Tag Archives: derivatives

Ominous Military & Financial ‘Nuclear Threats’ Could Erupt in 2023, by Egon von Greyerz

Posted on January 11, 2023 | Leave a comment

The financial threat looks like a sure thing, and the military threat is not far behind. From Egon von Greyerz at goldswitzerland.com:

The world is today confronted with two nuclear threats of a proportion never previously seen in history. These threats are facing us at a time when the world economy is about to turn and decline precipitously not just for years but probably decades.

The obvious nuclear threat is the war between the US and Russia which currently is playing out in Ukraine.

The other nuclear threat is the financial weapons of mass destruction in the form of debt and derivatives amounting to probably US$ 2.5 quadrillion.

If we are lucky, the geopolitical event can be avoided but I doubt that the explosion/implosion of the Western financial timebomb can be stopped.

More about these risks later in the article.

There is also a summary of my market views for 2023 and onwards at the end of the article.

CURIOSITY AND RISK

With a business life of over 52 years in banking, commerce and investments, I am fortunate to still learn every day and learning is really the joy of life. But the more you learn, the more you realise how little you really know.

Being a constant and curious learner means that life is never dull.

As Einstein said:

“The important thing is not to stop questioning.

Curiosity has its own reason for existing.”

There has been another important constancy in my life which is understanding and protecting RISK.

I learnt early on in my commercial life that it is critical to identify risk and endeavour to protect the downside. If you can achieve that, the upside normally takes care of itself.

Sometimes the risk is so clear that you want to stand on the barricades and shout. But sadly most investors are driven by greed and seldom see when markets become high risk.

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Rising rates lead to financial accidents, by Alasdair Macleod

Posted on December 18, 2022 | Leave a comment

The world has never been more primed for a financial accident. From Alasdair Macleod at goldmoney.com:

A recent Bank for International Settlements paper warning of unappreciated risks in foreign exchange markets echoes my earlier warning in an article for Goldmoney published over a month ago describing derivative risks in FX markets.[i]

In this article I also show evidence that banks in both the US and Eurozone are reducing the deposit side of their balance sheets by turning away big deposits which are ending up in central bank reverse repos, parking unwanted liquidity out of public circulation. The great unwind is well under way.

Credit contraction is not only driving a bear market in financial assets, but the exposure to malinvestments by rising interest rates is having negative consequences for the non-financial economy as well. Private equity, which has thrived on cheap finance used to leverage targeted businesses, is showing signs of unwinding with two major Blackrock funds suspending redemptions.

As we approach the season for year-end window dressing, we must hope that the volatility in thin markets that often accompanies it does not destabilise global financial markets. 

Inflation and stagnation

Make no mistake: interest rates have bottomed at the zero bound and can go no lower. The forty-year trend of declining interest rates has ended, with an initial rally, which six weeks ago had halved the value of the 30-year US Treasury bond. The suddenness of this change probably needed a pause, and that is what we have today. Since October, there has been a spectacular recovery in bond prices with this UST bond yield dropping ¾% to 3.5%.

Fears of price inflation have been replaced in large measure by fear of recession. Having dismissed monetarism, bizarrely for a Keynesian led establishment analysts and commentators are now frequently citing the slowing of monetary growth as evidence of a looming recession. Perhaps this means that the failure of their economic models has them grasping at straws, rather than being evidence of a conversion to monetarism. But what is definitely not in the Keynesians’ playbook is a combination of inflation and recession, commonly attributed to an unexplained phenomenon of stagflation.

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PSYOP-MARKET-CRASH Black Swan Edition: Bank for International Settlements Warns of $100 Trillion of Hidden Debt Just Discovered, by 2nd Smartest Guy in the World

Posted on December 11, 2022 | 2 comments

The amount of derivatives and debt in the global financial system is so large that $100 trillion can be laying around, undiscovered. The total amount of derivatives is, by knowledgeable estimates, over one quadrillion (a thousand trillions). From 2nd Smartest Guy in the World at 2ndsmartestguyintheworld.substack.com:

The world faces a staggering financial meltdown with potential losses exceeding the total number of US dollars in circulation.

The Bank for International Settlements (BIS) is the central bank of central banks that for all intents and purposes directs all of the other various central banks from The Federal Reserve to the ECB to the BOJ.

The BIS is like the One World Government central bank to the various sovereign national central banks that appear to be independent, but are all privately owned and actively working against the interests of their respective nations.

The BIS is like the hyper-centralized control center, and the various national central banks are its “penetrator” nodes.

All of the national central banks will deploy their respective CBDC products to coincide with the imminent global financial crash to end all crashes. These CBDCs will be the opening salvos in the Great Reset. At some point yet another manufactured crisis will consolidate all of the various CBDC’s into a supra-crypto-SDR (Special Drawing Rights) CBDC that will function as the singular planetary digital currency, at which point the national central banks will all be consolidated into the BIS.

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The Great Unwind II, by Alasdair Macleod

Posted on November 4, 2022 | Leave a comment

To stay solvent banks are going to have to dramatically curtail lending. Shrinking credit and central bank debt monetization will drive the world into an inflationary depression. From Alasdair Macleod at goldmoney.com:

With price inflation rising out of control and interest rates rising strongly, the trading environment for commercial banks has fundamentally changed. With bad debts looming and bond prices in entrenched downtrends, procrastination is now the enemy of bankers.

We are at the beginning of The Great Unwind, and this article elaborates on my first article for Goldmoney on the subject published here. 

The imperative for bankers to respond to these conditions overrides all other matters if their businesses are to survive these changed conditions. We are entering a cyclical downdraft of the bank credit cycle which promises to be cataclysmic. And the monetary policy planners at the central banks can do nothing to stop it.

After outlining the scale of the problems faced by each global systemically important bank, this article looks at the future for the $600 trillion derivatives mountain. It was born out of the long-term decline in interest rates from the mid-eighties, which ended last year. It is almost entirely distributed through banks and shadow banks.

The question to address is, what is the future for the derivative mountain, now that the long-term trend for falling interest rates is over? And what are the economic consequences?

If it’s you in the hot seat…

Imagine, for a moment, that you are the CEO of a commercial bank involved in lending to businesses and with profit centres acting in a range of financial activities. As CEO, you are answerable to the board of directors for the bank’s performance, and ultimately the bank’s shareholders for maintaining and advancing the value of their shares. 

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“We’re At The End Of A Major Era” – Von Greyerz Warns Of “$2.5 Quadrillion Disaster Waiting To Happen”, by Tyler Durden

Posted on November 3, 2022 | Leave a comment

The accident waiting to happen in the derivative market is what happens when a major counterparty fails? It’s no longer a market, it’s a daisy chain. From Tyler Durden at zerohedge.com:

Via Greg Hunter’s USAWatchdog.com

Egon von Greyerz (EvG) stores gold for clients at the biggest private gold vault in the world buried deep in the Swiss Alps. EvG is a financial and precious metals expert.  EvG is a former Swiss banker and an expert in risk.  He says the risk in the global markets has never been this high.

EvG explains, “Credit has increased dramatically through derivatives.  All instruments being issued now by banks, pension funds, stock funds, it’s all synthetic.  There is no real underlying payments in anything almost…”

” Therefore, my estimate for derivatives would be at least $2 quadrillion, and I think that is probably conservative.  Then, we have debt on top of that of $300 trillion, and we also have a couple hundred trillion dollars of unfunded liabilities.  So, we are talking about $2.5 quadrillion, and that’s with a global GDP of $80 trillion.  So, there is a disaster waiting to happen, and especially because all this created money has created no value whatsoever…

I always knew this would collapse, and it’s taken longer than I expected, but I think we are at the end of a major era…

These derivatives, at some point in the coming few years, will actually turn into debt.  Central banks will have to cover all the outstanding liabilities of the commercial banks as we are seeing now with Credit Suisse, Bank of England and etc.  This is going to happen across the board.  Whether it’s called derivatives or called debt, as far as I am concerned, it’s the same thing.  It will have the same effect on the world financial system, which will be disastrous, of course.”

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$2 Quadrillion Debt Precariously Resting On $2 Trillion Gold, by Egon von Grayerz

Posted on October 30, 2022 | Leave a comment

A small pile of real money (gold) supports a towering edifice of debt. From Egon von Grayerz at goldswitzerland.com:

A Lehman squared moment is approaching with Swiss banks and UK pension funds under severe pressure.

But let’s first look at another circus – 

The global travelling circus is now reaching ever more nations just as expected. This is right on cue at the end of the most extraordinary financial bubble era in history.

It is obviously debt creation, money printing and the resulting currency debasement which creates the inevitable fall of yet another monetary system. This has been the norm throughout history so “the more it changes, the more it stays the same”.

It started this time with the closing of the gold window in August 1971.  That was the beginning of a financial and political circus which continuously added more risk and more lethal acts to keep the circus going.

An economic upheaval always causes political chaos with a revolving door of leaders and political parties going and coming. Remember, a government is never voted in but invariably voted out.

What was always clear to a few of us was that the circus would end with all of the acts crashing virtually simultaneously.

And this is what is starting to happen now.

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And Now A Liquidity Crunch: Credit Suisse Halts Redemptions From Renaissance Feeder Fund, by Tyler Durden

Posted on May 29, 2021 | Leave a comment

It’s smart to keep your eyes on situations like this. Financial crashes often start with one institution’s problems, which are “contained” until they’re not. From Tyler Durden at zerohedge.com:

Once upon a time, we couldn’t go an hour without some dire news involving Deutsche Bank (and its tens of trillions of gross notional derivatives). Now, it’s Credit Suisse’s turn.

In what was at least the third flashing-red headline for the day referencing the scandal-plagued Swiss Bank, moments ago Bloomberg reported that Credit Suisse, still humiliated from the billions it lost on Archegos and Greensill and countless subsequent banker terminations and defections, has temporarily barred clients from pulling their cash from a feeder fund that that was sold as an investment option for rich clients at the bank’s wealth arm, and which invests with Renaissance Technologies “after the strategy tanked and investors rushed to exit.”

To be sure, Credit Suisse has every right to impose this gate: according to Bloomberg, the Swiss bank invoked a hold back clause, after assets in the CS Renaissance Alternative Access Fund slumped to about $250 million this month from approximately $700 million at the start of 2020. While investors are expected to receive 95% of their redemption requests after two months, the remaining 5% is expected to be paid out in January, after the fund’s year-end audit, the people said. Hold back clauses are a standard part of offer documents at some U.S. based hedge funds.

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Will “Goldman Penis Envy” Crash the Economy Again? by Matt Taibbi and Eric Salzman

Posted on May 3, 2021 | Leave a comment

There’s more to running a successful investment bank than borrowing a lot of money and putting it to speculative use. From Matt Tiabbi and Eric Salzman at taibbi.substack.com:

Nearly fifteen years ago, on December 10, 2006, the CEO of Senderra, a subprime mortgage lender owned by Goldman, Sachs, sent grim news to its parent company. “Credit quality has risen to become the major crisis in the non-prime industry,” Senderra CEO Brad Bradley wrote, adding that “we are seeing unprecedented defaults and fraud in the market.”

Within four days, senior executives at Goldman decided to “get closer to home” by unloading risky mortgage instruments. They didn’t alert regulators, of course, but did save their own hides, with Goldman CEO Lloyd Blankfein soon after ordering subordinates to sell off the ugly “cats and dogs” in their mortgage portfolio.

Around the same time that Goldman was having its come-to-Jesus moment, the heads of rival Lehman Brothers were going the other way. In one meeting, the bank’s head of fixed income, Mike Gelband, pounded a table, telling the firm’s infamous Vaderqsque CEO Richard “Dick” Fuld and hatchetman-president Joe Gregory there was a $15-18 trillion time bomb of lethal leverage hanging over the markets. Once it blew, it would be the “grandaddy of credit crunches,” and Lehman would be toast.

Fuld and Gregory scoffed. They didn’t understand mortgage deals well and thought Gelband lacked nerve. “Be creative,” they told him, adding, “What are you afraid of?”

“We called it ‘Goldman Penis Envy,’” says Lawrence McDonald, former Lehman trader and author of A Colossal Failure of Common Sense. In telling the Gelband story, he explains that Fuld and Gregory were so desperate to beat out Goldman and become the richest men on Wall Street, they chased every bad deal at the peak of the speculative bubble.

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The $2.3 Quadrillion Global Timebomb, by Egon von Greyerz

Posted on April 17, 2021 | 2 comments

It’s a question of when, not if, the timebomb explodes. From Egon von Greyerz at goldswitzerland.com:

Credit Suisse is hours from collapse and the consequences could be a systemic failure of the financial system.

Disappointingly, my dream last night stopped there. So unfortunately I didn’t experience what actually happened.

As I warned in last week’s article on Archegos and Credit Suisse, investment banks have created a timebomb with the $1.5 quadrillion derivatives monster.

A few years ago, the BIS (Bank of International Settlement) in Basel reduced the $1.5 quadrillion to $600 trillion with a pen stroke. But the real gross figure was still $1.5q at the time. According to my sources, the real figure today is probably over $2 quadrillion.

A major part of the outstanding derivatives are OTC (over the counter) and hidden in off balance sheet special purpose vehicles.

LEVERAGED ASSETS JUST GO UP IN SMOKE

The $30 billion in Archegos derivatives that went up in smoke over a weekend is just the tip of the iceberg. The hedge fund Archegos lost everything and the normal uber-leveraged players Goldman Sachs, Morgan Stanley, Credit Suisse, Nomura etc lost at least $30 billion.

These investment banks are making casino bets that they can’t afford to lose. What their boards and top management don’t realise or understand is that the traders, supported by easily manipulated risk managers, are betting the bank on a daily basis.

Most of these ludicrously high bets are in the derivatives market. The management doesn’t understand how they work or what the risks are and the account managers and traders can bet billions on a daily basis with no skin in the game but massive potential upside if nothing goes wrong.

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Here’s Why the Fed Hasn’t Yet Invoked Its 13(3) Emergency Powers to Stem a Stock Market Crash, by Pam Martens and Russ Martens

Posted on April 17, 2020 | Leave a comment

Whatever happened to the Fed put? From Pam Martens and Russ Martens at wallstreetonparade.com:

Stock Price Chart of Citigroup Versus Goldman Sachs, Bank of America, JPMorgan Chase and Morgan Stanley Since February 14, 2020

Stock Price Chart of Citigroup Versus Goldman Sachs, Bank of America, JPMorgan Chase, Morgan Stanley Since February 14, 2020

The U.S. stock market set new records yesterday – all of them bad. The Dow Jones Industrial Average suffered its worst point loss in history, closing down 2,997 points at 20,188.52, which effectively erases all of its gains in the last three years. On January 20, 2017, when Donald Trump was sworn in as President, the Dow closed at 19,827. It’s now grown by just 1.8 percent in total over that span of time.

The Dow also had its second worst percentage loss in history yesterday, losing 12.93 percent. That loss is only exceeded by Black Monday, October 19, 1987, when the Dow lost 22.6 percent. It barely beats out October 28, 1929 when the Dow lost 12.8 percent and ushered in what would become the worst stock market crash in history. From late 1929 to 1933 the stock market would go on to lose 90 percent of its value and not reset the highs it had made in 1929 until 25 years later.

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