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Where's the next obfuscated meltdown coming from?

⊰ 2022-10-03 by ShaunO ⊱

So this is interesting. Albeit over-stated and under-evidenced.

But it makes sense that with everything economic seemingly 'tipped on its head' it seems probable that some left field obfuscated financial situation will arrive 'out of the blue'.

What recent history shows us is that financial markets are idiotic in the sense that they build models, products, and theories which only operate correctly/reliably when probability distributions are normal (read: normal distribution curves, standard deviations from the centre etc.).

When things aren't normal like during the 2008 meltdown, or COVID, exotic financial instruments can implode, causing serious contagion. CDOs, synthetic CDOs, and other derivatives etc. were the poster boy culprits in 2008.

And this article points to leveraged bets (hedging, margin calls, derivatives etc. on UK bonds, or gilts), with an unassumingly bland financial name of Liability Driven Investments (or LDIs), which apparently exist en-masse within the UK pension sector and might cause another Lehmann type 'watch the dominoes fall' effect.

We'll see I guess.

If contagion doesn't come from UK gilts there's a reasonable probability it'll show up somewhere else in due course..

buggered if I know 😛

The world is on the brink of another financial crisis, and the next few weeks are key


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