Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Dividend investing for retirement -- Ignore unavailable to you. Want to Upgrade?

To: TigerPaw who wrote (21469)	1/6/2015 1:42:08 AM
From: JimisJim	Read Replies (1) \| Respond to of 34328

Overall, I go along with your main points about futures, bundling and derivatives in the oil market. However, I can't go along with the "little" hiccough notion or that there has been a "bit too much" supply triggering the oil price bust. The increasing supply/production aspect has been building steadily for over 7 years while demand/consumption has been relatively flat over the same time frame. That is a flat out trend. The comparison to the pre-crisis housing market doesn't hold up IMO because that was purely a result of financial crap -- it was really a credit bubble based on housing and had almost nothing to do with supply/demand in housing, but rather supply/demand in credit -- there was an oversupply of sub-prime mortgage money that in turn was leveraged 10:1 or more using derivatives, MBSs and CDOs. I'll grant that oil futures, derivatives, etc. trading/speculation, are exacerbating the situation... in oil, futures speculation has always helped drive prices in both directions, but typically it only reinforces (or at extremes, amplifies) the underlying trend which is based on very real supply/demand trends. In oil, this sort of speculation (using leveraged derivatives) is very much like throwing gasoline on a fire (pun intended), but it didn't spark the flames -- they've been smoldering and building on their own as US production almost doubled in the past 7 years while worldwide demand and consumption flatlined/stopped growing as fast as it had in the past. I didn't mean to ramble on this long as my point is just a quibble over details/tone -- doesn't change anything. As for "I wonder how to tell what items are being bundled into derivatives prior to them becoming a public crisis?" -- There's no way to tell. Citibank shareholders and the company itself, for example, still can't seem to pinpoint what exactly they had on the books as they "spun out" a lot of their bad mortgage-based paper (leveraged to the hilt) to entities of their own creation -- sort of like Enron did prior to implosion -- and the courts are still trying after all these years to sort out Citi's books wrt the MBSs and CDOs at the heart of their crisis. Shoot, the SEC can't/won't even regulate "dark pools" set up by the major houses to trade securities completely opaquely to the outside world, let alone shine any light on the exotic derivatives Wall St. dreams up. One of my clients is a big player in real estate and mortgage securities. I see cases where investors are buying/selling bundles of real estate and/or loans where the bundles may include thousands of individual "pieces" and they have to use all sorts of data mining/analysis and other tools just to figure out what is in a bundle/pool they are buying or selling and how each piece in a pool/bundle is performing. They endeavor to weed out the bad pieces and re-sell (or write off) the pieces they don't like or aren't performing as desired, and at the same time identify the juicy pieces. This has been my first experience in the industry and compared to my comfort zone in the oilpatch, there are a lot more moving parts involved. I only spend a few days a month with that client -- but I have learned a lot!