CME-Driven Panic ~ The Risk Averse Alert

Thursday, June 10, 2010

CME-Driven Panic

Judging by the size of this morning's CME-driven lift out of the starting gate, outright panic is hitting those whose doom once again is being hastened by yet another contemporary iteration of extraordinary recklessness in the operation of the global economy (this time occurring in the Gulf of Mexico, rather than in the halls of the OTC derivatives casino, as was the case in 2008). Thus, being there hasn't been a +3% day since May 6th's "flash crash" amounting to a hill of beans, today's likely will prove no different.

Consider this: any threat compromising major capital flows (specifically originating via energy markets) supporting the OTC derivatives casino likely will present a grave risk at least an order of magnitude greater than that exposed in 2008, when failure of but a minor cash spigot (the sub-prime mortgage market) reeked incredible havoc.

Feeding capital into ultra-leveraged credit bubbles built via OTC derivatives is critically necessary if the Ponzi nature of the securitization game in general is to continue being obscured.

Thus, a brewing political rift among the two heavies in the OTC derivatives casino business — the U.S.A. and Britain — stands as a threat of incalculable proportions. The risk of a dislocation in energy markets — accidental or intentional — appears a probability seemingly increasing with the ever-widening fallout from copious gobs of oil still spilling into the Gulf of Mexico.

Forget about any regulatory body putting a band-aid on this bad boy. Were capital flows funneled to the offshore OTC derivatives casino via energy market operations threatened by an Anglo-American conflict over BP's contemptible record of late — a poor showing profoundly worsened by the Gulf of Mexico disaster — it would be game over in equity markets, and debt markets, as well (killing any further attempt to postpone inevitable financial collapse via lunatic "quantitative easing").

SPX 5-min

In light of relatively sharp moves higher over the past two days, diminishing relative strength readings coinciding with each new successive high the S&P 500 reached leave open the possibility that, as fast as decided weakness earlier this week more or less mechanically was reversed, a rapid return to losing ways whose looming threat today's CME-driven panic postponed could just as easily develop.

Per talk of today's market launch being the result of "successful" bond auctions among zombie eurozone sovereigns (Portugal, Spain, Belgium, Italy), a banking system circle jerk is poor disguise for a functional credit system that, otherwise would be enhancing the wealth of nations rather than endlessly sapping it (as has been the case for decades now).

Fast Money
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