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By: Bill Holter
I had to
chuckle after getting caught up in the ZeroHedge click bait headline A
Mystery Investor Just Made A $262 Million Bet That The Stock Market Will
Crash By October . First we should look at the article itself and
then analyze the stupidity prevailing even among large and supposedly
"wise" money managers.
As for the article, it was penned by Michael Snyder who has done some very
good work in the past as he did with the leg work for this one. The
problem(s) I see are that first, the mystery investor did not make a $262
million bet. This is the maximum amount he might be able to make
between now and October. The original "investment" is far
less than this and would normally be considered the amount of the
"bet" if this was the amount they could possibly lose.
But herein lies the problem, the "bet" has literally an unlimited
loss potential because in a complete blowout market, this trader is
essentially short 262,000 VIX Oct. 25 call contracts. Never mind all
the other bells and whistles in this trade, should the market crash and fear
run unbridled, the net/net is this uncovered short call position of 262,000
contracts. So, the title is misleading in the first place because the
original bet was only a small fraction of $262 million but the potential loss
could certainly be in the multiple $billions ... not like any lottery ticket
I have ever seen or would even touch!
Taking this the extra yard, let's talk about "what" this or any
trader will "win" should they be that fortunate. First, you
will notice I wrote "should they be that fortunate"... which means
someone else (or collective someone elses) will be unfortunate enough to be
standing atop an equal sized loss. The obvious question is whether they
will have the ability to payout on the "lotto ticket"? From a
systemic standpoint, I absolutely 100% guarantee in a free market not
backstopped by central banks, another 2008 experience cannot be
settled. 2008 could not be settled upon and thus the reason the Fed
secretly lent out $16 trillion across the globe, settlement HAD TO OCCUR or
the jig was up. The number this time around will have to be far larger
and probably many multiples.
Now, carrying the question all the way through, traders, investors, money
managers etc. who believe they are "hedged" or have safe strategies
in place are sadly mistaken. How can I say this with such a broad brush
and what makes me so smart? Don't worry, I have not turned arrogant by
any stretch, I can say this by looking at the problem with logic that long
ago left our casino markets. You see, the problem is these players for
the most part are playing for dollars, euros, yen etc. Even IF they
believe they are playing for gold, I assure you they are not because out of
the millions of ounces represented to create the current pricing, only a very
small fraction and less than one percent of real metal exists and underlies
the trades.
Getting to the heart of what I wanted to convey, the bottom line is even if
the winners all do get paid (a mathematical certainty they cannot because of
defaults), they will be collecting fiat paper chits that will not perform in
a credit meltdown. This is not rocket science or voodoo economics, all
fiat currencies are "credit based" in the first place so their
"value" only functions while credit markets are standing with good
faith and confidence. When confidence in central banks and sovereign treasuries
does break, so will all fiat currencies. This will appear to be a
hyperinflation when in reality it will be the MOTHER OF ALL DEFLATIONS in
terms of gold!
To finish, we live in a world where the casinos themselves are broke but
still functioning while they can still obtain credit. It will not
matter whether you won or lost if you have not left the casino when the
lights go out. The only way to truly win is to cash your chips in and
fully exit the casino with real money in hand... BEFORE it is widely understood
that no matter how many casino chips you have ...you still have
nothing! The mathematical explanation of this is "zero times
anything is still zero"! Please think this article through
thoroughly, the games are being played for the wrong winnings...
Standing
watch,
Bill
Holter
Holter-Sinclair
collaboration
Comments
welcome bholter@hotmail.com
Prior,
he wrote for Miles Franklin from 2012-15. Bill worked as a retail stockbroker
for 23 years, including 12 as a branch manager at A.G. Edwards. He left Wall
Street in late 2006 to avoid potential liabilities related to management of
paper assets. In retirement he and his family moved to Costa Rica where he
lived until 2011 when he moved back to the United States. Bill was a well-known
contributor to the Gold Anti-Trust Action Committee (GATA) commentaries from
2007-present.
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