[BigTex]

$this->bbcode_second_pass_quote('TheDude', 'W')hat do you fellows think of these stories:

Mystery trader bets market will crash by a third

$4.5b bet on another 9/11 within 4 weeks

Discussion at tickerforum.org

$this->bbcode_second_pass_quote('', 'R')enee Schultes

16 Aug 2007

Carry trade unwinds as yen hits one-year high

An anonymous investor has placed a bet on an index of Europe's top 50 stocks falling by a third by the end of September, as world equity markets plunged for a third day and volatility hit a three-year high.

The mystery investor has bought put option contracts on the DJ Eurostoxx 50 index that will result in a profit if it plunges to 2,800 or below by the end of September. Based on the 2,800 strike price, the position covers a notional €6.9bn, and potentially even more using a market price of about 4,100 when the trades were done on Tuesday and Wednesday.

The identity of the investor is unknown but market sources speculated it was either a large hedge fund hedging itself against deepening losses, or a long-only fund manager pressing the panic button to protect its gains.

[Micki]

$this->bbcode_second_pass_quote('', 'I') don't doubt that September will be a wild month, based on recent market activity, but these stories sound a little over the top.

[Micki]

This came through from LeMetropoleCafe.com this morning on gold/silver positions (sorry, no link);

$this->bbcode_second_pass_quote('', 'I')n the October contract the largest PUT Open Interest is 5016 at strike $650. The largest CALL OI is 6696 at Strike $700.

Looking at December contract the largest PUT Open Interest is 10060 at strike $600. The largest CALL OI is 19679 at Strike $800.

There are also CALL OI of 18598 @ $700, 11285 @ $850, 3935 @ $900 and 7161 @ $1000

It is absolutely stunning that the CALL Open interest in December Strike $1000 exceeds the OI in October Strike $700. It is also very significant that the largest position is $140 higher than the price today.

It is not Joe & Jane six-pack who buy gold options. This is a way for serious money to get a big position in gold without blowing the roof off the price when they purchase. If the price moves into the strike price the options can be exercised for futures contracts or gold bullion.

[drew]

A Little.......?

(I hit the links)


Drew

[TheDude]

This comment goes to town on all these wild speculations. Seems to consider it all business as usual, very caustic of some of the bloggers.

[MrBill]

$this->bbcode_second_pass_quote('BigTex', 'M')r. Bill,

Are you still thinking Bull Trap?

When an anticipated rate cut is all that is keeping the market going, that's not good.

[MrBill]

UPDATE: RGE Monitor
$this->bbcode_second_pass_quote('', 'I')f Gulf Cooperation Council currency union proceeds, the new currency - the Khaleeji - has the potential to be among the strongest currencies in the world. With an estimated surplus of $20 trillion over the next 20 years if oil prices stay around $60bbl, the reserves backing the Khaleeji would ensure the strenth of the currency regardless of how they were invested. As it is, it looks like more GCC central banks are watching Kuwait's return to a weighted basket for its currency, shifting away from ties to the US dollar. A weighted-basket Khaleeji would severely undermine the dollar relative to the dollarised currencies currently importing huge inflation to the region from the weak US dollar.

[seahorse]

Mr. Bill Wrote:
$this->bbcode_second_pass_quote('', 'T')he latest forecasts I am reading point to a 15-20% fall in the real value of homes including inflation between now and 2009, and perhaps 8 to 10 years before homes re-hit previous peaks.

[AirlinePilot]

This whole thing is a microcosm of the pyschology which surrounds peoples inability to accept what is staring them right in the face. It's going to be an ugly lesson in how PO will be dealt with. I dont like where we are going with this particular crisis at the moment. Looking down the short term path it's appearing as if a LOT of folks are just in denial.

Cultural momentum. The inability for modern mankind to believe the current pardigm can change. We are brainwashed into thinking things will always grow, always get "better". The idea that a crash is coming is rejected totally. "It cant happen here, not in these times!". Oh I think it most certainly can! History shows us this and everything going on right now is evidence of it.

We are going to need a lot of luck over the next few years.

[MrBill]

seahorse wrote:
$this->bbcode_second_pass_quote('', '[')b]Many here know I was concerned and warned of a housing downturn for a long time, based on what I'm seeing as an attorney in my own local area. Here's the latest, a local bank took over the assets of a developer gone belly up. Now, the banks are getting crafty, and rather than foreclosing (which would show them as having a bad loan on the book) they are doing other things to keep the loan as appearing good on the books and attempting to salvage it as long as possible.

[MrBill]

Due to an impending death in the family this week I just do not feel like talking about Mr. Market at the moment. Life does not hang on a Fed rate cut here or there. So keep it in perspective.

On the difference a Fed rate cut makes in the larger scheme of things...
$this->bbcode_second_pass_quote('', 'T')he proviso leaves more than a little room for debate today about America’s mounting financial promises. The current sum of red ink, according to one estimate, rises to a monumental $64 trillion. Yes, that’s trillion with a “t.” Washington’s future pledges exceed the country’s long-run capacity to pay by a cool $64 trillion. For comparison, U.S. gross domestic product in 2006 was $13.2 trillion.

The $64 trillion shortfall is calculated as the total long-run claim on federal coffers less the anticipated tax revenues if—a big “if” corporate-style accounting is applied to the government’s balance sheet over the infinite future. By that measure, the annual gap works out to $2.4 trillion, reports “Do the Markets Care about the $2.4 trillion U.S. Deficit?” in the March/April 2007 Financial Analysts Journal. The authors are Jagadeesh Gokhale (senior fellow, CATO Institute) and Kent Smetters (associate professor, Wharton School), a duo with a paper trail of studying government debt and drawing rather dark conclusions.

No one necessarily disputes the $64 trillion figure, which is to say that the underlying calculation is more or less accurate as far as it goes. The dispute centers on the accounting assumption that informs the math. Indeed, the Congressional Budget
Office reported a budget deficit of $248 billion for fiscal year (FY) 2006, or just 10 percent of Gokhale and Smetters’ estimate of the annual imbalance.

[BigTex]

See you on the other side of the slide is right.

I am very uneasy about next week. I don't know if it's the market or something else, but next week just feels kind of spooky right now. Lots of indicators pointing in the wrong direction (the "house of cards" metaphor comes to mind).

We'll see.

[Concerned]

$this->bbcode_second_pass_quote('MrBill', '
')Just a quick update as I am in a little bit of jam here as another US investment bank pulled funding on me last night. Talk about fair weather friends. What upsets me is not that they consider us a risk, they don't, but they want to re-lend that same capital at a higher rate to someone else. Plain and simple opportunism. But very short-sighted on the relationship side. My firm has very long memory and many such investment banks think we will quickly forget next time they come around willing to lend now that conditions are back to normal. Wishful thinking. They just locked themselves out of the next $500 million convertible bond issue or collar over a lousy quarter of a percent interest on some smallish repos. Losers! ; - )

[MrBill]

$this->bbcode_second_pass_quote('Concerned', '
')
Disappointing yes but actually you should be happy that the money went to the highest bidder pure market forces, why call it opportunism? or alternatively you should have bid higher or taken some instrument to secure your right to the funding at set rate.

Future wise if they came to the $500 million bond issue at 25 basis point discount would you reconsider your position?

Business is business.

[MrBill]

Thanks for the comments everyone. My grandfather had a very long, happy and productive life. We are all very proud of him, and he set a good example for all of us how to live our lives right. He will be sorely missed.

Before I leave I just wanted to post this private message for everyone's benefit. Actually, I would like your feedback. This is my condensed take away from several years here at peak oil dot com, so I am interested to hear if people generally agree or disagree with my reasoning about the coming energy crisis. Thanks.

$this->bbcode_second_pass_quote('', ' ')
I’m having a hard time coming to any conclusion about the likely outcome of peak oil in regards to inflation/deflation.

My first reaction was inflation is going to be double digit chaos. However, the case for a deflationary spiral is also pretty strong.

My current thinking is certain areas of the economy will clearly be deflationary, but core or inelastic areas will be inflationary and the expansion of the money supply through deficit spending will also be inflationary.

What are your views and do you think it could be possible to model in anyway?

[BigTex]

To your point about inflation vs. deflation, I think that medium term we will continue to see the globalization deflation effect on lots of manufactured goods like electronics, toys, clothing and basically any worthless crap that can be made for pennies a day in the third world.

On the other hand, I think we will continue to see inflation in commodity driven products like food, energy, building supplies, etc.

It's interesting that the CPI excludes food and gas, since these are "volatile." Maybe they should rename the CPI the "Chinese Product Index", since the China crap will probably be the most resistant to inflation.

[Concerned]

$this->bbcode_second_pass_quote('BigTex', '
')On the other hand, I think we will continue to see inflation in commodity driven products like food, energy, building supplies, etc.

It's interesting that the CPI excludes food and gas, since these are "volatile." Maybe they should rename the CPI the "Chinese Product Index", since the China crap will probably be the most resistant to inflation.

[halcyon]

What about real-estate?

My understanding is that it is already clearly overvalued in many markets (excluding some parts in Asia and Latin America, maybe Germany).

This suggests that in times of volatility, risk aversion and real estate oversupply, the prices will fall (real estate will deflate).

However, in a loner term, inflationary cycle (too much cash, assets deflated) with rising energy costs real estate should go up, right?

I'm also wondering about gold as a deflation hedge. Some say it'll work better than even cash, but I think the reasoning on this seems somewhat contradictory.

[drew]

"The uranium market's roller-coaster ride has left many investors with their fingers burnt, and has raised questions about whether the so-called nuclear renaissance - a push by governments around the world to build new nuclear power stations - will be economically viable."


OOOOOOOWWWWW!!!

(down about 40% on Uranium Participation Corp)


Drew

[drew]

I think we'll have a recession long before PO hits which will be deflationary with regard to commodity and real estate prices. This will be driven by a decrease in investment, consumer, and business spending. Oil demand will plummet

What happens when PO does hit though is another matter. I can't see how we won't have massive inflation. For instance you are building a new home; you need natural gas for the production of the cement and drywall as well as electricity and diesel. Natural gas for the brick kilns, crude oil for the shingles. Diesel and gasoline for the lumberjacks, electricity for the sawmill. You get the picture, everything has expensive energy inputs.

Could you imagine how much firewood it would take to produce a batch of quicklime from limestone? That's how the Romans did it 2000 years ago. Natural gas makes the process easy by comparison.

I suppose in the near future labour costs might be low enough that lumberjacks might be a dime a dozen, but our modern production models lose all their efficiencies without energy. A modern sawmill can't be run on manpower, or horsepower, or waterpower for that matter.

Without cheap energy allowing for cheap mechanized production commodity prices will go through the roof with resulting poverty for the average bloke.

My 2 cents..

Drew