Unfortunately, the markets have been manipulated by a few
powerful derivative banks. Derivatives rule the marketplace,
which indicates they are very far from fundamentals and are
(for now) ruled by new rules of high frequency models and computer
trading. Derivative markets are much, much bigger than cash
market, making the cash market irrelevant. Fundamentals will eventually
rule the day, but it is unclear how much longer the
authorities, who have been bought by banks, can manipulate
markets and postpone the inevitable collapse of the biggest
Ponzi scheme known to mankind, ever, the notional value of which
exceeds the World GDP by an order of magnitude or more.
The size of that shadow market was equal in value to
the global stock market cap, as of December last year.
Please, understand that these instruments are extremely
leveraged. So, for example, if you buy a put on something
and pay $100 for it, I am talking about $100 that you paid,
not the notional amount.
Various correlations exist due to that. In particular,
it appears all markets are one and the same thing,
the dollar market. It's a Ponzi scheme
of epic proportions, which implies implosion, rather than
a peaceful return to norm. We saw how that happens last Fall.
Right now the government (the Fed in particular) guaranteed
North of 11 trillion in that Ponzi scheme, so we have temporary
stability.
The second possible troublesome outcome is hyperinflation,
if the Fed prints whatever is needed by this blown up Ponzi
scheme that is now our financial system. And a lot of money is
needed. A lot more than the size of US economy.
The most troublesome part is the interest rate swaps, tied
directly to the Fed monetary policy. Fed manipulates rates,
banks take advantage of it. If the market tries to set
rates where they belong given the printing and, in effect,
government default (much higher), we'll have a blow up that
will make CDS blow-up last Fall look like a walk in the park. |
