Posted on 12/15/2014 4:40:28 PM PST by Lorianne
As we noted previously, counterparty risk concerns (and thus financial system fragility) are starting to rear their ugly heads. In the mid 2000s, it was massive one-way levered bets on "house prices will never go down again." When the cracks started to appear, the mark-to-market losses in derivatives led to forced liquidations and snowballed systemically. In the mid 2010s, it is massively levered one-way asymmetric bets on "commodity prices [oil] will never go down again." Meet WTI-structured-notes... the transmission mechanism for oil-price-shocks blowing up the financial system.
Because nothing says exuberant ignorance like limited upside, unlimited downside OTC (illiquid) derivatives...
(Excerpt) Read more at zerohedge.com ...
In late ‘98 things came unwound and dropped the price like a rock. Then there were many “lost” cargoes ... tanker based storage afloat on the high seas. The barrels were lost in counting inventory numbers. Nobody was sure how big the glut was. Turned out, not much of one after all as I recall.
I’m not an economics or finance guy, but it seems to me that a person would have to be incredibly stupid and/or supremely overconfident to believe that the market he/she is involved in cannot go down.
the boom/bust cycle is the essence of business.
My hope would be that the beneficial effects of cheaper oil help offset any financial implosion.
Sat night the owner of a local restaurant told me she’s seen business pick up nicely the last two months compared to previous years and speculated cheaper gas was perhaps helping.
It's not a disaster.
Now, imagine what would happen if we got rid of casinos...and that money was spent on goods.
Nevertheless....unless we change our tax system, jobs will keep on going abroad.
Classic buy - write scenario on those notes. That is buy a security and write on option.
It all works if there are not dramatic losses in the end. If there are big losses, you participate. You get all the downside over 15% and limited upside.
The fracking revolution was bound to do this eventually. But there is a precedence: natural gas. Natural gas prices in the US cratered in 2010-2011 and never rebounded to past levels. Yet there was no dramatic financial institution impact.
I have a feeling this too will be limited.
There are other bogeyman, like $18 trillion in debt and unfunded promises to retirees.
That will certainly be the result.
The article is not about whether people are saving money on gas or not. It is about how all this is being financed.
More likely we’re looking at another major crash and bailout
Not a good tradeoff to me
No, they aren't risk free, otherwise investors couldn't lose up to 100% of their investment.
and sold to greater-fool yield-reaching muppet investors around the world who never saw a short-term trend they did not extrapolate - the question is - who is on the other side of all these notes? Especially now that capital is actually being eroded instead of simply less gains...
Ummmmm...the issuer, BNP Paribas.
Does anyone at Zerohedge read these silly articles before they post them?
It do make life, er, difficult. However, what does one really expect from a site that A) knows that perpetual doom will come around next Thursday, or, if not then, then next Friday for certain, and, B) has predicted 459 of the last 3 recessions and 1,067 of the last 2 crashes?
Take a look at that option strategy I put up to Pete; I am not kidding in the slightest. Working nicely again this week.
Happy Christmas, laddie, and FReegards!
Thanks buddy. Keep up the good work!
Isn’t Zero Hedge Tyler Durden’s turf? The guy thrives on doom 24/7. He should have stayed in the soap business.
The boom/bailout cycle is the essence of cronyism.
boom/bailout haha!
but . . .but . . . I thought they were too big to fail!
Ma! this guy is raining on my parade! and I don’t like it. {harrummphhing}
/s LOL
Ah yes, Mr. “Oil Will Skyrocket today” weighs in... good grief!
http://zerohedge.blogspot.com/2009/02/are-april-wti-crude-futures-going-to.html
Yeah. His stuff cracks me up. Reminds me of Willie.
At first glance finding "ZeroHedge" at the source line my reaction was to cringe, but you're absolutely right --every once in a while they do get it right. Kind of reminds me of the old tale of the English visitor to an Irish train station storming up to the station master with "It's deplorable --you have two clocks on the wall and each shows a different time!!" So the station master replies "Now why pray tell would we need two clocks if they were both announcing the same time?"
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