Here are the latest items and commentary on current economics news, market trends, stocks, investing opportunities, and the precious metals markets. We also cover hedges, derivatives, and obscura. And it bears mention that most of these items are from the “tangibles heavy” contrarian perspective of JWR. (SurvivalBlog’s Founder and Senior Editor.) Today’s focus is on derivatives counterparty risk. (See the Derivatives section, below.)
Precious Metals:
This Year’s Best Commodity Is One of the Smallest Metals Markets
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Commentary from Hub Moolman in South Africa: Gold Set To Rise While Debt-Based Assets Collapse
Stocks:
Stock market’s record-setting rally at risk as doubts grow over Trump agenda. JWR’s Comment: Of course what the Mass Media is not reporting is the fact that most of the controversy was self-generated by the leftist mass media talking heads. They are shouting and then reporting the loud noise as “news” from within their own echo chamber.
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European shares fall, Barcelona attack weakens travel stocks.
Commodities:
Alaska’s Conflicted Oil Future
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Indonesia barters coffee, palm oil for Russian fighter jets
Forex:
Morgan Stanley predicts euro parity with pound for 2018
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Eyes on 2020 and beyond: Six Trends for Currency Markets
Economy and Finance:
Ethiopia tops list of the world’s fastest-growing economies in 2017 – World Bank
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Bhutan: The World’s Fastest-Growing Economy
Derivatives (Counterparty Risk):
I have warned SurvivalBlog readers about the threat of a derivatives market meltdown, since 2006. The markets in fact came close to a full scale meltdown in 2008/2009, when the CDO/CDS derivatives markets went through a huge crisis. This prompted massive government intervention–which cost many billions of Dollars directly, and trillions, indirectly. If it were not for that intervention then the entire credit market would have imploded. That, in turn, would have crashed the stock markets, crippled industry, a possibly crashed the Dollar itself
Over The Counter (OTC) derivatives are still largely opaque and unregulated. The notional value of all derivatives in play is now around one quadrillion Dollars. That is hard to fathom because it is more than all the money in the world, in all currencies combined. Therefore, the counterparty risks are just about incalculable.
Risk, Risk, and More Risk
There are actually three types of counterparty risk: default risk, replacement risk, and settlement risk. In a perfect world, derivatives reduce trade and financial risks. (That is their raison d’être, and in calm markets they do a great job of doing just that, in a tidy zero-sum game.) But in a human world–a world of volatile markets–there are huge default risks. This is especially true when a counterparty simply ceases to exist.
It is noteworthy that the global derivatives market is now much larger than it was in 2009. (Back then, there were only $605 trillion in play.) Again, the figure now is around one quadrillion Dollars. And now there are even more exotic hedges in play that there were then. There are even derivatives now available on cryptocurrencies. Think of this as the world’s biggest casino.
Be ready for The Big Implosion, folks. When it finally does occur, it will take out entire currencies and might even topple national governments.
Here are a few article links, to get you started in your research:
- Over-the-Counter (OTC) Derivative Primer: Counterparty Risk
- Forget About Housing, The The Real Cause Of The Crisis Was OTC Derivatives
- A guide to counterparty risk (from 2009)
- Getting to grips with counterparty risk
Provisos:
SurvivalBlog and its Editors are not paid investment counselors or advisers. So please see our Provisos page for our detailed disclaimers.
News Tips:
Please send your economics and investing news tips to JWR. (Either via e-mail of via our Contact form.) These are often especially relevant, because they come from folks who particularly watch individual markets. And due to their diligence and focus, we benefit from fresh “on target” investing news. We often “get the scoop” on economic and investing news that is probably ignored (or reported late) by mainstream American news outlets. Thanks!
There are very few things the average person can do about derivative securities. One is to get all your money out of the big money center banks, and use smaller community banks or, better, credit unions. Another is to get out of all bonds except U.S. Treasuries, in the short to intermediate range. A third is, if you must keep money in banks, also keep enough cash on hand (in smaller bills) to live for at least three months. Remember OPSEC as you gradually accumulate this cash and store it safely, without telling anyone (or suggesting that they should do it too, which is the same thing). This will not protect against the BIG ONE, but it could help if a financial crisis is temporary.
Hilcorp is the epitome of the 70s Corporate Rape and Pillage mentality. Sure, their execs get paid well, but they typically undercut wages of their workers across the board. There is a good reason why they make projects profitable for them that other contractors/corporations shy away from; a total lack of ESH compliance and their nonchalant attitude towards employee interests. If you take a job with them, you will realize quickly you are nothing more than a replaceable number, expendable.
When the oil prices nose-dived at the end of 2015, the writing was on the wall for Big Oil. Given the dilapidated condition of the facilities around Deadhorse, the corporate greed allowing the whole infrastructure to fail piecemeal as production cuts were mandated, and the relocation of the decision making process from the field back to corporate HQ in Houston, the only ones interested in scavenging what’s still functional are companies like Hilcorp. Meanwhile, the Chinese have been given the green light to explore all over the northern part of the state, via their proxy companies that were foresaken over the past few years by Big Oil.
Make no mistake, Big Oil is not going to absorb any losses from the price downturn. That’s a big reason why the state is in such a bad way now. The Big Oil lawyers negotiated a helluva contingency for this sort of situation, allowing their clients to walk away from an unsustainable industry based on 70s tech, leaving the state and it’s residents to foot the bill. The state government then did their level best to spend as much of the now evaporated surplus budget and go into heavy debt so that only the residents would feel the pinch.
I fully expect the govt. to default, allowing Hilcorp and China to step in and make a killing.
But I’m not bitter…
Oil prices took a dive at the end of 2014.
The Russians traded jets for commodities, sounds like a better deal than when just Obama gave his homeland 24 surplus F-16s in 2012, jets that the US Air national guard sorely needed.