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Wednesday, March 30, 2011


"Interest rate differentials are again in the driver's seat, and 'risk' trades are riding shotgun, forcing safe haven trades into the back seat. "

Quoted from the always interesting Daily Pennig currency blog.

Risk trades are everywhere and always Debt Trades.

In currency trades you BORROW low yield currency to buy high yield currencies and pocket the yield differential.

In stock trades you buy on Margin. Margin is another word for debt. (There are so many of them, aren't there?)

In Futures you buy on Margin (debt), in order to trade vast amounts of commodities that don't really exist for delivery.

In Banking you get money (reserves) free from the Fed (not such a big risk) but then you can legally gamble it at Twelve times the amount of reserves. If you bet money you don't really have, it's the same as borrowing it from the counterparty in the bet. Just another form of Debt.

In government you spend money you don't have, you destroy regulatory agencies who oversee risk/debt, and most of all you work with the Fed/banking system to make sure all bad debt incurred by very large players and institutions is monetized (taken onto the Fed's balance sheet so that it's magically hidden from view - as the Fed can't be audited.) And the bill is passed on to the taxpayer - who is busy screaming his head off about the iniquities of teacher pay. (Oh yeah, and taking money away from those greedy pigs over at PBS. That will solve our structural risk problem),

What about Madoff and his 60 billion dollar Ponzi Scheme, they caught him, right? Yeah, sure. His mistake was that he was too small. And his clients were insignificant. If he'd managed to scam 600 billion dollars from insurance companies (like Goldman Sachs), then the Fed would have gladly taken over his debts. Systemic risk, you know.

The astonishing thing about this massive RISK ON trade is that it's all based on the idea that no matter what happens the FED will BAIL US OUT by creating TRILLIONS of new debt. The Fed has made that very clear. Everybody knows it. And all the banks and insurance companies are getting rich off it while the middle class foots the bill though higher prices, lower wages, and a distressed dollar.

An all only two years since the system almost collapsed. RISK ON.

(but keep your eye on JUNE 30 - the announced end of QE2 - at which point the game either ends, or intensifies beyond reason.)

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