Saturday, February 19, 2011

The Voices in My Head Have a Happy Tone

The story I'm about to tell you is true. It is one of those rare examples of human stupidity that just begged to be exploited. This is what happens when the big guys, the casino, screw up and the little guys stick a fork in them.

Several years ago, a friend of mine who is a true gambling professional- told me a story that I couldn't hardly believe. Each year, during the National Football League playoffs, casinos offer "futures" bets on each team in the playoffs. Those future bets have various payoffs depending on the "perceived" strength of the team as it enters the playoff and the teams opponents. Weak teams may get assigned odds of 9-1 or better, say Seattle this year. Strong teams, like Pittsburgh may get assigned low odds of 3-1. There are two ways to play those bets. You may make a bet for the team of your choice to win either the AFC or NFC title game or you may make a bet on your team to win the Super Bowl.

As the games are played and teams are eliminated, sports books adjust the odds of the remaining teams down immediately after a game is finished. They quit taking bets until new lines are put up. That is how it is supposed to work. However, my professional friend had noted that during the prior year, the casino had failed to do that. After the divisional games had been played last year he said, they had continued to take futures bets after the games had been finished without adjusting the odds down! At first I thought he was full of shit. He showed me 16,000 dollars cash and said watch and see. Sure enough, on Sunday evening , the two teams headed for the AFC Championship game- the Patriots and the Colts- remained on the board at +320 and +380- respectively. They had not adjusted the lines. That meant that all you had to do was bet an equal amount on both teams and you could not lose. A thousand bucks on the Patriots got you 3200 dollars or on the Colts it would make you 3800 dollars. Investing 1000 dollars on each team-knowing that you would lose 1000 dollars on the other team- left you with a net minimum profit of 1200 or 1800 if the Colts won.

The best part about this was the sheer sneakiness my friend employed. He must have made 30 bets. He kept circling through the line, betting 500 or 1000, on each team, trying not to draw attention to himself. Had he just gone up and plunked 8000 bucks on each team it would have drawn attention. Like I said, he was a professional. I scraped together all of the cash I could that day- about 2400 bucks- and did the same thing. I had a heavy hitter friend, a guy that always carries 100k, but I could not find him which was a shame. He nearly cried the next week when I told him about this. I told two other friends and here is the craziest part of this story.

They were not familiar with what I was talking about. They thought I was full of shit and they did not understand the futures bet. They did not make any bets. They were worried. I said the absolute worst thing that could happen is that the Gaming Commission might find out and declare "no bet" and our money would get refunded. But I doubted it. They usually landed on the gamblers side. One of them saw me cashing tickets the next week. I have to tell you- I find the whole thing ponderous- un fucking believable. In fact, to this day, I have often thought about human behavior. When somebody is given
a sure thing, why can't they just accept it? What is it about human nature that causes us to fear?

And yet in 2007, I had a drunken friend tell me the whole banking world was going to collapse. He called it the opportunity of a lifetime. Put options and shorts, piling it on, he even called Countrywide and Citibank- completely bankrupt. Fifty grand he said, would make a couple of million. In the money, out of the money puts- just continue to leverage up and roll them over as they go down. I didn't do it. He did.

So here we are in 2011. The FED cannot stop printing money. They have flown into a box canyon. If they stop printing and buying treasuries, only one thing can happen. Collapse. Nobody is buying our treasuries or our debt. There are no buyers. If they stop applying carb heat to the stock and bond markets, he who panics and flees first- panics best. The only safe haven for your money is in commodities like oil. Physical silver and gold. It is an absolute no brainer. You can't miss. The only thing to fear, is our government undergoing monumental and sweeping reform- slashing government and debt to the bone. If they had the balls to do that, I would find the exits. I am betting they have no balls.

Listen to the voices inside my head. They are happy. I will leave you with a snip from Harvey Organs blog this a.m.

The huge rise in silver price has caught the silver bankers totally offside on the silver banking.  The BIS data released in November  ( shows that the G 10 bankers have collectively sold forwards and swaps to the tune of 4 billion oz and short naked calls for another 3 billion oz.  The total, 7 billion oz represents  10 years of production.  If you just do the forwards, then it is 7 years of annual silver production.  Let us say the average cost of acquiring these derivatives and forwards equate to $15.00 for silver. Thus collectively the entire G10 bankers are feeling massive pain  (losses) to the tune of:

7 billion oz of silver( 32.30-12.00)  =  7 billion x $17.30 =  121.1 billion dollars of losses.

This is in a market of only 14 billion dollars. It begs the question to what economic need was this done.This is still off balance sheet.
If you include only the forwards or swaps (the lending of actual metal to which nothing has come back yet) then the losses are:
4 billion x 17.30 or  69 billion dollars.

Regardless how you look at it, the bankers are in serious trouble with this huge rise in silver prices. I hope you understand the severity of the situation.


richard said...

Its like this, your friend says the economy is going to collapse. Not going to happen. Why? China has too much invested and wont let it happen. Hmmm, inflation will happen, and we'll moan and groan, but no collapse. It will be just a slow growth, like Japan, 20 years of slow growth. Yes, silver is the best bet to beat the inflation gods. After 20 years who cares? Robots will be in every home. Watson on the Jeopardy show proved that computers are smarter than humans. Japanese will be using them to monitor their old people and keep them entertained. What does that have to do with us? We will be an endangered species within 50 years. We have exoskeletons for soldiers now. Its only a matter of time, 20-30 years before they fight our wars, then realize, we aren't needed and remove us like some rodent. You watch.

Brian said...

I agree. I just can't bank or predict an economic collapse Interestingly enough, China has quit buying treasuries and in fact, they are selling. They only have a trillion invested. In a few years, that is chump change and they can walk away. The 20 years of slow growth is a rosy see Japan citizens own all of their debt and the yen is not the world's default currency.

That's what makes the dollar, frighteningly different. The dollar's collapse will send shock waves all over the world. Oil is traded in dollars. What happens when they say no oil for you? Your money is no good? This is very serious stuff and I'm not sure peeps understand just how serious that kind of disruption is going to be. The yuan will be the world's default the pound once was.

richard said...

You mention post collapse of the dollar. What if there was no post collapse of the dollar? Why, the chinese have nothing to gain by becoming the new reserve currency? Why, because all of their products would become too expensive. Its better to beat the dollar up and sell their products cheap. 1.4 billion chinese cant be wrong.