Hello Henry... I have been away and hope you are retired peacefully away.... far, far away from your computer screen...and the coming sturm und drag of the markets when, seasonally it seems, gravity attracts the autumn leaves and the people who have big derivative positions... earthwards.
Did you get A. Greenspan's reference yesterday to: "...maybe people....in the new pardigm of mega banks that have emerged in the market... we now need meta solutions to mega problems..." if I may paraphrase the dear man's always precise thoughts. How do you interpret this?
Ref yours about gold..."all the "puts" are being slammed back to the guys who wrote them up.... actually anyone who wrote gold puts is booking a lot of profit as they'll most likely be expiring worthless".
I don't know if you've checked the price of Ashanti Gold lately Henry. They seem to have gotten onto the wrong side of their gold book and the "puts" they wrote are definitly in the money.
On another track today (10.13.99) in Flekenstein's SI column, "..I'm hearing of more derivative-related problems with some of the money center banks. We can't forget that none of that has ever been completely resolved. The size of the derivatives is so humongous that if the problem comes to a head, it's going to be quite a show."
And, finally, today from Mr.Alan Newman of Brous and Co. "What could catalyze the kind of volatility we witnessed last year as the market broke to nearly 20% on the downside? Possibly the same kind of derivative event seen then.
The real threat of the Long Term Capital Management debacle was the interwoven fabric of derivatives LTCM influenced outside their own portfolio. Institutional Investor magazine claimed LTCM impacted a total of $2 trillion in derivatives on a shrunken capital base that had fallen at one point to only $600 million. Although the stories surrounding LTCM's collapse cited leverage of as much as 120 to 1, in reality, the impact of LTCM's leverage may have been as much as 3300 to 1! The growth in Derivatives has clearly paralleled the growth of the largest U.S. stock market favorites. In the most recent Office of the Comptroller of the Currency report, notional values for derivatives of U.S. commercial banks now total more than $33 trillion, about two-and-a-third times the size of the engorged and grossly overvalued U.S. stock market*. Leverage has also been in a mania. Margin debt is at an all-time high. Home equity loans and consumer credit are at records. Corporations are borrowing money at a record pace and many of them -amazingly - are using the cash to buy their own shares. Everywhere we look, the mania has reached a stage of saturation.
On overvaluation NB. *"Americans are in love with stocks like never before in history." Scratch those comments and replace with the following: "Professional investors are prepared to ride their favorite issues to any valuation." We have already seen Microsoft trade at 5.8% of total GDP. As of today, Microsoft's price and volume are so bloated that it trades on a daily basis an amount equal to almost 10% of our total GDP (actually 9.89%)"
Best to you,
Clark |
