This is an article/chart from CBSMarketwatch. It is very interesting and totally terrifying. Derivatives are not wealth. They are the potential destroyers of all wealth.
The problem is that we do not even understand how these vehicles really work, you don’t get to just say BECAUSE. If you have not seen the movie ‘The Big Short‘, you should. It does a good job breaking down these concepts into easy to understand chunks.
Look, I get it. You can’t just invest in bullets and hybrid seeds.
I use the markets and leveraged risk to play the money game too, but you better bet I also have a reserve of hard currency (precious metals) and assets I can eat. Every good financial obsessor gets paranoid about something lurking in the economy.
FENRIR IS OLD NORSE FOR DERIVATIVES
(awesome photo by Rasmus Berggreen)
I can’t help thinking of that quote from Einstein;
“I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones.”
It feels to me like derivatives are the nuclear weapons here. I feel like if this House of Cards ever comes tumbling down, the next economy will be back to shells and fur pelts.
Is your Panic Room up to snuff?
‘Derivatives are weapons of mass destruction’ – Warren Buffet
‘I am telling you, the world’s first trillionaires are going to come from somebody who masters A.I. and all its derivatives and applies it in ways we never thought of.’ – Mark Cuban
A derivative is a financial security with a value that is reliant upon or derived from. An underlying asset or group of assets—a benchmark. The derivative itself is a contract between two or more parties, and the derivative derives its price from fluctuations in the underlying asset.
The most common underlying assets for derivatives are stocks, bonds, commodities, currencies, interest rates, and market indexes. These assets are commonly purchased through brokerages.