Olie, my lovely wife, told me a silver story last night...similar to the 'shoe shine boy' mania story
[from wikipedia]"...Joseph P. Kennedy, Sr. - is said that he knew it was time to get out of the market when he received stock tips from a shoe-shine boy. Kennedy survived the crash..."
Olie was told to never sell silver because a new Dollar would make the Federal Reserve Notes worthless...the source was a clerk stocking goods at the 99 Cent Store.
I keep in mind many mania espisodes in financial history. One of my favorite books remains Manias, Panics, and Crashes: A History of Financial Crises written by Charles P. Kindleberger.
"...Classic Quotes: The market can stay irrational longer than you can stay solvent. John Maynard Keynes, (attributed) ..."
Jim Rogers Comments On Triple Digit Silver And Issues Warning: "Parabolic Moves Always Collapse" FSR: Silver in particular has been of great interest to my family. It looks like $50 silver is going to happen very soon. But Jim, will we see a triple-digit silver price in 2011?
JR: If it does, we’ll all have to sell, because then you’ve got a bubble, a parabolic move and all parabolic moves end badly. I certainly hope it doesn’t happen because I own silver and want to buy more. My hope is, silver and gold and all commodities will continue to go up in an orderly way for another ten years or so, and eventually the prices will be very, very high. Yes, we’ll have triple-digit silver, but if it happens this year, Jay, I would probably start to think about selling. www.zerohedge.com/article/jim-rogers-comments-triple-digit-silver-and-issues-warning-parabolic-moves-always-collapse
At $45 silver is held to satisfy manipulations focused on options expiring today...while the Dollar declines.
This will not last...I expect silver to pop above $50.00 soon where sellers will again get a chance to unload at an above $50 price...let me repeat my $51.25 selling resistance in the original post but do not hold me to that $51.25 because it is just a guess.
If you are loaded with physical metals, here is what one zerohedge poster did to hedge:
"....you may consider a short-term position in the ProShares UltraShort Silver ETF (ZSL on the New York Stock Exchange). This instrument is designed to move TWICE as much as silver bullion, but in the OPPOSITE direction.... I've personally bought some call options on ZSL ..."
HUGE DISCLAIMER: Call options on a double negative silver bet are very risky with a guarantee to lose time oriented premium...be careful if you do this.
The above betting against the silver rising trend using call options on a double inverse ETF is not what I am doing, at least for now.
Do you know what you call someone who bets by investing against the trend a lot?
Silver's rise (in US$ terms, at least) over the past several weeks has been nothing short of phenomenal.
The chart has effectively "gone parabolic," and people I've never met have started to e-mail me (in my capacity as a registered investment advisor) for advice on silver.
It doesn't matter whether it's silver, tech stocks, emerging markets currencies, or pork belly futures... any time these two events coincide (a parabolic chart pattern, and strangers asking me for advice), it sets off ALARM BELLS in my head.
I'm going to go out on a limb and say that right now, the fundamentals for silver DON'T matter. Many of the latest crop of silver "investors" have no clue about the fundamentals.
To try and divine what comes next, it's more useful to use a general framework for understanding financial markets than to look at the supply and demand characteristics of silver. Because, right now, the market is being driven chiefly by investor psychology.
It's a cliché to say it, but ultimately, all financial markets are driven by fear and greed. Actually, I'd argue that they're driven almost exclusively by fear. Let me explain...
In the initial stages of a bull market, it's the fear of the unknown that keep the masses out of an asset class.
They think to themselves, "Yes. I can see it's cheap. I can see the fundamentals stack up. But what if, blah blah blah. Why is no one buying it? There must be something wrong with it. Best to steer clear."
For those who overcome this initial fear, or skepticism, and do get into the market, once it starts going up and they have a profit, once again their primary, over-riding emotion is fear... fear of losing their profits. Or, even worse. The fear of a profit turning into a loss.
So, what do most of them do? They sell out for a small profit. That's why it is said that bull markets are constantly climbing a "wall of worry." And that's why ALL markets have corrections. Corrections happen when enough people are FEARFUL of losing the gains they've made so far, and start to sell out in large enough numbers to temporarily reverse the trend.
Near the top of a bull market, when most have finally overcome their skepticism, and the savvier participants have taken advantage of one of the numerous corrections to buy into the market, fear again comes to the fore. For those not in the market yet, even at this late stage, what finally pushes them in is the FEAR OF MISSING OUT.
All their friends and colleagues are cleaning up in the market. How stupid they would look if they don't get a slice of the "easy money" too. And so, they pile in like lambs to the slaughter.
I don't think we're at that point -- yet -- with silver. But we are at the stage where many people who are already in the market are FEARFUL of losing their profits.
On this basis, as a student of market psychology, I suspect a correction is overdue. Again, I don't claim to have any specific fundamental insight into the silver market. I am speaking from a general standpoint.
So what should you do?
If you own physical silver, the logistics of taking profits on your stash are probably quite complicated.
Shipping, and converting a large amount of physical silver to cash temporarily, may not be straightforward.
But there are other ways to soothe your "fear of losing your profits." You can buy temporary insurance against a correction. Or, if don't actually own any silver at the present time, you can speculate on a correction.
Long-term ETF positions are risky, but you may consider a short-term position in the ProShares UltraShort Silver ETF (ZSL on the New York Stock Exchange). This instrument is designed to move TWICE as much as silver bullion, but in the OPPOSITE direction.
For example, if silver falls 5% in a day, this security should GAIN 10%. Of course, it works both ways. If silver keeps on rising, then the price of ZSL will lose twice the amount silver rises by.
During this bull market, silver has already seen one "correction," during the financial crisis, of more than 60%. That was an anomaly. But, a typical 10% or 20% correction would not be surprising to see at some stage -- quite possibly soon.
Any time any market has gone parabolic, it has played out that way. (Indeed, a correction may already be underway as I write. I've just checked and I see silver is off by more than 3% in Asian trade).
Just so you know, my own money is where my mouth is. I've personally bought some call options on ZSL which will make me a tidy gain if silver suffers even a modest pull-back-- I put the trade on early in the day on Monday with silver above $48.
I'll have much more to say on silver, and other precious metals, in future missives, as we see how events unfold.
"History doesn't repeat itself - at best it sometimes rhymes" - Mark Twain.
Betting against the silver rising trend using call options on a double inverse ETF is not what I am doing, at least for now.
Good luck on any investments, but trees do not grow to heaven...but "The market can stay irrational longer than you can stay solvent." John Maynard Keynes, (attributed) English economist (1883 - 1946)
One way a near infinite result can happen is when hyperinflation completely destroys a currency...I doubt that will happen to the Dollar in the near term.
GRANTHAM: THIS TIME IS DIFFERENT
25 April 2011
Jeremy Grantham is convinced that this time really is different when it comes to the commodity bubble. His latest narrative covers the decline in natural resources and why we have moved from a period of low prices to a period of rising prices. This is fairly shocking commentary from one of the great bubble spotters in history and the king of mean reversion. He writes:
“The history of pricing for commodities has been an incredibly helpful one for the economic progress of our species: in general, prices have declined steadily for all of the last century. We have created an equal weighted index of the most important 33 commodities. This is not designed to show their importance to the economy, but simply to show the average price trend of important commodities as a class. The index shown in Exhibit 2 starts 110 years ago and trends steadily downward, in apparent defiance of the ultimately limited nature of these resources. The average price falls by 1.2% a year after inflation adjustment to its low point in 2002. Just imagine what this 102-year decline of 1.2% compounded has done to our increased wealth and well-being. Despite digging deeper holes to mine lower grade ores, and despite using the best land first, and the best of everything else for that matter, the prices fell by an average of over 70% in real terms. The undeniable law of diminishing returns was overcome by technological progress – a real testimonial to human inventiveness and ingenuity.
But the decline in price was not a natural law. It simply reflected that in this particular period, with our particular balance of supply and demand, the increasing marginal cost of, say, 2.0% a year was overcome by even larger increases in annual productivity of 3.2%. But this was just a historical accident. Marginal rates could have risen faster; productivity could have risen more slowly. In those relationships we have been lucky. Above all, demand could have risen faster, and it is here, recently, that our luck has begun to run out.
…Just as we began to see at least the potential for peak oil and a rapid decline in the quality of some of our resources, we had the explosion of demand from China and India and the rest of the developing world. Here, the key differences from the past were, as mentioned, the sheer scale of China and India and the unprecedented growth rates of developing countries in total. This acceleration of growth affected global demand quite suddenly. Prior to 1995, there was (remarkably, seen through today’s eyes) no difference in aggregate growth between the developing world and the developed world. And, for the last several years now, growth has been 3 to 1 in their favor!
The 102 years to 2002 saw almost each individual commodity – both metals and agricultural – hit all-time lows. Only oil had clearly peeled off in 1974, a precursor of things to come. But since 2002, we have the most remarkable price rise, in real terms, ever recorded, and this, I believe, will go down in the history books. Exhibit 2 shows this watershed event. Until 20 years ago, there were no surprises at all in the sense that great unexpected events like World War I, World War II, and the double inflationary oil crises of 1974 and 1979 would cause prices to generally surge; and setbacks like the post-World War I depression and the Great Depression would cause prices to generally collapse. Much as you might expect, except that it all took place around a downward trend. But in the 1990s, things started to act oddly. First, there was a remarkable decline for the 15 or so years to 2002. What description should be added to our exhibit? “The 1990’s Surge in Resource Productivity” might be one. Perhaps it was encouraged by the fall of the Soviet bloc. It was a very important but rather stealthy move, and certainly not one that was much remarked on in investment circles. It was as if lower prices were our divine right. And more to the point, what description do we put on the surge from 2002 until now? It is far bigger than the one caused by World War II, happily without World War III. My own suggestion would be “The Great Paradigm Shift.”
The primary cause of this change is not just the accelerated size and growth of China, but also its astonishingly high percentage of capital spending, which is over 50% of GDP, a level never before reached by any economy in history, and by a wide margin. Yes, it was aided and abetted by India and most other emerging countries, but still it is remarkable how large a percentage of some commodities China was taking by 2009. Exhibit 3 shows that among important non-agricultural commodities, China takes a relatively small fraction of the world’s oil, using a little over 10%, which is about in line with its share of GDP (adjusted for purchasing parity). The next lowest is nickel at 36%. The other eight, including cement, coal, and iron ore, rise to around an astonishing 50%! In agricultural commodities, the numbers are more varied and generally lower: 17% of the world’s wheat, 25% of the soybeans (thank Heaven for Brazil!) 28% of the rice, and 46% of the pigs. That’s a lot of pigs!
…This is an amazing picture and it is absolutely not a reflection of general investment euphoria. Global stocks are pricey but well within normal ranges, and housing is mixed. But commodities are collectively worse than equities (S&P 500) were in the U.S. in the tech bubble of 2000! If you believe that commodities are indeed on their old 100-year downward trend, then their current pricing is collectively vastly improbable. It is far more likely that for most commodities the trend has changed, just as it did for oil back in 1974, as we’ll see later.
…I believe that we are in the midst of one of the giant inflection points in economic history. This is likely the beginning of the end for the heroic growth spurt in population and wealth caused by what I think of as the Hydrocarbon Revolution rather than the Industrial Revolution. The unprecedented broad price rise would seem to confi rm this. Three years ago I warned of “chain-linked” crises in commodities, which have come to pass, and all without a fullyfledged oil crisis. Yet there is so little panicking, so little analysis even. I think this paradox exists because of some unusual human traits.”
Is it really different this time? I am not so certain. I am still a believer in the idea that a permanent bet on higher commodity prices is a bet against human ingenuity and if there is one great long-term bet over the course of human existence it has been on ingenuity….
I do not use contrary or sentiment indicators to decide on investing. Today's High Frequency Trading algorithims do not have emotions and are the majority of hot money trading in the stock market. But, the silver market is a private market meaning that human individuals mostly create the physical silver buying via ETFs, coins and industrial use buying. So, while I ignore contrary or sentiment indicators for investing I am taking a 'small comfort' in the number of bearish silver pieces that appeared on MarketWatch just today:
COMMODITIES Silver mania may vanish After silver’s stirring run, it's difficult to believe the ardor over the metal may wane. But, advises Myra P. Saefong, don't dismiss the notion out of hand. • Silver prices: Too hot to rationalize buys? • Silver fever is about to break, and break badly Silver prices: Too hot? Metal's "almost vertical ascent" is just one of many signals suggesting the silver rally is reaching a top, says strategist Richard Ross, who adds gold and copper offer better value. Laura Mandaro reports.
Last Edit: Apr 29, 2011 10:09:06 GMT -6 by jeffolie
Marketwatch just added another bearish piece since I made the above post this morning:
• Downside targets for silver (Minyanville)
Though silver had a bad day today compared to gold and platinum, it's risen 41% in the last 2 months, from ~$34/oz on Feb 28, to ~$48/oz on April 29.
Can't see much reason to be "bearish" on that kind of increase.
from: The Declaration of Independence: "all Men are...endowed by their Creator with certain unalienable Rights... to secure these Rights, Governments are instituted... whenever any Form of Government becomes destructive of these Ends, it is the Right of the People to alter or abolish it"
"....In what could be a precursor to much higher margins at the Chicago Mercantile Exchange, MF Global on Friday raised its margins on one contract of silver from $14,513 to $25,397, an increase of 75 percent. ..."
In what could be a precursor to much higher margins at the Chicago Mercantile Exchange, MF Global on Friday raised its margins on one contract of silver from $14,513 to $25,397, an increase of 75 percent.
Current margins on CME Group's [CME 295.77 -8.28 (-2.72%) ] exchange are $14,513 for a "New Initial" position in one silver futures contract, or about 6 percent of the value of the contract. The new rates posted by MF Global reflect margins of 11 percent of the value of the contract.
Earlier Friday, market activity indicated investors were unwinding short gold versus long silver positions. Gold futures for June [GCCV1 1556.40 25.20 (+1.65%) ] settled up $25.20 to end at $1,556.40, a fresh record high. Silver, on the other hand, finished about where it started the session, near $48 an ounce [XAG= 47.80 -0.01 (-0.02%) ].
The margin increase is being described by some as an atypical move for MF Global [MF 8.41 0.09 (+1.08%) ]. Sean McGillivray, vice president at Great Pacific Wealth Management, said that normally, MF Global moves in lockstep with the CME [CME 295.77 -8.28 (-2.72%) ].
"I would anticipate that the CME will be raising margins again due to the volatility of the daily trading range as well as to reflect the contract's intrinsic value," he said. McGillivray suggested markets could see some selling in silver when Comex electronic trade starts Sunday night at 6pm ET.
The purpose of increasing margins would be to keep both long and short investors from adding to positions in what has become an increasingly volatile market.
CME has already raised margins on silver futures twice in the past week alone. CME spokesman Chris Grams said any further increase in margins depends on volatilty.
"We are monitoring all our products. These decisions are based on volatility, it will depend on the markets," Grams said.
MF Global has not yet responded to a request for comment. MF Global is both a member of the Nymex and a ring dealing member of the London Metal Exchange. The company operates as a market maker and broker in metals futures, options, and over-the-counter swap products.
CORRECTION: An earlier version of this article mistakingly reported how high MF Global had raised its margins on one contract of silver. This error has been corrected.
And Scene: CME Hikes Silver Margin For Third Time In 7 Days, Raises Initial, Maintenance Margins By 12%
Last week two silver margin hikes of 9% and 10% did nothing, which is why this week's first hike (of many more) by 12% to the maintenance and initial margins was to be completely expected. We believe that nothing short of 100% margin (coupled with not one single ES margin hike by the Globex) will eventually placate the ardent Comex risk managers who are terrified their models may end up being wrong about "stuff." One thing is certain: the panic is palpable and the administration will stop at nothing to prevent the $50 limit order from triggering silver's surge to triple digits. We wish them all the best in this endeavor and are grateful for any and all BTFD opportunity.
Hoo boy, was Silver overbought, but you wouldn't notice it from all the Silver pumpers on various blogs. They even got to the point of attacking anyone who was critical of the run-up. Which BTW is a classic sign that you have a overbought market.
Now the pumpers are turning into knife catchers and buying into a collapsing market. Good, I hope it wipes a lot of them out.
And I loved the way they TPTB changed the margin requirements and castrated a bunch of Silver pigs. I guess they forgot what happened with the Hunt brothers.
Silver margin increases Monday to $21,600 ... six margin increases this year....
Margin requirements to increase 84%
At the close of Thursday, initial margin requirements for silver will cost $18,900 per contract, and maintenance margins will cost $14,500 per contract.
Are there margin requirements for gold?
from: The Declaration of Independence: "all Men are...endowed by their Creator with certain unalienable Rights... to secure these Rights, Governments are instituted... whenever any Form of Government becomes destructive of these Ends, it is the Right of the People to alter or abolish it"
Yes, gold and all commodities have margin requirements...another trading restriction that often is not important but at times is applied is called 'limit positions' meaning how many commodities contracts a single entity is allowed to have either short or long. Different trading rules apply in different exchanges so that the Asian or London exchanges often are close to the American commodities exchanges in margins & position limits but volume is important to easily trade for large institutions trying to take significantly large positions resulting in strange price movements in thinly traded exchanges on Sundays as opposed to the high volume American exchanges on Monday through Friday's close.
Gold is not as important as oil. Silver is even less important because governments and central banks to not stockpile silver while governments and central banks do stockpile gold.
Currencies are the biggest if you ignore the elephant...which is derivatives (mostly interest rate focused derivatives). Frank-Dodd was a legislative attempt to coral the elephants but has not yet been put into practice and already the elephants have managed to avoid Frank-Dodd regulatory attempts by watering down rules and regulations that have not yet even been formalized. This is often called regulatory capture and in specifics the regulator that has been captured by the financial elites is the CTFC which is named in Frank-Dodd to control the derivatives elephants.
Last Edit: May 7, 2011 10:04:48 GMT -6 by jeffolie
Silver lost 27% as weak money took losses to fast moving HFT algorithm trading houses...JP Morgan had NO LOSING DAYS last quarter in their trading.
Dollar strength came from Europe's decision 'not to raise rates'...how long will the Dollar Index trend higher? Europe's decision may be reversed or not under the new Italian coming in soon because Germany's political base shifted as the Green's continue to win regional elections.
I view politics and economics as 2 sides of the same coin.
'...When the dollar catches a bid, risk assets generally feel the pressure – virtually tick for tick. This week’s abrupt downturn in commodities prices hit the commodities currencies, providing impetus for a reversal in the dollar. A less than hawkish ECB yesterday provided the dollar another push. And today’s report that Greece may be contemplating leaving the eurozone further pressured the euro, in the process adding fuel to the dollar rally....we now have multi-Trillions following trend-following strategies, albeit through a vast array of hedge funds, derivative trading, ETFs or otherwise...enterprising hedge funds, “high frequency traders” and other speculators will do battle to extract profits from the enormous amount of unsophisticated, low conviction and “weak-handed” “money” that these vehicles enticed into the marketplace...."
The Gilded Age of Speculative Trading: Today was the one-year anniversary of the 20-minute, 1,000 Dow point plunge, commonly referred to as the “flash crash.” After this week’s freefall in silver and big drops in energy and commodities prices, market participants shouldn’t require an anniversary reminder to appreciate that we operate in an era of acute market vulnerability.
Last week, I delved shallowly into the “Rules vs. Discretion” monetary policy debate. My focus was on myriad dangers associated with the granting of too much leeway to central bankers. When it comes to “rules,” my primary focus would be on underlying Credit growth (by sector and type) and key economic variables, such as the Current Account and broad measures of financial and price stability. I strongly recommend that the Federal Reserve remove itself from the business of targeting or attempting to manage asset prices.
I was supportive of the extraordinary fiscal and monetary measures taken back in 2008/early-2009 to thwart financial collapse. At the same time, I was harshly critical when policy predictably gravitated from system stabilization to incredible measures with the goal of inciting rapid financial and economic recovery. And while there was much hoopla with respect to needed financial reform, the reality was that real reform was pushed to the back burner. The priority was to rapidly resuscitate a badly impaired Credit system and maladjusted Bubble Economy, and policymakers pushed the limits. They were more than willing to incite more Bubbles.
Many spoke of the Fed “pushing on a string.” Clearly, the traditional monetary mechanism - where the Fed would create additional bank reserves and lower bank borrowing costs, in the process supporting bank lending growth – was no longer operable. The banking system was impaired from previous Bubble excesses; demand for mortgage Credit had collapsed; and system Credit needs simply could not be met through the expansion of bank Credit. Besides, the Credit system some time ago had gravitated away from bank loans and to marketable debt securities. They may have ended up with one soggy noodle for pushing traditional bank lending, yet the Fed had along the way equipped itself with a fully-functioning electric cattle prod when it came to inciting the financial markets. It’s proved too empowering.
The Bernanke Fed has fully embraced the doctrine that the main monetary policy transmission mechanism these days is through the financial markets. Dr. Bernanke has essentially telegraphed that the Fed is targeting higher stock prices as a mechanism to bolster confidence, household net worth, and economic recovery. This follows a less explicit reflationary policy course about a decade ago to use cheap mortgage Credit and housing inflation to do battle against the “scourge” of deflation after the bursting of the technology Bubble. Again, I don’t want an “activist” Fed intervening in the marketplace with the intent of manipulating market perceptions, liquidity or asset price levels.
The modern hedge fund industry was born during the early-nineties period of “reflationary” policymaking. The Greenspan Fed collapsed interest rates (all the way down to 3%!), while orchestrating a steep yield curve to help recapitalize the banking system. Speculators made a killing playing yield curve “carry trades” and various “borrow cheap and lend dear” schemes made possible by the Fed. When various Bubbles burst along the way, Washington (the Fed and GSEs, in particular) measures repeatedly backstopped the industry (the 1994 bond bust, Mexico, SE Asia, LTCM, and the bursting of the tech Bubble come to mind). What appeared to be a major industry shakeout in 2008 somehow morphed into the Gilded Age of Speculative Trading.
So, these days a rejuvenated “leveraged speculating industry” is bigger than ever – having profited handsomely from the most intrusive policymaker market interventions in modern history. At the same time, so-called “financial reform” incited a mass exodus of Wall Street bank/brokerage “proprietary trading desks” out to the unregulated hedge fund realm. Today’s supersized “masters of the universe” are indeed the masters of profiting from government policymaking.
Meanwhile, there’s been a manic proliferation of “exchange-traded funds.” This trend is dangerous on many levels. If the enormous speculator community and proliferation of derivatives weren’t enough, these vehicles further exacerbate trend-following market speculation. When government policymaking seeks to spur higher asset prices, rest assured that the hedge funds will fully exploit this “inefficiency.” And once this trend is well in place, just watch a wall of liquidity jump aboard through ETFs and any number of different vehicles. Then, when the trade has become sufficiently “crowded,” let the games begin. The enterprising hedge funds, “high frequency traders” and other speculators will do battle to extract profits from the enormous amount of unsophisticated, low conviction and “weak-handed” “money” that these vehicles enticed into the marketplace.
It was an interesting week, to say the least. Down 27%, silver suffered its biggest weekly decline in 35 years. Crude oil sank almost 15% from Wednesday’s high to today’s low. Over this same period, the Goldman Sachs Commodities index dropped 11%. The currency markets turned quite volatile, while U.S. equities were rather resilient. As usual, emerging debt markets were bulletproof.
The commodities downdraft meted out some pain. The degree of damage done to the global “risk on” trade is difficult to gauge. On the one hand, these kinds of downward moves impose de-risking and de-leveraging. Similar to 2007/08, a policy-induced speculative run in the risk markets has created a backdrop favorable for nurturing a liquidity crisis. “Bull moves” tend to create self-reinforcing liquidity, as speculators borrow to finance their bets. If the borrowing/speculating is of significant scale, the amount of liquidity creation can work to inflate market prices more generally. The problem arises when highly speculative markets reverse course, setting in motion de-risking, de-leveraging and faltering market liquidity – potentially across asset classes and, perhaps, systemically.
Market liquidity analysis remains extraordinarily challenging. I have posited that there are important similarities between the current environment and that from 2008. And a week like this one does bring back memories. Could the break in commodities prices – and resulting de-leveraging – prove the initial crack in the global liquidity Bubble? Is this the start of market contagion, where trouble in one market – and inklings of risk aversion throughout the leveraged speculating community – portends vulnerability in other markets?
I see this week’s market developments as ominous in the context of the upcoming end to QE2. The Fed’s latest episode of quantitative easing fueled rampant speculation and liquidity overabundance. Such a circumstance creates market dependency for ongoing liquidity abundance and speculative excess. And that’s why they’ve for centuries been referred to as “Bubbles.” Come July, markets will be acutely vulnerable to any significant episode of de-risking/de-leveraging. The end of the quantitative easing – “liquidity backstop” - operations will see an immediate jump in market contagion risk. But as of right now, the markets can still anticipate a number of the Fed’s $15bn or so weekly liquidity injections. So the liquidity backdrop might be somewhat less tenuous.
The scope of “dollar carry” trades (selling short positions in low-yielding dollar instruments to fund higher yielding/returning assets including commodities, foreign equities/bonds) remains an important unknown. Beyond the disconcerting commodities markets, this week was also notable for confirming potential market vulnerability to a rising dollar. When the dollar catches a bid, risk assets generally feel the pressure – virtually tick for tick. This week’s abrupt downturn in commodities prices hit the commodities currencies, providing impetus for a reversal in the dollar. A less than hawkish ECB yesterday provided the dollar another push. And today’s report that Greece may be contemplating leaving the eurozone further pressured the euro, in the process adding fuel to the dollar rally.
As a seemingly long trading week comes to an end, it would be helpful to know how severely the commodities stung the hedge funds - and what the Greeks are up to. These might somewhat help us gauge near-term market contagion risk. Acknowledging that things are especially unclear and uncertain in the short-term, let’s focus instead on the intermediate. The global “risk on” trade has suffered a meaningful crack – as the clock ticks down on QE2. Add commodities to emerging equities in the now expanding list of poorly trading markets. And let’s not forget that we now have multi-Trillions following trend-following strategies, albeit through a vast array of hedge funds, derivative trading, ETFs or otherwise. It doesn’t – it wouldn’t – take much for huge positions to suddenly reside in “weak hands.” How much has flowed into any number of risk markets for the sole reason that these markets have been moving higher? It's when highly speculative markets perceive – and presume – abundant liquidity that serious market liquidity issues tend to ferment.
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Apr 14, 2021 1:41:25 GMT -6
Susan George: Thank You for your support!
Dec 21, 2020 17:18:51 GMT -6
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Nov 29, 2020 17:15:41 GMT -6
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Nov 13, 2019 16:18:54 GMT -6
ConGM: Please direct me to the full article by Susan George. Or email to firstname.lastname@example.org.The provided link is broken. I'd like to read it in preperation for a course. Much appreciated.
Nov 13, 2017 15:19:23 GMT -6
ace comando: Well, it took me several days and a lot of code writing to sift through the millions of achieved pages on the Wayback Machine achieves. Was about to give up when a colleague gave me mining script to look at all archived pages whether displayed or not. And
Feb 24, 2017 19:44:10 GMT -6
unlawflcombatnt: I've now changed the colors on the board to something more readable. At least now readers can find the sign-in tab.
Jul 6, 2014 22:58:23 GMT -6
unlawflcombatnt: OldUser-the sign-in area is in the dark area immediately under the red section that says Economic Populist Forum. It's almost impossible to see, unless you know where to look. This was ProBoards idea, not mine.
Jun 12, 2014 11:52:53 GMT -6
OldUser: There's no link on here to sign on or login. Where'd it go?
May 29, 2014 8:44:44 GMT -6
jeffolie: One might short a bull ETF to gain the decay but this requires a margin position subject to changes imposed by the exchanges & brokers
Oct 26, 2013 13:26:07 GMT -6
jeffolie: Holding a stop loss in these algo dominated markets almost always means the algos will hit your stops
Oct 26, 2013 13:20:09 GMT -6
jeffolie: Even so, these leveraged ETFs do not create margin calls nor expiration dates thus allowing one to hold indefinitely
Oct 26, 2013 13:17:52 GMT -6
jeffolie: Yes, the ETF features fading/leveraged decay because the futures and/or options used decay plus the administrative costs rise the decay, declining value ... I accept this as a cost and feature of all ETFs that purchase futures/options to maintain price
Oct 26, 2013 13:15:38 GMT -6
mimzy: jeffolie ~ I've been reading/lurking you for a year or three now and was wondering if your could you explain how you overcome quantum fading/leveraged decay in your ETF short position of the DJIA?
Oct 25, 2013 20:46:26 GMT -6