Here are the latest news items and commentary on current economics news, market trends, stocks, investing opportunities, and the precious metals markets. We also cover hedges, derivatives, and obscura. Most of these items are from the “tangibles heavy” contrarian perspective of SurvivalBlog’s Founder and Senior Editor, JWR. Today, we look at the implications of the burgeoning global OTC derivatives market. (See the Derivatives section.)
Economy & Finance:
At Zero Hedge: “Worst Slump In A Generation”: China Auto Sales Continue Historic Collapse
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Wolf Richter: Housing Bubble in Silicon Valley & San Francisco Bay Area Turns to Bust Despite Low Mortgage Rates & Startup Millionaires
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Another from Wolf Street: Why Banks Didn’t Lend to the Repo Market When Rates Blew Out: JPMorgan CEO Dimon. A pericope:
“But at the end of 2018, JPMorgan “had more cash than we needed for regulatory requirements,” Dimon told analysts today (transcript of the earnings call via Seeking Alpha). So as “repo rates went up,” JPMorgan withdrew cash from “the checking account which paid IOER” and lent it to the repo market. “Obviously makes sense, you make more money.”
But this year in mid-September, JPMorgan’s cash account at the Fed fluctuated between $120 billion and $60 billion “during the course of the day,” he said and added:
“That cash, we believe, is required under resolution and recovery and liquidity stress testing. And therefore, we could not redeploy it into the repo market, which we would’ve been happy to do. And I think it’s up to the regulators to decide if they want to recalibrate the kind of liquidity they expect us to keep in that account.”
He is blaming the regulators. But it shows that JPMorgan’s cash on deposit at the Fed had been drawn down to the range of $120 billion to $50 billion, when a year ago it was much higher.”
Commodities:
Over at OilPrice News: The Complete History Of Oil Markets
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The IMF’s Latest Report Could Spell Disaster For Oil Markets
Derivatives:
I’m often asked by consulting clients why I regularly report on the arcane derivatives market. This is because I consider over the counter (OTC) derivatives a huge threat for the global economy. Derivatives are designed to hedge risk, and they do a great job of doing do, in a normal, fully-functional economy. It is a graceful ballet of Zero Sum Games. However, in times of great financial turmoil, derivatives can turn into massive real world unpaid debts if counterparty companies go bankrupt. Presently, the global OTC derivatives market has a notional value of at least $550 trillion and a gross value of more than $1.5 quadrillion. I’ve been warning my readers about the derivatives bubble since 2006. The threat of a derivatives market implosion–especially in credit default swaps (CDSes)–is even larger, today.
Forex & Cryptos:
Up, up, up, just as I predicted: Brexit: Pound and shares jump on optimism over talks. The piece opens with these lines:
“The pound has jumped to its highest level in five months on reports the two sides in the Brexit talks are inching towards a draft deal.
Shares in banks and housebuilders also soared as optimism about a breakthrough buoyed companies with a UK focus.
It was hoped that a preliminary deal might be reached on Tuesday, ready to go before a summit on Thursday.
Sterling rose 1.5% on the dollar to $1.28, and by a similar amount against the euro to 86.3 pence.”
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Off The Chain: The United States Will Eventually Tokenize The Dollar
Provisos:
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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 closely watch specific markets. If you spot any news that would be of interest to SurvivalBlog readers, then please send it in. News from local news outlets that is missed by the news wire services is especially appreciated. And it need not be only about commodities and precious metals. Thanks!
I’m sure Pat Cascio’s experience is accurate, but my own experience is not so good. I purchased a >$240 pocket knife based on Pat’s recommendation and it did have a flaw. I was confident in the manufacturer because of the glowing recommendation and took it into ZT for repair/replacement. I was met with a cold stare and a “I don’t care” attitude and told “so sorry”, “we don’t do that here.”
I do love the knife, but it does have a manufacturer’s defect and I was expecting the service you typically find in American made shops and was disappointed to find corporate apathy. They had my $240 and now they were moving on to the next.
What does tokenizing the dollar mean – would cash be eliminated?
What would it mean from a prepping and privacy standpoint?
I believe answers to these questions would be of interest to all here, if not previously addressed.
Bobcat- if dollars go crypto I believe 90% of paper cash will be eliminated. As far as privacy goes, I believe digital currency throws privacy out the window, as your “monitored” emails, cell calls and amazon accounts prove so.
I think fractional gold and junk silver will be king for privacy purposes.
Even before the govt could “tokenize” currency, someone will have developed the anonymous token.
Digital money… I think there would be an outcry like no other. And not just from a “regular folk” perspective either. Much of the economy runs on cash. Privacy depends on cash. Too many people would just refuse. Maybe as a few more generations pass, the digitally inclined would accept it. My two cents.
Housing bubble in Silicon Valley… there’s no bust going on. I have a family member who lives there and is in the Escrow business. While I urge all family to leave the state for good, the money still flows there. Just closed a deal for $1.7M, 1320 sq ft, 3bed/2bath. I know someone who lives in a similar sized house, estimated value of $1.9M. I think that one was actually valued at $2.1 a year or two ago. So maybe that’s the “bust” being referenced. The original purchase price of that home was around $50K, same owner. My fear for Silicon Valley is if Facebook, Google, Apple, the really big players, somehow go broke and the affluent leave. FB and GOOG/ABC are in for some legal challenges, although Apple is making some smart decisions right now. I just don’t see the bust happening for regular folk who can’t purchase multi-million dollar homes. I do see risk for the affluent who are buying the multi-million dollar homes, and investors, if loosing a few hundred thousand is considered a risk to them. I just have to ask who in their right mind spends that kind of money on housing, cars, etc. LOL