It looks like you're using an Ad Blocker.
Please white-list or disable AboveTopSecret.com in your ad-blocking tool.
Some features of ATS will be disabled while you continue to use an ad-blocker.
Shortly after 2:15 p.m. Eastern time last Thursday, hedge fund Universa Investments LP placed a big bet in the Chicago options trading pits that stocks would continue their sharp declines.
On any other day, this $7.5 million trade for 50,000 options contracts might have briefly hurt stock prices, though not caused much of a ripple. But coming on a day when all varieties of financial markets were deeply unsettled, the trade may have played a key role in the stock-market collapse just 20 minutes later.
The trade by Universa, a hedge fund advised by Nassim Taleb, author of "Black Swan: The Impact of the Highly Improbable," led traders on the other side of the transaction—including Barclays Capital, the brokerage arm of British bank Barclays PLC—to do their own selling to offset some of the risk, according to traders in Chicago.
Then, as the market fell, those declines are likely to have forced even more "hedging" sales, creating a tsunami of pressure that spread to nearly all parts of the market.
S&P downgraded Spain’s long-term credit rating on April 28 to AA with a negative outlook, due, in part, to its government debts totaling 59.2 percent of GDP. In contrast, the United States government and its agencies have total debts equal to 94.7 percent of GDP, or nearly 60 percent more than Spain’s.
S&P downgraded Portugal’s long-term credit rating on April 27 by two notches, from A+ to A-, citing the risk of a further downgrade should fiscal consolidation fall short of expectations or should concerns over government liquidity mount. However, in proportion to its economy, Portugal’s current federal deficit is actually smaller than ours — 8.3 percent of GDP compared to the U.S. deficit at 10.6 percent of GDP.
Greece, at the heart of the crisis, has been downgraded by all three rating agencies. But even compared to Greece, America’s deficit/GDP level is only slightly less bad — 10.6 percent in the U.S. vs. 12.2 percent in Greece.
UPDATE 1-IMF role in eurozone crisis resolved - Lipsky
He repeated the IMF was not currently in aid talk with Portugal, Spain or any other euro zone country on possible bailouts.
LONDON, May 11 (Reuters) - Britain's top share index was lower around midday on Tuesday as enthusiasm over the euro zone's $1 trillion rescue package wore off, and with lingering political uncertainty weighing on sentiment.
By 1128 GMT, the FTSE 100 .FTSE index was down 92.18 points, or 1.7 percent, at 5,295.24, pulling back after a 5.2 percent leap on Monday -- its biggest one-day percentage gain in almost 18 months.
Banks, which saw stellar gains on Monday, retreated, taking the most points off the blue chips. Barclays (BARC.L), HSBC (HSBA.L), Lloyds Banking Group (LLOY.L) and Standard Chartered (STAN.L) shed 2.7 to 4 percent.
Moody's Investors Service on Monday said it may still downgrade Portugal, and Greece's rating could fall to as low as junk.
Yesterday I commented on the folly of promising big money to throw at a myriad variety of highly indebted nation without a central authority to enforce the structural change needed to actually cure the problems that created the need for the monies in the first place. See The EU Has Set Up An Oppurtunistic Entry Point for Shorts Instead of Expressly Offering a Solution to the Pan-European Sovereign Debt Crisis! and What We Know About the Pan European Bailout Thus Far. The primary flaw, by far, that I perceive in this most grand of grand bailout schemes is that it is just that – a bailout, not a solution. Methinks the market is about to call the EU on their bluff pretty much along the same lines that I espoused above. For those subscribers who follow my belief that the ECB and EU leaders are making one of the largest policy blunders of modern times, this may be an opportunity to set up a short position that makes the Lehman Brothers’ debacle look like a day rally. All subscribers are welcome to download our latest File Icon Euro Bank Sovereign Debt Exposure Preview. A more verbose summary will be released for pro and institutional subscribers shortly. Reference the following articles in this early morning edition of Bloomberg: