Fake-believe reflation and overallocation to financials has preceded EVERY market crash in the past ten years. Unfortunately, raising interest rates after an eight year debt binge is anything but reflationary.
Speculators bid up Oil and commodities and then told themselves that higher prices were evidence of economic reflation. We live in a society of hardcore dumbfucks. No half measures will suffice...
Commodities (black) with global yields:
"Fool me five times, I must be a total fucking moron..."
Rydex financials asset allocation (red) with U.S. 10 year:
Ironically this very weekend, Warren Buffett, the "Oracle of Omaha" is doling out free advice on the secrets to becoming a billunaire: bailouts, money printing, Ponzi borrowing, mass outsourcing, and political connections...
Because this week, with gambler asset allocations to financials at the highest levels EVER, all of the systemically risky banks rolled over. Again...
Berkshire Hathaway, world's largest financial stock:
First, banking asset allocation levels...
Short-term view with Global Financials
World's most leveraged bank, Deutsche Bank, with German 10 year yield (red):
RBS imploded this week on a larger than expected loss:
With UK 10 year:
Barclays with UK 10 year:
Credit Suisse with German 10 year:
Cue Berkshire Hathaway's largest holding:
Bueller?
"Warren Buffett made a $1 million bet in 2007: that hedge funds would not outperform index funds over the next 10 years."
NO, he made a $37 billion dollar bet by selling put options on the S&P 500 and other major indices...
“In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal”
????
“Indeed, at Berkshire, I sometimes engage in large-scale derivatives transactions in order to facilitate certain investment strategies”
Let's revisit Berkshire's 2008 Letter to shareholders:
We have added modestly to the “equity put” portfolio I described in last year’s report. Some of our contracts come due in 15 years, others in 20. We must make a payment to our counterparty at maturity if the reference index to which the put is tied is then below what it was at the inception of the contract. Neither party can elect to settle early; it’s only the price on the final day that counts...Our put contracts total $37.1 billion (at current exchange rates) and are spread among four major indices: the S&P 500 in the U.S., the FTSE 100 in the U.K., the Euro Stoxx 50 in Europe, and the Nikkei 225 in Japan. Our first contract comes due on September 9, 2019 and our last on January 24, 2028. We have received premiums of $4.9 billion. The two financial items – this estimated loss of $10 billion minus the $4.9 billion in premiums we have received – means that we have so far reported a mark-to-market loss of $5.1 billion from these contracts.
Of course after 2008, that long-term position recovered and that paper loss was erased. For now...
Global Financials
Let's try this again, sans bailouts...
