Tag Archives: bond funds

Argentina And Banco Espirito: What About The Derivatives?

Argentina is interesting because of the legal issue surrounding the specific Government bonds on which it might default.  I called Banco Espirito as a likely bankruptcy after the stock exhibited Enron-esque characteristics.  As that one unfolds, it looks like the entire corporate structure above the bank and with the bank itself is engulfed with fraud.

And now we find out that Goldman Sachs plugged its client base with BES bonds and stock:  LINK.  Classic

The more interesting question in both cases has to do with the credit default swap derivatives.   While the default could trigger $29 billion in bondholder claims, Bloomberg ran a story a couple days ago that suggested the default on  this one bond issue could trigger $120 billion in credit default claims:  LINK.

The details are buried in the bottom of the news report.  Since I have not seen anyone mention the $120 billion, I assume that – just like with the footnotes to financials statements – I guess no one read the full article.

However, it’s not the $120 billion in CDS claims that are visible.  The real danger lurks in the “daisy-chain” of hidden counterparty default that could trigger a big meltdown.  Remember AIG/Goldman?  That melt-down – which triggered the big bailout banks – was likely triggered either by the Bear Stearns or Lehman collapse.  The former happened several months before AIG and Goldman.  When Bear collapsed, Bernanke assured us it was isolated and contained.  “Shalom Ben!” – how did the statement work out for you?

The S&P futures are down 15 points right now on the back of the Argentina/BES news.  It’s not because of the news itself.  It’s because of the related skeletons in the closet that are connected to the events that may be poised to jump out…

Better check the bond and derivatives holdings of your favorite bond fund – you know, the bond funds that your genius investment advisor has you invested in because “they have a good yield.”

Banco Espirito Santo Holding Company Takes A Dirt Nap – Files BK

Please note how this news was not reported until late in the afternoon EST time and well after all the markets around the world were closed for the weekend except  the NYSE.  It would have definitely rained hard on the European markets if the news were released during those market hourse:   BES Files BK

The Wall Street Journal reported it at 3:28 p.m. EST.

Interestingly, it would seem that the ratings were given a heads up yesterday, as S&P and Moody’s “coincidentally” downgraded the credit ratings a day ahead of the filing:   BES credit downgrade.

My only question is:  “Who holds the credit default swaps, baby?!”   Better check your bond mutual fund SEC filings…

Buy All Attempted Takedowns Of Gold, Silver And Junior Mining Stocks

The most absurd part about today’s payroll report is  the fact that supposedly highly educated people get on financial spin networks and discuss and debate the report with serious expressions on their faces as  though the report has any degree of validity.  It’s emblematic of the fraud and fiction that has infected our system to the core.  The economic reports are bogus, the physical gold in Ft Knox has been replaced with hypothecation agreements and Comex fiat paper futures contracts and the politicians and business leaders are all corrupt – every single one of them.

Please see Zerohedge etc for a dissection of today’s fiction published by the Government, in conjunction with the Fed and Wall Street.   Just for point of note, the number of people who have left the labor force hit another all-time record high and half a million full-time jobs were lost, replaced by 800,000 part-time jobs.   There’s your 6.1% unemployment rate:  deadbeats collecting unemployment insurance and Social Security Disability, students taking out debt and enrolling to DeVry on-line University and full-timers converted into part-timers.


The day of reckoning is coming.  I had a “eureka” moment last night when I read the comments by the chief economist of the Bank of England who, presumably unwittingly, warned that the aggregation of derivatives in the derivatives clearing system (primarily a subsidiary of The Depository Trust and Clearing Corporation – aka DTCC) could be “a problem from hell.”

The nexus of the problem is that fact that interest rate derivatives contracts make up the majority of the OTC derivatives.  JP Morgan and Citibank alone have $97 trillion in notional amount of OTC interest rate derivatives exposure.   To put that in perspective, the total size of the U.S. stock market is around $22 trillion.  And $97 trillion doesn’t include the leverage that is embedded in these contracts.

My co-producer and I are going to do a video on this topic.  I think viewers will be stunned. Pimco, Black Rock and Fidelity have by far the largest concentration of exposure to this. That’s why the Vice Chairman of Black Rock is going around promoting the idea of a mechanism to bail-out DTCC when the derivatives bombs start to fly.  Trust me, I was told this morning by someone in a position to know that the regulators are absolutely terrified of this problem and of a total bond market collapse.

As for the precious metals action today, it was almost as funny as the Government jobs report.  With the entire analytic world (except me and few colleagues) expecting a massive take-down today, here’s what happened (click on chart to enlarge):


They are having trouble taking down the precious metals sector.  I can’t recall the metals ever behaving this way when the market is technically and psychologically set up for a big move lower.  Hell, Goldman still has an $1000 target for gold.   Keith Weiner of Monetary Metals still thinks fair value for silver is like $15.

The truth is, the precious metals market as “sniffed out” the complete Ponzi-nature of our entire system.  The scramble  globally to buy and possess physical gold and silver  is starting to take over the ability of the Fed/big banks to manipulate the prices with fiat futures contracts that can readily printed up.  GATA  (www.gata.org) predicted this would eventually happen over 14 years ago.

The bottom line is that you need to dump your bond funds before they put capital controls on them and load up on gold, silver and junior mining stocks on every sell-off.  Since I published my research on Pilot Gold on May 20th, it’s gone up 22%;  Almaden is up 9.2% (5/15);  EMXX is down 3 cents but requires patience; and the Big Upside Idea is up 5.6% since 6/25.    All four ideas still have a multiples of upside potential and you can read my analysis here:   Junior Mining Stock Research Reports.

Whether you want to buy into the precious metals sector is your decision but if you wait much longer to decide whether or not to get your money out of bond funds, you soon won’t have any control over that decision because getting out won’t be an option.

Time To Get Out Of Your Bond Fund Investments

The elite aristocracy has at least on rule of morality:   they consider it to be in poor taste to not warn in advance of doing something horrible to the middle class .  Here, middle class is defined as anyone not rich enough to own his/her own politician – that probably means you.

The latest warning involves what is likely an the eventual onset of a huge derivatives blow-up in a one or several large bond mutual funds.   There are reasons I believe that this event may be closer than any of us realize.

Pimco, Fidelity and Blackrock manage by far the largest amount of money in bond funds. In fact, I would bet good money that when the accident occurs, the White House will deem each of those as “Too Big To Fail” and find cause to bail them out using your money.

I know for a fact that Pimco’s Total Rate of Return fund is loaded with hidden derivatives risk.  Did you know that?  Does your financial advisor know that.  I’d bet that 99.5% of the advisor world does not know this.  I know because I know of a study that was done which spent a month pulling apart all of the data and information available on Pimco’s Total ROR bond fund.   I was told that it is a derivatives train wreck waiting to happen.

The money management world is “monkey see/monkey do.”  So it’s a good bet that most, if not all, big bond funds are loaded with dangerous derivatives.

So here’ s your warning:   GET OUT OF YOUR BOND FUNDS NOW

And be thankful that the elitists at least consider it rude not to signal a “heads up” before they flush the toilet when you are in the shower.  This is your chance to side-step the water before getting scalded badly.