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Financial Weapons Of Mass Destruction: The Top 25 U.S. Banks Have 222 Trillion Dollars Of Exposure To Derivatives
The recklessness of the “too big to fail” banks almost doomed them the last time around, but apparently they still haven’t learned from their past mistakes. Today, the top 25 U.S. banks have 222 trillion dollars of exposure to derivatives. In other words, the exposure that these banks have to derivatives contracts is approximately equivalent to the gross domestic product of the United States times twelve. As long as stock prices continue to rise and the U.S. economy stays fairly stable, these extremely risky financial weapons of mass destruction will probably not take down our entire financial system. But someday another major crisis will inevitably happen, and when that day arrives the devastation that these financial instruments will cause will be absolutely unprecedented.
In a letter that he wrote to shareholders of Berkshire Hathaway in 2003, Warren Buffett actually referred to derivatives as “financial weapons of mass destruction”…
According to financial expert Jim Rickards, Buffett’s Berkshire Hathaway Inc. is hoarding 86 billion dollars in cash because he is likely anticipating a major stock market downturn…
Warren Buffett didn’t become one of the wealthiest men in the entire world by being stupid. He knows that stocks are ridiculously overvalued at this point, and he is poised to make his move after the pendulum swings in the other direction.
DYI: What
can be expected for stock returns for the next 10, 15, and 20 years from now
for those holding or buying stocks, sleeping like Rip Van Winkle awaken at the
3 time periods? Simply go to MoneyChimp.com and plug in the numbers using PE10 (29.50) and current
dividend yield (1.93).
Estimated Average Annual Return
10 years 0.67%
15 years 2.70%
20 years 3.74%
Don’t forget there are management fee’s for
the average 401k around 1% plus trading impact costs – active managed mutual
funds trading stocks 0.50% – and inflation that has averaged since 1913 at 3.24%. Add it all up! 4.74% Buy and hold investors will be very disappointed. Someone retiring and remains fully invested
while doing a systematic withdraw will quickly run out of money and the money
that does remain will purchase less and less.
Stocks peaked in the year 1999 and will most
likely mean invert under 10 PE10 possibly 7 to 10 years from
now. What would your return be from the
year 1999 till 2027? November 1, 1999 PE10
at 43.21 with a dividend yield at 1.20%....Drum roll please…Estimated average
annual return is 0.48%! Of course all
before fees, trading costs, inflation and if it is outside of pension accounts you will be subject to yearly
taxation. Ouch! Valuation do matter! Warren Buffet knows and so should you!
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