Wysiwyg
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Gold broke support level in the last few hours.
Gold Price - Where is it heading?
- Thread starter guycharles
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DeepState
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Fell on BoJ announcement and then hit a pile of stops at around 6:30pm AEDT. I find it weird that this would occur with a step-up of QE and a material acceleration of growth in BoJ balance sheet size. But that's in USD.
It clearly took the market by surprise, rallying the JPN equity market and weakening the currency. USD climbed against most currencies on announcement as would be expected (except against GBP, which is on a clearly tightening path). This pushed the price of gold down in USD. When the stops were hit in gold, a few currencies moved at the same time towards USD weakness. These moves were not as sharp as for gold in USD. I do not see an obvious catalyst for these movements other than hitting stops and making portfolio shifts as would occur if an investor was holding gold with an alternative numeraire in mind (like I do). USD weakness does not seem to be a reasonable result of weaker than expected retail results in Europe that surrounded these activities.
In terms of JPY, gold fell about 2% vs USD over the reaction time from BoJ announcement. The JPY depreciated by roughly the same amount. About half the fall in gold vs USD was clearly stops. So the most obvious play, involving gold which is to buy Gold in JPY, was in the right direction but more muted than I would have thought. Further, depreciation of JPY vs USD and GBP performed as expected.
QE/LSAP is accelerating, not declining. Japan is going vertical.
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Vertical indeed. Someone must have been caught short, nikkei has been absolutely flying!
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Doesn't seem to have the slightest co-incidence with the end of US QE does it now??
We/they are in uncharted territory, the norms don't apply?
There won't be any interest rate rises by anyone - we/they could already be in reccession?
Japan is finished. 40c in the dollar is borrowed. 650% total debt/gdp..........GPIF loses it all in the next sell off....
http://fortune.com/2014/10/31/japan-monetary-stimulus-debt/
China has an interest bill in the Trillions.......property crashing
US unfunded liabilities is about $100Trillion.....who cares?
Global derivatives (playthings bought on margin ect) exposure is something like $400Trillion
As Doc Neeson sang - "This is it folks, over the top"...................(what song??)
Trembling Hand
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Got a source?
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For whats it worth, i believe gold has found a temp low.
May even develope into a false brk (of the lows)
May even develope into a false brk (of the lows)
CanOz
Home runs feel good, but base hits pay bills!
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Agree, maybe some short covering up into the break....
DeepState
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As mentioned, US end of QE as with GB with upward expected trajectory of future official rate paths led JPY to depreciate most against these currencies on announcement of this development.
It may also be related in a longer term sense that taper and weakening JPY did not produce sufficiently improved circumstances in Japan which then required additional action to be undertaken.
Japan is in uncharted waters. It is breaking all the standard rules that might be applied in a more free flowing and individualistic society. But it is not. However, I believe they are now "all-in". This is pretty much crash or crash through. It is likely they are in the exact scenario that Larry Summers was talking about when referring to Secular Stagnation. From what I can tell, Japan is the poster child. Further, in seeking to drive through this, it is pressing the brakes (serious problems in microeconomic reform) whilst jamming the accelerator (BoJ, GPIF, Government spending) and dragging along an anchor (huge debt which is unproductive). Yet it holds. Ask yourself why. Ask yourself what it would take to break it. Why is Japan not seeing bonfires of JPY in Rappongi?
Watch for this. Does inflation rise along with increased new fixed capital expenditure? That would be good. It would provide some semblance of a platform from which to get itself on the straight and narrow. It would be helpful if BoJ were able to engineer a near zero and flat government curve to help things along. It can do this. If you observe inflation rising without lots of positive stuff going on...stand back a bit....no, further back.
I'll leave this to others more musically inclined.
explod
explod
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End of the month settlements. Check."harvy organ, per silverdoctors"
its all paper and that is why I love physical.
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The report shows that JPMorgan’s holding company, with (just) $2.5 trillion in assets, has over $68 trillion in notional derivatives.
Notional derivatives increased $6.1 trillion, or 2.7%, to $236.8 trillion
http://www.occ.treas.gov/topics/capital-markets/financial-markets/trading/derivatives/dq214.pdf
Note graph 1 - the big boy's have found a new toy?
In fact I was probably too conservative - some estimates put it at over $1.5Q notional.
Obviously the key word is 'notional' although the point being that there is leverage at play right through the system, this being just one part.
Getting 'real' again - to me it looks like the 'bang for buck' factor on leveraged stock buying is running out of steam, and despite the vertical recovery in stocks another correction is very close? But will the CB's be able to continually save the markets?
Trembling Hand
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As always you cannot build a good conspiracy theory with maths. You guys always do the 2 + (-2) = 4
but the maths is 2 - 2 = 0
Tell me Unc if I'm long the Dec 3 years and short Mar 3 years what is my exposure?
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I'm sure the traders and managers at Bear Stearns would like to know the answer coz they too thought it was a zero sum game, but found out the hard way that it wasn't??
All it needs is a IR swap hiccup and the NCCE will explode again......
Warren hates them too....
http://www.investopedia.com/articles/optioninvestor/08/derivative-risks.asp
Trembling Hand
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You are not answering the question that directly contradicts your data. It has nothing to do with a zero sum game. But I would expect nothing less from a gold bug Unc.
Step 1 Get some figures
Step 2 Do not investigate what they are (very important)
Step 3 Add them all up in a totally incorrect way to make them look scary even though they are totally BS
Step 4 Hang on to your precious Confirmation bias
Step 5 Bring them out ever time the world doesn't fit.
Ha! Didn't he place a huge derivative bet on the S&P500 in 08?
DeepState
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The largest holding in the BRK-US portfolio is Wells Fargo. Its gross notional on interest rate derivatives not considered as hedges was USD 4 trillion.....there are others. For a guy who purportedly hates derivatives, it sure is odd that the biggest holding in his portfolio is a company whose gross derivatives exposures approximate a quarter of US economy.
pixel
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Apparently, the price of gold is forming a particular chart pattern, known to T/A insiders as "TVC":
https://twitter.com/CNBC/status/529464332107911169/photo/1
https://twitter.com/CNBC/status/529464332107911169/photo/1
Value Collector
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Buffet has no problem with derivatives, Berkshire Hathaway is one of the biggest insurance business in the world, and insurance is basically a derivative business.
Buffet also sells a whole heap of long dated put options, I think he see them as no different than being paid to have a buy order sitting in the market on the stocks and market he likes or has judged to be mispriced in his favour.
I think when buffet talks about derivatives being bad, he is meaning that they are dangerous because it allows you to leverage up so much, and you can be wiped out by being over leveraged. But when he sells put options on $1billion of stock, the fact he has $40Billion cash and wouldn't have a problem taking the stock makes it a lot different to a firm that uses their $10 Million capital to go long or short on a derivative with $100 Million exposure.
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You are not answering the question that directly contradicts your data. It has nothing to do with a zero sum game. But I would expect nothing less from a gold bug Unc.
Step 1 Get some figures
Step 2 Do not investigate what they are (very important)
Step 3 Add them all up in a totally incorrect way to make them look scary even though they are totally BS
Step 4 Hang on to your precious Confirmation bias
Step 5 Bring them out ever time the world doesn't fit.
Ha! Didn't he place a huge derivative bet on the S&P500 in 08?
I am not following you. I have quoted notional from the OCC, unless you think they are wrong too? The other figures are notional estimates by various people. So you think all is fine & dandy with the likes of JPM and their notional exposure?
Would you like to offer a view as to how all this will end up?
DeepState
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I don't think for a minute that Buffett is against derivatives carte blanche. I raise the example of Wells Fargo as it is the most significant counter-argument when observed on the basis of gross notional. It highlights that a phrase like financial WMD implying they (derivatives) are just disasters waiting to happen is overly generalizing his view.
Buffett is absolutely in the derivatives business. His concern is about misuse. On that, he is obviously right.
On the details, Buffett has actually sold gross notional on the index put options (over four indices) of $32bn. Furthermore, he has undertaken CDS swaps with maximum loss of $8bn. These are not generally collateralized. To your example, it is technically possible for BRK to bankrupt because of large catastrophe losses (where retentions go into the multi-billions) mixing in with adverse movements in derivatives as above. The likelihood of that, however, is pretty darn remote. Still, it isn't zero.
The super-senior tranches on ABS related securities on the balance sheets of now defunct/absorbed investment banks were thought to be bullet proof too, until they weren't. I don't think Warren is pushing his balance sheet quite as hard as the IBs were though.
Trembling Hand
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Yes the way you have used them is absolutely wrong because you don't understand what you are quoting. That is my point yet again. You read the headline number and make the worst assumption based on nothing more than fear and hope of disaster. Sure in one way they are correct figures but you cannot actually read much in to them.
These figures cannot be used to make statements like this,
They have simply done this,
(Total number of current contracts open long X contract value) + (total number of current contracts open short X contract value) = value of derivatives.
That is how you get your scary number. But it is not the actual value. Just above the bit you cherry picked on page 9 to get your scary figures is this,
The reason these values are rubbish is because most are arbs where the real value is like I said 2-2 = 0 (in reality when they are opened they are 2-1.99999998 = 0.0000002)
So take a simple 2-YEAR/10-YEAR CURVE trade. (page 5 here)
To get the notional derivatives value you do this,
448 2-year short times contract value (448 * $200,000 = 89,600,000 )
100 10-year long times contract value (100 * $100,000 = 10,000,000 )
Notional derivatives value = $99,600,000 Whooooo looks like a big scary number hey? But we are talking $10,000 move per basis point per side and where one side gain is robbed by the other sides loss. There is nothing here. If the value of these two sided trades moves more than 0.1% per day we are talking exciting times.
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