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Strategies & Market Trends : The coming US dollar crisis -- Ignore unavailable to you. Want to Upgrade?

To: Giordano Bruno who wrote (7402)	5/17/2008 4:03:40 PM
From: Real Man	Read Replies (3) \| Respond to of 71475

Raising rates to a positive real value, allowing recession, cutting money supply growth, and raising taxes will do it - drop commodities and cut current account deficit, while strengthening the dollar. The price is unemployment and derivatives melt. The problem is: with the current "solution" derivatives will keep expanding, and the bomb will keep growing in size!!! You think WHAT is pushing SP higher? And WHY? No, it's not Hank... nor is it Ben. That's a bear/gold bugs myth. These things are structured similar to CDOs, with volatility being RISK PREMIUM. Liquidity increases, then volatility declines. Stocks go up. Why? They are pushed by derivative markets, which are larger than everything else. Ben probably has little to NO IDEA how these things work. Offloading risk on the system. Systemic risk is increasing exponentially with the size of derivatives market. Unfortunately, it is NOT possible to tell when the whole mess will blow up. Until then quants will make a very good buck, because diffusion equation (Black Scholes model modified by volatility smile or smirk) really works. These folks have supercomputers and instantaneous orders. The only thing that breaks down that money making machine is lack of liquidity (such as in subprime, or such as the one that hit in January). Ben ensured there is no lack of liquidity, so volatility immediately declined.

To: Giordano Bruno who wrote (7402)	5/17/2008 4:21:49 PM
From: Real Man	Read Replies (1) \| Respond to of 71475

A simple answer to your Spoos and weird market behavior - I think the Fed and the ECB will keep backstopping the system, derivatives will keep increasing exponentially until... they blow up with the Fed and the dollar. They have no choice. They are VERY scared they will blow up NOW, with a domino effect that collapses 70-90% of US banking system, and quite a few global banks, or completely zombifies them. Note that the ECB provided tons of liquidity from the start. The derivative market is an insane unregulated bubble. 1987 and 1998 was a taste of what can happen. Now that market is 500 times larger. Yo, they sure did not use the "smile" or "smirk" back then, which now added "stability", but... it's the same old scheme. And, like every Ponzi scheme it has to grow exponentially or collapse. Low volatility and low spreads until Summer 2007 reflected the exponential growth of this huge bubble.