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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: John Vosilla who wrote (73858)11/8/2006 11:58:41 AM
From: Real Man  Read Replies (5) of 110194
 
Most markets are now totally controlled by derivative markets,
mostly OTC, which are a lot larger than the cash markets and
keep growing exponentially. These markets are controlled by
several players - the largest US banks, such as JPM. The
derivative markets for stocks are relatively small. The central
banks and BIS are well aware of the problems, but they are
impotent. If they act to contain the growth, they will trigger
a crisis of epic proportions. Thus, they have created
counterparty risk management group, etc., to try to contain the
crisis once it happens. There is no way they will try to trigger
it, and they will inject liquidity (crucial for operation of
derivatives markets) when it's needed, just as they have done
on numerous occasions. We have seen this many times, one
of them was this June, another one in the past year (GM debt).
I don't think it's possible to deal with this monster. This
monster was created by Greenspan Fed's moral hazard policies.
Some day it will collapse under its own weight (I think it's
unlikely that bears will make millions on it - the puts won't
be paid due to systemic counterparty failures) The markets
to watch are the dollar and 10-year interest rates. The rates
will spike, the dollar will fall. Until then, stocks could
rally a lot further.
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