Current market relationships are determined by huge
derivative positions, which lead to sustainable imbalances
and weird market relations. By providing liquidity to
the marketplace, the Fed backstops these positions, so
things return to "normal" - subprime becomes risk-free again,
stocks rally, puts expire worthless, volatility contracts,
gold drops, investment houses selling these profit.
By any means, these relationships are not "normal", not
what they used to be BEFORE this huge derivative bubble
developed.
According to textbooks, US government bonds are risk free,
because the government can print money. It is thus foreign
investors, not the government, who bear the currency risk.
At some point they might just get tired of bearing it,
and it seems the Gulf states are getting there. -g- |
