{"id":4314,"date":"2011-05-30T11:27:14","date_gmt":"2011-05-30T17:27:14","guid":{"rendered":"http:\/\/www.jasonapollovoss.local\/?p=4314"},"modified":"2018-09-21T02:06:12","modified_gmt":"2018-09-21T06:06:12","slug":"awesome-statistic-about-derivatives","status":"publish","type":"post","link":"https:\/\/jasonapollovoss.com\/web\/2011\/05\/30\/awesome-statistic-about-derivatives\/","title":{"rendered":"Awesome Statistic About Derivatives"},"content":{"rendered":"<p>I wanted to share with you an awesome statistic about derivative securities which comes courtesy of that investment industry scion, <a href=\"http:\/\/www.bloomberg.com\/news\/2011-05-30\/mobius-says-fresh-financial-crisis-around-corner-amid-volatile-derivatives.html\" target=\"_blank\" rel=\"noopener\">Mark M\u00f6bius, and the magazine that quoted him, Bloomberg<\/a>.\u00a0 And by awesome, I don&#8217;t mean good.\u00a0 I mean awe-inspiringly bad.<\/p>\n<p>The total value of derivatives securities around the world exceeds total worldwide gross domestic product by&#8230;[drum roll please]&#8230;10!\u00a0 Holy poo!<\/p>\n<p>Imagine if the total value of mortgages in the world exceeded the underlying collateral by a factor of 10!\u00a0 Folks, these derivative securities are completely unsecured by any collateral.\u00a0 Specifically, only 10%.\u00a0 In my many years of investment experience this is the single scariest statistic I have ever heard.<\/p>\n<p>What it means is that derivatives, which derive their value from an underlying asset, exist in overabundance by a factor of 9x!\u00a0 How could it be that these contracts could be bought and sold?\u00a0 Why would anyone transact?\u00a0 It goes back to what I have been saying about future and commodities markets for years and years.\u00a0 To trade these contracts buyers and sellers should have to possess or be willing to possess the underlying commodity.<\/p>\n<p>Wanna trade orange juice futures?\u00a0 No problem.\u00a0 You have to be prepared to take delivery of the commodity.\u00a0 That would ensure that the value of derivative contracts matches the value of the goods from which they derive their value.\u00a0 Duh!<\/p>\n<p>A natural question that flows from this statistic and the understanding that there is no collateral underlying these contracts is: what happens when people start to get frightened about the value of their derivative contracts and there is a race to the exits (i.e. the selling becomes like lemmings)?\u00a0 Financial catastrophe.<\/p>\n<p>Jason<\/p>\n","protected":false},"excerpt":{"rendered":"<p>I wanted to share with you an awesome statistic about derivative securities which comes courtesy of that investment industry scion, Mark M\u00f6bius, and the magazine that quoted him, Bloomberg.\u00a0 And by awesome, I don&#8217;t mean good.\u00a0 I mean awe-inspiringly bad. The total value of derivatives securities around the world exceeds total worldwide gross domestic product [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[3],"tags":[],"class_list":["post-4314","post","type-post","status-publish","format-standard","hentry","category-the-blog"],"_links":{"self":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/4314","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/comments?post=4314"}],"version-history":[{"count":0,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/4314\/revisions"}],"wp:attachment":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/media?parent=4314"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/categories?post=4314"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/tags?post=4314"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}