Saturday, September 15, 2007

British Bank Stock Tumbles 31% As Customers Begin A"Run".

Northern Rock has apologised to customers worried by its emergency loan from the Bank of England. Customers told not to panic.

The bank has closed its doors after another day which saw thousands of panicked customers queuing for hours to take out their savings.

The UK's fifth biggest mortgage lender has been hit by soaring costs in wholesale lending markets, where it borrows cash to fund its mortgage business.

Alongside the emergency funding, the Newcastle-based bank warned it could take a profits hit of nearly £150m due to the money market turmoil.

If you think the money market funds in your IRA are safe guess again. These money market funds are based on pooled 30-90 day commercial paper which has been borrowed (traded) from large banks and corporations some of which are mortgage lenders!

Things may get much worse as indicated by a mystery trader who is betting on a huge downturn in the stock market that could only be preceded by a 9/11 type of catastrophe or China dumping its vast dollar reserves in reaction to the sub-prime mortgage collapse.
A mystery trader risks losing around $1 billion dollars after placing 245,000 put options on the Dow Jones Eurostoxx 50 index, leading many analysts to speculate that a stock market crash preceded by a new 9/11 style catastrophe could take place within the next month.

The anonymous trader only stands to make money if the market crashes by a third to a half before September 21st, which is when the put options expire. A put option is a financial contract between two parties, the buyer and the writer (seller) of the option, in which the buyer stands to benefit only if the price of the asset falls.

"The sales are being referred to by market traders as "bin Laden trades" because only an event on the scale of 9-11 could make these short-sell options valuable," reports financial blogger Marc Parent. Dow Jones Financial News first reported on the story.

The trader stands to make around $2 billion from their investment should an event trigger a market crash before the third week in September.

Such a cataclysmic jolt could only happen as a result of two factors, China dumping its vast dollar reserves in reaction to the sub-prime mortgage collapse, which it has threatened to do, or a massive terror attack on the same scale or larger than 9/11.

9/11 itself was foreshadowed by unprecedented put options that were placed on United and American Airlines. Though the Securities and Exchange Commission refused to reveal who placed the options, private researchers traced the investments back to the Deutsche Bank owned Banker’s Trust, which was formerly headed by then Executive Director of the CIA, Buzzy Krongard.

Put options on Morgan Stanley and Merrill Lynch, two of the World Trade Center's most prominent occupants, also spiked in the days before 9/11.

News of the suspicious trades is dovetailed by the comments of Former US Treasury secretary Larry Summers yesterday, who told ABC News that the risk of a recession in the U.S. was greater that at any time since 9/11.
It may be prudent to resist trading in the market this week and invest in some gold.

Steve

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