Capitol Hill Blue Forums Political Issues Finance, the economy & Economics Prediction

...it's going to be a bumpy night - Bette Davis, All About Eve

It's the Vegas style that gets me with derivatives. If it was Vegas style gambling, then there are winners too. You cannot make a bet without someone booking it, right? Every bet has a winner and a loser. If the losers can't pay, then maybe it's time to play a little old Vegas style, and kneecap a few executives, so the word gets out on The Street.

Derivative = Disaster

No way out.

CS is right on!

You better be right cuz I just restructured all my mutual fund distributions based on this!!

(well, actually, I did it yesterday, but only because I had the same thought you present in public, so I now have someone to blame if it turns out you (we) are wrong. And since the trades won't post until after COB today, you wont' be able to defend yourself by noting that I made my trade before you made your prediction)

Glad to read that someone else shares my optimism.

A lot of the talk in this forum (and elsewhere as well) about derivatives is a bit misguided when people start talking about the value of them.

There is a thing as "face value" or "nominal value" which is in the trillions as Itstarted and Republicae-Seditionist have pointed out.

But the market value is much lower.

For example: If I purchase a "call" on a stock with a nominal value of $40 and I pay $2.50 what is the actual value of that derivative? The market value for that "call" changes daily depending on how close the value of the stock is to $40. However, if the value of the stock drops down to $15 (as it has happened with many stocks lately) the value of that call is now $0 or close to it.

So how much have you lost? Did you lose $40??? No, you lost your investment of $2.50.


As far as which company has actually "won" from all these Vegas-style bets??? Only one comes to mind and that is Southwest. They saw the market problem and bought a lot of oil futures up to arond $100 and that is why they were able to steer through the $140 price of oil with little or no cuts to their flight schedule and they did not add extra fees.

Ranting is a funny thing, isn't it? We tend to spend a lot of time trying to convince others that what we think is right.

Am guilty, for sure.

In any case, when it comes to real dollars, and not just one person's theory, it does become important. Since I am so certain in my own mind that our financial crisis is nowhere near over, and while we may have market ups and downs with huge swings, it's not a good time to get in for the long term, unless you realize that it's "at risk" money. Good for quick on the trigger Day Traders, but extraordinarily risky for anyone who is relying on "advice"... from wherever. Beware anyone who tells you the market is bottoming.

I would seriously suggest that you take time to read this extremely interesting and factual overview of the current economy. Not only is it easy to understand, but it brings into play many of the subjects that we all have been examining on an individual basis. The author has done an heroic job of explaining what our government cannot comprehend. It may well resolve many of the points mentioned in our blogs.

Good luck, all.
Financial meltdown 101

So, was The Fed wrong because they lowered or raised interest rates?

Being neither a player nor very knowledgable about all this, which of course entitles me to lots of opinions , it always has seemed to me that the Fed became an instrument of a policy that took root in the late 1950's. Roughly that policy was to create world domination through the economic machine of the US as well as its military.

That policy would have as its focus economic expansion and bigger markets. Key to this is the expansion of credit. A sound policy would be committed to stability with modest growth gauged by the welfare of the American people. It would not be keyed to corporate profits nor the stock market.

It has long been a tenet of those who advocate for less government intervention that corporate profits and the stock market should be left to their self regulation. This became the dominant philosophy once again during the 1950's and what we are experience today is akin to an overgrown anaconda thrashing around when it bites of too much prey.

A Knight, the FED manipulates rates up and down, creating through its actions booms and busts. It attempts to control market forces that are beyond its control and the results are, as we see, far less than satisfactory. It is always either too aggressive or too complacent. The best judge of rates is the market itself.

By the way, as far as predictions go, read the new GOA Report which basically states, in so many words, "the end is near"!