Thursday, October 01, 2009

Are there new worries in the markets as we begin October?

There has been a host of new data out the past 3 days that fly in the face of the Fed's Bernanke comments that the recession is over and the economy is recovering. For one, Consumer Confidence dropped for the month of September from 54.5 to 53.1. Next, the PPI also dropped for Sept. and foreclosures increased. The ISM number came out this morning too and it was also down for Sept. showing a contracting economic condition is still with us. The stock market, however, roared and had one of the best months in 11 years, counter to the economic news. Now comes this astronomical figure I had never heard before. It was the size of the Bank derivative market. Here is the headline news item followed by an excerpt from the article. (Click on the title to see the entire article.):

"Beware the Current Bull Market in Derivatives
September 30, 2009 by Matthew Goldstein

The Dow is near 10,000 again. The business press is full of stories about the resurgence in mergers, IPOs and even so-called blank check companies.

There’s one statistic, however, that should give investors pause: the growth in the total dollar value of derivative contracts at the top too-big-to-fail banks in the United States.

In the second quarter of this year, the notional value of derivatives contracts at JPMorgan Chase (JPM), Goldman Sachs (GS), Bank of America (BAC) and Citigroup (C) increased by $1.92 trillion, to $191 trillion. Shockingly, Citi is responsible for most of that gain from the end of the first quarter.
Overall, the total dollar value of outstanding derivatives transactions at the top 25 U.S. commercial banks was $203 trillion, according to the Office of the Comptroller of the Currency, meaning that the nation’s four biggest banks account for 94 percent of the industry’s total exposure to derivatives."

If this article doesn't scare you, I don't know what will. The net to me with this large a derivative market is that the true value of our currency is zero! The phrase, "It isn't worth the paper it is printed on" comes to mind!

Labels: , , , , , , ,


Post a Comment

<< Home

Technorati Profile