Big Banks’ Exposure to Derivatives Worse Than Ever

October 9, 2012

It has generally been accepted that derivatives are problematic financial instruments. Warren Buffett has called them “financial weapons of mass destruction” and he refuses to delve into them because he, of all people, simply cannot understand them.

That’s what makes this recent report that bank exposure to derivatives has skyrocketed all the more worrisome.

Given the lessons of 2008-2009, one would have hoped that banks would have backed off of derivatives. Today, US banks exposure to derivatives lies at $225 TRILLION. That is up from $120 TRILLION just six years ago.

This poses a great deal of risk to the banking system. The outcome is uncertain at best. It behooves investors to diversify into assets that are not vulnerable to a derivatives meltdown, namely gold. Gold is REAL and is thus not subject to the forces that could literally destroy the value of financial assets in a derivatives meltdown.


Report: Billionaires Dumping Stocks

September 17, 2012


Despite the 6.5% stock market rally over the last three months, a handful of billionaires are quietly dumping their American stocks . . . and fast.

Warren Buffett, who has been a cheerleader for U.S. stocks for quite some time, is dumping shares at an alarming rate. He recently complained of “disappointing performance” in dyed-in-the-wool American companies like Johnson & Johnson, Procter & Gamble, and Kraft Foods.


Fellow billionaire John Paulson, who made a fortune betting on the subprime mortgage meltdown, is clearing out of U.S. stocks too. During the second quarter of the year, Paulson’s hedge fund, Paulson & Co., dumped 14 million shares of JPMorgan Chase. The fund also dumped its entire position in discount retailer Family Dollar and consumer-goods maker Sara Lee.

Finally, billionaire George Soros recently sold nearly all of his bank stocks, including shares of JPMorgan Chase, Citigroup, and Goldman Sachs. Between the three banks, Soros sold more than a million shares.

Investors must diversify out of stocks. There is simply no economic underpinning for a rally in the stock market at this time and some of the smartest money is beating a hasty retreat. Gold investments are particularly suited for diversifying a portfolio that is overweight in stocks, since, over the long-term, gold tends to move independently of world stock markets.