Wall Street Financial Truth

Chapter 20 How do rich people make money (3)
"My husband immediately called his stockbroker and opened an account with [-] U.S. dollars. But after a few days, the broker said that there was not enough money in the account, and he had to fill it in immediately. Otherwise it's 'Call'. I think that's probably what you mean by 'Call'."

"Who knows, after that, every one or two weeks, my husband's agent asked him to make up the money, otherwise all the money invested earlier would be lost. In this way, every time the agent calls, my husband will not only feel numb. ', I was going to have a 'cramp'. Until the day before yesterday, my husband really didn't want to go on anymore, so he had to 'Call', and it turned out to be a loss of 10,000+ dollars!" The more she talked, the more angry I became, and the more I listened, the more confused I became.Later, I figured out that it was the Margin account that she was always disclosing.

In fact, to open a Margin account for stock trading, when buying stocks, you only need to pay 25% to 30% of the total value of the stocks.If you invest 1 yuan in the "Majin" account, you can buy stocks with a total value of 4 yuan.In other words, the "Majin" account has four times the leverage.Of course, the 75% of the money is borrowed from securities companies, and the interest rate is generally higher than that of banks and lower than that of credit cards; and the account must also maintain 25% to 30% of the market value of the stocks you own.Once it is lower than this number, your agent will be impolite and will come to "Majin Call", which means that you are required to "transfuse" in quickly-to make up money.

Since leverage is used, the advantages and disadvantages must be two-way.If you want to make four with one, you will lose four with one.Because the needle is not as sweet as both ends, and the sugar cane is not as sweet as both ends (You can't get both ends at the same time).Generally, brokers are "numb" and love to buy and sell small stocks that fluctuate very quickly.As long as you pay a little attention, you can find that many small-cap stocks can fall by 50% or even more than 75% within three months.Such a loss of 10,000+ is not uncommon.

Clever readers may have guessed that the money lost by Lily's husband went into the pockets of those "Paulsons"!In any gambling in the securities market, retail investors are almost always losers.

6. Gold speculation - how sinister

During the economic depression, stock speculation was no longer possible, and funds did not dare to buy. Many people followed the advice of so-called experts and bought gold regardless of the high price, hoping to preserve their wealth.Can gold really store value?

In fact, in today's society, since the "gold standard" has been abolished and credit currency has replaced gold, gold is nothing more than a precious metal, and naturally has its reasonable price.An analysis report on gold refining costs and expected profits pointed out that the reasonable price of gold should be around $400 per ounce.When the report came out, the U.S. dollar was weak; if measured by a strong U.S. dollar, the price of gold may not even be $400 an ounce.If gold continues to maintain this price, then it may be justified to store gold, but the price of gold was pushed up to US$2009 per ounce in 1220. How can investors buy gold at such a high price against the depreciation of the US dollar?
Besides, the practice of storing a large amount of gold cannot satisfy one of the basic elements of foreign exchange reserves: liquidity.What about storing paper gold?Which country should we trust the paper gold issued by?If it is issued by the Federal Reserve, what is the difference between this paper gold and the US dollar?If it is issued by the UK, what is the difference between it and the pound?

In fact, the real wealth enjoyed by human society is not gold, nor silver, nor credit currency itself, but the labor productivity of the entire society.In the first three months of the worst financial tsunami, gold staged the same drama as oil. Instead of rising as experts predicted, gold prices fell by 3%; gold stocks were even worse, plummeting by 20% .However, the stock market and real estate market only fell by 50% to 20%, so the short-term gold speculators obviously suffered even more serious losses!
In China, because the theory of gold preservation prevails, people frantically invest in gold bars and paper gold in order to prevent inflation from shrinking assets.The international financial speculators standing at the top of the wealth pyramid took advantage of the danger and made a fortune.What they use is that whenever a crisis comes, people worry about the loss of wealth. At this time, people will listen to the words of international speculators and invest their funds in gold, thinking that if they seize gold, they will retain their wealth.

It can be seen that people are too forgetful. As early as 30 years ago, the price of gold was fired by Wall Street to break through 850 US dollars per ounce. Even if estimated according to the most conservative annual inflation rate of 3%, the value of 850 US dollars at that time was more than it is now. $2000.And 100 years ago, 5 pieces of gold were enough to buy a Shikumen house in Shanghai (Shikumen is the most characteristic residential house in Shanghai, mostly two-story buildings with brick and wood structure - editor's note).Recently, the price of gold has soared to US$1000 per ounce. Based on this price, 5 pieces of gold are equivalent to 80 ounces, and its value is US$12, which is equivalent to RMB 75. Even if you buy it, there is not enough room for the nanny to live in.

However, the phenomenon of speculating on gold corresponds to an English proverb: "One man's trash is another man's treasure." At the same time as gold, the International Monetary Fund and Russia, one of the three major financial institutions in the world, took advantage of the high price of gold to sell 450 tons of gold at a large scale, and sold the original "scrap copper and rotten iron" at a good price.Think about it, if the price of gold can really rise to 2000-5000 US dollars per ounce in three to five years, then are the sellers all fools and don’t want to throw away the golden eggs?Shortly after the IMF sell-off, gold prices began to fall, falling from a peak of $1220 an ounce to a recent (February 2010, 2) $5 an ounce.

It seems that gold is not a "magic weapon" to resist the depreciation of the dollar, but a tool used by financial hegemony to collect money.

Buffett was right when he said earlier: "Man takes gold out of Africa or elsewhere, melts it down and mints it into gold coins, digs a big hole (underground vaults of central banks) and buries it in the hole, and it takes Lots of money to pay for guards. Any Martian would be baffled to see that." (Financial powers use Buffett's quote when they're "short" of gold and ready to sell short.)
In today's specific social environment, wealth is like flowing water, it is impossible to stand still, and it is difficult for people to hold on to flowing things.In the financial tsunami, news of millionaires, tens of millions, and even billionaires committing suicide due to bankruptcy appeared in newspapers from time to time.Material wealth in the world may disappear at any time, and only spiritual wealth can be passed down from generation to generation.

In fact, it is not only gold that has been hyped by financial hegemony?Oil, a commodity, is the main target of their hype.Because oil is the blood of industry, the country's economic development cannot do without it.And because economic development is inseparable from it, as long as there is a slight disturbance in the surrounding environment, the price of oil will skyrocket and plummet, and the financial hegemony that controls pricing power will take advantage of this opportunity to make a lot of money.

China loses a lot on crude oil futures.Why?Because financial hegemony confuses China to develop the automobile industry, and uses the realization of the so-called "American Dream" as a bait, China has taken the first step to develop the automobile industry; after this step, China must rely on oil to support the automobile industry ; Now that the automobile industry has been developed, China has to build highways; the construction of highways will inevitably encroach on arable land;Financial hegemony is simply taking steps at every step, quietly grasping the lifeblood of China.

In fact, Premier Zhou Enlai clearly pointed out as early as the 20s that China was not suitable for the development of the automobile industry.As for the reason, we can see from Kissinger's words: "Whoever controls oil controls all countries; whoever controls food controls the entire human race; The right to rule the world.” And these three kinds of control are all held by the financial hegemony of the United States, which shows how sinister the intention of financial hegemony is!

7. Option – Beautiful Poppy
A reader friend said that I don't have access to complex financial derivatives, so I don't need to understand these concepts.You may be dealing with these products without realizing it.

First, a brief introduction to derivative securities.

Derivative securities, as the name implies, are derived from common securities and are financial instruments that are neither loans (like bonds) nor equity (like stocks).Their value and rate of return depend on the value of the specified security from which they are derived, such as an asset (commodity, stock, or bond), interest rate, exchange rate, or various indices (stock index, consumer price index, and weather index).

Derivative securities are divided into two categories: one is options (Options), the other is futures (Futures), which can be further subdivided into swaps (SWAP), forward contracts (Forward), stock options (Stock options) )Wait.Once you purchase derivative securities, you have a certain right to the specified securities.These futures and option contracts can be circulated and traded in the market.Here is a brief introduction to options contracts.

Option is a kind of financial derivative product, its value is derived from a certain stock or bond or commodity.

In options, a call option (Call Option) refers to the right to purchase specified securities at a specified exercise price (or strike price) before a specified period; and a put option (Put Option) refers to the right to purchase Sell ​​a specified security at a specified strike price by a specified deadline.The fee paid for buying options is called premium (Premium, also called margin).

Too professional to understand?Look at an example and you will understand.Once, my friend Lao Wang returned to China to visit relatives, wandered around the Bund in Shanghai, and found a half-built apartment there, with a very grand appearance, and was immediately attracted.So I walked into the sales reception center, a sales lady warmly received Lao Wang, and introduced to him the current situation of the building group, saying that the location on the Bund is good, and the house price is rising. The apartment will be completed in six months, and the market value of a set is at least 1000. ten thousand yuan.The sales lady said to Lao Wang: "If you pay 10 yuan now, we can sell it to you for 900 million yuan after the completion. Even if the house price rises to 1000 million yuan at that time, you still pay 900 million yuan; but , if you change your mind and don’t buy it, then the 10 yuan you paid before will belong to us.”

Maybe the lady didn't realize that this is the most typical "call option".If you buy a house at that time, and the market price of the house has indeed risen to 1000 million yuan, then you sell the house and immediately make a profit of 100 million yuan (you only need to pay 900 million yuan), minus the previously paid premium (Premium) 10 90 yuan, you have a net profit of 900 yuan.If the house price drops sharply and falls below 10 million yuan, you don't have to buy it at all, and you will lose at most [-] yuan in royalties.In other words, options give you the right to buy or sell a house at some point in the future.

It must be noted that "buy option" and "sell option" are not the buyer and seller of an option transaction, but "buy option" or "sell option" itself is an agreement between the buyer and the seller.Among them, only the buyer has the right to choose to implement or abandon this agreement.For example, in the example just mentioned, the agreement between my friend Lao Wang and the sales lady is a "buy option". Lao Wang is the buyer in this agreement, and the sales lady is the seller. Only Lao Wang has the right to choose whether to execute the option at that time.It can be seen from the above examples that the option holder can use the right according to the contract, or allow it to be voided, and can also resell it to others within the validity period.

To give another example, if you buy a "buy" contract of IBM (International Business Machines Corporation) with a strike price of $80, it means that you have the right to buy IBM stock at $80 per share within the specified period. s right.If its stock price has been lower than $80, then you don't need to exercise your rights; if IBM rises to $100 during this period, you can exercise your options.At this time, the seller must sell IBM to you at $80 per share as agreed, and if you sell it at $100, you can earn $20 per share.

And if you buy IBM's "sell option" and the strike price is $80, it means that you have the right to sell IBM at a price of $80 within a certain period of time.If one day it drops to $60, you can still sell it for $80 and make $20 per share.Other situations can be analogized according to the example of "buying options".

Note that the above example does not include the cost of purchasing the option for the time being.In fact, the pricing of this fee is quite complicated. Two American mathematical finance masters, Fisher Black and Myron Scholes, invented a calculation equation for this purpose, called "Black-Scholes formula", also won the Nobel Prize.

Over the past few decades, the securitization and derivative businesses that have brought huge profits have long been the most important businesses on Wall Street.From the above example of buying a house option, a premium of 10 yuan can leverage 900 million yuan, and the leverage ratio is as high as 90 times.The actual operation of derivative securities on Wall Street is at least 10 times more complicated than buying and selling houses, with a higher leverage ratio and various tricks, such as Straddle, Strangle, and Naked short options. Put), Butterfly, Covered Call, Collar, Iron Condor, reverse channeling, hedging, there are countless types.

In short, options package the risk beautifully and turn it into a beautiful poppy, which is tempting to take the bait. At the same time, it uses incredible leverage to make Wall Street investment banks sky-high profits!On the surface, it seems that there is a huge profit potential for one million yuan, but in essence, ordinary people will find that it is a real "financial opium" once they enter.

8. Futures - don't be obsessed
On April 2010, 4, China's stock index futures (hereinafter referred to as "index") opened, which marked an important step for China to enter the securities and financial market.On May 16 of the same year, it was the first delivery day since the futures market opened. In just over a month, the Chinese stock market "just happened" to plummet, which aroused a lot of speculation.Compared with China, North America's futures index and stock market linkage relationship is much more mature, and Chinese investors may wish to learn from it.

Futures is a type of futures, and futures is a type of derivative securities, that is, a contract signed by buyers and sellers in the futures market.Index futures is also an investment tool that all investors can participate in, and retail investors can also use short selling to avoid risks.

(End of this chapter)