Derivatives & The Stock Market:
What You
Need to Know

Many people are talking about the Stock Market.  But hardly anyone is talking about Derivatives.  Strange - because size for size the Stock Market is the size of a mouse and Derivatives are the size of an elephant.

What are derivatives?

A derivative is basically a bet.  Yes, the stock market is a bet, but at least when you buy stock you own part of a company that provides goods or services, so it usually has some intrinsic value. When you own a derivative, you own nothing.

Derivatives includes such things as options and futures, but there are all kinds of derivatives available now - including bets on interest rates and even on the weather!!!

The size of the derivatives market has become important in the last 15 years or so.

In Feb 2009 the total world derivatives market expanded to $1,000 trillion!!!!

Look at the following chart which was posted in 2007, which shows the growth in derivatives up to that time. The data is from an ISDA market survey and the International Monetary Fund GDP. You can see the explosive growth. Note that there are SIX times the amount of derivatives as the total world GDP. Isn't that a bubble? What will happen when it pops?

I presume the left hand side is Millions of $.
From http://www.safehaven.com/article-7104.htm

Two questions come to mind:

1.  Why don't the newspapers tell more people about this?  (Hardly anyone I speak to knows what about the derivatives market).

2. What will happen when the derivatives bubble bursts (since the derivatives market is largely based on credit)?  It will make the stock market crash look like small fry.

An excellent detailed article on derivatives and how it affects us is at http://www.gold-eagle.com/editorials_00/ci091500.html

To understand why there is a chance that we are approaching another ``Great Depression" (or worse) read ``I want the earth plus 5%".

It may be a good idea to get some cash, and physical gold and silver in YOUR OWN keeping for insurance.  And to get out of debt if you haven't already done so.   No matter what happens, remember - all you really need in life is food, water, clothing, shelter and health.  Plus a personal connection with God.  All else is icing on the cake.

You're Not Fat -
You're Toxic

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See also The Coming Second Great Depression

How Big is a Trillion?



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