|Hi Clownbuck - (Even your alias denotes the worthlessness of the $U.S. "buck", so you may find the information posted relevant). |
Maybe Off Topic but still relevant IMO. What is the asset worth holding during these unprecedented times - interest rates near or at 0%; a strong U.S. dollar, The EU Community Banks insolvent ?. . . . Cash or Cash equivalents or Equities that own undervalued productive "real" assets?
Madharry raised the issue of derivative products and their potential impact on the economy. It's something that has been in the back of my mind since he discussed it early this year.
I was alerted today about this article by Paul Craig Roberts. He paints a picture that knits together the unusual historical low interest rates and the long term effect on the World's economy. Is their an Exit Strategy that minimizes the pain. Maybe, it's owning undervalued equites but only bought with $US at the right time (ie. before the implosion).
Collapse At Hand
June 5, 2012
By Paul Craig Roberts (about the author)
However, the $230,000,000,000,000 in derivative bets by US banks might bring its own surprises. JPMorgan Chase has had to admit that its recently announced derivative loss of $2 billion is more than that. How much more remains to be seen. According to the Comptroller of the Currency, the five largest banks hold 95.7% of all derivatives. The five banks holding $226 trillion in derivative bets are highly leveraged gamblers. For example, JPMorgan Chase has total assets of $1.8 trillion but holds $70 trillion in derivative bets, a ratio of $39 in derivative bets for every dollar of assets. Such a bank doesn't have to lose very many bets before it is busted.Assets, of course, are not risk-based capital. According to the Comptroller of the Currency report, as of December 31, 2011, JPMorgan Chase held $70.2 trillion in derivatives and only $136 billion in risk-based capital. In other words, the bank's derivative bets are 516 times larger than the capital that covers the bets.It is difficult to imagine a more reckless and unstable position for a bank to place itself in, but Goldman Sachs takes the cake. That bank's $44 trillion in derivative bets is covered by only $19 billion in risk-based capital, resulting in bets 2,295 times larger than the capital that covers them.
Bets on interest rates comprise 81% of all derivatives. These are the derivatives that support high US Treasury bond prices despite massive increases in US debt and its monetization.US banks' derivative bets of $230 trillion, concentrated in five banks, are 15.3 times larger than the US GDP. A failed political system that allows unregulated banks to place uncovered bets 15 times larger than the US economy is a system that is headed for catastrophic failure. As the word spreads of the fantastic lack of judgment in the American political and financial systems, the catastrophe in waiting will become a reality.
I really do not want to be around for the end game. I do want to gobble up those under valued equities with my $US while it still has some purchasing power. What I want to avoid is buying too early.
It's all speculation but still it's reality. At some time to revert back to normal, interest rates must increase. However, with trillions in "naked" interest rate derivative products, it's different this time.
I just do not think it will be a happy ending.