Remember CDOs? They’re Baaaack!

Like Poltergeist II, prepare for CDOs II.

poltergeistII

(Here is Poltergeist II trailer –  https://www.youtube.com/watch?v=rH-B6A04iK0 )

Remember those financial instruments known as Collateralized Debt Obligations that caused the 2008 Great Recession?  Well they never went away.  In fact they are baaack.

The Financial Crisis Inquiry Commission concluded that CDOs were one of the major causes of the 2008 Great Recession as shown at this website.

http://fcic-static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_conclusions.pdf

For 2014, global CDO Issuance is back to 2004 levels valued at about $135 billion.

Collateralized loan obligations (CLOs) are CDOs based on bank loans. Many of the subprime loans have been packaged and sold as CLOs.

The following chart shows that Collateralized Loan Obligations (CLOs) in 2014 have reached the same level as 2007 or $35 billion.  Total outstanding CLOs in the US amount to $300 billion.

clo_banks

Though the large financial institutions have backed away from collateralizing mortgages, they are now doing it for commodities such as gold, silver and oil.  Here is one example.

https://www.google.com/search?q=jpmorgan+precious+metals+as+collateral&ie=utf-8&oe=utf-8

 

http://theeconomiccollapseblog.com/archives/plummeting-oil-prices-destroy-banks-holding-trillions-commodity-derivatives

 

Another problem is not the collateral but the reselling of the same assets. In 2007 one financial firm sold 610 out of 3,400 CDOs more than once. That is nearly 18%.  Let me repeat.  More than once.

Because buyers are dealing with paper not physical assets, how do they know they are trading real, actual commodities? If the markets started to go down and everyone wanted their physical commodities such as gold, what if there was not enough gold to meet all the obligations?  Would there be an international panic?

Update
Evidently CDOs were not selling as well as desired.  So the banks have renamed them “bespoke tranche opportunities.”

BTOs are slightly different, as explained in this website.

http://thinkprogress.org/economy/2015/02/05/3619325/bespoke-tranche-opportunities-are-your-god-now-america/?utm_source=newsletter&utm_medium=email&utm_campaign=tptop3

Thanks

 

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8 Things To Do When Recession Happens

Yeah it is not a matter of IF but WHEN the next recession will happen.  Sorry.  You could go ride a roller coaster to get your mind off of it.  Or you could do these things.

rollercoaster

Recessions occur every 4 to 8 years in a society with capitalism and little regulation.  And since the last one was in 2008….

Here’s what you should do.

1. DON’T PANIC – Stay calm.  Most people will be doing one thing – panicking. You won’t.

2. THINK, THINK, THINK – Be smarter than the rest. Know when to sell, when to buy and, like Kenny Rogers, when to hold.

3. SET UP ALERTS – Get an E*Trade or other brokerage account and set up messages when Dow (DJIA) goes up 3% or goes down 3% in a day.

4. RECALIBRATE AT NOON EASTERN TIME – If you have time, think about your next sell or buy of what and for how much before the market closes.

5. IF UP, SELL – When there is a jump up in stocks, sell your stock and funds 25-35% at a time.  You may have to wait to use the money.   Time is on your side.

6. IF UP AND GOLD IS DOWN, BUY GOLD – Gold usually moves opposite of stocks, so buy gold or gold mining funds such as NEM which will move up when stocks crash.

7. IF UP, BUY SHORTS – Shorts are stock buys that you expect to go down.  Pick losers on purpose.  Also choose bearish ETFs such as PILS and TECS that rise if the stock price of pharmaceutical or tech companies goes down.

8. IF DOWN, WAIT – Remember we agreed to not panic.

There will be four 400+ gains or losses of the DOW before a recession happens.  Anybody can take advantage of them. And I know you will. (There have been 4 days in August and September 2015 with over 400 point ups and downs.)

Or you can go ride a roller coaster to get your mind off of the market’s ups and downs.

P.S. I care about you, but can’t be held responsible for your results.

Revised: 04/10/2016 DUG is volatile since oil producers are considering fixing output quantities.