Posted on | August 27, 2007 | No Comments
Put Options (see article below).
I read last week in the NY Times that there is a put option available to managers of large investment funds that allowed some to place bets as far back as two years ago…bets that mortgage securities would fall precipitously.
Some, like the dude profiled for the article, made huge profits by “gambling” on the coming fall. That is, if it was “gambling”…because it was obviously coming. Obvious to some of us and, most definitely, to those on Wall Street.
The fact that companies like Countrywide were “allowed” to keep going when the signs glowed neon with warnings doesn’t mean Wall Street didn’t see it coming. No, it is part of a long-held practice of floating “sham” companies and investments…making cash hand-over-fist off of the little guy (see Enron) and then moving the assets.
Run up the market…and then crash it.
There is no “invisible hand” guiding the market. Markets are built up and then collapsed. Money is made on both ends of the so-called business cycle.
That’s the dirty little secret of Econ 101. More money is made, and assets accumulated, during economic downturns. See the Savings and Loan Crisis, and the massive consolidation of assets in the wake of he 401/Internet Bubble scam. Suck in working class and middle class assets…collapse the market…buy up and absorb all the assets at a cut rate.
Remember the famous “Put Options” of 9/11? The story that disappeared…much like the anthrax attack. Well, the 9/11 Commission reported that they’d determined the source of the put options, but that it was not in the public interest to disclose that information. Isn’t that nice? There is more on this below…particularly the fact that it wasn’t just United and American Airlines that got put options…but two of the biggest financial companies in the World Trade Center.
So, take a look at this…it is either an indicator of the true depth of the economic crash we are in, or that the crash is going to be accelerated by a pending attack. An attack that could be blamed on Iran, perhaps? As was reported through a Fmr CIA analyst, Robert Baer, the Admin wants to bomb Iran within the next 6 months…but is looking for a “trigger event” to justify it. –JPS
Mystery trader bets market will crash by a third
16 Aug 2007
Carry trade unwinds as yen hits one-year high
An anonymous investor has placed a bet on an index of Europe’s top 50 stocks falling by a third by the end of September, as world equity markets plunged for a third day and volatility hit a three-year high.
The mystery investor has bought put option contracts on the DJ Eurostoxx 50 index that will result in a profit if it plunges to 2,800 or below by the end of September. Based on the 2,800 strike price, the position covers a notional €6.9bn, and potentially even more using a market price of about 4,100 when the trades were done on Tuesday and Wednesday.
The identity of the investor is unknown but market sources speculated it was either a large hedge fund hedging itself against deepening losses, or a long-only fund manager pressing the panic button to protect its gains.
The investor has bought a total of 245,000 put options on the index. The September put option with a 2,800 strike was the most popular DJ Eurostoxx 50 contract yesterday, according to data from Bloomberg.
Volatility in European equity markets has risen sharply this week as investors cut back on the amount of risk they are taking. The VSTOXX index, which measures the volatility of the DJ Eurostoxx 50 index, hit 34 this morning, which is more than double its three-year average.
Similarly the volatility of the US stock market was trading at almost three times its three-year average, hitting 30 yesterday.
However, both indices continue to trade below their 2002 highs.
European stock markets were trading down almost 3% at by 13:00 GMT today, after large drops in Asia and Australia overnight. The Australian market fell 300 points at one stage when futures trading was suspended for over an hour and traders were forced to hedge positions by selling physical stocks rather than futures.
An analyst at Goldman Sachs JB Were in Australia wrote: “I think I shall remember this day as the day that I saw the market go to hell, look into the abyss – didn’t like what it looked like and then came screaming back up as far away from there as it could get. … It was a truly spooky day and I’ve seen a lot over the last 20 years but today will be one that anyone who saw it will never forget. But this is what market bottoms are made out of.”
The rise in volatility and risk aversion has also contributed to a sharp appreciation in the Japanese yen, which has been used to finance the so-called carry trade, where investors borrow in a low-yielding currency to invest in one with a higher-yield.
Analysts’ belief that the yen carry trade is set for a major unwinding has intensified today as the Japanese currency continued to rally in morning trade.
The yen strengthened today as it broke through several psychological barriers. The yen hit 113.60 against the dollar by 12:35 GMT, the first time in more than a year it has dropped below 114. The yen was substantially up against the dollar from yesterday, when it traded at above 116.
Simon Derrick, head of currency research at Bank of New York Mellon, said: “With any hope of even a brief bounce emerging in the yen crosses evaporating in the fierce glare of another horrible close in New York, it is clear that the vicious, self-reinforcing, downward spiral we were worrying about is already firmly established.”
The CIAand Other Deep Pockets
In the immediate aftermath of 9/11 a number of news stories appeared concerning investments in “put” options in United and American Airlines. Put options are shares that are bets on falling market prices for specific stocks. In the week before September 11 put options in United and American Airlines went through a furious and unprecedented spasm of investment. In addition put options for Morgan Stanley and Merrill Lynch, two of the biggest occupants of the World Trade Center,also saw abnormal activity. Most of the investments in these put options originated in Germany through the Deutsche Bank. Deutsche Bank had earlier acquired Banker’s Trust, a investment banking firm whose Vice Chairman in charge of “private client relations” in the late 1990′s was A. B. “Buzzy” Krongard. In March of 2001, Krongard was appointed Executive Director of the CIA.
Certainly, the CIA has a history of laundering money and dealings with shady investment characters. What becomes particularly relevant in the lead-up to 9/11 is the August CIA briefing of Bush concerning the potential threat of attacks by bin Laden using hijacked planes on certain sites, such as the Pentagon and World Trade Center, and the fact that theCIAhad bugging equipment on bin Laden messages and international banking operations. Although no one has apparently claimed the money from the put options, questions remain about Krongard and the CIA’s involvement.
NT Times Article:
Credit Time Bomb Ticked, but Few Heard
August 19, 2007, Sunday
By NELSON D. SCHWARTZANDVIKAS BAJAJ; JENNY ANDERSON, ERIC DASHANDGRETCHEN MORGENSON CONTRIBUTED REPORTING. (NYT); Business/Financial Desk
Late Edition – Final, Section A, Page 1,
All through last year, Jim Melcher saw the signs of a rapidly deteriorating American housing market — riskier mortgages, rising delinquencies and more homes falling into foreclosure. And with $100 million in assets at his hedge fund, Balestra Capital, he was in a position to do something about it. …Tweet