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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: carranza2 who wrote (79739)	3/15/2008 9:22:46 AM
From: Real Man	Respond to of 94695

You've seen CDS at work here: Nobody could bail them out. This is default insurance, where notional value becomes real value in the event of a default. Most dangerous type of derivatives. Interest rates swaps are different, and notional value does not correspond to real value at all. However, if long bonds (TYX, TNX) spike higher as a result of 100 bp. interest rate cut, and corresponding dollar melt, look out! Looking at YEN, a significant slice of currency swaps could be in trouble. So, credit derivatives cascaded to other derivatives.

To: carranza2 who wrote (79739)	3/15/2008 9:52:15 AM
From: Real Man	Respond to of 94695

OTC derivatives bubble will have to collapse, along with exchange-traded derivatives, before this financial and currency crisis is over. It will not be pretty. Draining liquidity is like igniting the bomb. The Fed made a mistake, either they are planning on collapsing the derivatives bubble, or this is not intentional, I don't know. While the put/call positions favor a rally next week, increased RISK in equity derivatives means a BK and a huge spike in currency volatility and VIX. Risk is both ways, but due to a Fed drain we have a risk of a large downside this week. More if they DRAIN AGAIN for the TAF coming in late March. They have to paper over this in order to avoid it. They count on the effect of 100 bp. cut next week. However, the effect may be just the reverse: because of increased EURO/USD and decreased EURO/Yen interest rate differential, the dollar could crater, Yen could spike, increasing currency volatility, Nikkei will crater, taking US markets with. Liquidity decrease will lead to volatility spike.