A Hard Lesson In Derivatives

"They bought such protection enthusiastically by entering into a privately negotiated derivative contract....It looks like a great trade but it isn't a profit if you can't get out..Investors had a naive belief in liquidity thinking just because you buy it, you can sell it.....The result is a growing divergence between the price at which investors are willing to unload their derivatives contracts...Liquidity in this market was so bad....extremely angry...The trade was between consenting adults!" WSJ yesterday! Consenting adults??? The Federal Government says these transactions are between qualified institutional investors that are also rated investment grade by the agencies...these were comments made on trades related to sub prime lending...and "profits" could not be taken because no one was there to buy the trade back! And these people insist no oversight is needed??

There are $400 trillion dollars of notional value derivatives written in this nonsense and this was the dialog between professionals when the stock market is making record runs and normal trading...can you imagine what this is going to be like when the markets turn fast...like they always do after time...

So many individual people, Institutions, Endowments are going to lose a staggering amount of money in the future...they will all try to sue the hedge funds...but all the principles money will be long gone...

The dumb money is in cash, bearish, short the market, out of anything related to hydrocarbons, in technology and short the dollar and thinks Hillary C. will save the world.

The smart money has made a ton of money recently, is excited about the future, buying real estate, not short the dollar or the USA, over weighted in hydro carbons and looking for interest rates to fall....to name just a few..

Danny Boy seen here is standing tall and getting much stronger...he likes to chase the tennis ball all day long...in between his naps. He is smart too but humble he has those Barkly genes.