.. Posted August 30, 2007 Report Share Posted August 30, 2007 I just read an article about a huge bet in stocks (I say bet cuz I think the share market is just gambling anyway). It seems some investors are betting tens of millions of dollars that the market is headed for a selloff -- a major selloff at or around Sept 21 as this is the due date of these contracts. Some very large player -- some huge, ginormous player -- is positioned either to make an absolute fortune or to take a bath like no one has seen in a long time. The structure of this set of trades is about as stupid as stupid gets... Unless it's not. Remember the odd market movements before 9/11/01? . The way I see it, anyone who would put that kind of insane exposure on a poker table either has twelve aces in his five-card hand, or he's trying to scare everyone else into folding. The problem with the analogy is that, in this poker game, folding just isn't going to happen. This isn't a bluff; it's a bet. And anyone who would place a bet like this knows something: he knows the financial markets of several countries are about to go to Hell, or he knows that he's about to become the poorest man the world has ever known. Either way, 10K of contracts constructed like this takes more guts than anything I've seen before. Personally, I have no desire to even look at what's become of that situation since it opened up last week. Maybe you will. Cheers, SD -- slightly afraid... Link to comment Share on other sites More sharing options...
Faustian Posted August 30, 2007 Report Share Posted August 30, 2007 Well the situation is rather dire..the Fed have been pumping billions more into the banking system again this week. It doesn't appear to be solveable in the short term...who knows, the 'big' correction has been coming for a while now...according to the financial soothsayers...maybe it really is going to happen this time. I however don't care one bit. Link to comment Share on other sites More sharing options...
TheCorinthian Posted August 30, 2007 Report Share Posted August 30, 2007 Its crap. That story comes out about every year. We learned several times over the past 7 year that in a spiral like the one "bet" on, the fed will simply suspend trading for the day. Here is a similar conspiracy theory: http://www.snopes.com/rumors/putcall.asp Link to comment Share on other sites More sharing options...
.. Posted August 30, 2007 Author Report Share Posted August 30, 2007 This has nothing to do with that. If you think so, then you do not understand the situation. Put away your right-wingy knee-jerk "thought" process for a second (i.e., "the economy is fine"). I am not even saying that there is anything illegal going on. Just a huge bet has been made on a (IMHO) wild-ass long shot -- that is not speculation, but fact. Think of it as someone putting $1M down on a 90:1 horse at the Kentucky Derby. That's interesting. That action is done by someone either reckless & stupid, or by someone who has info that others do not. And people/institutions with that kind of money are generally not stupid. So therefore, I ask "what do they know that I do not?" And if their bet is correct, it bodes ill for all of us. Cheers, SD -- buy on rumour, sell on fact Link to comment Share on other sites More sharing options...
teddy Posted August 30, 2007 Report Share Posted August 30, 2007 I don't think this is crap at all, I bailed out of the stock markets back in June because I thought the crash would come in July/August. I still think it will come before the year is out. In some ways I feel sorry for the people who will lose out on savings and pensions but then again it will be a great time to make some money when the markets reach bottom. Link to comment Share on other sites More sharing options...
TheCorinthian Posted August 30, 2007 Report Share Posted August 30, 2007 I am not arguing that it is not possible to put "puts" on the US market. (But I do think the market is fine.) It is the story that is just not true, in fact it looks to me like MSNBC was having a slow news day. It really does not even make since as people are buying puts and calls all the time. Nothing new there at all. As I pointed out, the FCC would simply spend trading before a market correction got even close to 1/3 the value. They did it in 2001 and they have done it since then for individual stocks so if indeed the whole market was going down the tubs they would again stop everything and let people cool off. Black Monday back in 1987 taught them that. ( http://en.wikipedia.org/wiki/Black_Monday_%281987%29 )So the idea that a fund or an individual would buy puts on the market that pay if it drops 1/3rd is ludicrous, but it does happen as it mentions in the article. But for a serious decline of value of 50% would equate the frailer of every bank in the US and I donâ??t believe the US Government will let that happen... and with good reason. But, again going back to 1987, even after a pretty much one day 22% drop, nothing else happened. The US went on and the same government was elected again in 1988. That said, major investment firms bet wrong all the time. That is why just about no financial consultant will ever take a job for 10% of everything he makes you over the S&P. If you screen Financial Consultants by offering to compensate them with a percentage (say 10-20%) of the earnings they yield over t-bills, it is a very brief interview. When I told one of my guys for his 1.5-2.0% I expected him to beat an essentially free S&P index fund by at least a point or two net fees, he almost died. Link to comment Share on other sites More sharing options...
WorldFun Posted August 30, 2007 Report Share Posted August 30, 2007 hmm only time will tell it exactly like it is Link to comment Share on other sites More sharing options...
chuckwoww Posted August 30, 2007 Report Share Posted August 30, 2007 Well the situation is rather dire..the Fed have been pumping billions more into the banking system again this week. That's the part that puzzles me. Does it have a name in economics? Free market socialism? Managed capitalism? Link to comment Share on other sites More sharing options...
TheCorinthian Posted August 30, 2007 Report Share Posted August 30, 2007 Well the situation is rather dire..the Fed have been pumping billions more into the banking system again this week. That's the part that puzzles me. Does it have a name in economics? Free market socialism? Managed capitalism? Read the wikki link on blak Monday. Link to comment Share on other sites More sharing options...
chuckwoww Posted August 30, 2007 Report Share Posted August 30, 2007 Well the situation is rather dire..the Fed have been pumping billions more into the banking system again this week. That's the part that puzzles me. Does it have a name in economics? Free market socialism? Managed capitalism? Read the wikki link on blak Monday. I read it but I'm no wiser. I guess I just can't reconcile bank bail-outs with laissez-faire capitalism. Link to comment Share on other sites More sharing options...
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