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Category Archives: Trading

Chart: Record Number of Exchange-traded Funds Launched This Year

ETF inflows top $1 Trillion for first time

Source : Wall Steet Journal

Financial Contagion!

Jim Rickards wrote . . . . . . . . .

There has been a litany of bad news recently, including the U.S. August humiliation in Afghanistan, China’s aggressive actions against Taiwan and increased tensions with Iran, North Korea and Russia.

It will take the U.S. years, possibly decades, to recover from the debacle of August 2021 and the collapse of American prestige. All of these geopolitical events combine to undermine confidence in U.S. power.

When that happens, a loss of confidence in the U.S. dollar is not far behind.

And, perhaps most importantly of all recent bad news, is a market meltdown and slowing growth in China.

Greatest Ponzi Ever

I’ve long advised my readers that the Chinese wealth management product (WMP) system is the greatest Ponzi in the history of the world. Retail investors are led to believe that WMPs are like bank deposits and are backed by the bank that sells them. They’re not.

They’re actually unsecured units in blind pools that can be invested in anything the pool manager wants.

Most WMP funds have been invested in the real estate sector. This has led to asset bubbles in real estate (at best) and wasted developments that cannot cover their costs (at worst). When investors wanted their money back, the sponsor would simply sell more WMPs and use the money to pay back the redeeming investors.

That’s what gave the product its Ponzi characteristic.

The total amount invested in WMPs is now in the trillions of dollars used to finance thousands of projects sponsored by hundreds of major developers. Chinese investors are all-in with WMPs.

Now the entire edifice is collapsing as I predicted it would.

The largest property developer in China, Evergrande, is quickly headed for bankruptcy. That’s a multibillion-dollar fiasco on its own. Evergrande losses will arise in WMPs, corporate debt, unpaid contractor bills, equity markets and unfinished housing projects.

China’s entire property and financial system is on the verge of a world-historic crack-up. And it won’t remain limited to China.

It comes back to contagion.

Financial Contagions Are Like Biological Contagions

Unfortunately, since early last year, the world has learned a painful lesson in biological contagions. A similar dynamic applies in financial panics.

It can begin with one bank or broker going bankrupt as the result of a market collapse (a “financial patient zero”).

But the financial distress quickly spreads to banks that did business with the failed entity and then to stockholders and depositors of those other banks and so on until the entire world is in the grip of a financial panic as happened in 2008.

Disease contagion and financial contagion both work the same way. The nonlinear mathematics and system dynamics are identical in the two cases even though the “virus” is financial distress rather than a biological virus.

And unfortunately, each crisis is bigger than the one before and requires more intervention by the central banks.

The reason has to do with the system scale. In complex dynamic systems such as capital markets, risk is an exponential function of system scale. Increasing market scale correlates with exponentially larger market collapses.

Today, systemic risk is more dangerous than ever because the entire system is larger than before. This means that the larger size of the system implies a future global liquidity crisis and market panic far larger than the Panic of 2008.

Too-big-to-fail banks are bigger than ever, have a larger percentage of the total assets of the banking system and have much larger derivatives books.

Contagion and The Old Man and the Sea

To understand the risk of contagion, you can think of the marlin in Hemingway’s The Old Man and the Sea. The marlin started out as a prize catch lashed to the side of the fisherman Santiago’s boat.

But once there was blood in the water, every shark within miles descended on the marlin and devoured it. By the time Santiago got to shore, there was nothing left of the marlin but the bill, the tail and some bones.

An even greater danger for markets is when these two kinds of contagion converge. This happens when market losses spill over into broader markets, and then those losses give rise to systematic trading against a particular instrument or hedge fund.

When the targeted instrument or fund is driven under, credit losses spread to a wider group of fund counterparts that then fall under suspicion themselves. Soon a marketwide liquidity panic emerges in which “everybody wants his money back.”

This is exactly what happened during the Russia/Long Term Capital Management (LTCM) crisis in 1998.

To the Brink of Collapse

It was an international monetary crisis that started in Thailand in June 1997, spread to Indonesia and Korea and then finally to Russia by August 1998. It was exactly like dominoes falling.

LTCM wasn’t a country, although it was a hedge fund as big as a country in terms of its financial footings.

I was right in the middle of that crash. I was the general counsel of that firm. I negotiated that bailout. The importance of that role is that I had a front-row seat.

I was in the conference room, in the deal room, at a big New York law firm. There were hundreds of lawyers. There were 14 banks in the LTCM bailout fund.

There were 19 other banks in a $1 billion unsecured credit facility. Included were Treasury officials, Federal Reserve officials, other government officials, Long Term Capital and our partners.

I was on point for one side of the deal and had to coordinate all that.

Wall Street Bailed out Itself

It was a $4 billion all-cash deal, which we put together in 72 hours with no due diligence. Anyone who’s raised money for his or her company or done deals can think about that and imagine how difficult it would be to get a group of banks to write you a check for $4 billion in three days.

Systematic pressure on LTCM persisted until the fund was almost broke. As Wall Street attacked the fund, they missed the fact that they were also the creditors of the fund. By breaking LTCM, they were breaking themselves. That’s when the Fed intervened and forced Wall Street to bail out the fund.

Those involved can say they bailed out Long Term Capital. But if Long Term Capital had failed, and it was on the way to failure, $1.3 trillion of derivatives would’ve been flipped back to Wall Street.

In reality, Wall Street bailed out itself.

The panic of 2008 was an even more extreme version of 1998. We were days, if not hours, from the sequential collapse of every major bank in the world. The 2008 panic had its roots in subprime mortgages but quickly spread to debt obligations of all kinds, especially money market funds and European bank commercial paper.

Think of the dominoes again. What had happened there? You had a banking crisis. Except in 2008, Wall Street did not bail out a hedge fund; instead, the central banks bailed out Wall Street.

Systemic Risk Is Greater Than Ever

The point, again, is that today systemic risk is more dangerous than ever, and each crisis is bigger than the one before.

Remember, too-big-to-fail banks are bigger than ever, have a larger percentage of the total assets of the banking system and have much larger derivatives books.

The ability of central banks to deal with a new crisis is highly constrained by low interest rates and bloated balance sheets, which have exploded even higher in response to the pandemic.

The Fed’s balance sheet is currently about $8.5 trillion. Last March it was $4.2 trillion. In September 2008, it was under $1 trillion, so that just shows you how bloated the Fed’s balance sheet has become since the Great Financial Crisis.

The threat of contagion is a scary reminder of the hidden linkages in modern capital markets.

The conditions are in place.

But you can’t wait for the shock to occur because by then it will be too late. You won’t be able to get your money out of the market in time because it’ll be a mad rush to the exits.

The solution for investors is to have some assets outside the traditional markets and outside the banking system.


Source : Daily Reckoning

Squid Game Cryptocurrency Rockets in First Few Days of Trading

Katie Silver wrote . . . . . . . . .

If you’re a fan wanting to express your devotion to the hit Korean Netflix show Squid Game – well, there’s a cryptocurrency for that.

Gamers have created an online version of the programme, for which you need the Squid cryptocurrency to play.

On Tuesday, it was worth a modest 1 cent, but by Friday it had exploded in value, reaching $4.39 (£3.18).

But Squid has been criticised for not allowing investors to resell their tokens.

The dystopian series – which tells the story of a group of people forced to play deadly children’s games for money – has become a viral sensation.

Squid is what is known as a “play-to-earn” cryptocurrency, where people buy tokens to play in online games where they can earn more tokens. These can then be exchanged for other cryptocurrencies or fiat money.

In the case of Squid, many buyers will be gamers looking to play in the online game of the programme, which begins in November.

“The more people join, the larger reward pool will be (sic),” according to the issue document, which says developers will take 10% of the entry fee with the remaining 90% given to the winner.

“More importantly, we do not provide deadly consequences apparently!”

Individual rounds have costs to join – for example, playing Round 1: Red Light, Green Light will cost a player 456 Squid – with six rounds in total that get more expensive as they go along.

Buyer beware

But prospective buyers should beware with crypto price-tracking website CoinMarketCap issuing a warning that many users have been unable to resell their tokens on cryptocurrency exchanges.

Its market capitalisation, or total volume in the market, has reached $184m (£133m).

One trader told the BBC on Twitter they have $7,500 (£5,442) tied up in the currency that they are hoping will be released in 48-hours.

It is unclear why this is happening, but the company says it is using “innovative” anti-dumping technology that limits people from selling their coins if there are not enough coins being bought in the market.

The company has not immediately responded to the BBC’s request for clarification.

“This cryptocurrency joins a long and growing list of digital coins and tokens that piggyback on random memes or cultural phenomena,” Cornell University economist Eswar Prasad told the BBC.

“Remarkably, many such coins rapidly catch investors’ fancy, leading to wildly inflated valuations. Naïve retail investors who get caught up in such speculative frenzies face the risk of substantial losses.”

Play-to-earn games: the future of gaming?

Play-to-earn games have grown increasingly popular during the pandemic as the surge in online gaming encouraged the development of the GameFi technology sector which combines entertainment with real tools for earning money.

The metaverse is expected to help this sector develop even further.

It’s not just crypto traders that have benefited from Squid Game’s popularity.

Netflix’s subscriptions saw a bounce when the program was released. According to Bloomberg, the Korean series is thought to be worth some $900m to the streaming giant, after costing just $21.4m to make.


Source : BBC

Infographic: Big Tech CEO Insider Trading During the First Half of 2021

See large image . . . . . .

Source : Visual Capitalist

Individual Investors Bought Record Amount of US Equities and ETFs in July, 2021

Source : J.P. Morgan

中国证监会批准开展原油、棕榈油期权交易

证监会近日批准上海国际能源交易中心、大连商品交易所分别开展原油、棕榈油期权交易并引入境外交易者参与交易。棕榈油期权合约正式挂牌交易时间为2021年6月18日,原油期权合约正式挂牌交易时间为2021年6月21日。

原油、棕榈油是重要的大宗商品,相关期货合约自上市以来,市场运行总体平稳,产业客户参与广泛,功能发挥较为显著。上市相关期权品种并引入境外交易者参与,可有效满足境内外实体企业个性化和精细化风险管理需求,助力行业平稳健康发展。

下一步,证监会将督促相关期货交易所继续做好各项准备工作,确保原油和棕榈油期权的平稳推出和稳健运行。


Source : 中国证监会

Short USD Trade Is Overcrowded As USD Rises

Source : Bloomberg

Silver Surged More Than 10% to Reach an 8-year High of $30 an Ounce

Source : Trading Economics, Bloomberg and Yahoo!

For GameStop Day Traders, the Moment They’ve Dreamed About

Paul Wiseman and Joseph Pisani wrote . . . . . . . . .

They’ve endured a financial crisis. Two deep recessions. Mounds of student debt. Stagnant pay. Costly health care. Dim job prospects.

They’ve seen the uber-rich grow richer while a pandemic threw tens of millions of people out of work and left many more isolated and vulnerable at home.

Now, they feel, it’s payback time.

Nearly a decade after the Occupy protest movement left Wall Street more or less unscathed, the citadel of financial might faces a new assault.

Day traders, mobilized on a Reddit chatroom, have poured about all the money they can find into the stocks of a struggling video game retailer called GameStop and a few other beaten-down companies. Their buying has swollen those companies’ share prices beyond anyone’s imagination — and, not coincidentally, inflicted huge losses on the hedge funds of the super-rich, who had placed bets that the stocks would drop.

Their strategy, of course, is freighted with risk. The prices of the stocks they’ve bought are now multiples above any level justified by revenue, earnings or future prospects. The danger is that at any time, the stocks could collapse.

Maybe so. But as one Reddit user wrote Friday, asserting that hedge fund financiers would drink Champagne as they looked down upon Occupy Wall Street protesters in 2011:

“I’d rather lose it all than give them what they need to destroy me … I’ll burn it all down just to spite them.”

Their rage and hell-bent drive to pick on powerful Wall Street financiers have sent shivers through ordinary investors and heightened fears about the fragility of the markets in general after a prolonged period of stock gains fueled by ultra-low interest rates. Those fears just caused the S&P 500 index to suffer its worst week of losses since October.

GameStop shares? They rocketed nearly 70% on Friday. Over the past three weeks, they’ve delivered a stupefying 1,600% gain.

“They figured out how to play the way Wall Street has been playing for a long time,” said Robert Thompson, who has long tracked cultural trends as director of Syracuse University’s Bleier Center for Television and Popular Culture. “I’m amazed it didn’t happen earlier.’’

Feeding the frenzy have been young traders like 27-year-old Zach Weir, who this week bought five shares of GameStop.

“I’m a college student, so that’s basically a month’s rent for me,” said Weir, who is pursuing a master’s degree in marketing.

He did it, he said, because he believes in the cause: Protecting a cherished game store, where he would hang out as a teenager on Friday nights, from financial tycoons who want the company to fail.

And if he loses his investment?

“If my account goes to zero, it goes to zero,” Weir said. “At this point, it’s not about the money. I think this is bigger than the money now”

Frustration and rage over widening financial inequities in the American economy have been mounting for years. The richest 1% of Americans collected about 19% of pre-tax income in 2019, up from less than 11% four decades earlier, according to the World Inequality Database, run by Emmanuel Saez and Gabriel Zucman, economists at the University of California, Berkeley, along with other researchers.

New York University economist Edward Wolff has found that the richest 10% of Americans own roughly 85% of stock wealth, a share that has grown steadily over time.

The financial crisis that ignited the Great Recession of 2007-2009 intensified resentment toward the bankers who had financed the dodgy loans behind the catastrophe and had ignored the obvious risks, only to receive bailouts from taxpayers and largely escape accountability. Rising outrage fueled the Occupy movement, in which protesters took over New York’s Zuccotti Park and other public spaces and demanded far-reaching financial reforms that mainly didn’t happen.

The coronavirus inflicted further pain, flattening the economy and causing more than 20 million Americans to lose jobs. This week, a report from the anti-poverty group Oxfam found that the world’s 10 richest men have swollen their collective wealth by $500 billion since the pandemic erupted in March. In the meantime, nearly 10 million people who lost jobs to the pandemic remain unemployed.

The stock market, the chosen target of the Reddit day traders, has long stood as America’s premier symbol of entrenched wealth. But technology, including forums like Reddit, has made it ever easier, faster and simpler for the aggrieved to mobilize, swap information and collectively plot strategy. And e-trading apps, notably Robinhood, allow amateur traders to buy commission-free stocks with one click.

They spotted a vulnerability in the market: The so-called short squeeze.

When hedge funds and other investors want to bet that a stock price will fall, they arrange a short sale: They borrow shares of, say, GameStop. Then they sell those borrowed shares, planning to buy back the stock later at a lower price and pocket the gain.

But shorting can backfire disastrously if the stock surges instead of falling. Then the short sellers can be forced to bail out of their bets by buying the target stock. Their buying, in turn, can send the stock price ever higher and makes things even worse for the short sellers in an intensifying feedback loop.

GameStop, its future imperiled by e-commerce and a pandemic that has kept customers away, is among the most heavily shorted stocks. Some of the Reddit rebels are gamers who want to protect the retailer from the predations of Wall Street. Or just deliver a righteous blow to hedge funds and financiers who have lived large as others have suffered hardships.

Not all the day traders are inflamed by anger. They just see an opportunity to make money and pay bills.

“A lot of people are having trouble paying rent,” said Alexis Goldstein, a veteran of the Occupy movement. “A lot of people are at risk of eviction. A lot of people are very desperate, quite frankly, for new ways to make money.”

Yet Goldstein worries that the revolt will ultimately fail.

For one thing, some of the Wall Street firms that are targets of the Redditers actually profit from the very volatility that the Redditers’ assault has whipped up.

And the most sophisticated professional traders are no doubt calculating how to capitalize on the chaos. Normally, they have to work hard and invest heavily to determine what their competitors are doing and to profit from that information. By contrast, the Reddit day traders are announcing their intentions, brazenly and publicly.

“I suspect it’s not Robinhood investors and Redditers who are making money,” Goldstein said.

She would like to see a different slate of reforms — reforms to rein in Wall Street’s excesses while helping those who’ve been left behind.

“Hopefully, we can ask fundamental questions about whether we want our markets to be speculation-driven or do we want them to create innovation and jobs,” she said. “Stop hustling so hard for a buck and instead rebuild the social safety net.”

Tom Osran, a 59-year-old Chicago lawyer, has been reading the WallStreetBets forum on Reddit for years. But it was only last week that he decided to act for the first time, buying into GameStop. His investment, he said, is up 1,000% from last week, though he declined to reveal the dollar amount.

Osran said he figures that its astronomical stock rise can save GameStop from hedge funds that are betting that a company with 40,000 employees will fail.

“It’s fun being part of a movement,” Osran said.

He knows he could lose everything he put into GameStop shares. Yet he’s philosophical.

“We’re all adults, we all know stocks can go up and down,” Osran said. “It’s been insanely lucrative so far, but it could be all gone tomorrow.”


Source : AP

U.S. Stock Market: Nasdaq Volume and Call Option Volume Exploded to Historical High

Source : Bloomberg