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"In my view, that spike up in the $/yuan you see in the chart above has probably triggered a massive derivatives "explosion" because typically, in their keen foresight and wisdom, the bank rocket scientists never account for the risk of a big move like the one above in a such a short period of time. If they were to price in this possibility, the derivatives contracts upon which they make $10's of millions in selling profits would be too expensive and the banks would miss out on that easy income.
But hey, we haven't seen a move like that in the history of the $/yuan contract so why should the banks ever expect it to happen? And the Fed and Government has their back if they're wrong.Of course, this was same Nobel Prize winning wisdom that cause the Long Term Capital collapse and bailout (remember that one?) and that caused - more catastrophically - the 2008 collapse of the U.S. financial system (AIG/Goldman) and the subsequent joint Republican/Democrat 100% approved taxpayer bailout.Many analysts are wondering why the Chinese Government, which has a tight control over the trading level of the $/yuan, has enabled the above spike up to occur.nIf you think about the ramifications of what I just laid out above, it leads to one possibility (hint: think about the big blow that was just delivered to western bank balance sheets if I'm right about a behind the scenes derivatives accident having just occurred)."
"In my view, that spike up in the $/yuan you see in the chart above has probably triggered a massive derivatives "explosion" because typically, in their keen foresight and wisdom, the bank rocket scientists never account for the risk of a big move like the one above in a such a short period of time. If they were to price in this possibility, the derivatives contracts upon which they make $10's of millions in selling profits would be too expensive and the banks would miss out on that easy income.
But hey, we haven't seen a move like that in the history of the $/yuan contract so why should the banks ever expect it to happen? And the Fed and Government has their back if they're wrong.Of course, this was same Nobel Prize winning wisdom that cause the Long Term Capital collapse and bailout (remember that one?) and that caused - more catastrophically - the 2008 collapse of the U.S. financial system (AIG/Goldman) and the subsequent joint Republican/Democrat 100% approved taxpayer bailout.Many analysts are wondering why the Chinese Government, which has a tight control over the trading level of the $/yuan, has enabled the above spike up to occur.nIf you think about the ramifications of what I just laid out above, it leads to one possibility (hint: think about the big blow that was just delivered to western bank balance sheets if I'm right about a behind the scenes derivatives accident having just occurred)."
by InformedTrades via InformedTrades
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