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Paul Drockton: Derivatives Traders Face Margin Calls Monday
"CME Group Inc. (NASDAQ: CME) owns and operates large derivatives and futures exchanges in Chicago and New York City, as well as online trading platforms. It also owns the Dow Jones stock and financial indexes. The exchange-traded derivative contracts include futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, rare and precious metals, weather and real estate." (Source)
The 8th largest bankruptcy in history, MF Global (a derivatives trader), has now apparently forced the largest derivatives exchange group in America into an apparent liquidity crisis. Derivatives, which are bets using futures and options, can also be purchased on margin. Margin is borrowed money from the broker/bank.
"There is a liquidity crunch in the options & futures markets for commodities worldwide. CME, the exchange for such transactions in the US, had made the initial margin and maintenance margin equal for every commodity with options and futures. This implies that options and futures holders will be forced to deposit addition capital to the CME in the form of maintenance margin, simply to hold their positions. This will put markets under pressure on Monday. The lack of liquidity and additional margin requirement comes in the aftermath of the bankruptcy of MF Global." (Source)
Zero Hedge broke the story yesterday:
"What exactly was the announcement. Unless we are completely reading it incorrectly, it is nothing short of a margin call for tens if not hundreds of billions worth of product. Because as of close of business on November 4, today, the CME just made the maintenance margin, traditionally about 26% lower than the initial margin for specs, equal. For everything. Which means that by close of business Monday, millions of options and futures holders will be forced to deposit billions in additional capital to the CME just so they are not found to be margin deficient, and thus receive a margin call. Naturally, since it is very unlikely that this incremental amount of liquidity can be easily procured in one business day, we anticipate the issuance of hundreds of thousands of margin calls Monday, followed by forced liquidations of margin accounts across America... and the world." (Source)
Margin calls are one of the reasons cited for the 1929 crash. Since banks and institutional investors are already in a liquidity crisis, this move could have a massive impact on the 1500 trillion dollar global derivatives market. Companies like Bank of America (with 75 trillion dollars in derivatives exposure), and JP Morgan (another 75 trillion dollars of exposure) could be wiped out by this event since they are both investing in, and providing loans (margin) to the derivatives markets.
This would explain the massive Put Option purchases against the S&P 500. It would also explain why Bank of America and JP Morgan have transferred their 150 trillion dollar exposure to the US taxpayer via FDIC.
Their greatest exposure would be on their own derivatives holdings.
I recommend buying the December Puts on Bank of America and JP Morgan on Monday, as well as all of the other major banks. Since derivatives are suppressing precious metals prices by the likes of JP Morgan, this should bode well for silver prices.
The most effective way to protest is not holding up a sign outside of a public building. If you want to hit them where its hurts, then do the following:
1.Get your money out of Mutual Funds, Stocks and Bonds and into Silver Bullion. Silver prices are about to go vertical and you will realize dramatic gains. Email me at firstname.lastname@example.org
2. Get your money out of the banks and Credit Unions and into physical silver, food and other commodities.
3. I have a few more Consulting openings for those that can afford to risk $3-5,000 dollars on Put Options. Remember, only invest what you can afford to lose. Email me at email@example.com
4. Get your money out of insurance company investments. Remember AIG went broke in 2008. This collapse will make 2008 look like a bump in the road.
Derivatives exposure is estimated at 1000-1500 trillion dollars. The global economy is only 50 trillion.
Get off of the Rothschild Roulette Wheel and into silver bullion by emailing me at firstname.lastname@example.org
1. I sell both silver and gold and currently have no supply issues. Delivery is still 2 weeks or less. For current priceing, Email me at email@example.com
2. You should be shorting the market with the psychos. I do consult for a fee. email me for more info.
3. If you can't move your money into physical precious metals then move your money into a money market fund.
4. Drain your cash values on your life insurance policies and annuities. Convert to physical metals. Insurance companies will not survive the economic collapse.
5. Buy food while it is still cheap. A year's supply. Also heirloom seeds.
6. Allicin C kills all bacteria, virus's, fungus and biological agents. It also stores extremely well for a long time without losing its potency. Get some.
"Head and Shoulders Pattern:
A technical analysis term used to describe a chart formation in which a stock's price:
1. Rises to a peak and subsequently declines.
2. Then, the price rises above the former peak and again declines.
3. And finally, rises again, but not to the second peak, and declines once more.
The first and third peaks are shoulders, and the second peak forms the head." (Source)
The DOW's "Head and Shoulders Pattern" Foretells coming Crash