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Thesis/Subtitle: Money doesn't grow on trees - does it?
ASIC seeks more disclosure on CFDs
Finance reporter Alicia Barry
Updated August 12, 2011 15:54:25
«The corporate regulator is cracking down on providers of complex financial products called 'contracts for difference'.
CFDs, as they are known, allow investors to effectively bet on the price movement of a financial asset, without owning a share of that asset.
On a separate issue of financial market control, the corporate regulator says its not going to follow Europe's lead and ban short selling to reduce market volatility.
Short selling allows investors to effectively make bets on the price of stocks falling.»
Comment 1: Note the keyword: "Bet" = risk a sum of money on the result of a race, contest, etc. [POD]
Comment 2: 'Short selling' is where an 'investor' borrows a stock from someone then sells it to some 3rd, in the 'hope' (expectation?) that the price will fall, so the investor can buy the stock back and return it, pocketing the difference (less the cost of the borrowing, typically the interest on the 'value' of the borrowed stock, but as low as the interest on the deposit made with the original owner, if that owner allows 'deposit only' borrowing, aka a sort of 'leveraging.') The risk the investor takes is if the stock goes up; the hoped-for profit turns to loss, again the difference in price, plus the borrowing-costs. Another name for 'short selling' is speculation. It helps the speculator, of course, if the fall in price is assured = no risk! (Like insider-trading, say.) No discussion here of where any 'profit' might came from, i.e. who loses.
The next step is 'naked short selling,' whereby the borrowing is omitted and what's exchanged is nothing but a promise to deliver some 'asset;' if the turn-around is fast enough, no actual asset is needed. Naked short selling looks like CFDs and probably is not just 'like' but actually is; note that one of the ways to bamboozle people is to give some shonky racket a fancy, complicated name.
Observation 1: This story tells us that the ASIC allows gambling on the stock exchange.
Observation 2: This story also tells us, based on the timing, that gambling had a non-trivial part in the latest stock exchange crash; not stated is if gambling was all or part of the cause, or 'merely' all or part side-effect.
Observation 3: Gambling is deliberate exposure to risk; not something that I wish to have associated with my savings = part of our family's life support system.
More? - CFDs are 'derivatives,' not 'real' = physical things, but 'things based on things,' i.e. derived, hence the name. Easy? Well, the next step is to consider not just derivatives, but the 'money' used to trade them, as also 'not real' therefore virtual, and the fact that total derivative trading is estimated at some figure like 500Trio = orders of magnitude more than the GDP of the entire world, then this might explain why 'the Fed' stopped publishing the M3 statistic; it was becoming 'polluted' with some of these 'virtual $s.'
A big part of the recent GFC were 'derivatives gone wrong,' and one part-solution was the bank bailouts; those plus other 'fiddles' (the QEs, say, but more and not so visible) - are reputed to have 'pumped' something in the order of 15Trio into 'the financial system,' effectively replacing lost bets made largely in virtual $s - by 'real' $s, putting real in quotes because the Fed merely created the 15Trio on a computer keyboard = conjured it out of thin air. But recall that $s are fungible, which means that it is hard-to-impossible to discern between real $s & virtual $s.
Side note: With all these $Trios floating around, it's no wonder that the stock exchange goes mostly up. Think of unending supplies of 'funny money,' then think how hard you have to work, and how even harder it is to save for your non-working future.
Recently I used the term 'PPT' without explaining it; it stands for 'Presidential Plunge Team,' and means some shadowy US agency which can act as 'buyer of last resort' in an attempt to halt big slides on the stock exchange. Note that they don't even have to have any real $s, they can just keep buying, then selling again on the way up. IF it goes up, that is; Murphy tells us that if something can happen THEN it eventually will = one day, the crashing stock exchange simply won't recover, no matter how it's 'goosed.'
like turning lead into gold
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