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Let’s Not Fall Into The Gap: Balance and Harmony Pay Well Indeed
Because of official 10.2% unemployment (22% according to shadowstats.com), many unemployed boomers trade from their homes without industry dedicated high-speed internet or telephone lines. Cell phones drop calls and telephone lines give busy signal messages to try your call later.
In 1987 many retail traders barely acknowledged international markets, let alone traded them. Nonetheless, on Black Monday 19 October 1987 the –15% decline in the Japanese Nikkei and the closing of the London Stock Exchange due to record winds from a hurricane led the New York markets down 22%.
Today, the world is one, financially speaking.
The search for better returns in BRIC Brazil Russia India China emerging markets made capital much more volatile. Another rout in any of these more volatile emerging market nations could trigger similar in the USA, another tail wagging the dog scenario.
6. Derivative Portfolio Insurance:
In 1987 portfolio insurance had come of age. Prominent Banks and Pension funds employed it to hedge their portfolios. The President of the NYSE and the Chairman of the SEC warned it was not really insurance, but leveraged futures derivatives could exaggerate market volatility by selling into a decline, the tail wagging the dog..
Today we have one of the most successful investors of all time decrying derivatives as weapons of mass financial destruction while using them to place all-in market bets for his company. We used to call this plunging.
We have the balance sheet book value of the biggest leveraged banks crippled by bad loans, toxic mortgages and Credit Default Swap and Interest Rate derivatives. They may be neither marked to market, publicly traded, regulated, standardized nor transparent. They may come due years or decades in the future building obligations 8 times the size of the world economy.
We’ve seen repeated derivative failures including Portfolio Insurance, LTCM Long Term Capital Management et al with Nobel Laureates and Black Swan events:
http://en.wikipedia.org/wiki/Black_swan_theory
