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CBK: Breaking the Bank September 28, 2008

Posted by mylastresort in analysis, rumors.
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2 comments

 

Currency speculators have for years been tackling central banks in surprise attacks in an effort to reap large rewards from ‘breaking the bank’.

 

One of the most memorable events was ‘Black Wednesday’ of 1992 which took the Sterling Pound off of its goals of joining the European Central Bank (ECB). In 1992, currency speculators unexpectedly attacked the Bank of England (BOE) forcing it to alter the strict regulations associated with joining the union. Later, the BOE was not able to conform to the standards set by the ECB forcing it out of the European Union (EU). (more…)

Coming soon: “A Massive decline in oil prices” June 29, 2008

Posted by mylastresort in analysis, sovereign funds.
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5 comments

An emergency meeting by OPEC, a decision to raise output, rumors of prices well above $170, and news agencies covering the latest developments of oil prices all the while I am thinking of shorting! The price of oil, I beleive, will  continue crawling at a steady pace upward and it might reach the levels predicted by the big investment firms and generate another 20% in the next couple of months. Again yes, I want to short oil. I am not contradicting myself!

I could do as most have done and follow the trend and be satisfied with the 20% return. On the other hand, if the market price declines we could see well above a 40% decline in prices. A closer look at the price of oil shows a decline in the making. I will explain my thoughts in the following points:

First, lets dissect the price of oil. Today, if oil is trading at $140, 29% ($40.60) of the price is composed of actual physical oil receivers, the remaining 71% ($99.40) are speculators in the market purely betting to make profits and then rolling over their positions never receiving the oil traded.

Second, oil is traded on the futures market. To trade crude in the market all you need to pay is a margin requirement of $10,000 for every 1000 barrels of crude oil (worth $140,000). Oil is sold in lots of 1000 on the exchange. The margin requirements for the exchange may change (and do change) periodically depending on market volatility. (Crude oil futures margin requirements have changed from $8000/1000 lots to $10,000/1000 lots four weeks ago)

Third, all investment portfolios are diversified in such a way that percentages are dedicated to sectors regardless of the amounts of dollars invested. For instance a hedge fund manager (major players in the market) running a $1,000,000,000 portfolio beleives that oil prices will increase therefore designates 20% of his portfolio to oil futures and the remaining to different sectors. They purchase oil until they satisfy the requirements of the 20%. An initial payment of $200,000,000 is needed to purchase the 20,000 lots required. (Equivalent to buying $2,800,000,000 worth of oil!)

My prediction is that the margin requirements of crude oil futures will (drastically and without warning) increase from $10,000/1000 lots to $20,000/1000  lots (even more) forcing speculators to sell half their holdings to meet margin requirements and new funds to purchase half the amounts they are purchasing today, leading to a 50% drop in the 71% ($99.40) of the price of oil taking it back down to atleast $90.30 [price including physical buyers of oil] instantaneously!

Waiting for the decline will pay more than the rise will, therefore I am going to start selling at $155 (approximate & may change) and cover once the price reaches $90.30.