Buffett's Derivatives Exposure Uses "Weapons of Mass Destruction"

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Mark Melin
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Updated on

Warren Buffett once famously labeled derivatives “weapons of mass destruction” due to the highly-leveraged nature of the contract structure and its ability to literally destroy the economic foundations of a society. The over the counter (OTC) derivatives exposure is said to be near $600 trillion, capable of wiping out the economic value of the world economy, valued at $72 trillion, several times over.  The exact derivatives exposure is unknown because, until recently, these contracts were not transparent and traded off exchange in privately negotiated contracts, the subject of a twenty year battle in Washington D.C. This is one reason a…

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Mark Melin is an alternative investment practitioner whose specialty is recognizing the impact of beta market environment on a technical trading strategy. A portfolio and industry consultant, wrote or edited three books including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008) and taught a course at Northwestern University's executive education program.