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PARTs summary: (will add links as these posts go live).submitted by Elegant-Remote6667 to Superstonk [link] [comments]
part 1- january
part 2 - february
Part 3 - march +list of great apes and the DD they brought (from jan 2021 to current)
part 4 - april
part 5 -may
part 6 -june 2021
part 7 july 2021
part 8 august 2021
part 9 september 2021 (DRS REALLY STARTS OFF HERE)
part 10 October -2021
part 11- november
part 12 - December (2021)
Part 13- January 2022 (the wise ape is here)
part 14- February 2022
Part 15- March 2022
Part 16- APril to June 2022
part 17 -summary
Ape historian here with the biggest fricking post to date. the way i wrote this post out was to use my dashboard that i hope everyone now knows about.
For those nee a backstory - i am ape historian - i have been archiving the gme subs on my site and via my setup (reached 90tb total usable space a few days ago! massive milestone) and I am backing everything up. i am now going back in tiem to recreate the events from the sneeze to now, and this post is FEB/ MARCH time.
END OF FEBRUARYthe deletions continue
for those who havent seen my previous two posts - if you dont have a permalink to a delted post you cannot get it from wayback machine or any backup - AND ITS NOT SEARCHABLE. thats the important point - its not searchable.
Now posts get deleted for various reasons and I am not saying that all delted posts are suspicious . but int he aggregate i find it strange that a lot of POPcorn posts and silver posts stayed up on the original uusb sub - and you can freely check out my dashboard and doouble check me on this.
but the dd for gme was "deleted"- or so they thought.
here is what this dude had to say:
Disclaimer: This is not financial advice, and much of this information is not my own, sourced from other DD’s, many that have been removed.
As many of you know, on the 17th of this month, Interactive Brokers Chairman Thomas Peterffy had a CNBC interview (Automod won't let me link it?) where he goes on to explain the fundamentals of the short squeeze.
However, this whole ordeal might be a whole lot bigger than we had ever imagined.
Tom (or should we go with Tommy?) goes on to illustrate the idea that they had to regulate the stock, as if they had not it would have caused a collapse of the entire market. While Tom might very well be simply lying to us to give an excuse, let’s play his game, and ponder this idea for a second.
Tom states without the regulation, brokers would have been obligated to deliver 270 million shares, while only 50 million shares existed. 540% of shares.
Vlad, CEO of RobinHood, also told us that on the day of the halt they had an order volume of 3 Billion, that they could not fulfill.
Tom continues the interview, admitting that without the regulation, GameStop stock would have surged into the thousands, yes plural.
Maybe the reason all of this has truly become such a battle, is because of how seriously scared the other side of the trade really is.
Finra’s latest short interest update gives us a value of 78.46%. However, there are many reasons why this could be falsely construed. For one, Finra had announced new ways of calculating short interest, letting the synthetic longs drive this down. Another reason this may be low is this data is not fully up-to-date and does not take into account the fall from 100 to where we are now.
So, what is the true short interest then?
Well, let’s take breakdown GME share ownership alongside the findings of corrode1024 DD-
Insider Ownership: 23,704,787
Total Owned: 253,299,787
Total Outstanding: 69,746,960
Percentage of ownership to outstanding: 363.17%
Estimated Synthetic Shares: 183,552,827
FINRA Short % of Float: 78.46%
Finviz Float: 50,650,000
Reported Shares Shorted: 35,538,624
Total Estimated Short (Synthetic + Reported)
Percentage of Shorts to the Float: 432.56%
If you would like a deeper breakdown of corrode1024’s data, check out his DD.
But yes, the short interest may be a whopping ~432.56%.
Last week, u/thabat (yes -the thabat you know who
Now, I know, lol. Let’s not get ahead of ourselves. That is a completely crazy fucking number. I mean, right? It has to be?
But I mean, if this whole thing really is bigger than we thought, and it really could cause an entire collapse of the markets. This could be one of the biggest exchanges of wealth in the history of the world.
If SI really is ~400%, shorts covering at infinitely higher and higher prices certainly could drive it up to astronomical heights.
the image from that post - courtesy of wayback machine.
If this is what our models show, imagine the models and algorithms these big firms have. This may very well be why they are so frightened. They have dug themselves into a hole below bedrock.
All of this seems to line up with what Vlad and Tom have now told us. Without regulation, this squeeze will be the Mother of all Short Squeezes.
So now, alongside our Dogfather Cohen, we shall wait patiently for a catalyst. Just like on the last squeeze to $483, we required a catalyst to get us there. Don’t forget the information we knew in November and December. Board spots are opening up in July which Cohen will take advantage of, Cohen could up his stake. Earnings in March. Who knows what could happen.
It is important to remember the gaming industry is the largest industry in the world, and we are still in its infancy. Older generations continue to laugh down the importance of gaming, but as our generation grows up gaming is only going to evolve and get bigger. GameStop is the only retailer dedicated to gaming and has a surplus of centers that big competitors like Amazon do not.
We are basically right back where we were in NovembeDecember. The stock price does not matter. If short interest is at 400%, or if short interest is at 80%. Both are insanely high SI values, and a squeeze is inevitable, one that sends us to 500 or one that sends us to 50,000. With high short interest, a squeeze is inevitable. NEVER forget that.
So, continue to hold fellow apes. May your hands turn to diamonds and your balls to steel.
Edit: Also don't forget the other CNBC interview with our boy Tommy where he also admitted that they halted to save themselves. Or the CNBC interview with Vlad where he said it multiple times assuredly that it WAS NOT a liquidity issue, but that is his reasoning now. (You can find these 2 interviews on youtube, AutoMod wont let me link youtube)
Ape historian superfind 10: this video shows up again - https://youtu.be/RfEuNHVPc_k?t=5419
remember the hearing - well here is the point where they tried to setup DFV to say something. and DFV wasnt taking it.
from \"Why GameStop was going to cause a collapse of the entire market, and why it is still going to:\"
the above post mentioned corrode1024 didnt it - lets have a look - i need more wrinkles than i have to understand this all.
corrode mentions aah_soy whom we did see in our previous part 2 of the post where he accurately figured out synthetic shortselling - a FUCKING YEAR before most of the apes figured out what that meant. but somehow his account got deleted. nevermind.
u/jeepers_sheepers finds at the early start of feb 2021 that XRT, you know - THAT XRT has an SI of 800%. post title - "XRT is being used to hide GME shorts. XRT currently sits at 190% SHORT FLOAT. Peaking on 2/1 at over 800% SHORT FLOAT!!"
somehow also deleted and we saw this post in part 2. strange. huh what could it possibly be?
but if you search on my dashboard you will have the post.
the post also mentions that there already was an archive before my time - on stonking.info - but that got taken down.
or did it? heh not from me. you see how this shit gets hard to pindown once "deleted" is on the menu? you can se how if i didnt have access to all the subs, full search, and wayback machine there is NO FUCKING WAY i would find this. ever.https://web.archive.org/web/2021*/stonking.info
the site is dead but here is what was posted: https://web.archive.org/web/20210220162502/https://www.stonking.info/post/evidence-that-gme-shorts-are-not-covering
\"the first mention of synthetic shares that i can find\".
and before sec decides to wipe that 2013 paper off here is the link to it-
and here is another article from tradesmith daily -https://web.archive.org/web/20210225044538/https://tradesmithdaily.com/investing-strategies/the-drop-in-gamestop-short-interest-could-be-real-or-deceptive-market-manipulation/
\"the hedge funds can use tricks to make it look like they have covered their shorts- even if they havent\" - this is from the sec document.
Fun huh? so we have in feb of 2021 already some understanding about how hedgies are manipulating THE PERCIEVED SHORT INTERESST IN GME WITH XRT SHORTING AND SYNTHETIC LONGS. remember this prhase it will come in usefull later.
in march stonking will come back with more points around synthetic shares, counterfeight shares and phantom shares.
fuck i have read some of this but never sat down to read it all.
just reminding everyone that all this is available on this dashboard - free to access, no license, no tracking. full post search on the left, title and author search on the right. subreddit and date dropdowns.
MARCH - the day of runups and the birth of the stonk and AMAs!for this one you need to remember phantom shares,and a few other keywords.
u/atobitt publishes the everything short and citadel has no clothes: but actually they dont make it to superstonk until a little later as a repost. go read both of those posts, its required reading.
in short - "The EVERYTHING Short"
"TL;DR- Citadel and friends have shorted the treasury bond market to oblivion using the repo market. Citadel owns a company called Palafox Trading and uses them to EXCLUSIVELY short & trade treasury securities. Palafox manages one fund for Citadel - the Citadel Global Fixed Income Master Fund LTD. Total assets over $123 BILLION and 80% are owned by offshore investors in the Cayman Islands. Their reverse repo agreements are ENTIRELY rehypothecated and they CANNOT pay off their own repo agreements until someone pays them, first. The ENTIRE global financial economy is modeled after a fractional reserve system that is beginning to experience THE MOTHER OF ALL MARGIN CALLS.
THIS is why the DTC and FICC are requiring an increase in SLR deposits. The madness has officially come full circle."
"Citadel Has No Clothes"
TL;DR - Citadel Securities has been fined 58 times for violating FINRA, REGSHO & SEC regulations. Several instances are documented as 'willful' naked shorting. In Dec 2020 they reported an increase in their short position of 127.57% YOY, and I'm calling bullsh*t on their shenanigans.
Ape historian superfind 11: CITADEL basically does whatever it wants and isnt afraid to show it - more than a year later.
and -einfachman- did a stellar piece of DD https://www.reddit.com/Superstonk/comments/v0zrni/burning_cash/ -and all the DD's here.
and of course this one: https://www.reddit.com/Superstonk/comments/v4wxkb/i_spoke_with_a_former_citadel_client_heres_what/
but i digress
lets get back to march shall we - Wed Mar 17 2021 16:32:47 GMT+0000 (Greenwich Mean Time)
Post title "THIS IS HUGE: RobinHood NEVER OWNED YOUR GME SHARES, they got margin called $3B to cover the shares they needed to buy!" - you can always search for post titles in my dashboard to find the OG post and all the backup links.
funny how this keep getting deleted. why? are people really deleting their dd with 40k upvotes?
here is the wayback link: hehe you thought it was lost.
\"THIS IS HUGE: RobinHood NEVER OWNED YOUR GME SHARES, they got margin called $3B to cover the shares they needed to buy!\"
There is a post that this post links- "the post is titled "robinhood the missing link" on the 17th march 2021- and its in my dashboard as well.
\"In this scenario, RobinHood continuously sends order flow buy and sell orders to Citadel (I'm just using Citadel as a name, it could be any market maker). When a trader enters a buy order, that order is sent to the MM, and the price is set for the trade and the trader is given access to their shares at the current price. RobinHood has fulfilled their agreement to best-price, and the MM paid for the order, and the customer has access to their shares.\"
this was posted by u/theguyonthereddits
the main point here is this: But that doesn't mean that the MM actually went through with purchasing or selling those share orders yet. They paid for the order, but they only need to execute it "in a reasonable time".
"2) They recently changed their PFOF method from one giving them a set payment per share to one giving them a percentage of the spread instead. Think about this: A Robinhood trader wants the spread in the stocks he/she is trading to be as narrow as possible. The HFT market maker buying those orders benefit most when that spread is as wide as possible. And now Robinhood benefits most when the spread is as wide as possible as well! This is an amazing misalignment of interests. "
"While PFOF is legal, we have long wondered how it possibly could be. How can a broker, charged with the duty of getting its clients the best available prices, possibly do so by selling that client’s orders to amazingly sophisticated HFT firms, who in turn will make billions of dollars trading against these orders?"
Forex brokers and MMs are well-known to take inverse positions to retail trades. I think RobinHood was as well. CFD brokers have to delta hedge their actual holdings as their clients positions become profitable. As long as the clients are losing money, there is no reason to ever buy the securities, as the position is just going to lose money anyways. CFD brokers will only buy the security you own if that security starts becoming profitable and it will cost RobinHood more money to buy the share later. They are basically shorting your shares on their books.
"While retail brokers and market making firms, claim that price improvement (PI) accrues to retail investor orders, such price improvement is a flawed calculation:
"It should surprise no one that investor orders do not dominate these races; HFT Market makers do. Investors’ orders typically find themselves further back in the queue. As a result, investors miss opportunities at buying cheaper stock, and when they do get filled they are subject to outsized adverse selection. Despite this, brokers representing investors still route largely to these exchanges for that rebate."
Once RobinHood sells your orders to Citadel, Citadel can buy or sell the needed shares on any exchange they want to, to get themselves the best spread on the price difference. WHEN YOU BUY SHARES ON ROBINHOOD, YOU ARE NOT AFFECTING THE ACTUAL MARKET ORDERS. Your shares that you are buying/selling get collected by Citadel, and they can then buy/sell as they see fit with those orders.
Citadel can collect a large batch of buy orders, and then BUY those shares on a dark pool exchange that DOES NOT DRIVE UP THE ACTIVE MARKET PRICE. And they can also collect large sell orders into one large batch, and then SELL those shares on the ACTUAL MARKET WHICH ACTUALLY DOES DRIVE THE ACTIVE PRICE DOWN.
That is why you can see huge dumps on days with the SSR active and no large selling volume. Citadel/MM are capable of keeping ALL of the buying pressure OFF of the open exchanges, while simultaneously loading up sell orders to dump at once ON the open exchanges.
"• In January 2021, a record 47.19% of US stock-market volume traded “off-exchange and on February 9th we hit an all-time record of 50.47%, with retail representing 1/3rd of total US ADV"
Over 50% of all trading activity is done off-exchange. And retail is 1/3 of the total daily volume. They can literally keep 100% of retail buy orders routed through these MM off of the open exchanges, to avoid YOUR buy orders from driving the price up in real-time.
I will stop doing the copy pasta here but that post is definitely worth a read.
Ape historian superfind 12: hmm it might be that robinhood never owned the shares- this would explain the PCO. but lets continue in the next part of the series
end of march - coourtesy of u/broccaaa - welcome to synthetic shares writeup. post title -"The naked shorting scam update: selling nude like its 2021"from u/broccaaa: "This post updates the possibility of a naked shorting scam with massive hidden FTDs and short interest in 2021. By looking at SEC rules and academic papers I show that rule changes do not stop the potential abuses of naked short selling in a material way. Rather they slightly modify how it could be done and optimized. The changes also make the scheme less sustainable on the short side and over time pressure might "coil the spring" and lead to an unprecedented FTD squeeze.
With current rules:
Note: this is not financial advice. I am not a cat. I read some papers and made some interpretations. Any number of these could be flawed and wrong. Make your own mind up.
The post I wrote yesterday was based on an economics paper looking at naked short practices that abused options market maker privileges. The paper was written in 2007 and took Overstock shares as an example of of a stock with massive short share fuckery. Here is a great Rolling Stone article showing court documents confirming the illegal short seller activity in Overstock. Despite the clear similarities with GME in 2021certain SEC rules have changed since the paper was written.
Which short selling rules have changed and could a modified version of the scam be happening in 2021?
With some help from other apes in the comments and a little extra research I'd like to clarify this and provide some thoughts on what might be going on today.
SEC rules on short selling and the changes made up until 2006 ( amendments to Regulation SHO under the Securities Exchange Act of 1934 )
Regulation SHO, which became fully effective on January 3, 2005, set forth a regulatory framework governing short sales. One of the goals of this was to target potentially abusive “naked” short selling practices in certain equity securities. Additional regulation was put in place to limit the selling of securities without first finding a valid share to borrow. The 2005 implementation failed miserably.
A fantastic letter was written in December 2003 by former Undersecretary of Commerce Robert Shapiro and forwarded to the SEC. In the letter Shapiro detailed findings from his own research and his doubts that the proposed changes in the SEC rules would have any material impact on the abusive practices:
Ape historian superfind 13: and we get our first introduction to "phantom shares" - https://web.archive.org/web/20190623164454/http://rgmcom.com/articles/PhantomShares.pdf
perhaps the most interesting part of that pdf i just posted is the TREND FOR FTDs is going up while clearly the advancement in technology is also going up from 2005 to 2007- so the question is - WHY? why is it going up? is it profiable?
and yes every post mentioned here is backed up. In part 5 i will introduce the ipfs archives. its taking a whileApe historian superfind 14: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2867383 "(Naked) Short Selling Around Earnings Announcement
Ape historian superfind 15: https://www.proquest.com/openview/b7759a0d7c621f67d82668197d99c379/1?pq-origsite=gscholar&cbl=18750&diss=y
Ape historian superfind 16: AND ANOTHER POST - "Naked Short Selling: The Truth Is Much Worse Than You Have Been Told"
\"Naked Short Selling: The Truth Is Much Worse Than You Have Been Told\"-exceprt.
so to sum up- this shows in a simple way that actually - apes were right. a few months after this date AMAs from Lucy and Wes and Dr Trimbath will start to unravel this shitstorm. and of course the smithonstocks linksSuperstonk by end of march 2021 had 63 posts. April is where the real shit hides.
in comes the first mention of DRS -by Austins-Reddit on 01/Mar /2021. post title "GME Paper Stock Certificates through "ComputerShare" after transferring from TDA"The post below is what i wanted to reach out to you about: "Buy & Hold 2.0 - A theory on how locating REAL shares may trigger a domino effect."
oh- \"Buy & Hold 2.0 - A theory on how locating REAL shares may trigger a domino effect.\" -deleted again. funny that.
that post from the archives - well the excerpt is below:
computershare was postulated by at least one ape in march 2021.
TLDR- this entire research peice is fully available - just use my dashbaord and start searching for yourself - this is NOT the only things that happened. this is the main things that I feel accoring to me were most important.
standby for part 4.
ape historian-destroyer of free disk space
What did Citadel do to piss everyone off? WHY would they want to give Citadel the most epic beat down in financial history?So I spent some time looking into that because it must be good and...
“The way to think about Citadel is as the Amazon of trading,” says Spencer Mindlin, a capital markets technology analyst at Aite Group. In an industry that relies heavily on technology, Citadel has forged ahead by playing “a game of scale. You reach a point where it’s impossible for others to compete,” he says. [emphasis mine] - QuartzBackstory:
”We already have 16 stock exchanges, over 30 ATSs and handful of market maker SDPs, do we really need the banks to further fragment liquidity?” [emphasis mine] - Themis TradingThe TRUE value to the market is a firm that spans multiple exchanges and offers the breadth of securities available at competitive prices.
I am getting increasingly worried about the amount of warning signals that are flashing red for hyperinflation- I believe the process has already begun, as I will lay out in this paper. The first stages of hyperinflation begin slowly, and as this is an exponential process, most people will not grasp the true extent of it until it is too late. I know I’m going to gloss over a lot of stuff going over this, sorry about this but I need to fit it all into four posts without giving everyone a 400 page treatise on macro-economics to read. Counter-DDs and opinions welcome. This is going to be a lot longer than a normal DD, but I promise the pay-off is worth it, knowing the history is key to understanding where we are today.submitted by peruvian_bull to Superstonk [link] [comments]
SERIES TL/DR (PARTS 1-4): We are at the end of a MASSIVE debt supercycle. This 80-100 year pattern always ends in one of two scenarios- default/restructuring (deflation a la Great Depression) or inflation( hyperinflation in severe cases (a la Weimar Republic). The United States has been abusing it’s privilege as the World Reserve Currency holder to enforce its political and economic hegemony onto the Third World, specifically by creating massive artificial demand for treasuries/US Dollars, allowing the US to borrow extraordinary amounts of money at extremely low rates for decades, creating a Sword of Damocles that hangs over the global financial system.
The massive debt loads have been transferred worldwide, and sovereigns are starting to call our bluff. Systemic risk within the US financial system (from derivatives) has built up to the point that collapse is all but inevitable, and the Federal Reserve has demonstrated it will do whatever it takes to defend legacy finance (banks, brokedealers, etc) and government solvency, even at the expense of everything else (The US Dollar).
I’ll break this down into four parts. ALL of this is interconnected, so please read these in order:
Updated Complete Table of Contents:
Some terms you need to know:Inflation: Commonly refers to increase in prices (per Keynesian thinking). However, Inflation in the truest sense is inflation (growth) of the money supply- higher prices are just the RESULT of monetary inflation. (Think, in normal terms, prices really only rise/fall, same with temperatures. (ie Housing prices rose today). The word Inflation refers to a growth in multiple directions (quantity and velocity). Deflation means a contraction of the money supply, which results in falling prices.
Dollarization (Weaponization of the Dollar): The process by which the US government, IMF, World Bank, and other elite organizations force countries to adopt dollar systems and therefore create indirect demand for dollars, supporting its value. (Think Petrodollars).
Central Banks: Generally these are banks that control/monitor the monetary policy of the country they reside in. They are usually owned by private financial institutions (large banks/bank holding firms). They utilize open market operations%20refers,out%20to%20businesses%20and%20consumers.) to stabilize and set market rates. They are called the “Lender of Last Resort” as they are supposed to LEND (not bailout/buy assets) to other banks in a crisis and help defend their currency’s value in international forex markets. CBs are beholden to the “dual mandate” of maintaining price stability (low inflation) and a strong job market (low unemployment)
Monetary Policy: The set of tools that central bankers have to adjust how money moves through the financial system. The main tool they use is quantitative tightening/easing, which basically means selling treasuries or buying treasuries, respectively. *A quick note- bond prices and interest rates move inversely to one another, so when Central banks buy bonds (easing), they lower interest rates; and when they sell bonds (tightening), they increase interest rates.
Fiscal Policy: The actions taken by the government (mainly spending and taxing) to influence macroeconomic conditions. Fiscal policy and monetary policy are supposed to be enacted independently, so as not to allow massive mismanagement of the money supply to lead to extreme conditions (aka high inflation/hyperinflation or deflation)
Part One: The Global Monetary System- A New Rome
Allegory of the Prisoner's Dilemma
Prologue:In their masterwork tapestry entitled “Allegory of the Prisoner’s Dilemma” (pictured in the title image of this post) the artists Diaz Hope and Roth visually depict a great tower of civilization that rests upon a bedrock of human cooperation and competition across history. The artists force us to confront the fact that after 10,000 years of human civilization we are now at a cross-roads. Today we have the highest living standards in human history that co-exists with an ability to destroy our planet ecologically and ourselves through nuclear war.
We are in the greatest period of stability with the largest probabilistic tail risk ever. The majority of Americans have lived their entire lives without ever experiencing a direct war and this is, by all accounts, rare in the history of humankind. Does this mean we are safe? Or does the risk exist in some other form, transmuted and changed by time and space, unseen by most political pundits who brazenly tout perpetual American dominance across our screens? (Pulled from Artemis Capital Research Paper)
The Bretton Woods Agreement
Money, in and of itself, might have actual value; it can be a shell, a metal coin, or a piece of paper. Its value depends on the importance that people place on it—traditionally, money functions as a medium of exchange, a unit of measurement, and a storehouse for wealth (what is called the three factor definition of money). Money allows people to trade goods and services indirectly, it helps communicate the price of goods (prices written in dollar and cents correspond to a numerical amount in your possession, i.e. in your pocket, purse, or wallet), and it provides individuals with a way to store their wealth in the long-term.
Since the inception of world trade, merchants have attempted to use a single form of money for international settlement. In the 1500s-1700s, the Spanish silver peso (where we derive the $ sign) was the standard- by the 1800s and early 1900s, the British rose to prominence and the Pound (under a gold standard) became the de facto world reserve currency, helping to boost the UK’s military and economic dominance over much of the world. After World War 1, geopolitical power started to shift to the US, and this was cemented in 1944 at Bretton Woods, where the US was designated as the WRC (World Reserve Currency) holder.
In the early fall of 1939, the world had watched in horror as the German blitzkrieg raced through Poland, and combined with a simultaneous Russian invasion, had conquered the entire territory in 35 days. This was no easy task, as the Polish army numbered more than 1,500,000 men, and was thought by military tacticians to be a tough adversary, even for the industrious German war machine. As WWII continued to heat up and country after country fell to the German onslaught, European countries, fretting over possible invasions of their countries and annexation of their gold, started sending massive amounts of their Gold Reserves to the US. At one point, the Federal Reserve held over 50% of all above-ground reserves in the world.
US Trade Balance
In a global monetary system restrained by a Gold Standard, countries HAVE to have gold reserves in their vaults in order to issue paper currency. The Western European powers all exited the Gold standard via executive acts in the during the dark days of the Great Depression (in Germany’s case, immediately after WW1) and build up to War by their respective finance ministers, but the understanding was they would return back to the Gold standard, or at least some form of it, after the chaos had subsided.
As the war wound down, and it became clear that the Allies would win, the Western Powers understood that they would need to come to a new consensus on the creation of a new global monetary and economic system.
Britain, the previous world superpower, was marred by the war, and had seen most of her industrial cities in ruin from the Blitz. France was basically in tatters, with most industrial infrastructure completely obliterated by German and American shelling during various points of the war. The leaders of the Western world looked ahead to a long road of rebuilding and recovery. The new threat of the USSR loomed heavy on the horizon, as the Iron Curtain was already taking shape within the territories re-conquered by the hordes of Red Army.
Realizing that it was unsafe to send the gold back from the US, they understood that a post-war economic system would need a new World Reserve Currency. The US was the de-facto choice as it had massive reserves and huge lending capacity due to its untouched infrastructure and incredibly productive economy.
At Bretton Woods, the consortium of nations assented to an agreement whereby the Dollar would become the WRC and the participating nations would synchronize monetary policy to avoid competitive devaluation. In summary, they could still redeem dollars for Gold at a fixed rate of $35 an oz, a hard redemption peg which the U.S would defend.
Thus they entered into a quasi- Gold standard, where citizens and private corporations could NOT redeem dollars for Gold (due to the Gold Reserve Act , c. 1934), but sovereign governments (Central banks) could still redeem dollars for gold. Since their currencies (like the Franc and Pound) were pegged to the Dollar, and the Dollar pegged to gold, all countries remained connected indirectly to a gold standard, stabilizing their currency conversion rate to each other and limiting local governments’ ability to print and spend recklessly.
US Gold Reserves
For a few decades, this system worked well enough. US economic growth spurred European rebuilding, and world trade continued to increase. Cracks started to appear during the Guns and Butter era of the 1960’s, when Vietnam War spending and Johnson’s Great Society programs spurred a new era of fiscal profligacy. The US started borrowing massively, and dollars in the form of Treasuries started stacking up in foreign Central Banks reserve accounts.
Then-French President Charles De Gaulle did the calculus and realized in 1965 that the US had issued far too many dollars, even considering the massive gold reserves they had, to ever redeem all dollars for gold (remember naked shorting more shares than exist? -same idea here). He laid out this argument in his infamous Criterion Speech and began aggressively redeeming dollars for gold.
The global “run on the dollar” had already begun, but the process accelerated after his seminal address, as every large sovereign turned in their dollars for bullion, and the US Treasury was forced to start massively exporting gold. Backing the sovereign government's actions were fiscal and monetary strategists getting more and more worried that the US would not have enough gold to redeem their dollars, and they would be left holding a bag of worthless paper dollars, backed by nothing but promises. The outward flow of gold quickly became a deluge, and policymakers at all levels of Treasury and the State department started to worry.
Nixon ends Bretton Woods
Nearing a coming dollar solvency crisis, Richard Nixon announced on August 15th, 1971 that he was closing the gold window, effectively barring all countries from current and future gold redemptions. Money ceased to be based on the gold in the Treasury vaults, and instead was now completely unbacked, based solely on government decree, or fiat. Fixed wage and price controls were created, inflation skyrocketed, and unemployment spiked.
Nixon’s speech was not received as well internationally as it was in the United States. Many in the international community interpreted Nixon’s plan as a unilateral act. In response, the Group of Ten (G-10) industrialized democracies decided on new exchange rates that centered on a devalued dollar in what became known as the Smithsonian Agreement. That plan went into effect in Dec. 1971, but it proved unsuccessful. Beginning in Feb. 1973, speculative market pressure caused the USD to devalue and led to a series of exchange parities.
Amid still-heavy pressure on the dollar in March of that year, the G–10 implemented a strategy that called for six European members to tie their currencies together and jointly float them against the dollar. That decision essentially brought an end to the fixed exchange rate system established by Bretton Woods. This crisis came to be known as the “Nixon Shock” and the DXY (US dollar index) began to fall in global markets.
This crisis came out of the blue for most members of the administration. According to Keynesian economists, stagflation was literally impossible, as it was a violation of the Philips Curve principle, where Unemployment and Inflation were inversely correlated, thus inflation should theoretically be decreasing as the recession worsened and unemployment climbed through 1973-1975.
MONKE-SPEK: Philips Curve Explained
After the closing of the gold window in 1971, the crisis spread, inflation kept climbing, and other sovereigns began contemplating devaluing their currencies as their only peg, the US dollar, was now unmoored and looked to be heading to disaster.
US exports started climbing (cheaper dollar, foreigners could now import stuff to their countries), straining export economies and sparking talks of a currency war. Knowing they had to do something to stop the bleeding, the Nixon administration, at the direction of Henry Kissinger, made a secret deal with OPEC, creating what is now called the Petrodollar system. This article summarizes it best:
Petrodollars had been around since the late 1940s, but only with a few suppliers. Petrodollars are U.S. dollars paid to an oil-exporting country for the sale of the commodity. Put simply, the petrodollar system is an exchange of oil for U.S. dollars between countries that buy oil and those that produce it.
By forcing the majority of the oil producers in the world to price contracts in dollars, it created artificial demand for dollars, helping to support US dollar value on foreign exchange markets. The petrodollar system creates surpluses for oil producers, which lead to large U.S. dollar reserves for oil exporters, which need to be recycled, meaning they can be channeled into loans or direct investment back in the United States.
It still wasn’t enough. Inflation, like many things, had inertia, and the oil shocks caused by the Yom Kippur War and other geo-political events continued to strain the economy through the 1970’s.
Running out of road, monetary policymakers finally decided to employ the nuclear option. Paul Volcker, the new Federal Reserve Chairman selected in 1979, knew that it was imperative to break the back of inflation to preserve the global economic system. That year, inflation was spiking well above 10%, with no end in sight. He decided to do something about it.
By hiking interest rates aggressively, consumer credit lending slowed, mortgages became more expensive to finance, and corporate debt became more expensive to borrow. Foreign companies that had been dumping US dollar holdings as inflation had risen now had good reason to keep their funds vested in US accounts. When the Petrodollar system, which had started taking shape in ‘73 was completed in March 1979 under the US-Saudi Joint Commission, the dollar finally began to stabilize. The worst of the crisis was over.
Volcker had to keep interest rates elevated well above 8% for most of the decade, to shore up support for the dollar and assure foreign creditors that the Fed would do whatever it takes to defend the value of the dollar in the future. These absurdly high interest rates put a brake to US government borrowing, at least for a few years. Foreign creditors breathed a sigh of relief as they saw that the Fed would go to extreme lengths to preserve the value of the dollar and ensure that Treasury bonds paid back their principal + interest in real terms.
10yr US treasury yields
Over the next 40 years, the United States and most of the developed world saw a prolonged period of economic growth and global trade. Fiat money became the norm, and creditors accepted the new paradigm, with it’s new risk of inflation/devaluation (under the gold standard, current account deficits, and thus inflation risk, was self-stabilizing). The Global Monetary system now consisted of free-floating fiat currencies, liberated from the fetters of the gold system.
(I had to break this post up into two sections due to the character limit, here is second half of Pt 1): /
(Apes, this is a continuation of Part 3, please find the first half of Part 3 here)submitted by peruvian_bull to Superstonk [link] [comments]
The Money IllusionIn 2008, we were at the end of a major debt supercycle. The frenzied mortgage lending and securitization in the financial sector, along with massive consumer credit borrowing, had set the U.S. up for a major crisis. In relative terms, we were at a 27% HIGHER total debt to GDP ratio than the Great Depression.
These massive debt loads were coming home to roost, manifesting first as a crisis in subprime but then quickly moving to prime mortgages, corporate debt markets, money markets, and even the consumer credit markets. As discussed in Part 2, NY Fed Pres Tim Geitner stated that during the darkest days of 2008 the inter-bank lending market was freezing up, and we were “days away from the ATMs not working”.
Total US (Public+Private) Debt to GDP
But, this didn’t happen. Ben Bernanke, the Chairman of the Federal Reserve, was a self avowed student of the Great Depression- and was determined not to let it happen again. He, along with Treasury Secretary Hank Paulson (Former CEO of Goldman Sachs) and Tim Geitner, created new lending facilities and MBS purchase programs in order to swallow the massive amounts of toxic assets the system had created.
Paulson and Bernanke technically had no legal authority to create these programs, but in a crisis, all caution goes out the window. TARP and other programs authorized by the Treasury bought billions of dollars of MBS, funded by T-bond issuances. This chart shows US Govt Debt as a % of GDP through today: (notice the spike in debt during and after 2008)
US Government Debt To GDP
The US borrowed heavily- TARP alone was authorized for $700 billion. The Treasury did not have the funds to support this so it issued billions of dollars of T-Bonds. Banks, hedge funds, other governments, and the Fed all bought these bonds en masse.
Remember, only the Treasury has the ability to SPEND, and only the Fed has the ability to LEND/PRINT. The Fed was created as a private institution to “protect” the government from reckless money-printing. The Primary Dealers (banks approved to trade directly with the Govt) buy Govt bonds from the US Treasury, and turn around and sell these bonds to the Fed or other third parties. If you’re confused about how the system works, I recommend watching this video on how the financial system functions.
In the equity markets, as we started bottoming in the first quarter of 2009, hedge funds, banks, and family offices began loading up on margin debt again. This renewed confidence in the banking system and overall lending capacity began pushing equity markets back up.
Margin Debt and Stock Market Rally
Further stabilizing the markets was the Federal Reserve with their massive Quantitative Easing program. In 2008, the Federal Reserve’s Balance Sheet ballooned- assets (Treasuries and MBS) grew from $880 Billion pre-crisis, to $2 Trillion immediately after, and eventually over $4T by 2014. Many economists, particularly those with a libertarian bent, such as Peter Schiff, immediately decried this reckless behavior and predicted immediate hyper-inflation as early as 2011.
Federal Reserve Balance Sheet
When the Fed buys assets, it is completely different from any other institution buying. Pension plans or mutual funds use the savings of the investors of the fund. Because that money came either from working, or from other investments, it represents NO net increase in money supply. The money they received HAD to come from someone else, for a good/product/service/asset they created or provided.
However, the Fed has no taxing authority, no savings, no funds to speak of at all- EVERYTHING the Fed buys it purchases through money it PRINTS. Thus, Fed Balance Sheet expansion=money printing. The Fed printed $2T in the two years following 2008.
This rampant money printing rightly worried experts and pundits in the media- but the inflation they feared never came. They were flat out WRONG. Why?
Most of the new money that was printed went directly into the banking system. Lyn Alden describes it brilliantly-
“Leading into the financial crisis, only about 13% of bank reserve assets consisted of cash (3%) and Treasury securities (10%). The rest of their assets were invested in loans and riskier securities. This was also at a time when household debt to GDP reached a record high, as consumers were caught up in the housing bubble.
That over-leveraged bank situation hit a climax into the 2008/2009 crisis, coinciding with record high debt-to-GDP among households, and was the apex of the long-term private (non-federal) debt cycle. When banks are that leveraged with very little cash reserves, even a 3% loss in assets results in insolvency. And that’s what happened; the banking system as a whole hit a peak total loan charge-off rate of over 3%, and it resulted in a widespread banking crisis” (I can't link source, it keeps getting the post taken down- I will post it in comments).
Thus, the new money went to recapitalize banks and shore up their balance sheets to defend them from bankruptcy- it stayed in untouchable bank reserves, and never entered circulation.
The money that didn’t go to repair bank balance sheets flowed directly into the markets - Let’s walk through it.
There are two different economies- the real economy, and the financial economy. The tidal wave of new money the Fed was creating did not cause inflation (in the traditional sense), because the money did not flow into the real economy- the goods, products and services that everyone consumes on a daily basis. The money instead flowed into the Financial economy- bond markets, stock markets, private equity funds, commodities, Forex markets, etc.
Financial Economy vs Real Economy
When you give a bank $100M, it doesn't go out and buy $100M worth of Big Macs and Kleenex- the bank puts these funds into investments, generally either in the form of loans or in the form of equities or equity derivatives. Thus, the funds that flowed into the banks are stored up almost exclusively in the financial system, or get pushed into loans to consumers.
“Wait a second!”- you say. “The Fed printed money to buy T-Bonds- The Treasury usually spends funds that go into the real economy-- so THAT should have caused inflation, right?”
Yes, this is typically what happens. But, during and after the 2008 financial crisis the majority of Treasury expenditures went to programs that were stabilizing the financial system (TARP+ TAF+ TLGP+ Others). So, the money that would have been spent by govt agencies in the real economy instead just flowed back to banks and financial institutions.
Typically in a recession the Treasury will increase spending to cushion the blow to workers- and in 2009 they did extend a few unemployment benefits. But, by and large, Congress authorized few benefit programs for workers, and the average time on the benefit decreased after a slight bump in 2009.
Average Time on Benefit
Thus, the amount of freshly-printed money that reached the real economy was minimal, and whatever money did reach it largely acted to counteract deflationary forces- it wasn’t enough to actually induce inflation. The government did little to stop foreclosures, or provide aid to small businesses. Unemployment spiked, and due to the Phillips Curve Principle (covered in Pt 1), this put a dampening effect on inflation.
The funds the Federal Reserve had created, therefore, created no inflation in the real economy- instead they flowed to the financial economy and inflated financial assets. This started off the largest and longest bull market run in U.S. Stock market history- easily beating emerging and other developed countries’ equity markets.
Massive US Stock Market Rally
Keynesian economists lauded this as an accomplishment- they believed they were creating what is called a “Wealth Effect” - a theory that stated that as people’s financial wealth increased, they would be induced to do more spending and investment- thus, by propping up the stock market, they would stimulate the real economy. This is awfully convenient for the rich- the top 10% own 85% of the equity markets, and thus have seen their wealth balloon by over 186% while growth for everyone else stagnated.
Ironically this theory has it exactly backwards- real economic growth should drive the stock market, not the other way around. But, convinced of their theories, economic policymakers continued to pump ever increasing sums into the financial system.
When you divide stock market performance by the Fed’s Balance sheet, you see that there has been basically NO real growth since 2008.
The Rally is an Illusion
The entire “rally” we have experienced for the past 12 years has been nothing but an illusion- it is simply the result of vast money inflows into the financial system. Banks and financial institutions will do everything they can to convince you that the high stock market valuations are justified by fundamental growth.
This is wrong- these valuations are NOT justified. Insane levels of money printing and debt leverage have created extremely dislocated equity markets. For example, Square (SQ) has a forward PE ratio of 499.87- it currently doesn't pay a dividend, but let’s assume it paid a 3% dividend payout ratio (which is rare for tech stocks) - if that were the case, it would take 14,996 YEARS for the dividends to pay pack the price of ONE SHARE. (449.87/0.03).
To summarize, see this image from a post I made a month back- all the warning lights are blinking red. The markets are at the extreme end of the range by almost every valuation metric- and no one seems to care.
Summary of Recent Warnings
The markets are slowly being “walked up” every day. Today, the ultimate price insensitive buyer (the Fed) is now plowing $120B a month into Treasuries and MBS, and the Primary Dealers now have to turn around and put their money somewhere. The bond market is already a trap with 2% yields, and 5% inflation. There’s no more profit potential there, so these institutions are forced to buy equities if they want any returns. The Fed is killing whatever is left of price discovery.
SPX grinding higher daily
Four billion dollars or so a day is being pumped into the system- and going straight to the stock markets.
Further, to stimulate growth in the real economy, policymakers dropped interest rates to near 0% in late 2008 to induce bank lending to get consumers to borrow and spend again. (70% of our economy is consumption due to the factors discussed in Part 1).
This did create massive loan demand- basically every sector of the US economy began borrowing en masse. The Fed was able to “reflate” the bubble and allow the economy to survive on debt financing to “re-invigorate the economy”. Fast-forward to today, and a decade of pinning rates to the zero-bound has us breaking records in terms of debt loads:
Student Loan Debt:
Student Loan Debt
Corporate Debt to GDP
Consumer Credit Card Debt:
Consumer Credit as % of GDP
Auto Loan Debt.
I could go on and on, but you get the point. Now, the entire system is overleveraged- the cancer has spread, and it has infected virtually every single sector of the economy.
People keep saying that we “kicked the can” of 2008 down the road. This is WRONG. We kicked the can UP THE STAIRS- meaning, we not only delayed the problem, but made sure it would get WORSE, since we borrowed MORE to paper over the old debts and worthless securities the system had created.
A fascinating aspect of our recent financial history is that the bailouts are exponentially growing- this is due to the simple fact that the entity giving the bailout has to have a balance sheet multiples larger than the firm receiving the bailout, and government guarantees of banks induce reckless speculation. For example, to bailout a bank with $10B in mark-to-market losses, you need a bank with a $20 or $30B capital surplus, to absorb the loss and keep the depositors and creditors satisfied that the bank giving the bailout won’t go under.
In 1998, a hedge fund called LTCM was near collapse- it had leveraged itself over 25-1, using complex algorithms made by Nobel Prize winning economists to predict bond prices. They had made massive derivative bets buying Russian bonds (among other things) - and when the Russian government defaulted in August 1998, their positions began to unravel.
The massive debt and derivative exposure they had created was threatening to pull several large banks down with it. The Fed stepped in during September to organize a $3.5 Billion bailout, funded by 12 large banks. According to James Rickards, General Counsel of the LTCM Bailout- the US equity and bond markets were “close to being completely shut down” during the worst of that crisis. (start at 16:30)
In 2008, the entire US financial system was nearing collapse and desperately needed a bailout. A massive bank run had begun. Congress stepped up and provided- in the end spending over $498 Billion of taxpayer funds. However, the Fed also provided a bailout (though QE), eventually buying over $1.7 Trillion of MBS.
Since the Great Financial Crisis, the banking system debt crisis has now become a government debt crisis, and indeed an economic debt crisis- and this debt has spread worldwide. Equity and bond markets have continued to march up, despite fundamentals. This new financial paradigm was rightly termed “The Everything Bubble”
Total World Debt
Total (Govt+Private) Global Debt now stands at staggering $281 Trillion, or 356% of GDP. We’ve never been here before- we are now navigating uncharted waters. The next bailout will have to be bigger- a LOT bigger.
Imagine a snowfield on an alpine slope, above a small town. A few inches of snow falls. Everything is fine. More snow falls. Still nothing happens. A blizzard moves in. A day later, the snowfield reaches critical mass. Then, a disturbance happens- it could be a deer foraging for food, or a hapless skier exploring the backcountry. The snow starts sliding, pushing the snow below it. Positive feedback loops start to engage. The field begins to slide- now an avalanche has begun. The town is wiped out.
The financial crisis was the beginning of a debt avalanche- it’s likely that over 70% of the major banks, mortgage brokers, and other financial institutions would have gone bankrupt, superseding the Great Depression-era record of 30%. Thousands of private and public companies would have gone bankrupt. Real estate and equity markets would have entered a freefall lasting for years, and unemployment would likely have spiked past 30%, bringing back the soup lines not seen since 1936.
Instead, policymakers kicked the can up the stairs- they issued massive amounts of government debt to paper over the 2008 crisis, and incentivized excessive borrowing in the private sector. The fundamental factors that caused the crisis (unregulated derivatives, bank combinations, excessive leverage, lack of oversight) were never resolved. As u/Criand so elegantly puts it, 2008 never ended. Now, with US Government Debt standing at over $28 Trillion, there are only tough choices ahead. We will soon reach a point where the interest payments alone on the debt supersede all US Tax Revenues- when that happens, we will have traveled beyond the event horizon- there will be no coming back. The debt will be IMPOSSIBLE to pay off. (This is according to the governments own projections!)📷
US Government Debt Projection
The US Government continues to borrow- running a staggering $2.1 Trillion deficits for just the first half of 2021. There is no end in sight. The Biden Administration is pushing for another $1.2 Trillion in infrastructure spending this year ON TOP of the already massive deficits. Some politicians are demanding that it be more.
Day by day, we are adding snow to the mountains above our village. When will end is anyone’s guess, but borrowing more will only make the end worse.
Conclusion:The debt crisis will return, but this time, it will be the financial system, US government, and indeed the ENTIRE world economy that needs a bailout- and who has a big enough balance sheet to absorb that? The only answer is the ones with an infinite balance sheet- the Central Banks.
The idea that anyone can borrow forever, or print money forever, with no consequences, defies basic financial logic. Impossible Objects cannot exist forever. History shows deadly consequences for the nations that venture down either path. The United States is no exception.
The Fed has already tried to escape this trap in 2018. It failed. Sovereign creditors are losing faith in the US Treasury, and have been since 2015. The walls are closing in, and the ultimate decision must be made. (More on this in Pt 4)
The avalanche is coming either way- and we only have two choices. Either we allow ourselves to be buried under a mountain of hyper-deflation, creating a new Great Depression, frozen credit and equity markets, and massive bank failures- or, we burn our way out, using the inferno of money-printing and hyper-inflation.
BUY, HODL, BUCKLE UP.
>>>>>TO BE CONTINUED >>>>> PART FOUR (SERIES FINALE) “AT WORLD’S END”
(Adding this to clear up FUD- My argument is for hyperinflation to begin in a few years- this is a years- long PROCESS, and will take a long time to play out. It won't happen tomorrow, but we are in the same situation as Germany after WW1. Hyperinflation is GOOD FOR GME--- DEBT VALUE COLLAPSES, MONEY CHASES ASSETS (EQUITIES) pushing the price UP, so shorts will have to cover) BUY AND HOLD.
Nothing on this Post constitutes investment advice, performance data or any recommendation that any security, portfolio of securities, investment product, transaction or investment strategy is suitable for any specific person. From reading my Post I cannot assess anything about your personal circumstances, your finances, or your goals and objectives, all of which are unique to you, so any opinions or information contained on this Post are just that – an opinion or information. Please consult a financial professional if you seek advice.
*If you would like to learn more, check out my recommended reading list here. This is a dummy google account, so feel free to share with friends- none of my personal information is attached. You can also check out a Google docs version of my Endgame Series here. (ALL THESE LINKS ARE GOOGLE DRIVE LINKS, FROM A DUMMY ACCT!)
(Side note: I’ve been accused of being a shill/FUD spreader for the first two posts- please know this is NOT my intention! I cleared this series with Mods, (PROOF) (THIS IS A GOOGLE DRIVE LINK, I WASNT SURE HOW ELSE TO SHARE IT) but if you think this is FUD/SHILLY then downvote/comment and I can discuss further.)
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