It was a nutty week in the markets. The Dow Jones travelled 22,000 points over just five days of trading.
I was asked hundreds of times via text and email (friends that do not want to publicly tweet at me) what I thought was happening.
I referred people back to these posts I did at the BEGINNING of January of this year.
The first was ‘2017 Made No Sense…Fasten Your Seat Belts‘.
The second ‘STFR – Sell The [email protected]#king Rip‘.
This week proved that the calm markets were just an illusion that helped the banks and brokers scheme up more products for the next Michael Lewis Movie.
The movie will star the guys in this hedge fund in Denver.
The Financial Times trumpets that Fidelity has banned ‘retail’ investors from trading short volatility products which I have been writing about all week.
It’s a bullshit headline.
What Fidelity has done is stopped these ridiculous Credit Suisse Cheese products from further destroying their customers. Fidelity is very aware that 99 percent of their customers will never read a prospectus cover to cover.
Right on cure of the volatility explosion in the markets, Ben Hunt has another excellent piece up titled ‘Too Clever By Half‘. It is a must read.
There are so many great anecdotes in the 5 minute read.
Financial innovation is always and in all ways one of two things — a new way of securitizing something or a new way of leveraging something.
Securitization is a ten-dollar word that means associating something in the real world (a cash flow from a debt, an ownership interest in a company, a deed on a property, a distributed ledger mathematical calculation, etc.) with a piece of paper that can be bought and sold separately from that real world thing.
Leverage is a ten-dollar word that means borrowed money.
That’s it. There’s nothing new under the sun. Finding new ways to trade things (securitization) or new ways to borrow money on things (leverage) is what financial innovation is all about, and there are vast riches awaiting the clever coyotes who can come up with a useful scheme on either.
The biggest market disasters happen when both leverage and securitization get mixed up with the same clever scheme, as when new ways of leveraging and securitizing U.S.
Something from page 10 in the news is about to become page 1. In the next few weeks (maybe months) we will see if these new lower stock prices have that news factored in. Whatever the news is it will be amplified by the products that started to blow up this week.
Also published on Medium.