Tag Archives: derivatives

“Things Have Been Going Up For Too Long”

I have to believe that the Fed injected a large amount of liquidity into the financial system on Sunday evening. The 1.08% jump in the S&P 500, given the fundamental backdrop of economic, financial and geopolitical news should be driving the stock market relentlessly lower. The amount of Treasury debt outstanding spiked up $318 billion to $20.16 trillion. I’m sure the push up in stocks and the smashing of gold were both intentional as a means of leading the public to believe that there’s no problem with the Government’s debt going parabolic.

Blankfein made the above title comment in reference to all of the global markets at a business conference at the Handlesblatt business conference in Frankfurt, Germany on Wednesday. He also said, “When yields on corporate bonds are lower than dividends on stocks – that unnerves me.” In addition to Blankfein warning about stock and bond markets, Deutsche Bank’s CEO, John Cryan, warned that, “We are now seeing signs of bubbles in more and more parts of the capital market where we wouldn’t have expected them.”

It is rare, if not unprecedented, the CEO’s of the some of the largest and most corrupt banks in the world speak frankly about the financial markets. But these subtle expressions of concern are their way of setting up the ability to look back and say, “I told you so.” The analysis below is an excerpt from the latest issue of the Short Seller’s Journal. In that issue I present a retail stock short idea plus include my list of my top-10 short ideas. To learn more, click here: Short Seller’s Journal information.

In truth, it does not take a genius or an inside professional to see that the markets have bubbled up to unsustainable levels. One look at GS’ stock chart tells us why Blankfein is concerned (Deutsche Bank’s stock chart looks similar):

The graph above shows the relative performance of GS vs. the XLF financial ETF and the SPX. Over the last 5 years, GS stock has outperformed both the XLF and the SPX. But, as you can see, over the last 3 months GS stock not only has underperformed its peers and the broader stock market, but it has technically broken down. Since the 2009 market bottom, the financials have been one of the primary drivers of the bull market, especially the Too BIg To Fail banks. That’s because the TBTFs were the primary beneficiaries of the Fed’s QE.

The fact that the big bank stocks like GS and DB are breaking down reflects a breakdown in the financial system at large. DB was on the ropes 2016, when its stock dropped from a high $54 in 2014 to $12 by September. It was apparent to keen observers that Germany’s Central Bank, the Bundesbank, took measures to prevent DB from collapsing. Its stock traded back up to $21 by late January this year and closed Friday at $16, down 24% from its 2017 high-close.

This could well be a signal that the supportive effect of western Central Bank money printing is wearing off. But I also believe it reflects the smart money leaving the big Wall Street stocks ahead of the credit problems percolating, especially in commercial real estate, auto and credit card debt. The amount of derivatives outstanding has surpassed the amount outstanding the last time around in 2008, despite the promise that the Dodd-Frank legislation would prevent that build-up in derivatives from repeating. It’s quite possible that the financial damage inflicted by the two hurricanes will be the final trigger-point of the next crisis/collapse. That’s the possible message I see reflected in the relative performance of the financials, especially the big Wall Street banks.

This would explain why the XLF financials ETF has been lagging the broad stocks indices.  It’s well below its 52-week high and was below its 200 dma until today’s “miracle bounce” in stocks.

Again, I believe the really smart money sniffs a derivatives problem coming. Too be sure, the double catastrophic hurricane hit, an extraordinarily low probability event, could well be the event that triggers a derivatives explosion. Derivatives are notoriously priced too low. This is done by throwing out the probability of extremely rare events from the derivative pricing models. Incorporating the probability of the extremely rare occurrences inflate the cost of derivatives beyond the affordability of most risk “sellers,” like insurance companies.

Let me explain. When an insurance company wants to lay off some of the risk of insuring against an event that would trigger a big pay-out, it buys risk-protection – or “sells” that risk – using derivatives from a counter-party – the “risk buyer” – willing to bet that the event triggering the payout will not occur. If the event does not occur, the counter-party (risk buyer) keeps the money paid to it to take on the risk. If the event is triggered, the counter-party is responsible for making an “insurance payment” to the insurance company in an amount that is pre-defined in the derivatives contract.

Unfortunately it is the extremely low probability events that cause the most financial damage (this is known as “tail risk” if you’ve seen reference to this). Wall Street knows this and, unfortunately, does not incorporate the truth cost – or expected value – of the rare event from occurring into the cost of the derivative. Wall Street plays the game of “let’s pretend this will never happen” because it makes huge fees from brokering these derivatives. When the rare event occurs, it causes the “risk buyer” to default because the cost of making the payout exceeds the “risk buyer’s” ability to honor the contract. This is why Long Term Capital blew up in 1998, it’s why Enron blew up, it’s why the 2008 de facto financial collapse occurred. We are unfortunately watching history repeat. This is the what occurred in the “The Big Short.” The hedge funds that bet against the subprime mortgages knew that the cost of buying those bets was extremely cheap relative the risk being wrong.

If the hurricanes do not trigger a financial crisis, the massive re-inflation of subprime debt – and the derivative bets associated with that – are back to the 2008 levels.

The optimism connected to the stock market is staggering. According to recent survey, 80% of Americans believe that stock prices will not be lower in the next 12 months. This is the highest level of optimism since the fall of 2007. The SPX topped out just as this metric hit its high-point. The only time this level of optimism was higher in the history of the survey was in early 2000.

“Stock Market?” What Stock “Market?”

“There are no markets, only interventions” – Chris Powell, Treasurer and Director of GATA

To refer to the trading of stocks as a “market” is not only an insult to any dictionary in the world that carries the definition of “market,” but it’s an insult the to intelligence of anyone who understands what a market is and the role that a market plays in a free economic system.  By the way, without free markets you can’t have a free democratic political system.

The U.S. stock is rigged beyond definition. By this I mean that interference with the stock market by the Federal Reserve in conjunction with the U.S. Government via the Treasury’s Working Group on Financial Markets – collectively, the “Plunge Protection Team” – via “quantitative easing” and the Exchange Stabilization Fund has destroyed the natural price discovery mechanism that is the hallmark of a free market.  Capitalism does not work without free markets.

Currently a geopolitically belligerent country is launching ICBM missiles over a G-7 country (Japan).   In response to this belligerence, the even more geopolitically belligerent U.S. is testing nuclear bombs in Nevada.  The world has not been closer to the use of nuclear weapons since Truman used them on Japan.  The stock markets globally should be in free-fall if the price discovery mechanism was functioning properly.

To compound the problem domestically in the U.S., the financial system is now staring down a potential financial catastrophe that no one is discussing.  The financial exposure to the tragedy in Houston is conservatively estimated at several hundred billion.  Insurance companies off-load a lot of risk exposure using derivatives.  The potential counter-party default risk connected to this could dwarf the defaults that triggered the AIG and Goldman Sachs de facto collapse in 2008.   The stock “market” should be down at least 20% just from the probability of this occurrence.  Forget the hurricane issue, Blackrock estimates that insurance investment portfolios could lose half a trillion in value in the next big market sell-off.  Toxicity + toxicity does not equal purification.  The two problems combined are the equivalent of financial nuclear melt-down.

Last night after the news had circulated of the missile fired by North Korea, the S&P futures dropped over 20 points and gold shot up $15.  As I write this, the Dow is up 50 points, the SPX is up over 3 points and gold has been taken down $20 from its overnight highs.  Yet the two catastrophic risks above have not changed in potential severity.   Pushing around the markets is another propaganda tool used by the Government in an attempt to control the public’s perception.  In the words of the great Jim Sinclair, “management of perception economics,” or “MOPE.”

The good news is that, while the systemic puppeteers can control the markets in general, they can’t control the individual parts.  There has been a small fortune to be made shorting individual stocks.  Today, for instance, Best Buy reported earnings that predictably “beat” the Street estimates but it warned about future sales and earnings.  The stock has plunged 11% from yesterday’s close.  The Short Seller’s Journal featured Best Buy as a short in the May 28th issue at $59.  The target for this stock is $12.50, where it was in 2013.  I recommended some January 2019 puts as high probability trade to hit a home run on this idea.

Other recent winners include Chipotle, General Electric, Tesla (short at $380), Bed Bath Beyond in December at $47 and may others.  The more the PPT interferes in the markets to keep the major indices propped up, the more we can make from shorting horrendously overvalued stocks that can’t hide from reality. There’s very few investors and traders shorting the market, mostly out of fear and the inability to do fundamental research.  The Short Seller’s Journal focuses on the areas of the stock market that are no-brainer shorts right now.  You learn more about this product here:  Subscription information.

I really truly look forward to every Monday morning when I get to read through your SSJ. Again, last nights one was great. I have added to the BZH short position and I have had a lot of success adding to CCA each time it has tagged its 200 dma from below. I have done it four times now and each time it has sold off hard within the next several days. I plan to do the same again if it tags it again this time as it has bounced again.  – subscriber feedback received earlier this week (James from England)

 

Derivatives: Unexploded Financial Weapons

Central counterparties keep records of trades and help suck risk out of the banking system, but this only works if they themselves are well capitalised and have plans in place to deal with a sudden collapse of one or more of its members and get close to failure. Otherwise, they’re just unexploded nuclear bombs nestling deep in the financial system.   – Business Insider LINK.

Who are we kidding.  Since the 2008 de facto banking system collapse, the OTC derivatives problem has mushroomed out of control.   The Obama Government heralded in the Dodd Frank legislation, which allegedly made the financial system safer for everyone.  In reality it is nothing more than a fairlytale written with  the goal of allowing the Too Big To Fail banks to cover up their continued derivatives Ponzi scheme.

Now the BIS has issued yet another warning about the dangers lurking with derivatives. The “central clearing exchanges,” like the Depository Trust Clearing Corporation, are giant derivatives-infested vipers nest which harbors the next – and possibly imminent – financial system collapse.

This is one of the reasons behind Carl Icahn’s recent candor regarding the U.S. financial system:  “sooner or later there’s going to be a massive problem.”  LINK

In today’s episode of the Shadow of Truth,   we discuss the reasons why the BIS is sounding the derivatives alarm bell again and why Carl Icahn has become “Dr. Doom” on the stock market:

Will Deutsche Bank Be Saved From Collapse?

Deutsche Bank  stock is down over 8% today.  It’s trading at $15.53.  This is 20% lower than the previous low it hit at the apex of the great financial crisis (de facto collapse) in 2008/2009.Untitled

With rumors flying because of DB’s stock performance this year, management issued a statement defending the bank’s liquidity position:  LINK   “Additional Tier 1 coupons” references the debt that was issued as part of a transaction to raise Tier 1 regulatory capital by Deustche Banks.  The accounting behind the scheme – yes, it’s a scheme – is complicated but the regulators permitted DB is issue a security that behaves like debt but is treated as Tier 1 capital for the purposes of measuring the bank’s ability to withstand hits to its asset base.

Suffice it to say that historically, when a bank has been forced to issue a statement defending its solvency, insolvency is not far behind.  We saw this with Bear Stearns and Lehman.  Denial of a catastrophic problem is affirmation that the problem is very real.

Typically the credit markets sniff out a very real problem before the equity market “catches up.”   Deutsche Bank has emerged as one of the most recklessly managed “Too Big To Fail” banks.  Under Anshu Jain’s “leadership,”  DB became a financial nuclear weapon bloated on derivatives, exceedingly risky assets and highly corrupt upper management.  It’s a literal cesspool of financial fraud and Ponzi scheme banking activity.  The graph of the spread on DB 5-yr credit default swaps shows how quickly the market has determined that DB’s financial risk of insolvency is quickly accelerating:

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Currently DB has roughly $2 trillion assets supported by $68 billion of book value.  The problem is that many of its assets are highly overstated in value and have yet to be written down.  The financial world shuddered at the $7 billion of admitted write-offs DB took in 2015.  The problem is that over 85% of the charges taken by DB were attributed to legal costs.  We know its “on-balance-sheet” assets are being reported at a significantly overvalued stated level.  DB has big loans to the energy sector, Glencore, Volkswagon/Audi and other sundry highly risky businesses.   It would only take a 3.5% write-down of its asset base to wipe out its book value.  

THEN there’s the derivatives.  DB has $58 trillion of notional amount in OTC derivatives hidden off its balance sheet.  The bank will claims most of that is hedged out and the “netted” amount is a sliver of the notional amount.  But ask AIG and Goldman Sachs how hedging / netting works out in the long run.   “Netting” is only relevant when counterparties are prevented by Central Banks from defaulting.  Once the defaults start, “net” becomes “notional” in a hurry.

I did an analysis of several of the big banks in early 2008, including JP Morgan, Wash Mutual, and Lehman.  I took their identifiable assets and wrote down the identifiable home equity loan exposure and some other risky asset classes to levels I thought were conservative.  I had concluded that those banks were technically insolvent.    Eight months later it turned out I my analysis was quite accurate.  Wash Mutual and Lehman collapsed and JP Morgan would have collapsed if it had not been bailed out by the Taxpayers.

The current era’s first big bank casualty will likely be Deutsche Bank, unless the German Government and the EU and U.S. Central Banks determine that a DB collapse would collapse the west, which it likely would.  To put this in perspective, DB’s stated assets are $2 trillion. Germany’s GDP is just under $4 trillion.   Then there’s the derivatives…

The Oil And Gas Credit Collapse Is Going To Be Catastropic

We’re headed toward another big credit explosion and I think what’s happened in the oil market is will trigger that.  The perfect poster-child of what’s going to happen to the stock market is what’s happened to Kinder Morgan stock.  – interview with CrushTheStreet.com

It speaks volumes about the corrupted nature of our financial markets that this news report does not cause a huge downward price adjustment in the entire stock market:  Big Banks Brace For Oil Loans To Implode.  This is, minimally, t $500 billion issue and that number does not incorporate at all the size of the derivatives exposure to oil sector debt. Move along, nothing to worry about here…it’s reminiscent of circa 2007, when Bernanke stated that the problems developing in the mortgage market were “contained.”

And speaking of Kinder Morgan, I listened to the Kinder Morgan conference call because I’m working on stock report on KMI. I forgot what a Broadway play production these investor calls are. Richard Kinder is a grade-A snake-oil salesman. Everyone seems to have forgotten that he was the COO of Enron when Enron’s Ponzi scheme was being constructed. He was college buddies with Ken Lay. But he left in 1997, buying out an Enron pipeline subsidiary with William Morgan.  Everyone thinks Richard Kinder is squeaky clean and they don’t associate him with Ken Lay. It’s emblematic of the ignorance, denial and fraud embedded in our system. KMI has been issuing debt to make its dividend payments and the only reason they cut their dividend is because their bankers told them they would have trouble issuing more debt this year. Kinder kept referencing the possibility of stock buybacks on the call. Are you kidding me?  You can visualize the sycophantic big bank analysts writing everything down word for word in order to regurgitate them robotically in farcical equity reports designed to suck more idiots into the stock.

More on Kinder Morgan soon. As for the manipulation of the gold market, I’ve mostly managed to separate my emotions from the attacks on gold.  When you think about it, they have no choice.  The ONLY way they can support their lies about the relative health of the economy and financial system is by attacking gold and making sure the price doesn’t take off.  Just like they can print an unlimited amount of dollars using Bernanke’s infamous “electronic printing press” to defer the collapse of the banking system, they can print an unlimited amount of paper gold certificates in order to use the paper trading apparatus of the Comex to keep the price contained. Like all paper schemes, this one will fail spectacularly.  The only unresolved issue is timing.  That’s impossible to predict.

CrushTheStreet.com and I discussed these topics in depth and others, including China and the U.S. economy:

Glencore Mirrors The Entire Global Financial And Economic System

  • Collapsing fundamental economics
  • Plunging end-user demand for its products
  • Overloaded with debt
  • Hidden land-mines in the form of OTC derivatives

Who said “black swans” have to be hidden?   Glencore is in full view.  After a dead-cat bounce from a quick descent that took Glencore stock from 310 (pounds) to 68 in 5 1/2 months, the stock is rolling over again and headed lower:

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This isn’t just about the plunging price of copper, which is now back to its pre-financial system collapse price in 2008 and headed lower. Copper is responsible for generating only 36% of Glencore’s operating income.  This is about the plunging prices and demand for oil and all base metals.

It’s about a company (global financial system) that hides a lot of risk, debt, derivatives, corruption and fraud.  Point of example:  Glencore’s funded debt level is $50 billion and it has the capability to draw on credit lines that would take it up to $100 billion.  But the sleazebag snakeoil promoters cite Glencore as having $19 billion in “liquid” inventories so the debt number that gets quoted and widely accepted is $31 billion.   But it’s not.  It’s $50 billion.  And Glencore’s “liquid” inventory is the same base metals that are plunging in price from oversupply and lack of demand.

Furthermore, over 30% of Glencore’s EBIT is derived from what the Company lables as its “marketing” business.  But this is the legacy business that was originally Marc Rich’s commodities trading company.   It’s a corrupted commodities trading and brokerage business. That means it’s riddled with hidden counter-party risks and derivatives.  We don’t know the full extent of Glencore’s risk-exposure in this area because this an area that global financial regulators give financial firms a lot of breathing room with which to cover up the truth using insidious accounting schemes.  But what I do know for sure is that you can rip and toss out any of the research reports indicating the Glencore’s derivatives exposure is limited to $5.2 billion.   The real number is multiples of that.

With 50 billion (pounds) in funded debt and not including hidden off-balance sheet skeletons – Glencore’s debt to market capitalization (13 billion pounds) is nearly 4:1.  That is an extreme degree of leverage for a volatile, commodities-based business which is headed into an economic depression.

Glencore is a microcosm for the entire global economic and financial system.  Including and especially the United States.  And here’s the kicker.  Deutsche Bank is Glencore’s largest creditor.  We can also very safely assume that Deutsche and Glencore are counterparties to a vast web of derivatives contracts.   I’m sure Deutsche has also tried to off-load credit exposure thru the use of credit default swaps with hedge funds and other shadow banking participants.  But who are those counterparties and how is the risk of default on this “insurance” Deutsche has likely “purchased.?”  Glencore has the possibility of taking down Deutsche Bank, which in turn would take down the entire German system.

The rest will flow from there and there will be a lot of blood, including and especially in the United States.

Just like with Glencore, the true degree of ongoing economic collapse and financial risk exposure has been papered over with both QE and more debt issuance.  It won’t take much trigger a financial nuclear explosion.

I would suggest that this is why the Central Banks and the relateve propaganda machine have shifted into full-gear in their effort to prevent the price of gold from engaging in unfettered price discovery.  I would also suggest that this is why the U.S. conducted a highly visible Trident nuclear missile test along the west coast, in full view of Russia and China.

Glencore Stock Got Smoked Again Today

All we need now to pound the final death-nail into Glenron’s stock is for Cramer to issue an “all’s clear, time to load up on Glencore stock” call on Mad Money.

Down 4% on no meaningful fundamental news:

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Glencore has announced that it plans on “liquidating” some of its inventory in order to pay down its debt. Again, this article referenced Glencore’s debt load as $30 billion. But as I demonstrated with a graphic from Glencore’s financials, the Company has $50 billion in debt outstanding:

GlenronCF Debt

The $30 billion debt number is the number that Wall Street pimps and the financial media want market to believe, even though this number assumes that Glencore can sell its inventory at current market prices. Well, I’m hearing a lot of “noise” about this, let’s see it happen. If I were running a commodities hedge fund I would be shorting copper, zinc and iron ore futures ahead of this alleged inventory liquidation.

I think this report out of China is likely what spooked the markets and triggered the sell-off in Glencore stock – Steel demand evaporating at unprecedented speed:

On Wednesday, the deputy head of the China Iron and Steel Association warned that demand for the ferrous metal was waning fast. “China’s steel demand evaporated at unprecedented speed as the nation’s economic growth slowed. As demand quickly contracted, steel mills are lowering prices in competition to get contracts,” Zhu Jimin, deputy head of the China Iron & Steel Association, said on Wednesday at a briefing in Beijing.

Glencore is a commodities-based debt and derivatives roach motel.  I would not be surprised if a lot of funds/banks with long-side exposure to Glencore credit default swaps – as in, Deutsche Bank – start shorting the crap out of Glencore stock to try and hedge their leveraged exposure to Glencore.

And with the global economy – including the United States – quickly sliding into a nasty recession, I can’t wait to see what kind of nonsense spews out from December’s FOMC zoo gathering to justify another rate-hike deferral.

Something Blew Up In The Global Financial System

Earlier this week I suggested, based on the sudden big spike up in Fed reverse repos in mid-September that there was some kind of derivatives accident that required the Fed to flood the global financial system with Treasury collateral, which is used to satisfy derivatives margin calls.

This was likely connected to everything that has cratered in value since June 2014, when the price of oil crashed:    high yield bonds, industrial commodities, emerging market currencies, biotech stocks, Glencore, Volkswagen and now Deutsche Bank.

Glencore was originally said to have $30 billion of debt.  However, that number did not include the $50 billion in bank credit lines outstanding plus an undetermined amount of unsecured trade finance deals.  The total exposure to Glencore debt by banks and investors is now estimated to be as high as $100 billion – LINK.

To put this in perspective, Enron had $13 billion in debt at the time of its collapse.  Moody’s continued to assign a triple-A debt rating to Enron until shortly before it filed for bankruptcy.  I mention this to illustrate the unreliability of “expert” hear-say analysis.

With Glencore the hidden OTC derivatives skeletons are likely much more lethal to the financial system than has been estimated.   Just ask AIG and Goldman Sachs about that.

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I would suggest that the record spike up in reverse repos and the plunge in Glencore stock, after it had previously lost 56% of its value since the beginning of May, was not coincidental.

On that list of asset sectors that have imploded in price, Glencore has exposure to industrial commodities, oil and EM currencies.  It also is exposed to the price of silver and gold.  Ironically, its precious metals assets seem to be getting by far the most attention from potential buyers (royalty stream investors) as a source of cash.

But Glencore is only part of the story.  Today Deutsche Bank announced a $7 billion quarterly loss from impaired asset write-downs litigation reserves.  Some reporters have suggested this was “kitchen sink” event in which Deutsche Bank piles all of its potential losses from bad investments and business lines into one quarter in order to make its results going forward look better.

But there’s no way a “kitchen sink” maneuver will come even remotely close to covering DB’s exposure to toxic assets.   For starters, the bank has heavy exposure to Glencore.  It also is the largest lender to Volkswagon and Volkswagons suppliers. It also has rather  large exposure to emerging market currencies and related derivatives.

Deutsche Bank, at $75 trillion in holdings, is the largest derivatives player in the world now.  This amount of derivatives is 20x greater than the GDP of Germany.   And that’s DB’s “net” exposure.   As counterparties default, that $75 trillion blossoms at a geometric rate. Deutsche Bank is too big for the German Government to bail-out without implementing Weimar-era money printing.  It’s balance sheet is a nuclear cesspool of toxic assets.

The $7 billion charge to earnings this quarter is unequivocally not  “kitchen sink” accounting gamesmanship.  It was either wishful thinking by upper management – not likely – or it was the result of a concerted effort by the bank to put out a shock-value number that reflected the expectation by analysts and investors that DB would have to admit to a large loss this quarter given the nature of its assets. I would suggest that it a mere fraction of the true mark to market losses sitting on and off DB’s balance sheet.  For me it’s a number so unrealistic that it’s silly.

As of its June 30 “interim” financial report, DB had $1.51 trillion in assets supported by a razor thin $67 billion of book value.  That’s 22x leverage.   This number does not reflect a realistic assessment of the value of its derivatives.  At 22x leverage, DB’s balance sheet in and of itself is massive OTC derivative.  

DB is not only now the lethal sovereign risk of Germany, it is the sovereign risk of the entire EU. Whereas Bear Stearns the Lehman triggered the Great Financial Collapse in the U.S., Deutsche Bank could potentially trigger the collapse of the global financial system.

The graph above is evidence that a massive monetization operation was implemented by the Fed in mid-September in an effort to contain the damage from something big that has blown  up behind the facade of fraud that has been erected over several years by western Central Banks and their Too Big To Fail appendages.

All Ponzi schemes eventually fail.  The global financial Ponzi scheme, of which the U.S. financial system is the largest contributor, will end in some sort of financial Apocalypse…

Systemic Leverage: BlackRock Calls For Pulling The Plug On Stocks To Prevent Big Drops

It doesn’t surprise me that BlackRock would propose pulling the plug on the NYSE and related derivatives markets in the event of a big drop in prices.   BlackRock is the firm who’s co-chairman has running around DC with sacks of cash lobbying to make sure that derivatives will bailed out by the taxpayer.

Why?  Because BlackRock is the biggest participant in this:

The IMF calculates that there is around $1.5 trillion in embedded leverage in U.S. bond funds through derivatives, which could unwind dramatically if the Fed’s normalization process provokes liquidity shocks.   IMF Derivatives Warning

I find it hysterically ironic that the fund management firm whose CEO Larry Fink argued with Carl Icahn that there’s plenty of liquidity in the system to absorb a hit to the credit markets is now proposing to “unplug” the exchanges if stocks drop – make no mistake, this proposal was in BlackRocks mind at all when the S&P 500 was moving parabolically higher:

The fund company is proposing a three-part cure: the whole $23 trillion market should NYSE circuit breakerautomatically come to a halt if a significant number of shares stop trading; venues should use the same triggers to suspend trading throughout the day; and rules on when to pause securities should apply equally to shares, listed options, futures and exchange-traded products.  – BlackRock Calls For Halting Stocks    Perhaps this should be BlackRocks new marketing campaign:   “WHEN IN DOUBT, PULL IT OUT”

BlackRock’s Warning: Get Your Money Out Of All Mutual Funds

BlackRock Inc. is seeking government clearance to set up an internal program in which mutual funds that get hit with client redemptions could temporarily borrow money from sister funds that are flush with cash.  – Bloomberg News

We may have been early on warning about leaving your savings in the financial system. It’s okay to be too early getting your money out of the system but it’s fatal to be just one second too late.  The gates are already in place in money market funds just waiting for the signal to be lowered

BlackRock’s filing with the SEC to enable “have cash” funds to lend to “heavy redemption” funds should send shivers down the spine of anyone with funds invested in any BlackRock fund.  In fact, it should horrify anyone invested in any mutual fund.

Larry Fink, BlackRock’s chief executive officer, said in December that U.S. bond funds face increased volatility, adding that he expected a “dysfunctional market” lasting days or even weeks within the next two years.   – Bloomberg

I warned last summer when the money market funds received authorization to put redemption gates in place that it was time to remove your money from these instruments.  The only reason a gate would be needed is if the people running the funds believed that there were risk events coming that would necessitate the gates.

BlackRock has already arranged credit lines from banks to cover the possibility of a redemption stampede from its riskier funds.  It’s clear the elitists running BlackRock now foresee events coming that will trigger a redemption run because the fund company is seeking SEC approval for the ability to take cash from funds with cash and lend that cash to funds that will need cash when the redemption rush begins.

Rather than let the market decide the value of the investments in BlackRock’s riskier funds, Larry Fink is going add even more leverage to the equation by enabling riskier funds to take on debt in order to avoid having to sell positions into a market that won’t be able to handle the selling.   This adds yet another layer of fraudulent intervention to a system that is ready to blow up from what’s already been done to it.

And let’s not forget, as I pointed out last summer, that BlackRock funds are already riddled with OTC derivatives, which is why Vice Chairman Barbara Novick has been running around Capitol Hill working to get a bailout mechanism in place for the Depository Trust Company’s derivatives clearing unit.

BlackRock Changes The Rules Of The Game Because Of An Outcome It Fears

This move will, in effect, transfer a portion of the risk of BlackRock’s riskier mutual funds – derivative-laced high yield and equity funds – to its more “conservative” funds, like high grade, short duration fixed income funds.

BlackRock

Anyone who invested in less-risky funds did so with an understanding of the definition and risk parameters of the funds at the time of investment.  But now BlackRock is changing the rules and risk parameters of those funds by exposing them to the counterparty risk of the riskier funds in the BlackRock fund complex which will be able to borrow money from the less risky funds.

This means that the Treasury fund in which your IRA or 401k is invested will now be “invested” in any fund that borrows money from the fund with your money.  The risk profile of your “conservative” fund assumes the risk profile of the riskier fund. Because of this, there is absolutely no reason for anyone to leave any of their money in any of BlackRock’s funds.

The SEC should deny BlackRock’s filing.  But it won’t because Wall Street is the SEC.

This move by BlackRock also signals that the elitists at BlackRock foresee an event that will disrupt the markets and trigger “bank” run on mutual funds.  What or when is anyone’s best guess.  But the fact that Larry Fink has decided to implement internal lending among funds indicates that he and his band of merry criminals believe an event will happen sooner rather than later.

To me, this is the signal that everyone should call up their mutual fund company, financial adviser or 401k administrator and get all of their the money out of any mutual fund.  Larry Fink has done everyone invested in any mutual fund a favor:  he’s unwittingly signaled that it’s time to get out – now.   Anyone who is aware of this and does not take action immediately is either a complete idiot or simply does not care about having their money taken from them by the criminal elite.