This is the kind of action that I expect to see as the market mechanism shears through the connection between financial instruments and the real underlying assets - hundreds of basis point swings in the most major of markets. As before, an acceleration instead of a return would indicate that separation.
The only market I know of that isn't currently subject to obscurity through derivatives is Bitcoin. I think it's rather telling that traditional markets have been experiencing an increase
in volatility in recent times as Bitcoin has been seeing a decrease
. We'll see how long Bitcoin can remain stable as turmoil elsewhere continues escalating.
GATA has put together some interesting information
with a recent post, including an article from 1983
. An important bit:
After World War II, the BIS reemerged as the main clearing house for European currencies and, behind the scenes, the favored meeting place of central bankers. When the dollar came under attack in the 1960s, massive swaps of money and gold were arranged at the BIS for the defense of the American currency. It was undeniably ironic that, as the president of the BIS observed, "the United States, which had wanted to kill the BIS, suddenly finds it indispensable." In any case, the Fed has become a leading member of the club, with either Chairman Paul Volcker or Governor Henry Wallich attending every "Basel weekend."
Originally, the central bankers sought complete anonymity for their activities. Their headquarters were in an abandoned six story hotel, the Grand et Savoy Hotel Universe, with an annex above the adjacent Frey's Chocolate Shop. There purposely was no sign over the door identifying the BIS, so visiting central bankers and gold dealers used Frey's, which is across the street from the railroad station, as a convenient landmark. It was in the wood-paneled rooms above the shop and the hotel that decisions were reached to devalue or defend currencies, to fix the price of gold, to regulate offshore banking, and to raise or lower short-term interest rates. And though they shaped "a new world economic order" through these deliberations, according to Guido Carli, the governor of the Italian central bank,, the public, even in Basel, remained almost totally unaware of the club and its activities.
Fixing the price of gold, clouding the value that might be obtained by market-based price discovery. The BIS is where the real value is known. We are not privy to the information that these bankers hold amongst themselves, but we can observe the forces in play and efforts to manage them. We can
see where failure might occur, and take action.
Tomorrow, or perhaps over the coming weekend, I would put a major event occurring in which the foundation of the existing financial system ruptures at a 50/50 chance. After such an event, the possibility exists that the separation in financial and real assets happens. I think that may be more difficult to maintain than some suspect, as there are simply so many sources of information available that it would be impossible to shut them all out without completely severing all forms of communication. If the link remains, oscillations in volatility will make 2008 feel like a mild tremor. As some of the greats have stated - $100+ swings in gold. Daily. Maybe hourly.
With my play account, I'm short USD/CHF and short EUR/USD at a 3:2 ratio; EUR/USD set to stop out for a profit at 1.25.
I just hope nothing truly tragic takes place.