Water cooler talk

I will be going to Boston next week for the fall bridge national championships. Still looking for someone to take me in for thanksgiving dinner if I get eliminated in the blue ribbon pairs event. Anyway, here are some interesting tidbits discussed while hanging around the office the last few days. These thoughts and opinions on the current economic situation come from a number of different opiners.

1. On the CDS market, a coworker says, "So it's kinda like I can buy fire insurance on someone else's house, then set it on fire and collect all the insurance money."

2. After reading online that Platinum Grove Asset Management froze its largest fund, I'm beginning to wonder at what point should they just take back Myron Scholes' nobel prize? "Nono, stop saying you're a nobel winner to get backers so you can blow up another hedge fund."

3. There is speculation that the huge drop in oil (and other commodities) was sparked by China basically deciding it did not want to pay those obscene prices and started buying up certain currencies to force the unwinding of all the carry trades.

4. While there is now talk of deflation, one coworker strongly believes what Jim Rogers describes as an "inflationary holocaust" will come into being soon enough. I think I was one of those people who originally agreed that Bernanke was going to lead us into stagflation. I still blame the severity of the current situation going foward on Greenspan and his handing out of money, "believing that banks would protect shareholders' interests first".

5. A few of us believe that continuing overleveraged bets and the many instruments that facilitate these bets are a big reason for the consistently high volatility and the selling strength seen at each new low. There are more and more stories every day of executives liquidating to meet margin calls. As if the SKF wasn't crazy enough, there is now the FAZ, one of a group of 8 new TRIPLE-leveraged ETFs from Direxion. It used to be that all manner of derivative bets were side bets. Now, they've all become the main bets. One huge bid in one of these short-oriented leveraged ETFs is enough to send 200 programs chasing over each other to hit the bid in the corresponding stocks. It's hard to analyze which stock you want to short, then borrow it, then manage the risk. But now, with a touch of a button, you can get short the equivalent of 100 stocks without any of the hassle. Who's going to still trade actual stocks?