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:
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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.”
Over at OilPrice News: The Complete History Of Oil Markets
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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
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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!