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2 minutes ago, captainb said:

Whats the volume of OTC derivatives got to do with the price of milk? Bizarrely that phrase works quite well in that statement.

 

OTC derivatives = credit money with zero regulatory oversight.

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12 minutes ago, zugzwang said:

OTC derivatives = credit money with zero regulatory oversight.

Its merely a financial contract between counter-parties not via an exchange. Doesn't have to be "on credit" depending on the counterparty it often wasn't. Grpah cuts out pre MIFID2/Dodd frank a lot of this has shifted to exchanges since - and the volumes have increased in most markets, oil for example has exploded in volume of contracts over ICE and the CME.

Again, the graph you showed is volumes and my point is what has that got to do with price?

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1 minute ago, captainb said:

Its merely a financial contract between counter-parties not via an exchange. Doesn't have to be "on credit" depending on the counterparty it often wasn't. Grpah cuts out pre MIFID2/Dodd frank a lot of this has shifted to exchanges since - and the volumes have increased in most markets, oil for example has exploded in volume of contracts over ICE and the CME.

Again, the graph you showed is volumes and my point is what has that got to do with price?

Not merely a contract between counter-parties; a network of contracts distributed among multiple parties. Also, stochastic instruments with dubious pay-offs which fail unpredictably in the absence of liquidity i.e. losses caused by financial shocks are unlikely to net out equitably.

That chart because immediately after 2008 efforts were made by the BIS and the central banks to regulate OTC activity. Those efforts have largely failed, the shadow banking system is arguably bigger today than it was a decade ago and every bit as opaque.

Credit derivatives expand the money supply in a complex and unreliable fashion. The money supply has everything to do with price.

 

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It's great to see you back here KB. Unfortunately as you probably realise, the forum has been taken over by socialists and leftie Labour supporters. They also seem to have an issue with brexit  ( still can't accept the result even 4 years on) so much of the sensible discussion and debate about HP's has been replaced with futile bitching about brexit. They are also in denial about the massive Tory win. I'm no fan of the socialist lockdown, furlough, spunking unlimited tax payers cash on the NHS and phoney 'tough on immigration' policies of this government but they at least are a damn sight better than the alternative parties.

Back to house prices you could well be right, depends on the numbers of jobs lost when the economy is actually fully open and it goes from being a C19 problem to an actual recession recession as businesses go to the wall/cut costs. It will take a lot of convincing some people that prices have fallen, for example was speaking to someone in St Albans the other day who thought it will never fall there, too popular outside London

 

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8 hours ago, bear.getting.old said:

It's great to see you back here KB. Unfortunately as you probably realise, the forum has been taken over by socialists and leftie Labour supporters. They also seem to have an issue with brexit  ( still can't accept the result even 4 years on) so much of the sensible discussion and debate about HP's has been replaced with futile bitching about brexit. They are also in denial about the massive Tory win. I'm no fan of the socialist lockdown, furlough, spunking unlimited tax payers cash on the NHS and phoney 'tough on immigration' policies of this government but they at least are a damn sight better than the alternative parties.

 

😂 yeah it's terrible that every debate on here doesn't immediately descend into 'immigrants innit' any more.

What we need is more socially ultra left, fiscally ultra right people, like this chap.

An almost perfect description of me

Anyone who votes, full stop, is kidding themselves.

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8 hours ago, bear.getting.old said:

It's great to see you back here KB. Unfortunately as you probably realise, the forum has been taken over by socialists and leftie Labour supporters. They also seem to have an issue with brexit  ( still can't accept the result even 4 years on) so much of the sensible discussion and debate about HP's has been replaced with futile bitching about brexit. They are also in denial about the massive Tory win. I'm no fan of the socialist lockdown, furlough, spunking unlimited tax payers cash on the NHS and phoney 'tough on immigration' policies of this government but they at least are a damn sight better than the alternative parties.

This is pure class. Love it.

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9 hours ago, zugzwang said:

Not merely a contract between counter-parties; a network of contracts distributed among multiple parties. Also, stochastic instruments with dubious pay-offs which fail unpredictably in the absence of liquidity i.e. losses caused by financial shocks are unlikely to net out equitably.

That chart because immediately after 2008 efforts were made by the BIS and the central banks to regulate OTC activity. Those efforts have largely failed, the shadow banking system is arguably bigger today than it was a decade ago and every bit as opaque.

Credit derivatives expand the money supply in a complex and unreliable fashion. The money supply has everything to do with price.

 

Then why not show the rest of the chart post 08 if their efforts have failed? Look at exchange volumes for clear evidence it has not.

These markets have shifted to that model - even OTC trades conducted off exchange are now added within 15 minutes to the exchange giving better price transparency. The amount of credit each counter party has to put up to do an old school OTC trade off exchange is so vast there really is no point... unless in rare cases you are two massive oil companies hedging a physical position.  

You get that there are often multiple overlapping counter-parties but avoid that the vast majority of these positions net out, thus looking at a gross market size is only of relevance if you are a broker for these deals. For each counterparty their exposure is the net position and can be looked at overall through open interest at the exchanges. 

As for the "money supply has everything to do with price" can you explain what you mean? If we go back to oil, volume of contracts traded in lots (1000 barrel per lot) has increased from 15,000,000 a year in 1997 to 1,200,000,000 in 2019. Those are backed by a small % held in a margin account at a clearing bank but it has not had an impact on the price of the underlying commodity..... never mind "everything to do with it"

 

 

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9 hours ago, bear.getting.old said:

It's great to see you back here KB. Unfortunately as you probably realise, the forum has been taken over by socialists and leftie Labour supporters.

 

Back to house prices you could well be right, depends on the numbers of jobs lost when the economy is actually fully open and it goes from being a C19 problem to an actual recession recession as businesses go to the wall/cut costs.

 

 

I have seen anti Brexit and Socialist comment.  As a returner it didn't cross my mind the site has been taken over by them.

Job losses will be huge.  It has started.  Will get bigger when furlough starts to end. Will soar when furlough ends and economy/society fully reopened.

Biggest recession/depression since 1930s.  When higher interest rates added on, in due course.

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1 hour ago, captainb said:

As for the "money supply has everything to do with price" can you explain what you mean? If we go back to oil, volume of contracts traded in lots (1000 barrel per lot) has increased from 15,000,000 a year in 1997 to 1,200,000,000 in 2019. Those are backed by a small % held in a margin account at a clearing bank but it has not had an impact on the price of the underlying commodity..... never mind "everything to do with it"

Economists generally consider the price system to be a function of money only. In reality, the price system is a function of money (as a medium of current exchange) and credit (as a medium of deferred exchange). Thinking about prices as a purely monetary phenomenon is unsound methodology as it neglects the time dimension of credit.

The price of oil has been anything but constant in the last twenty years! What role oil contracts have played in that variability is impossible to say since the production/consumption of oil is subject to the most extreme forms of sovereign manipulation, a state of affairs that's at least as old as OPEC. The emergence of renewable technologies in recent years is also a factor.

The basic theory of a single option is simple but some options are options on other complicated options; mathematising their behaviour is nontrivial. Predictions made on derivatives linked together are together are not reliable; the empirical data needed to falsify such models is simply not available.

 

oil-prices.png

Edited by zugzwang

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7 minutes ago, Killer Bunny said:

I have seen anti Brexit and Socialist comment.  As a returner it didn't cross my mind the site has been taken over by them.

Job losses will be huge.  It has started.  Will get bigger when furlough starts to end. Will soar when furlough ends and economy/society fully reopened.

Biggest recession/depression since 1930s.  When higher interest rates added on, in due course.

Wrong. Interest rates aren't going anywhere for at least a decade. Unemployment will not exceed the benchmark figures established by the first Thatcher govt in 1983.

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1 minute ago, zugzwang said:

Wrong. Interest rates aren't going anywhere for at least a decade. Unemployment will not exceed the benchmark figures established by the first Thatcher govt in 1983.

Thx for telling us all that inflation and rates will not rise, even though crude will go to triple digits by 2023, deglobalisation will be inflationary, increasing oligopolisation of economies will be inflationary, a collapsing £ will be inflationary, c banking paying directly for govt spending will be inflationary and M2 rising will be inflationary.  But thank you.

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1 hour ago, Frugal Git said:

Anyone who votes, full stop, is kidding themselves.

Really?

So you think the UK would be exactly the same today if:
- the referendum had come back 52:48 for Remain
- Jeremy Corybn had won in December 2019 and not Boris Johnson

OK, I guess you're entitled to your opinion...

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12 minutes ago, zugzwang said:

Economists generally consider the price system to be a function of money only. In reality, the price system is a function of money (as a medium of current exchange) and credit (as a medium of deferred exchange). Thinking about prices as a purely monetary phenomenon is unsound methodology as it neglects the time dimension of credit.

The price of oil has been anything but constant in the last twenty years! What role oil contracts have played in that variability is impossible to say since the production/consumption of oil is subject to the most extreme forms of sovereign manipulation, a state of affairs that's at least as old as OPEC. The emergence of renewable technologies in recent years is also a factor.

The basic theory of a single option is simple but some options are options on other complicated options; mathematising their behaviour is nontrivial. Predictions made on derivatives linked together are together are not reliable; the empirical data needed to falsify such models is simply not available.

 

oil-prices.png

Yes but again you are just confusing two things.

The price of oil as expressed by delivery into crushing in that graph hasnt got a lot (or anything most months) to the number of (i.e volume) derivative contracts traded in that.

For example in the absence of any derivative contracts the price fluctuates to market forces to approx the same extent- as seen in oil for delivery in non-tradable contracts (everything aside from BRENT/WTI).

To say price has everything to do with volume of OTC contracts traded i just find bizarre. And getting back to the original point it has not caused hyperinflation in price - i accept there is some argument that it has an impact of sorts on price on a time limited basis.

 

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Just now, Killer Bunny said:

Thx for telling us all that inflation and rates will not rise, even though crude will go to triple digits by 2023, deglobalisation will be inflationary, increasing oligopolisation of economies will be inflationary, a collapsing £ will be inflationary, c banking paying directly for govt spending will be inflationary and M2 rising will be inflationary.  But thank you.

De-globalisation? Your Tufton Street pals ditched the 'Global Britain' slogan now China's in everyone's bad books? 🤣

The £ isn't collapsing. The £1.3 trillion added to the national debt 2009-19 had zero impact on the cost of borrowing. M2 rising might be inflationary, or not. Impossible to quantify.

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8 minutes ago, captainb said:

To say price has everything to do with volume of OTC contracts traded i just find bizarre. And getting back to the original point it has not caused hyperinflation in price - i accept there is some argument that it has an impact of sorts on price on a time limited basis.

I'm not sure I can make myself any clearer. I didn't mention oil or any other commodity, that was you. Kosmin wanted to know if we'd experienced a hyperinflation? We did, in the production of unregulated CMOs and other credit derivatives prior to 2008, putting us in the same position as nineteenth century America before banks were prohibited from printing their own local currencies. The consequence was an exponential increase in the money supply, reflected in the price of equity assets and real estate.

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Just now, zugzwang said:

I'm not sure I can make myself any clearer. I didn't mention oil or any other commodity, that was you. Kosmin wanted to know if we'd experienced a hyperinflation? We did, in the production of unregulated CMOs and other credit derivatives prior to 2008, putting us in the same position as nineteenth century America before banks were prohibited from printing their own local currencies. The consequence was an exponential increase in the money supply, reflected in the price of equity assets and real estate.

An expansion in the volume of OTC contracts has not led to hyperinflation in the price of anything.

Oil is a good example as the contracts were not available before over the last 25 years have been, the volumes have exploded but it has had limited if any influence over the price. The fact that trading houses sell risk 10x or 100x or 1000x amongst themselves is very interesting for the broker, and people taking a haircut but irrelevant for the price.

Same is true of equity options, yes volumes have gone up but to look at them and say that is what has driven changes in the underlying price of the equity is not true. Regardless of increases in prices of assets even if you attributed all growth to them from 08 from increasing OTC contract volumes have not been hyperinfation. The equity markets have not been doubling within a year etc. Looking at the FTSE100 below its close in 1999 would be evidence of that (yes i know american markets have done a lot better etc. etc).

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1 minute ago, captainb said:

An expansion in the volume of OTC contracts has not led to hyperinflation in the price of anything.

Oil is a good example as the contracts were not available before over the last 25 years have been, the volumes have exploded but it has had limited if any influence over the price. The fact that trading houses sell risk 10x or 100x or 1000x amongst themselves is very interesting for the broker, and people taking a haircut but irrelevant for the price.

Same is true of equity options, yes volumes have gone up but to look at them and say that is what has driven changes in the underlying price of the equity is not true. Regardless of increases in prices of assets even if you attributed all growth to them from 08 from increasing OTC contract volumes have not been hyperinfation. The equity markets have not been doubling within a year etc. Looking at the FTSE100 below its close in 1999 would be evidence of that (yes i know american markets have done a lot better etc. etc).

A hyperinflation in the volume of OTC contracts prior to 2008 led to an exponential increase in the price of equity assets and real estate worldwide. Commodity prices were also impacted.

The Dow Joke post-2009 appears to have been similarly impacted. Unless you believe this is sustainable. 👇

dow-jones-industrial-average-last-10-yea

 

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1 hour ago, zugzwang said:

De-globalisation? Your Tufton Street pals ditched the 'Global Britain' slogan now China's in everyone's bad books? 🤣

The £ isn't collapsing. The £1.3 trillion added to the national debt 2009-19 had zero impact on the cost of borrowing. M2 rising might be inflationary, or not. Impossible to quantify.

Whatever the h Tufton St is. 

You know about the China backlash and you laugh at the idea of deglobalisation. You're not a serious commentator.

 

The £ is heading to parity, probably this year, with € and $.  If you don't know mkts don't comment as if you do.

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14 minutes ago, zugzwang said:

A hyperinflation in the volume of OTC contracts prior to 2008 led to an exponential increase in the price of equity assets and real estate worldwide. Commodity prices were also impacted.

The Dow Joke post-2009 appears to have been similarly impacted. Unless you believe this is sustainable. 👇

dow-jones-industrial-average-last-10-yea

 

My view is it is due a correction yes, but limited by changes in US tax policy post 2015 which would cause a big increase.. but that graph is not exponential. 

In the same way equity prices have not hyper-inflated. "Gone up " yes totally - in the USA, but i would strongly argue with very little correlation if at all to volumes in OTC contracts.

House prices have also not increased exponentially by any stretch of the imagination. 

Edited by captainb

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11 minutes ago, zugzwang said:

The Dow Joke post-2009 appears to have been similarly impacted. Unless you believe this is sustainable. 👇

dow-jones-industrial-average-last-10-yea

 

Global Stocks are in a mega multi year bull market.  Restarted end March 2020.

First started November 2016.

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3 hours ago, scottbeard said:

Really?

So you think the UK would be exactly the same today if:
- the referendum had come back 52:48 for Remain
- Jeremy Corybn had won in December 2019 and not Boris Johnson

OK, I guess you're entitled to your opinion...

yeah, pretty much. All that would happen would be different loopholes for the rich and poor to navigate. The rest is a sideshow.

Either way you’re voting for puppets. Corporations run things now, and no amount of national protectionism would change that (re the referendum vote).

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6 hours ago, captainb said:

My view is it is due a correction yes, but limited by changes in US tax policy post 2015 which would cause a big increase.. but that graph is not exponential. 

In the same way equity prices have not hyper-inflated. "Gone up " yes totally - in the USA, but i would strongly argue with very little correlation if at all to volumes in OTC contracts.

House prices have also not increased exponentially by any stretch of the imagination. 

A straight line on a semi-log plot is exponential.

Have another look.

Pre-1973 (Black-Scholes option pricing formula published) there is no shadow banking system. Post-1973, bada-boom!!

djia-history.png

And house prices? Manifestly exponential until 2007.

After the Great Recession not so much... but George did his worst!

nominal-house-prices-91--600x418.png

 

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17 minutes ago, zugzwang said:

A straight line on a semi-log plot is exponential.

Have another look.

Pre-1973 (Black-Scholes option pricing formula published) there is no shadow banking system. Post-1973, bada-boom!!

djia-history.png

And house prices? Manifestly exponential until 2007.

After the Great Recession not so much... but George did his worst!

nominal-house-prices-91--600x418.png

 

A straight line on a logarithmic plot is exponential...

On the graph going back to 1900 you need to put into real terms and then show the log scale. There is no big boom in 1973 as you suggest.

On house prices again that is not logarithmic growth even without factoring in inflation. Even less so if you dont cut the graph just after the late 80s early 90s crash.

I really cant see any "hyperinflation" in price in anything been shown - there certainly isnt the evidence for it looking back.

Edited by captainb

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  • 399 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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