and public have fallen for it and gleefully use it to abuse the traders/banks who dealt in them. A CDO, CDS or whatever is incredibly simple. It takes five minutes to understand the concept and traders employ professional quants to do the sums.
My theory is that the trade imbalances created by our governments could only be sustained if the banks traded like they did and the regulators turned a blind eye. I can see no other explanation. The reason the western governments needed things to remain intact was because they had destroyed real production so they needed to encourage credit growth and rampant consuming to create a tax base.
51. flashman said...
bellwether: I'm glad the trading is going well, although when you mentioned stop losses I kicked my grandmother. I think I remember my comment re $1.50. I was only saying that it is too dramatic to say the pound has collapsed because it was previously overvalued and $1.50 was considered normal not that long ago. It is not a particularly tradeable comment.
For what it's worth we are quite bullish on the pound and have been for a while now (as usual its all in the timing though). The OECD have recently done a 180 degree turn and are now saying that the UK will suffer less than the other 4 major economies and that we are front runners in recession policy and that we could therefore get out of recession earlier. The press are also now reporting the terrible structural problems in the ECB (Germany versus club med). I think I posted about that a few months ago.
It is quite possible that we will reverse our position as and when things change and also that we can both make money out of opposing directions.
52. techieman said...
I sometimes wonder if the inmates have internet access in broadmoor - 'cause thats really the only way i can reconcile some peoples outbursts.
Anyway - did you ever say something and regret it not long after? (im referring to my innocent remark re James Dean's alleged boy friend). It could have been worse i could have mentioned Liberace........er whoops! And then i mentioned that i have no kids and am going to tescos to do the shopping. Do i live the life of a hetrosexual playboy or am i sexual inclined some other way.... not that either would be wrong but i prefer to carry a straight bat. Ok so much for that.
Flash - i hope the party went well - ive been out all day and just got in to catch up. Re yours @47 that actually (the last paragraph) would make perfect sense. Or were they too big and governments were then beholding.... some day we will find that out for sure one way or the other. So when GB now has a go perhaps thats a double bluff which is about as credible as his smile pained on his you-tube performances.
As for your comment about "traders" / "hedgers" which can only take the long side - i think i posted about that before your arrival. Thats particularly true of "day traders" who are normally "day buyers" and have probably left en masse.
As for B/wether and the stock market - i posted on about the 24th of march that because there had been an upward break of 3950, i expected that the march low was the low for a while and would be followed by the first real bull move back up. Around here looks like resistance - i would be looking for 4315 as a first level to short. Of course it may not get there but the S&Ps have breached the neckline of a reverse h&s so the measuring level calls for more upside. After that will the new downmove just be a retracement of the new upward trend or will it just be the start of the next bear leg? If and when i get short i will opine then...
I must say though that i do have a preference for playing a particular side of a market over another. Why is that - well in the past i have found it annoying when i have tried to finnese some points / ticks etc. out of a retracement which has turned sour, since i "knew" the market would reinstate its trend. So now i basically step out of that market and go play somewhere else (but not with traffic) rather than frustrate myself in that way. Of course all that depends on time horizons - and now i would go the other side of the market but only for much smaller stakes.
As for the GBP - against the Euro the upmove in the Euro looked to me to be a squeeze before the last hurrah for sterling for a while. However at the moment i would need to see new lows around 8600 ish to dip a toe in to the long (Euro) side.
Dont know how long you were holding those 9300s (was it) shorts but hope you did well B/wether. As for my 8996s i jobbed around the position and made a few ticks but eventually got stopped out a b/even on about a quarter of my initial longs, and now am flat.
53. icarus said...
flashman - what's wrong with the conventional theory that Wall Street owns Washington, so US investment banks got the deregulation they needed to do whatever it took to crank up leverage (CDOs, shadow banking etc.) and shift markets in the desired direction? And since US investment banks were more powerful than UK ones they operated in London on the same principles (with NuLabour bending over backwards to provide the required regulatory environment). The Special Relationship runs very deep.
Why did this come about? I think that the world's main economies have gradually slowed since the heady growth days of the 50's and 60's and stronger and stronger medicine is required to keep them going. In the 70's and 80's it was keynesian deficits that stepped in to boost aggregate demand. When goverments tried balanced budgets in the early 90s recession followed. Enter bubbles, especially since about 1995 - easy credit, private borrowing, asset price hikes, wealth effects, demand boosted. When the equity bubble burst Greenspan realised he needed to avoid recession by more easy credit, creating the housing bubble and the boom in spending, property investment etc. (if this reading is correct then there are no more cards to play.)
This environment was a godsend for investment banks, their power grew and so did their political contributions and the leverage they needed to punch a big hole in the fabric of the universe with their ponzi schemes.
54. techieman said...
sorry flash i know they're not ticks in the forex game.
55. icarus said...
(that was in response to flashman's 8.12pm post)
56. devo said...
Flashman, you seem fairly clued up on financial matters.
Tell me, what is the current total notional value of derivatives?
57. techieman said...
devo - you have to be more specific when you say derivatives.
58. last_days_of_disco said...
@flashman
I agree about the fact that there are competent companies. I personally find the idea of hedge funds very interesting and would probably enjoy working for a really professional fund run by people with nerves of steal and good old fashioned integrity. I imagine these are the fund that are now doing well in the downturn because they are capable of not being seduced. To be a successful hedge fund manger you have to be smart, but you also have to have integrity and be able to make hard calls and stick with them. Finally you have to know when to take a loss and get out.
The problem comes in when a corporate blimp tries to do it with all the inane stupidity that comes with that (I imagine). Then there is the luck factor. Some very good funds are just sometimes downright unlucky. I think the thing is to realise when you are lucky and never forget that the dice can roll against you.
But as you say, we are having a clear out, its just a pity that the pathetic loser banks have managed to steal from the taxpayers.
59. devo said...
devo - you have to be more specific when you say derivatives.
No I don't - I'm talking about ALL derivatives.
60. techieman said...
well you should differentiate because market traded ones are the only ones you will get an accurate value for. As flash says they are basically different animals- unless this is for a thesis or something?
61. bellwether said...
Flash I'm very bearish on UK, but that might be something like the old marxism (Groucho) "I wouldn't want to be a member of any club that would have me" ie I'm bearish because I'm part of it.
That said we really are in a mess. Appreciate it wasn't really your point but find the notion of our climbing out of this ahead of anyone unlikely. We are like a mini US, addicted to credit and consumption but without the advantage of mattering that much to foreign investors and with a huge and barely deflated property bubble.
Would be good to get a general discussion going about this sometime.
62. devo said...
"unless this is for a thesis or something?"
Yeah, it's called The Global Economic Crash 2007-2009.
Catchy title n'est-ce pas?
63. techieman said...
Dac devo - then you need to research on the internet by looking at the C-O-T reports in the Us and i think the European and Far east exchanges probably have some numbers too. As for the non exchange markets - its a big number! Sorry to jump in - young mr flash might be able to give you more insight. Bonne chance mon ami!
64. devo said...
Cheers techie.
Did a litttle googling and came up with this...
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 billion 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.
65. techieman said...
"One can only imagine what number they are at now." - and its an ever moving number which was sort of my point Devo (bit like painting the forth bridge - when you finish counting you would have to start again). I dont neccesarily agree with your conclusion but i think we have been here on that topic many times before, and i personally have had enough "discussions" for one week! :-).
66. devo said...
"One can only imagine what number they are at now."
Best not to think about it, for that way madness lies.
Believe me.
67. bellwether said...
Hey Techieman sorry about the ribbing, nothing serious.
Didn't really squeeze the sterling/euro trade as much as I should have, have a bad habit of taking profits too soon and not really backing my hunch.
Did you ever check this site out?
http://www.sandp500analyst.com/index.php
68. techieman said...
yes i did - am taking another look at his monday view now...
69. devo said...
That's the spirit bellwether! Carry on regardless.
Putting your fingers in your ears and going "la la la!" is also said to be effective.
70. techieman said...
Np with being ribbed!
b/wether you really need to sort that out. Even if you run a small part of your position to what you think is an optimum level you should do that or imo make the market take out your position, trailing stop at the top of a trendline or whatever. Whatever it is you should do something your exit is as important as your entry and whatever works for you.
We had a discussion re this before - i am all for getting out at a techincal level(s) and letting some run until you see what you think is a reversal. i.e. i am short but this is running out of steam and if i had no position i would be long. In that case i would get out of most but still run a small position short unless the market was screaming to go long and then i might just completely liquidate the shorts or even reverse. I know flash doesnt agree with this but as ive said each to is own and there is more than one way to skin a cat.
As for the S&P guy - he - like everyone i spose seems to be hedging (pardon the pun) his bets. Im not sure of elsewhere he gives some targets. He seems to be bullish but wanting to finesse his long entry to take advantage of a pullback. If there is no pullback he misses it. Personally i would rather be early with a small position and look to get a better average if it pulls back than not be in at all and the market ramps away. Im sure you know this anyway, sorry of i am trying to teach grandma...
71. bystander said...
To all and sundry; just a quick question: Is this a bear Market rally or the beginning of a new bull Market? What with Barclays jumping from 47p to 279p today, are these shares really going to fall and test the lows again? Any views?
72. techieman said...
bystander - mine @ 49. "really going to fall and test the lows" - think so but maybe not in a straight line and perhaps with some upside first or before the new lows. When barclays were @ 47p would anyone have expected them to get to 279p so quickly? When barclays were at £6 (i think) would anyone have expected them to get to 47p? you are asking the wrong question.... really.
If you mean the market then that may be a different answer to if you mean barclays themselves.
73. bystander said...
Thanks Techieman, I meant the Market, but just interested if anyone felt, feels Barclays will drop again or is this a one way track now?
74. flashman said...
bellwether: I don't really agree with the OECD or any other band of alphabet monkeys. The noise they make changes with the wind (much like the market). I'm pretty neutral on the UK's future and yes it would be a decent debate.
techie: I mostly agree with your market direction forecast
devo: We'll get into the enormity of the situation some other thread. It is serious but it can be dealt with (I think)
Goodnight all
75. krustyatemyhamster said...
Big boys don't cry
76. 51ck-6-51x said...
** Hot, hot! Flamy. Stand clear! **
** I had to wait for those flames to die down. **
devo said "51ck... but... but .... derivatives ARE nil sum."
- No that ain't me...
Zero sum is a theoretical concept of game theory and cannot be applied to such things.
The term is, however, used loosely in the world of derivatives, because when one sets some events aside the residual [now, theoretical] game is zero sum.
Why oh why do you always think I argue the case that "derivatives are zero sum"? I do not, I only try to dispel the notional outstanding myth
- it's not a relevant number when talking about risk, simple as that.
devo said "That is simply NUTS because notional value becomes real value when either counterparty to the OTC derivative goes bankrupt"
- This is incorrect and also highly dependent on instrument type.
Taking the example to which you are probably referring, CDS, the notional outstanding would be used in the calculation of the loss, but it is not what is lost.
When a counterparty goes under the protection disappears, and the stream of premia ceases. There is no further transfer of capital. The premia are tiny compared to the notional * (an exception would be when a reference entity goes bust and the the protection seller goes bust before paying out the recovery value, which could be very nearly the notional, although generally < 50% of it.)
* e.g. ISDA standard premium = spread * 1/4 * notional.
Typical spreads are between 10 and 300 basis points (i.e. 0.1 and 3%) - a very troubled company could have a much larger spread
so even a risky entity's CDS premium = 300/10000 * 1/4 * notional = notional / 133.3..
The problems come when the counterparty is also an entity on which many CDS have been written, especially if the protection sellers are similar companies and even more so when the companies in question are financial ones. But if one thinks about it seriously for a minute or two one will realise how stupid this is - why would you buy default protection on a sun cream manufacturer from an ice-cream manufacturer? I'd go for an umbrella or Wellington boot manufacturer myself!
One, should consider net exposure, not notional outstanding - and realistically one should really consider the losses under specific scenarios to get a real handle on risk - and every company in the world defaulting is not a scenario to consider (since if everyone defaults, who cares that all money & more is lost, the system has already collapsed.) - every financial company defaulting is also an unworthy scenario, as the same applies.
Once again, since these numbers are not readily available, people will try to use the notional again!
Of course NOTHING in the world of finance is really zero sum - one party could always default on their obligation... Imagine you and I made an even bet on a coin flip, the loser could renege. However, you would still consider the game itself Zero Sum.
Defaults will always be a possibility and default rates tend to be cyclical. Recovery rates decrease as default rates increase. It is in the nature of credit and business. Betting on these outcomes through OTC derivatives leads to a systemic risk if players over-expose, this is an argument for an exchange / clearing system and for standardised products, but not an argument against the instrument's fundamental features.
I hope that clears that up.