Friday Morning

Overnight, the Asian stock markets were essentially flat. It was pleasing to see the Nikkei end a little up, and with little volatility. A small improvement in money market liquidity is being cited as the reason.

For me, the most important stories today are the Options expiry and the OPEC meeting planned for next Friday.

Oct. 17 (Bloomberg) -- The U.S. stock market's wildest swings since 1929 may get even bigger as almost 80 million options expire today.

Owners of the contracts on stocks, indexes and exchange- traded funds have until today's close to take advantage of the rights granted by the calls and puts they own. Investors are preparing for the possibility that market makers will boost volatility by buying and selling stock to hedge the risk of the option trades they have facilitated, according to Scott Nations, president of Fortress Trading Inc.

``I'd expect some fireworks,'' said Herb Kurlan, president of Vtrader Pro LLC, a San Francisco-based options and futures brokerage. ``The unwinding of positions is going to be more pronounced because of the high volatility.''

About a quarter of the approximately 337 million existing options expire today, according to Chicago-based Options Clearing Corp., which settles all trading of exchange-listed contracts and is the world's largest derivatives clearinghouse. ......end of Bloomberg article.

OPEC has announced a meeting next Friday at which production cuts will be discussed. Oil is trading in the low $70s this morning. Let's put this in perspective; oil rose along with most other commodities, forming a bubble, which burst late summer. Oil rose on the back of the commodities bubble (which was, itself, caused by investors, private and institutional, substituting commodities for equities in their portfolios). The oil price rise was never about producers wanting more for their oil, it was merely a consequence of falling stock markets. To raise oil prices at this time - given that the producers were able to operate perfectly happily on a lower oil price a year ago - would be the height of folly. Reports suggest that production will be cut though it not clear by how much, or their target oil price.

I will post again tonight after the markets have closed and over the weekend I'll be having a look at the possible effects of the massive injections of new money into the world's markets. Are we in danger of seeing Wiemar-like inflation or are the debt write-offs (which effectively destroy money) sufficient to balance the new money? Into whose hands is all this new money going? Is this a vast redistribution of wealth? What about all the debtors whose debts have been segregated into 'toxic debt bins'? If they still owe all this money and are still making repayments, then surely the money hasn't actually been destroyed?