Is the next big bubble about to burst?

[powder]

in 2000 when Bush was coming in we had the dot.com crash, Obama's reign saw the housing/mortage crash.  I suspect the next big one, to dwarf all others probably, will be the derivatives bubble bursting.  Will this next election cycle be the harbinger?  

 

It might be time to get your investments out of the stock market or at least into something safer than the usual stuff.  

 

thoughts?

[_LiveFree_]

Yes it is. Biggest bust yet. Like Michael Moore post Taco Bell binge bust.

[Tyler H]

Yeah, I think a Trump victory will almost certainly ensure the Fed will stop artificially inflating the bubble and let it pop on his watch. Fortunately this may actually trigger the withdrawal symptoms of monetary heroine and the economy can actually start to heal. But yeah it'll be a rocky few months, maybe a year. Food, water, gold and silver - these will be my investments.

[Iron Horse]

Yes it is. Biggest bust yet. Like Michael Moore post Taco Bell binge bust.

Michael Moorcock > Michael Moore

 

What will be the bubble that is inflated, what industry will be the catalyst?  I suspect, if Hillary wins, clean energy.  Massive Fed incentives to invest in it, people do, short-term gains are made by those in the industry at the cost of long term growth, coupled with rising energy costs make continued used of it impractical/unprofitable.

[AccuTron]

.... Food, water, gold and silver - these will be my investments.

 

How do you do that with gold and silver?  I've been confused on that topic.  For example, a piece of paper saying one holds gold is simply a piece of paper.  Jewelry at mark up doesn't seem to make sense.  What does?

[S04]

To me Mike Maloney has made the most convincing case for the next and probably biggest economic crisis in our history and how it will look like. If you haven't done so already, you really should check out his 'Hidden Secrets of Money' - series. A new episode is coming out today.

 

Here is his preview:

 

[Tyler H]

How do you do that with gold and silver?  I've been confused on that topic.  For example, a piece of paper saying one holds gold is simply a piece of paper.  Jewelry at mark up doesn't seem to make sense.  What does?

Physical gold and silver, get it in your hands. I think whatever you pay to get it it will be less than its real value due to the paper slips you mentioned. They've basically fractionally reserved gold so when those debts are called in and they don't have the gold to give people the actual supply/demand curve of gold will be realized and the price will skyrocket.

Yes it is. Biggest bust yet. Like Michael Moore post Taco Bell binge bust.

Lol, gross.

[EclecticIdealist]

Physical gold and silver, get it in your hands. I think whatever you pay to get it it will be less than its real value due to the paper slips you mentioned. They've basically fractionally reserved gold so when those debts are called in and they don't have the gold to give people the actual supply/demand curve of gold will be realized and the price will skyrocket.

Until the US Gov. pulls a Roosevelt and makes any substantial private gold ownership illegal again.

[Crallask]

Until the US Gov. pulls a Roosevelt and makes any substantial private gold ownership illegal again.

The difference here would be that I don't think most people who own gold would be interested in turning it over should that come to pass.

[EclecticIdealist]

The difference here would be that I don't think most people who own gold would be interested in turning it over should that come to pass.

Your statement presupposes that most people who turned their gold in back then were. In fact, most were simply afraid of being fined and/or imprisoned for failing to turn it over.

[Tyler H]

Yeah, currently it is a hedge against inflation, but if things get so bad that they take it then there wouldnt have been any way to protect your wealth anyways.

[algernon]

Until the US Gov. pulls a Roosevelt and makes any substantial private gold ownership illegal again.

 

How well has that worked for the value of cannabis?

 

Everything is already illegal, who cares. If things get bad enough "hoarding" food will be illegal.

 

This Too Shall Pass.

[DaveR]

Denninger gave it a theoretical/mathematical maximum of 4 years iirc. 

 

 

[st434u]

 I suspect the next big one, to dwarf all others probably, will be the derivatives bubble bursting. 

 

Interesting, can you give us more details?

[powder]

Interesting, can you give us more details?

back in 08 the banks were holding onto a lot of bad mortgages, when that bubble popped the banking crisis happened.  

 

Since then they have been even more reckless and have amassed derivatives exposure that dwarf their assets.  A big 5 bank like Morgan and Citi Group might have something like 2 trillion in assets and over 50 trillion in derivatives.  Plus, the banks are about 40% larger than they were in 08 and hold over 60 of American's assets. The derivatives market is basically like a massive high risk gambling game, and the derivatives casino operates on a global scale.  

 

A derivative is a 'legal' bet (contract) that derives its value from another asset (derivative) that has value, such as the future price of oil, bonds, etc.   

[rosencrantz]

A derivative is a 'legal' bet (contract) that derives its value from another asset (derivative) that has value, such as the future price of oil, bonds, etc.   

 

 

 

Not to forget that there are derivatives on derivatives 

[DaveR]

back in 08 the banks were holding onto a lot of bad mortgages, when that bubble popped the banking crisis happened.  

 

Since then they have been even more reckless and have amassed derivatives exposure that dwarf their assets.  A big 5 bank like Morgan and Citi Group might have something like 2 trillion in assets and over 50 trillion in derivatives.  Plus, the banks are about 40% larger than they were in 08 and hold over 60 of American's assets. The derivatives market is basically like a massive high risk gambling game, and the derivatives casino operates on a global scale.  

 

A derivative is a 'legal' bet (contract) that derives its value from another asset (derivative) that has value, such as the future price of oil, bonds, etc.   

 

 

People have been going on about the derivatives 'bubble' since the GFC started. Im pretty unconvinced. These multi trillion dollar numbers are theoretical maximums if every last one gets called upon. 

 

Its like saying 'Insurer 1 has a trillion dollars of exposure/liabilities If every building in the country catches fire at the same time' 

I guess if a meteor struck it could happen, but that theoretical maximum is a pretty inane figure in day to day life.

 

There will be bets on the value of the dollar halving and doubling at the same time, or farmers holding insurance against both drought and a market saturated by high yields in that 'XXX trillion liabilities' number. Clearly both arent going to happen simultaneously. As you say, its a massive casino, and bets are two sided and issued to cancel each other out. If it did present a problem, govt would likely just put a 99.9% tax on payouts and cycle it back the issuer/holder. That money is a theoretical amount, afterall. There isnt $1.5 quadrillion in circulation right now, so keeping it out of the economy isnt going to matter much. 

 

Same with so called government 'unfunded liabilities', though I think they are somewhat more relevant numbers. 

Who knows what they'll be. We dont know how long people will live, what care they'll need in later life. 

 

 

That said, I give casino owners a lot more credit than banksters. If they can fuck up, banksters will fuck up. 

[st434u]

back in 08 the banks were holding onto a lot of bad mortgages, when that bubble popped the banking crisis happened.  

 

Since then they have been even more reckless and have amassed derivatives exposure that dwarf their assets.  A big 5 bank like Morgan and Citi Group might have something like 2 trillion in assets and over 50 trillion in derivatives.  Plus, the banks are about 40% larger than they were in 08 and hold over 60 of American's assets. The derivatives market is basically like a massive high risk gambling game, and the derivatives casino operates on a global scale.  

 

A derivative is a 'legal' bet (contract) that derives its value from another asset (derivative) that has value, such as the future price of oil, bonds, etc.   

 

Right. I've never worked with derivatives but I get an idea of how they function.

 

Do you know which types of assets or sectors the banks are heavily invested in through derivatives?

 

And when you say the derivatives bubble will pop, do you mean most types of derivatives, or all? It seems to me that if the underlying assets go down in price heavily, and the derivative was a bet that they would go up, then the people who made that bet will lose, whereas the one who took the bet (or made the opposite bet, if possible) would gain.

 

I also suspect derivatives may be used for hedging. For example, an airline company may want to protect themselves from higher oil prices in the future, so they buy oil futures now. Likewise, a cotton farmer may want to ensure a certain payout from the harvest next year, so he would go to the futures market and sell cotton short. If cotton goes down, he will lose on his production but gain in the futures market, and if cotton goes up, he will lose on the futures market but gain when harvest time comes. Either way he ensures the same level of profitability from his investment.

 

However, when you say banks have 2T in assets and 50T in derivatives, that's a pretty high leverage level for a bank. Although if many of those bets are hedging of other bets, it may not be so terrible. For instance, if you buy gold mine stocks and sell gold short, you can potentially create a situation where no matter if the price of gold goes up or down, you gain a profit. Yet your portfolio would look like you have much more money invested than you actually own, but that's because you are pretty much sure you can't lose on both sides. It's almost impossible for the price of gold to go up a lot and the gold stocks price to go down a lot at the same time. Another example would be betting on some stocks in one sector and betting against others. For instance, if you think Twitter is undervalued when compared to Facebook, you can buy Twitter stocks and sell Facebook stocks short, because you expect that if the sector goes up, Twitter will go up more, and if the sector goes down, Facebook will go down more.

[AnonymousCoward2]

back in 08 the banks were holding onto a lot of bad mortgages, when that bubble popped the banking crisis happened.  

 

Since then they have been even more reckless and have amassed derivatives exposure that dwarf their assets.  A big 5 bank like Morgan and Citi Group might have something like 2 trillion in assets and over 50 trillion in derivatives.  Plus, the banks are about 40% larger than they were in 08 and hold over 60 of American's assets. The derivatives market is basically like a massive high risk gambling game, and the derivatives casino operates on a global scale.  

 

A derivative is a 'legal' bet (contract) that derives its value from another asset (derivative) that has value, such as the future price of oil, bonds, etc.   

 

Let me guess, you have read the wikipedia article and does not get a shit out of it? Seriously, for what you are writing is just bull crap. Please do you research and save your thoughts on matters you apparently have 0 insight into. 

 

 

Right. I've never worked with derivatives but I get an idea of how they function.

 

Do you know which types of assets or sectors the banks are heavily invested in through derivatives?

 

And when you say the derivatives bubble will pop, do you mean most types of derivatives, or all? It seems to me that if the underlying assets go down in price heavily, and the derivative was a bet that they would go up, then the people who made that bet will lose, whereas the one who took the bet (or made the opposite bet, if possible) would gain.

 

I also suspect derivatives may be used for hedging. For example, an airline company may want to protect themselves from higher oil prices in the future, so they buy oil futures now. Likewise, a cotton farmer may want to ensure a certain payout from the harvest next year, so he would go to the futures market and sell cotton short. If cotton goes down, he will lose on his production but gain in the futures market, and if cotton goes up, he will lose on the futures market but gain when harvest time comes. Either way he ensures the same level of profitability from his investment.

 

However, when you say banks have 2T in assets and 50T in derivatives, that's a pretty high leverage level for a bank. Although if many of those bets are hedging of other bets, it may not be so terrible. For instance, if you buy gold mine stocks and sell gold short, you can potentially create a situation where no matter if the price of gold goes up or down, you gain a profit. Yet your portfolio would look like you have much more money invested than you actually own, but that's because you are pretty much sure you can't lose on both sides. It's almost impossible for the price of gold to go up a lot and the gold stocks price to go down a lot at the same time. Another example would be betting on some stocks in one sector and betting against others. For instance, if you think Twitter is undervalued when compared to Facebook, you can buy Twitter stocks and sell Facebook stocks short, because you expect that if the sector goes up, Twitter will go up more, and if the sector goes down, Facebook will go down more.

 

Alright, you at least seem to be slightly better informed than OP.

 

Listen:

 

1. Derivatives are widely used by various market participants ranging all from banks to small exporters, primarly to hedge against a price change. This is the standard procedure in almost all markets trading an underlying asset susceptible to price risk due to supply factors, i.e. oil/timber (but not Ralph Lauren clothes). 

2. Since the big bust in 2008 the prop mandate among the big banks is close to... 0. Basically all speculative trading as has been abolished in favour either market-making or agency trading, with the new regulations it has become impossible to play around like you could do before. Check out the Dodd-Frank act. - There are of course ways around this but, according to what I heard its pretty dry nowadays. 

3. The "problem" with the system is that different banks have sold different hedging instruments to different parties, creating a complex interweaved web, so if one part of the web breaks - the whole web breaks and shit hits the fan. The big issue in 2008 when Lehman failed was that banks did not even know which counterparty held which liabilities creating a panic run of headless chickens running around in a frenzy (litterarly).

 

Could it happen again? Probably. Will it happen again? Yeah I'd guess so, but it won't be Deutsche Bank in that case, because then you would not have Germany as a state left the morning after. DB knows it, Angela Merkel knows it. 

 

 

 

 

Not to forget that there are derivatives on derivatives 

 

 

Even derivatives on derivatives on derivatives on derivatives... Crazy shit, you better buy gold and lots of it, the derivatives are coming 

[AccuTron]

Physical gold and silver, get it in your hands. I think whatever you pay to get it it will be less than its real value due to the paper slips you mentioned. They've basically fractionally reserved gold so when those debts are called in and they don't have the gold to give people the actual supply/demand curve of gold will be realized and the price will skyrocket.

Lol, gross.

 

I'm just now viewing the M.Maloney video, and letting it all sink in.  I'm mentally reviewing the items of gold and silver I own, gifts from decades ago.  How is the best way to acquire more physical metal?  Jewelry shops, and their markup? -- tho' I gather from Maloney that the markup may still be submerged by eventual increase in value.  Are we required to register like we're buying a firearm if we buy more than some anointed amount of metal?  I know I can search this, but do you have starting links?  Thanks.

[algernon]

http://www.gainesvillecoins.com/

 

http://www.apmex.com/

 

I like the Buffalo 1oz pieces Gainesville Coins sell, they mint it and it has the lowest spot price of any 1oz piece I've found.

 

Sometimes Apmex will have their Apmex branded coins on sale which are comparable to Gainesville Buffaloes. Apmex also sells some nice Sunshine Mint 1oz pieces.

 

If you go with American Eagles you will pay a spot premium, sometimes $3 over spot. Whereas the Buffaloes or Apmex coin might be 79c over spot.

 

To get the lowest advertised spot price you have to buy a minimum, it's usually on a sliding scale. You also have to pay with a check or bank wire. Credit card purchases add quite a bit to the spot price.

 

There is no registration required nor price controls. I know someone who purchased $30,000 using a bank wire and they sent a box UPS'ed to their house (signature required).

 

I'm just now viewing the M.Maloney video, and letting it all sink in.  I'm mentally reviewing the items of gold and silver I own, gifts from decades ago.  How is the best way to acquire more physical metal?  Jewelry shops, and their markup? -- tho' I gather from Maloney that the markup may still be submerged by eventual increase in value.  Are we required to register like we're buying a firearm if we buy more than some anointed amount of metal?  I know I can search this, but do you have starting links?  Thanks.