Friday, March 23, 2018

Musical Interlude: 2002, “Inner Light”

2002, “Inner Light”

"A Look to the Heavens"

"This NASA/ESA Hubble Space Telescope image shows the edge-on profile of the slender spiral galaxy NGC 5775, which is surrounded by a halo of gas that astronomers suspect is kicked up by star explosions like a galaxy-size fountain. A photo from the Hubble Space Telescope has revealed what scientists have called a veritable galactic "fountain of youth," one that would turn the fictional pirate captain Jack Sparrow of the Pirates of the Caribbean films green with envy. Journeying to the mythic Fountain of Youth is Sparrow's goal in in the adventure film franchise, "Pirates of the Caribbean: On Stranger Tides." But the space fountain spotted by Hubble is no myth.
Click image for larger size.
The new Hubble image shows the galaxy NGC 5775, which is located about 85 million light-years from Earth in a group of galaxies called the Virgo Cluster. NGC 5775 is a spiral galaxy that is tilted away from Earth in such a way that only its edge is visible. This edge-on position of the galaxy has allowed astronomers to spot a vast halo of hot gas around NGC 5775, but how the material actually got there is unclear, researchers said. "Some astronomers think that hot gas from the disc is driven into the halo by supernova explosions, which is then returned to the disc as it cools- like a massive galactic fountain," according to a Hubble telescope image description. Because of the phenomenon, Hubble researchers dubbed it a "galactic fountain of youth" when they released the image this month.

There is also another oddity about the galaxy NGC 5775 that has attracted attention from astronomers: a bridge of hydrogen gas linking the galaxy with a galactic neighbor called NGC 5774. The two spiral galaxies are on a collision course and are in the early stages of merging, according to Hubble scientists. However, neither object has yet sprouted a tidal tail of gas and stars- created by intense gravitational disruptions- that typically precedes galaxy mergers. The Hubble Space Telescope is a joint project by NASA and the European Space Agency."

"The Realm Of Thought..."

"Surely there is grandeur in knowing that in the realm of thought, at least, you are without a chain; that you have the right to explore all heights and depth; that there are no walls nor fences, nor prohibited places, nor sacred corners in all the vast expanse of thought."
- Robert Green Ingersoll

Chet Raymo, "Dust"

by Chet Raymo

"In Chekhov's play "The Three Sisters" sister Masha refuses "to live and not know why the cranes fly, why children are born, why the stars are in the sky. Either you know and you're alive or its all nonsense, all dust in the wind." Why? Why? The striving to know is what frees us from the bonds of self, said Einstein. It's the striving, rather than our knowledge - which is always tentative and partial - that is important.

I've been living with grandchildren for the past few weeks. They seem to me to spend an inordinate amount of time with smart phones, iPads, and computers. In this, I'm sure, they are like most of their contemporaries, immersed in virtual realities, flickering pixels. I sometimes feel the urge to drag them outside for some reality reality. Let them see an eclipsed moon rising in the east, a pink pearl. Let them stand in a morning dawn and watch a slip of comet fling its tail around the Sun. Let them admire the stars of Orion on a sparkling winter evening - red Betelgeuse, blue Rigel - and shiver in the thrall of cold and beauty.

Ah, yes, I know. Kids are kids and they'll turn out OK. They'll probably end up in a better place than I find myself at 81. I suppose I spent an equal amount of time sitting next to the radio listening to Tom Mix and Sky King. Still, it's as Masha says: "Either you know and you're alive or its all nonsense, all dust in the wind." So let the children know. Let them know that nothing they will find in the virtual worlds of e-games, television or the internet matters half so much as a glitter of stars on an inky sky, drawing our attention into the incomprehensible mystery of why the universe is here at all, and why we are here to observe it. The summer Milky Way arches across the sky, a hundred billion individually invisible points of light, a hundred billion revelations of the Ultimate Mystery, conferring on the watcher a dignity, a blessedness, that confounds the dull humdrum of the commonplace and opens a window to infinity.”

"The Greatest Liars..."

"The Cult of the Plausible Lie"

"The Cult of the Plausible Lie"
by Laura Knight-Jadczyk

"Never ascribe to malice those things which may be explained by stupidity." That is an important phrase, and a necessary one; it keeps people from being paranoid. However, it has a corollary most people don't know: "One may ascribe to malice those things which stupidity cannot explain." 
- Robert Canup

"Richard Dolan has pointed out that those at the top will ALWAYS take whatever measures necessary to stay at the top, and when knowledge is power, that means that they will make sure that they are in control of what people know or think they know. The sad fact is that as a society gets larger and more competitive, individuals become more anonymous and more Machiavellian. Social stratification and segregation leads to feelings of inferiority, pessimism and depression among the have-nots, and this promotes the use of "cheating strategies" in life which then makes the environment more adaptive for psychopathy in general. Such individuals may begin their lives in the lower socio-economic levels, but they often rise to the top. Psychopathic behavior seems to be on the rise because of the very nature of American capitalistic society. The great hustlers, charmers, and self-promoters in the sales fields are perfect examples of where the psychopath can thrive. The entertainment industry, the sports industry, the corporate world in a Capitalistic system, are all areas where psychopaths naturally rise to the top. Psychopaths seek power over others, it's that simple, and they gravitate to any field where there is power: medicine, law, industry, politics. It has always been that way; this is nothing new. Indeed, they comprise a very small segment of the population with an extremely large influence. It is due to this influence and the plausible lie that they can magnetize normal, decent people to follow them. They can make social conditions bad so that people feel oppressed and abused, and then they can easily blame it on someone else and agitate the people to go after and kill others based on such lies. Machiavelli discussed this sort of system plainly and openly and it has been the system of power since Cain killed Abel.

So, consider the idea that the ideas behind our social and cultural systems - including the legal system - were created by people whose agenda was to control society so that they could stay on top. And think about all the many ways they might go about doing that. These are the same people who set up the legal system so that people would "get what they deserved". Now, just think about that for a moment.

Imagine that you are a person at the top of the heap who knows that if you really set up a system where people got what they really deserved, you, yourself, would be instantly replaced - out the door in an instant! And so, if you are not just intent on staying on top and holding power, but cunning also, you will do everything in your power to insure that you and your kind are in charge of setting up that system, and that you remain in charge of it. You would make certain that evil was blended into the social and cultural concepts so seamlessly that nobody would ever notice.

And that is, quite literally, what happened. The individuals "at the top of the heap," who had gotten there by being the most vile and rapacious, then set about figuring out ways to deceive the masses all the while keeping their favor and adulation. They knew they had to make laws to keep order, and they knew they had to make those laws seem fair and reasonable to the masses of people or they would lose control. Losing control was the thing to be feared as anyone who has read "The Prince" by Machiavelli realizes. And so, Machiavellian manipulators at the top of the heap were deeply involved in the formation of our cultural and social norms, including our legal system.

In the earliest days of this "legal system" there was a form of "justice" called "trial by ordeal". An example of trial by ordeal was holding a red hot iron to a defendant's tongue. The plausible lie used to justify this behavior was: if the defendant was telling a lie they would have a dry mouth and would be burned by the iron - while a truthful person would have a moist mouth and would be protected. The fact is a NORMAL person who is telling the truth would most definitely have a dry mouth from fear, while a psychopath, who is incapable of feeling fear, would be the one with the moist mouth!!! Now, just think about that for a few minutes.

Now, our current legal system is descended from "trial by ordeal" - and really isn't much different though it is much cleverer and simply not as obviously evil as that one was. You have already read a few examples above of just how the system works. As Anna Salter said, if she was accused of a crime, she would rather have a good lawyer than be innocent. That is a truly sad statement on our reality. Here's a simple way to understand our legal system, adapted from the writings of Robert Canup: "Suppose that you are on a team that is engaged in a game and you discover that: The other team gets to make up the rules. The referee plays for the other team. One of the rules is that you are not allowed to score - the other team is at no risk. Only you can be scored against. That is precisely how our social, cultural, and legal systems operate. The conditions of our world are designed to create the maximum chance that evil will prevail and the good people will be punished by being good and telling the truth.

Punishing normal, decent, good people involves more than just creating a social system that acts against them. The system is designed to insure that these good people are subjected to as much pain as possible for the simple fact of being good and honest. An obvious example of punishing the innocent may be found in the way the victim in a rape case is treated; their reputations are dragged through the dirt - all in the name of justice of course. Note the case quoted above, of the fellow who raped his sister and her daughter and walked out of court after accusing her of being a mental case. The system that controls our thinking is set up like the legal system. People are taught to assume that, in any conflict, one side is lying one way, and the other is lying the other way, and people can just form opinions about which side is telling the truth. They are taught that the truth will lie somewhere between two extremes. That is a wonderfully plausible lie."

Canup suggests that, to see the evil behind that plausible lie, we must make a different assumption: let us assume that in such cases, one side is innocent, honest, and tells the truth. It is obvious that lying does an innocent defendant no good; what lie can he tell? If he is innocent, the only lie he can tell is to falsely confess "I did it." On the other hand, lying is nothing but good for the liar. He can declare that "I didn't do it" and accuse another of doing it; all the while the innocent person is saying "I didn't do it" and is telling the truth.

The truth - when twisted by good liars, can always make an innocent person look bad - especially if he is honest and admits that he has faults. If someone is telling the simple truth, and the other side is lying through their teeth, the basic assumption that the truth lies between the testimony of the two sides always shifts the advantage to the lying side and away from the side telling the truth. Under most circumstances, this shift put together with the fact that the truth is going to also be twisted in such a way as to bring detriment to the innocent person, results in the advantage always resting in the hands of liars. Canup points out that, even the simple act of giving testimony under oath is useless. If a person is a liar, swearing an oath means nothing to that person. However, swearing an oath acts strongly on a serious, truthful witness. Again, the advantage is placed on the side of the liars.

Proof is a familiar concept to those used to conventional logical thinking. However what passes for proof in cultural, social, and even legal terms often bears only a superficial resemblance to what would be considered proof by those who really use their minds to think.

For example: in formal mathematics, proof rules are established - postulates are set out and a structure is built based on the postulates and the theorem. Mathematical proof is pretty much inarguable: once a proof is accepted as true it is added to the pool of known truths.

In legal proof there is a set of rules and a theory which the prosecution presents, and attempts to prove the theory by clever argumentation rather than facts. Truth is not the objective. Getting other people to believe the theory IS the objective. However, the prosecution's theory is whatever the prosecutor believes that he can get away with based on what is known about the case, or what he can PREVENT from being known. What legal 'proof' does is serve as a structure for convincing a group of people of the guilt of a person, about whom they know nothing.

There is another significant difference: Mathematical proofs are judged by experts in the particular case who are free to study any and all information about the case. Legal 'proof' is judged by people who are guaranteed to be ignorant of the case, who are only allowed to study the information presented during the formal trial, and who are not even allowed to consult the texts for what the rules say.

Our culture is so permeated with this "legal argument" system that it extends into our daily experience: the one who is the slickest at using the structure for convincing a group of people of something, is the one who is believed. Very few people take the time to obtain hard facts by carefully studying any and all information about a situation. What we see something here that is set up to deceive people by presenting a familiar structure which, upon examination, is a sham. And again, the advantages fall to the hands of the liars. As Canup points out, in a courtroom, juries are prohibited by law from knowing anyone involved in the trial. If the defendant is a good person who is being set up and framed, people who know him well and who have had much opportunity to interact with him over a long period of time and observe him would have much more trouble accepting lies told about him. If the jurors knew the prosecutor and knew him to be a bullying liar, they might have trouble believing the lies he was telling. If the jurors knew the defendant, and know him to be a trouble making villain they might be more likely to convict him. By the same standards, if a person who is guilty is accused of a crime that he DID commit, as we have seen above, it is all too easy to get off. Corrupt lawyers, ignorant "experts," and blind judges let guilty people literally get away with murder all the time.

But, none of the conditions conducive to finding the TRUTH prevail in a courtroom even if we have been brainwashed to think that we have the "best legal system in the world." It is not much different than "Trial by Ordeal," only the hot poker has been replaced by a system that works as effectively to the advantage of liars. Here then we see the worst feature of the law: it is designed to make the world safe for evil people. In effect the law serves to take the horns away from the bulls, while leaving the lions their teeth and claws. Massive, overwhelming, advantage is placed in the hands of liars. Indeed, without the legal system insuring their safety, the world would be a much more difficult place for evil people.

Everyone knows somewhere deep inside, that there is something not right about our world. In fact, at the present moment, it could hardly be worse. But most people spend their lives avoiding that fact at all cost. The brutal truth is that the our social, cultural, and legal systems are all about making people helpless then hammering them without mercy - all the while involving everyone in the illusion that right prevails. This is an issue that will never die. It seems impossible to convince people that private behavior cannot be predicted from public behavior. Kind, nonviolent individuals behave well in public, but so do predators, rapists, murderers, pedophiles, and COINTELPRO agents who operate largely to shape and vector "social norms," or "official culture."

The Poet: Rainer Maria Rilke, "Sonnets to Orpheus, Part One, IV"

"Sonnets to Orpheus, Part One, IV"

"You who let yourselves feel: enter the breathing
that is more than your own.
Let it brush your cheeks
as it divides and rejoins beside you.

Blessed ones, whole ones,
you where the heart begins:
You are the bow that shoots the arrows
and you are the target.

Fear not the pain.
Let its weight fall back into the earth;
for heavy are the mountains, heavy the seas.
The trees you planted in childhood have grown too heavy.
You cannot bring them along.
Give yourselves to the air, to what you cannot hold."

- Rainer Maria Rilke

The Daily "Near You?"

Thessaloníki, Thessaloniki, Greece. Thanks for stopping by!

"Real Courage..."

"I wanted you to see what real courage is, instead of getting the idea that courage is a man with a gun in his hand. It's when you know you're licked before you begin but you begin anyway and you see it through no matter what. You rarely win, but sometimes you do."
 ~ "Harper Lee", "To Kill a Mockingbird"

"Carnage... Everywhere"

"Carnage... Everywhere"
by Tyler Durden

"It'll be fine" they said... "You buy the dip" they said..."just follow my tracks". Post-Powell, Gold is the big winner. Only Nasdaq remains in the green for the year, as Small Caps joined the rest in the red this week.

But it was an ugly week for global markets.
Chinese stocks slammed (but rescued late on Friday by The National Team)...
Chinese commodities carnaged...
Europe was eviscerated..

And back in 'Murica, things were just as bad:

Nasdaq worst but everything was carnage!
Today was chaos - futures show the desperation: three algo ramps fail and we crash into the lows...
The Dow broke its triangle, broke below key averages, and is down over 10% from its record highs (in correction)...The Dow record intraday high on 1/26/18 was 26616.7.
The S&P crashed to its 200DMA...
As FANGMAN stocks were all ugly, led lower by Facebook...
Facebook is at its lowest since July...
Banks were not quite as ugly as tech but almost...
VIX spiked above 26... a long way from the flash crash on payrolls...
Credit markets were a bloodbath in IG...
All Sectors blew wider (there are no financials)...
And EU HY spreads are blowing out...
High Yield Bond ETF crashed to its lowest since 11/16/16...
As bank credit risk spiked above Feb highs...
Sh*t is getting real...
Credit is now leading VIX...
Treasury yields ended the week lower, tumbling in the afternoon today as stocks slumped...
10Y Yields tumbled to their lowest since Feb 9th this week... This is the 21st daily close in a row with a 2.8x% handle.
Jeff Gundlach's favorite 10Y Yield indicator is signaling a notable drop in yields to come...
The yield curve stabilized modestly this week... at 10 year flats....
The Dollar tried to bounce yesterday but ended at the lows of the week and lowest since Feb 20th... This is the first down week in the last five weeks...
Bitcoin managed to scramble into the green for the week, after cryptos erased their losses from G-20 concerns...
While Chinese commodities crashed; as the dollar tumbled, the energy complex ripped higher along with PMs (as copper tumbled)...
Gold was the best performing precious metal as Palladium tumbled...
WTI/RBOB had a big week but note (lower pane) that as selling pressure hit stocks, the energy sector dumped into the red on the week...
Finally, this is far from over!!! "It's baked in the cake"...
Say goodbye to The Shanghai Accord. What happens next..."

The original post at the link below shows a chart for each bullet point listed above.

So, of course, the phrase "Carnage... Everywhere" prompted recalling this scene:

To paraphrase: "Carnage? That's not carnage. THIS is carnage."  It's coming.

X22 Report, “Everything Is In Play, Bail-outs, Bail-ins, It's All Coming Down”

X22 Report, “Everything Is In Play, Bail-outs, Bail-ins, It's All Coming Down”
Related followup report:
X22 Report, “Nobody Escapes, It's All Being Setup To Close All The Exits”

Musical Interlude: Two Steps From Hell, “Evergreen Extended”

Two Steps From Hell, “Evergreen Extended”

"How It Really Is"

"The Threat of Contagion"

"The Threat of Contagion"
By Jim Rickards

“On Monday, February 5, 2018 the stock market fell a record 1,175 points. Yesterday, March 22, 2018 the market fell 724 points. It is not clear where markets go from here. What is clear is that the Pandora’s box of volatility has been opened and greater volatility will be a feature of stock trading for the foreseeable future. But getting back to Monday’s record fall, markets came much closer to a catastrophic meltdown than many investors realize. The reason for the near-catastrophe was the same as the reason for actual catastrophic losses in 1987, 1998 and 2008 - derivatives, leverage and opaque financial structures.

’Normal’ contagion arises when declines in one market spill over into another, usually uncorrelated market, typically because losers in one market are selling liquid securities in another market. Why do they do that? To raise cash to meet margin calls on the losses.

When this type of linked selling arises, uncorrelated markets become highly correlated. That is called “conditional correlation.” This kind of correlation arises upon a specified condition happening, such as large losses or liquidity demands. But there’s another kind of contagion that’s even more dangerous.

To understand the risk of contagion, you can think of the marlin in Hemingway’s 'Old Man and the Sea'. The marlin started out as a prize catch lashed to the side of the fisherman Santiago’s boat. But, once there was blood in the water, every shark within miles descended on the marlin and devoured it. By the time Santiago got to shore, there was nothing left of the marlin but the bill, the tail and some bones.

In this metaphor, the marlin is XIV. During regular trading hours on February 5, there was not much blood in the water. But, once traders saw the damage to VIX, they smelled blood in terms of the value of XIV. At that point, markets (the sharks) no longer traded XIV in relation to other instruments. Instead markets systematically traded against XIV in an effort to force every holder, sponsor and guarantor to suffer a total loss. They were out to break it. Markets intended to pressure the price of XIV until there was a suspension of redemption, a collapse to zero, or ultimately noteholder litigation.

I apologize if this sounds a bit technical. The bottom line is, the damage seems to have been contained. But, what if the XIV ETN holdings had been concentrated at just one or two hedge funds? What if those holders themselves were highly leveraged and were losing money on stocks and XIV at the same time? What if rumors had leaked out into the marketplace about “hedge funds in distress?”

An even greater danger for markets is when these two kinds of contagion converge. This happens when market losses spillover into broader markets, then those losses give rise to systematic trading against a particular instrument or hedge fund. When the targeted instrument or fund is driven under, credit losses spread to a wider group of fund counterparts who then fall under suspicion themselves. Soon a market-wide liquidity panic emerges in which, “everybody wants his money back.”

This is exactly what happened during the Russia-Long Term Capital Management (LTCM) crisis in 1998. The month of August 1998 was a liquidity crisis involving broad classes of instruments. But, the month of September was systematically aimed at LTCM. I was right in the middle of that crash. It was an international monetary crisis that started in Thailand in June of 1997, spread to Indonesia and Korea, and then finally Russia by August of ’98. It was exactly like dominoes falling.

LTCM wasn’t a country, although it was a hedge fund big as a country in terms of its financial footings. I was the general counsel of that firm. I negotiated that bailout.  The importance of that role is that I had a front-row seat. I’m in the conference room, in the deal room, at a big New York law firm. There were hundreds of lawyers. There were 14 banks in the LTCM bailout fund. There were 19 other banks in a one billion dollar unsecured credit facility. Included were Treasury officials, Federal Reserve officials, other government officials, Long-Term Capital, our partners.

It was a thundering herd of lawyers, but I was on point for one side of the deal and had to coordinate all that. It was a 4 billion dollar all-cash deal, which we put together in 72 hours with no due diligence. Anyone who’s raised money for his or her company, or done deals can think about that and imagine how difficult it would be to get a group of banks to write you a check for 4 billion dollars in 3 days.

Systematic pressure on LTCM persisted until the fund was almost broke. As Wall Street attacked the fund, they missed the fact that they were the creditors of the fund. By breaking LTCM, they were breaking themselves. That’s when the Fed intervened and forced Wall Street to bail out the fund. Those involved can say they bailed out Long-Term capital. But if Long-Term Capital had failed, and it was on the way to failure, 1.3 trillion dollars of derivatives would’ve been flipped back to Wall Street. In reality, Wall Street bailed out itself.

The panic of 2008 was an even more extreme version of 1998. We were days, if not hours, from the sequential collapse of every major bank in the world. Think of the dominoes again. What had happened there? You had a banking crisis. Except in 2008, Wall Street did not bail out a hedge fund; instead the central banks bailed out Wall Street.

And today, systemic risk is more dangerous than ever. Each crisis is bigger than the one before.Too-big-to-fail banks are bigger than ever, have a larger percentage of the total assets of the banking system, and have much larger derivatives books.

New automated trading algorithms like high-frequency trading techniques used in stock markets could add to liquidity in normal times, but the liquidity could disappear instantly in times of market stress. And when the catalyst is triggered and panic commences, impersonal dynamics take on a life of their own.

These kinds of sudden, unexpected crashes that seems to emerge from nowhere are entirely consistent with the predictions of complexity theory. In complex dynamic systems such as capital markets, risk is an exponential function of system scale. Increasing market scale correlates with exponentially larger market collapses. This means that the larger size of the system implies a future global liquidity crisis and market panic far larger than the Panic of 2008.

The ability of central banks to deal with a new crisis is highly constrained by low interest rates and bloated balance sheets, which despite some movement in that direction, still have not been normalized since the last crisis.

For now, it’s not clear which way things will break next. Markets are still in a precarious position and volatility is high. Regardless of which direction markets go from here, Monday’s story of contagion from the Dow Jones to VIX to XIV is a scary reminder of the hidden linkages in modern capital markets. Next time we may not be so lucky."

“The Dangers of Buying on Margin”

“The Dangers of Buying on Margin”
By Joshua Kennon

"Like the flashing lights and sounds of clinking coins at a casino, buying stocks on margin is one of those things that might appear on the surface to be a great way to make money. The pitch usually goes something this, "If you have a few thousand dollars in your brokerage account, you might qualify to borrow money against your existing stocks at a low interest rate to buy even more stock, leveraging your returns!" The reality is that trading on margin is an inherently speculative strategy that can transform even the safest blue chip into a risky gamble.

It allows people and institutions desiring to get really greedy aggressive to buy more shares of a company than they could otherwise afford. When things go south, it can get really ugly, really fast, even leading to personal or corporate bankruptcy.

The Risks of Buying Stocks on Margin: In the past, I've used some real-life case studies to demonstrate how terrible the consequences of buying stocks on margin can be. One man, Joe Campbell, woke up to find himself $106,445.56 in debt to his stock broker due to a margin position that went against him. Many, many other individuals lost everything when they swung for the fences, some using margin debt, buying more shares than they could afford of a company called GT Advanced Technologies, which went bankrupt. Entire retirement accounts were wiped out and some investors talked about contemplating suicide. (And some did it... - CP) 

To top it off, if you open a margin account, rather than a so-called cash account, you introduce something called rehypothecation riskIf the financial world ever falls apart, again, which it inevitably will, you might not realize that you've exposed far more of your assets than you knew to losses that aren't even yours. There is simply no reason to go through life like this.  I feel so strongly about it that one of the first things I did when sitting down and planning the global asset management group my family is launching was to include it in a list of policies for our private accounts.

Kennon-Green & Co. only manages money in cash accounts as margin debt is neither welcome nor necessary except in a handful of extremely limited cases such as structured risk arbitrage transactions, which certainly is not appropriate for new investors self-educating to run their own portfolio.  I don't care if it could generate higher fees for the firm. I don't care if a client wants it. That's not what we do. This might seem to be a bit old-fashioned but there are certain risks that I believe are imprudent. Margin is one of them.

With all of that said, if you still aren't deterred about margin, and you want to employ margin debt in your own portfolio, keep reading. In the rest of the article, I'll explain some of the basics of how it works to provide what, I hope, is a better understanding of the mechanics involved.  

The Definition of Margin: In the most basic definition, trading on margin is essentially investing with borrowed money. Typically how it works is that your brokerage house borrows money at rock-bottom rates then turns around and lends it to you at slightly higher (though still objectively cheap) rates, floating you funds to buy more stocks - or whatever other eligible securities you desire - than your cash alone would permit you to buy.

 Or, I suppose, if you're really going for speculation, sell shortAll of the assets in your account, as well as your personal guarantee, are held as assurance that you will repay the debt no matter what happens in the trading account itself. Even if the account blows up, you are on the hook for the money immediately. No payment plan. No negotiating terms. If you don't pay, the broker can haul you into court to start getting judgments to seize your other holdings, ultimately requiring you to throw yourself at the mercy of a bankruptcy judge. Meanwhile, as your credit score plummets, you might find everything tied to your credit rating getting destroyed, too. Your insurance rates could skyrocket. Your other lenders could restrict access to borrowing capacity, leaving you no ability to pay your bills.

Utility and phone companies may demand cash security deposits. Potential employers may look at your credit and decide not to hire you. All because you were impatient to make money, not satisfied to compound prudently over time, collecting dividends, interest, and rents along the way.

Margin Maintenance Requirements: Each brokerage house establishes a margin maintenance requirement. This maintenance requirement is the percentage equity the investor must keep in his portfolio at all times. For example, a house that maintains a 30% maintenance requirement would lend up to $2.33 for every $1.00 an investor had deposited in his account, giving him $3.33 of assets with which to invest. An investor with only one or two stocks in his portfolio may be subject to a higher maintenance requirement, typically 50%, because the broker believes the probability of not getting paid is greater due to the lack of diversification.

Some assets, such as penny stocks, aren't eligible for margin trading at all. Frankly, this is wise. Investing in penny stock is almost always a bad idea, anyway. Adding leverage on top of it would be deranged.

The Power of Leverage - An Example of What a Margin Trade Might Look Like: A speculator deposits $10,020 into his margin-approved brokerage account. The firm has a 50% maintenance requirement and is currently charging 8% interest on loans under $50,000.

The speculator decides to purchase stock in a company. Normally, he would be limited to the $10,020 cash he has at his disposal. However, by employing margin debt, he borrows just under the maximum amount allowable ($10,000 in this case), giving him a grand total of $20,020 to invest. He pays a $20 brokerage commission and uses the $20,000 ($10,000 his money, $10,000 borrowed money) to buy 1,332 shares of the company at $15 each.

Margin Debt Scenario 1: The stock falls to $10 per share. The portfolio now has a market value of $13,320 ($10 per share x 1,332 shares), $10,000 of that is cash from the margin loan, $3,320, or 25% of the margin loan, is the investor's equity. This is a serious problem. The speculator must restore his equity to 50% within twenty-four hours or his broker will liquidate his position to pay the outstanding balance on the margin loan. This 24-hour notice is known as a margin call. To meet his margin call, he will have to deposit cash or shares of stock worth at least $6,680.

Had the speculator not bought on margin, his loss would have been limited to $3,333. He would have also had the freedom to ignore the decline in market value if he believed the company was a bargain. However, his use of margin has turned his loss into $6,680 plus the commission on the forced sale of stock and the interest expense on the outstanding balance.

Margin Debt Scenario 2: After purchasing 1,332 shares of stock at $15, the price rises to $20. The market value of the portfolio is $26,640. The speculator sells the stock, pays back the $10,000 margin loan and pockets $6,640 before interest and the selling commission. Had he not utilized margin, this transaction would have only earned him a profit of $3,333 before commissions.

The Lesson You Should Learn About Investing in Stocks on MarginThe lesson is that margin amplifies the performance of a portfolio, for good or ill. It makes losses and gains greater than they would have been if the investment had been on a strict cash-only basis. The primary risks are market and time. Prices may fall even if an investment is already undervalued and/or it may take a significant amount of time for the price of a stock to advance, resulting in higher interest costs to the investor. An investor who found an undervalued stock is speculating ipso facto by using margin because he is now betting that the market will not fall far enough to force him to sell his holdings.

The Basics of Trading on Margin: When you sign up for a margin brokerage account, generally:

All securities in your account are held as collateral for a margin loan, including stocks, bonds, etc.
The margin maintenance requirement varies from broker to broker, stock to stock and portfolio to portfolio. The brokerage firm has the right to change this at any time so you might find yourself with a demand to immediately pay off your margin debt balance with no warning or face having your portfolio liquidated.
If you fail to meet a margin call by depositing additional assets, your broker may sell off some or all of your investments until the required equity ratio is restored.
It is possible to lose more money than you invest when using margin. You will be legally responsible for paying any outstanding debt you may have to your broker even if your portfolio is completely wiped out.
The interest rate charged by your broker on margin balances is subject to immediate change.

In some extreme cases, margin caused serious economic troubles. During the Crash of 1929 proceeding the Great Depression, maintenance requirements were only 10% of the amount of the margin loan!  Brokerage firms, in other words, would loan $9 for every $1 an investor had deposited. If an investor wanted to purchase $10,000 worth of stock, he would only be required to deposit $1,000 upfront. This wasn't a problem until the market crashed, causing stock prices to collapse. When brokers made their margin calls, they found that no one could repay them since most of their customers' wealth was in the stock market. Thus, the brokers sold the stock to pay back the margin loans. This created a cycle that fed on itself until eventually prices were battered down and the entire market demolished. It also resulted in the suspension of margin trading for many years.”
Now you know why it's called a casino... 
a $2.2 QUADRILLION global casino of derivatives.
Margin call that! 
And the government gave them at least $23 trillion of your money
 to bail them out after the crash of 2008. Totally insane...
But these days, what isn't?

"The Stock Market Falls Another 724 Points! What In The World Is Happening On Wall Street?"

"The Stock Market Falls Another 724 Points!
 What In The World Is Happening On Wall Street?"
by Michael Snyder

"We just witnessed the 5th largest single day stock market crash in U.S. history. On Thursday the Dow Jones Industrial Average plunged 724 points, and many believe that this is just the beginning of another huge wave down for stock prices. After this latest dramatic decline, the Dow is now down 3.1 percent so far in 2018, and overall it is down 9.99 percent from the all-time high in January. A 10 percent decline is officially considered to be “correction” territory, and that means that we are just about there.

So why are stock prices falling so much? Well, USA Today is blaming the potential for a trade war with China, the latest Facebook scandal and “the impact of rising interest rates on the economy”…

U.S. stocks sold off sharply Thursday, with the Dow tumbling more than 700 points amid growing fears of a trade fight between the U.S. and its trading partners after President Trump said he will impose billions of dollars in tariffs on Chinese imports.

The heavy selling on Wall Street was exacerbated by continued weakness in shares of Facebook as well as concerns about the impact of rising interest rates on the economy.

Of course the possibility of a trade war between the two largest economies on the planet is certainly the greatest concern that the markets are grappling with at the moment. According to Ian Winer, any sign of retaliation by China “will really spook people”: “A global trade war, whether it’s real or perceived, is what’s weighing on the market,” said Ian Winer, head of equities at Wedbush Securities. “There’s this huge uncertainty now. If China decides to get tough on agriculture or anything else, that will really spook people.”

Trump announced tariffs on about $50 billion worth of Chinese imports on Thursday afternoon. It’s not clear which products will be hit, but the action is aimed at curbing China’s troubling theft of US intellectual property.

And we can be quite sure that China will retaliate. In fact, before the end of the day on Thursday the Chinese embassy boldly declared that China will “fight to the end”The Chinese embassy released a statement late Thursday saying China “would fight to the end, with all necessary measures.”

What people need to understand is that China has been taking advantage of us for decades. For example, many U.S. vehicles cost three times as much in China because of all the tariffs that China slaps on them. But we have been allowing China to flood our shores with giant mountains of super cheap goods with no tariffs at all.

This is why we have been buying far more from China than they have been buying from us. It has been an unfair playing field.  As a result of our massive trade deficit with China, they have been systematically getting wealthier and we have been getting poorer.

Since China joined the WTO in 2001, we have lost more than 70,000 manufacturing facilities and millions of good paying jobs. We have to beg China to lend us back a lot of the money that we send to them, and as a result the Chinese now own more than a trillion dollars of our national debt.

So we simply cannot afford to continue to allow China to take advantage of us, but if we start standing up to them it is inevitable that they will strike back. Here are just a few of the things that they could do:

1. Impose higher tariffs on all US exports to China.
2. Restrict market access for US firms in China.
3. Provide preferential treatment to US competitors.
4. Restrict US travels by Chinese nationals.
5. Sell US treasuries and buy other government bonds.

But what is the alternative? Should we just continue to allow China to walk all over us? Hopefully we can negotiate with China without causing a horrible trade war, because without a doubt trade wars are not good for the global economy. Trade wars are bad for the global economy, as they cause prices that consumers and businesses pay for goods and services to rise. A rise in inflationary pressures could prompt the U.S. central bank to speed up its pace of interest rate hikes, which could slow economic growth. Trade skirmishes can also hurt U.S. exports and corporate earnings.

And in the short-term, any news about a potential trade war will continue to rattle the financial markets.  At this point more than half of the companies on the S&P 500 are already in “correction territory”, and dozens of companies are already down at least 20 percent from their one year highs.

The U.S. stock market is under pressure once again, with more than half the S&P 500 falling into correction territory. More than 275 components in the broad index were down at least 10 percent from their 52-week highs as of 11:04 a.m. ET. Of those companies, 84 were in bear-market territory, or down at least 20 percent from their one-year high.

We have already seen more financial shaking in 2018 than we have during any year since the great financial crisis of 2008. Hopefully things will settle down in the days ahead, but I wouldn’t count on it. Our long-term economic and financial problems are really starting to catch up with us, and Donald Trump is trying to navigate our ship through some very rough waters. As always, let us hope for the best, but let us also get prepared for the worst."
Folks, some hints: "Margin calls"; "derivatives". This is just the beginning. And when the margin calls start a full blown panic selling stampede driving prices down even further, and $2.2 quadrillion of global derivatives are called, just what do you think might happen? I've used this video before, but it's still a perfect metaphor for the fate of the Good Ship "World Economy." 
OK, OK, lol, a little melodramatic, but you get the point...
And there will be a LOT of folks feeling like this, too.
But, as I've heard too many times, 
it's a good thing "That could never happen here!", right?