"If you're going to panic, do it fast and beat the crowd." ~ Jesse Livermore

Thursday, March 14, 2013

Profiting from a Rigged Financial System


Yes, the Financial System Is Rigged. Why Shouldn't You Profit From That Knowledge? - Businessweek: " . . . Now, we see housing ascendant again. Corporate profits are breaking records, thanks in no small part to a Federal Reserve—the wealthiest bank in the world—hell-bent on seeing both things happen. “At least the first part of this rally is a rock solid foundation,” remarked financial blogger Barry Ritholtz. “The second half, the argument goes, is built on inorganic matter, primarily Fed liquidity and generosity.” By his estimate, the Dow would be 20 percent to 30 percent lower, absent the Fed’s finger on the scale. “You cannot,” he said, “understate its impact on corporate earnings.”. . . ."

Big Banks and Derivatives: Why Another Financial Crisis Is Inevitable - Forbes: " . . . . Bad as these scandals are and vast as the money involved in them is by any normal standard, they are mere blips on the screen, compared to the risk that is still staring us in the face: the lack of transparency in derivative trading that now totals in notional amount more than $700 trillion. That is more than ten times the size of the entire world economy. Yet incredibly, we have little information about it or its implications for the financial strength of any of the big banks. Moreover the derivatives market is steadily growing. “The total notional value, or face value, of the global derivatives market when the housing bubble popped in 2007 stood at around $500 trillion… The Over-The-Counter derivatives market alone had grown to a notional value of at least $648 trillion as of the end of 2011… the market is likely worth closer to $707 trillion and perhaps more,” writes analyst Jenny Walsh in The Paper Boat. “The market has grown so unfathomably vast, the global economy is at risk of massive damage should even a small percentage of contracts go sour. Its size and potential influence are difficult just to comprehend, let alone assess.”. . . .


Dow passes intraday record; markets undaunted by Washington gridlock - The Washington Post: " . . . The Dow’s record high confirmed that the ongoing political paralysis in Washington has failed to spook the markets much in the past year. As lawmakers and President Obama lurch from one fiscal deadline to the next — from the debt-ceiling crisis in 2011 to the fiscal cliff to the steep budget cuts triggered last week — the markets have soldiered on with hardly a bump. “The stock market and the American public are looking at the political theater with a jaundiced eye,” said Ted Weisberg from the New York Stock Exchange, where he has been a trader on the floor for more than four decades. The markets hardly reacted on March 1, when severe domestic and defense cuts went into effect. The Dow Jones Industrial even rose 0.25 percent that day. A popular index for gauging fear in the markets called the CBOE Volatility Index, or the VIX, dropped nearly one percent. Wall Street’s reactions have developed into a pattern of near-indifference followed by optimism when a political resolution is found. In the days building up to the fiscal cliff at the end of last year, the markets were sanguine. But when a compromise was reached on New Year’s Day, the Dow surged more than 308 points, or 2.35 percent. The S&P 500 jumped 36.25 points, or 2.54 percent. Many on Wall Street feel they’ve seen this movie before, even dismissing the dire warnings of politicians as all theater. “My sense is that our president and the White House are crying wolf,” Weisberg said of President Obama’s warnings about the sequester last week. Yu-Dee Chang, chief trader at Ace Investment Strategists in Vienna, said the impact of the sequester is being felt more strongly in Washington than on Wall Street.

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