Gersh:" PUT defaults "
Not many retail accounts sell PUTs, as you know; iirc, Gersh - brokers require most retail accounts (like mine) to have cash or, at least equity on-hand to sell naked PUTs.
You're thinkin' about that MM who sold deep SnP PUTs and got caught in the '97 crash, right?
Probably depends most on the JYen carry trade volume, Gersh (and you know more about that than anyone else), which is probably not so exposed because, I can't imagine any sane MM's shorting the JYen since QTR-2.
First damage will be knock-down of Tech sector: Now the equity market becomes completely devoid of any leadership; high P/E multiples, illusions of Projected Earnings Growth become meaningless in light of Y2K angst.
short-term flight to TYX.
Then, large-scale mutual fund withdrawals - index and "shadow index" funds sell "winners" to raise cash - vicious cycle.
some commodities, specie (precious metals) flight, as folks seek to preserve kapital base by any means.
Then, real-estate market bubble bursts <===
Banks increase Reserves for Loan Losses: as they become reluctant to lend, kapital market liquidity dries up.
American workers become defensive; U.S. retail sector chills as a result of their lower consumption. Ironically, they increase their own un-employment by their reluctance to consume from one another - vicious cycle.
Then, currency shocks: the CIS (Russia) defaults again, perhaps re-nationalizing foreign investment assets; China forced to devalue yuan; global commodity prices collapse; foreign treasuries dump gold reserves.
...no exit.
-Steve |
