The ISEQ Thread Part I - March 2008 - October 2008 **LOCKED**

Zhou_Enlai wrote:

Squire wrote:

It really is difficult to know what to make of the stock market, except perhaps stay away.

It is fluttering about and is currently heading back down towards 4400.

Obviously confidence is low and there is probably a sentiment that perhaps the falls experienced are adequate correction, but equally it is so volatile that it would take very little to push it down to 3500. There is a lack of rationality. More chaos than reason.

Isn't this normal behaviour on the way down with traders trying to make money on the smaller peaks and troughs? That is my understanding anyway.

Plus, there are rallies in bear markets where traders cover their shorts before resuming the selling. Markets rarely move in one, straight direction. They usually zig and zag towards their ultimate destination.

Auditor #9 wrote:

LOOk at that - up and down with the wind I tells ya

Could it be the Pathetic Fallacy has struck again ?

They both look like electroencaphalograms of people holding stocks.

cactus flower wrote:

Could it be the Pathetic Fallacy has struck again ?

EvotingMachine0197 wrote:

They both look like electroencaphalograms of people holding stocks.

Bizarrely and unprecedentedly, both the ISEQ and the Wind flatlined at 4 today ..

I've been 100% cash for two weeks now. I never go against the general trend which on all indicies is still down by a long shot. The past couple of weeks have seen the major markets more or less stagnant. A little on the upside but with no real conviction. The FTSE 100 was the only major index to fall yesterday but this is due to its top heavy capitalisation in mineral and oil stocks (comprise 8 out of 10 top cap stocks). The FTSE 250 was marginally up as were all the other idexes. However, for the first time in awhile I'm seeing weakness in the futures markets for the FTSE 100. Given the weaknesses in all basic metals and minerals, this is to be expected.

Right now all the indicies are behaving as if an economic recovery was underway with consumer goods companies, retailers, automotives and so forth showing some improvement in prices although the rate of price increase is slowing here as well. The Dow futures are also looking very weak as opposed to the SP500 which is ticking along.

But, the big story is still the Euro and other currencies fall against the dollar. Fiber (€/$) coupling is down nearly 14 cents within the space of two weeks. That's an unprecedented fall. There's alot of talk about the relationship between the meltdown in commodities prices and the surge of the dollar. I think this is a bit of a red herring. Yes, the sell off in commodities is freeing up cash (US dollars) but this doesn't tell us why people/institutions are selling the Euro to buy the dollars. I certainly can't see any great investment opportunities in the US or in US$ related commodities. In fact, the opposite is occuring. There seems to have been a pick up in volume in the government bonds markets but nothing to write home about. The money isn't going into equities as evidenced by the lack lustre performance of the indicies. Are existing dollars being sucked into the credit destruction vortex? Are US institutions, and possibly the Fed, buying the dollar in massive quantities to recapialise the banks and to prop up the currency? Other central banks like the Chinese and Japanese both have a vested interest in propping up the dollar in order to protect the value of their treasury bond holdings which are very,very large. This holds true for Middle Eastern oil barrons and their private central banks as well.

Both precisious and basic metals are still under downside price pressure. Right now the futures markets are indicating that a short term pause may be taking place. The Chinese economy is sending out mixed signals about its growth potential given the downturn in global markets recently. Once the olympics are over, we'll get a clearer picture.

As to the future, well, if your're a banker, the Fed is your friend. It's an election year in the US and the powers that be will try to keep the good ship US on an even keel. This can be the only explanation, coupled with the Fed's gargantuan efforts to paint a tranquil stability picture of the "ground zero" banking disaster, that explains present stock prices. The panic evidenced by precious metals and oil futures prices is over for the time being; maybe for a good long time. Imo, as the panic subsides and the cold light of day come shining through the murkey windows of the equities markets later this year, the prices will start to reflect the unprecedented financial disaster that has been visited upon the US economy and to some extent other economies. This very ill patient isn't out of the ICU by any means but they've may have found a heart beat!

For me, I'll be paper trading my "new and improved" methodology based on Quantitaive stats and analysis, fundy info and a wee taste of technicals. gl all

rockyracoon

Thanks very concise round-up and interesting. I agree there seems to be a concerted effort to prop the dollar. Whilst on face value I can see the interest that Japan and China would have but soaking up dollars is simply increasing their exposure. As Dan pointed out it is the Fed supporting the miscreants and the dollar. It is the only sane explanation, but only 400 billion to go and then the printing press and fun starts.

I can see absolutely no reason to have confidence in the US economy until someone decides to address their multiple deficits. That is not going to happen this side of Bush's departure and assuming Obama is the replacement it will be a few month before reality kicks in.

Also staying well out of it myself, unless I see an anomaly or very sharp movements down.

Keep myself amused with construction projects out East. Gives me an excuse to winter in warmer parts and claim it against tax.

Squire wrote:

. . .I agree there seems to be a concerted effort to prop the dollar. Whilst on face value I can see the interest that Japan and China would have but soaking up dollars is simply increasing their exposure. As Dan pointed out it is the Fed supporting the miscreants and the dollar. It is the only sane explanation, but only 400 billion to go and then the printing press and fun starts.

I can see absolutely no reason to have confidence in the US economy until someone decides to address their multiple deficits. That is not going to happen this side of Bush's departure and assuming Obama is the replacement it will be a few month before reality kicks in.

Also staying well out of it myself, unless I see an anomaly or very sharp movements down.

Keep myself amused with construction projects out East. Gives me an excuse to winter in warmer parts and claim it against tax.

How's about yee squire? Ah, but, here's the rub. China and Japan own huge amounts of T-Bills etc., and every month the dollar was going down, they were losing billions in value. They're are literally caught between a rock and a hard place. Plus, these economies are seeing an erosion of their export power with the dollar going so low. They must know the US ponzi debt scheme is coming home to roost but they'd rather see an orderly erosion of the dollar until they can off load their US denomiated debt and let the US sink into the sunset. They'd also like their own domestic markets to pick up in economic activity before the US tanks.

That is almost as bad a a gambler who doubles his bet every time he loses.

They will have a hard job off loading US Bonds etc .

Without US consumption driving world trade it could well become less global as many countries such as China, India and Brazil could better spend their time producing for very real need in their home market.

The US has the world by the balls financially as I have discussed before.

I had heard the Chinese were starting to reduce their dependency on the dollar. Or is that not what you were meaning ?

What I mean is the US can default on the dollar and leave them all holding the bag. The whole lot gets a well deserved shafting especially the Europeans for being nearly as dumb as the Georgians..

But Dan as you well know what the Europeans, Chinese and all the rest hold pails into insignificance to what the beloved citizens of that brave Nation hold. If we get shafted you get barbecued.

Not at all. Deposits held domestically can be exchanged for the new currency and offshore depositors get the shaft as well. Everything depends on who bought the gold that the Europeans clowns sold to buy US Treasury bonds. How retarded was that. It is only retarded if you are foolish enough to believe that the likes of Brown and Trichet care about you. If anyone is that lame brained then maybe extermination is best.

youngdan wrote:

Not at all. Deposits held domestically can be exchanged for the new currency and offshore depositors get the shaft as well. Everything depends on who bought the gold that the Europeans clowns sold to buy US Treasury bonds. How retarded was that. It is only retarded if you are foolish enough to believe that the likes of Brown and Trichet care about you. If anyone is that lame brained then maybe extermination is best.

If currencies were to be tied back to the gold standard, what percentage of the economy do you estimate would be wiped out ?

Basically default on overseas loans. That is sure to instil confidence and a desire to do business.

I don't think the selling of gold was particularly clever but I think you place too much faith in the stuff. Spain was awash with it but still its empire went down. Suppose the military antics of Gustavus Adolphus helped. I think he was also the creator of the first central bank.

Why would any percentage be wiped out. Things worked well under the gold standard which existed up to 1933.

I don't know anything about the Spanish guy

If they have no gold then all is still not lost. The government owns a large percentage of the land here and they could back the currency with that. The French in 1720s backed theirs with church properties confiscated.

There would be great confidence and demand for a asset backedcurrency. If they own most of the goldthey can price it so high that they are on top for a hundred years. They could set it at 20000 dollars an ounce maybe.

Squire wrote:

Basically default on overseas loans. That is sure to instil confidence and a desire to do business.

I don't think the selling of gold was particularly clever but I think you place too much faith in the stuff. Spain was awash with it but still its empire went down. Suppose the military antics of Gustavus Adolphus helped. I think he was also the creator of the first central bank.

Wasn't their problem that too much South American gold was brought back to Europe and that caused a massive inflation?

Henry VIII defaulted on the Medicis loans and nicked the Churches property and all went well for England. Better than for Italy anyway.

Rocky. I see no reason why central banks or anyone else for that matter would buy the dollar. The point about dollars dissappearing into a vortex is what I agree is happening in a big way.

On the other side of the balance they are selling all European currencies as reality is setting in back there. The gold is sold and the Euro's ability to survive is being questioned.

cactus flower wrote:

Wasn't their problem that too much South American gold was brought back to Europe and that caused a massive inflation?

Henry VIII defaulted on the Medicis loans and nicked the Churches property and all went well for England. Better than for Italy anyway.

Yes it caused inflation at home, (yes gold caused inflation) and destroyed their home industry. Wool for one could be produced much cheaper in England. The 30 years war basically bankrupt the Hapsburg's and ended expansion. Down hill ever after.

Power needs wealth to back it up. There were a lot of changes occuring in England at the time of Henry Eight. Growth of the merchant and middle class. Also unlike France the British (during Dutch wars) copied the Dutch banking methods and that enabled their government to borrow cheaper to build a fleet and conduct war than the French King. That as much as anything is what beat the French in early Empire building.

I am less than sure about how rosy life was under the gold standard. From my recollection there were plenty of economic crises then. Gold standard does not stop bubbles or recessions. It is a commodity and like all commodities has a market value. It can go from 300 dollars to 1000 dollars an ounce and supply is not fixed. If the value goes through the roof there is stacks of gold in the oceans.

Land I can understand it has a value and it can produce.

However currencies are merely lubricant that enable trade I am not sure that fixing them to anything other than the strength of any particular currency makes sense. What needs to be considered and regulated is printing of money and transparency of money supply.

No matter what currency you have you cannot finance a country on deficit finance and trying a slight of hand with the dollar is dead long live the new gold backed dollar is as likely to back fire as succeed. It will be seen for what it is, a scam, an attempt to evade debt repayment. It could be seen as a sign of weakness. Or if the debts were paid in the new currency then the liabilities remain a mill stone.

Nothing beats a healthy trade surplus and keeping government spending within the tax collected.

Of course there was inflation in Spain as the money supply rose with every shipload.

The supply of gold is nearly totally fixed. The newly mined supply each year is miniscule compared to the stockpile of about 140000 tonnes.

With gold backed currencies you can not have a trade deficit and you can not have a budget deficit. For example the Iraq war could not be fought under a gold back currency system

I have concluded from writing for a year on P.ie that regardless of how simply it is explained most people can not grasp how inflation is robbing them blind. Also when a bailout of 500 billion is announced they can not figure out where the 500 billion comes from and even more bizarely they can not figure out into whose pocket the 500 billion goes.

That is that deleted

I fully understand how inflation erodes wealth, as does tax.

The Bail oust have me in stitches.

You are very confident that 140000 tonnes is it, I'm not.

Wonder if we know where it all is located?

Gold is like any other commodity it rises and falls so if you set your new wonder dollar to be worth one once what happens when the value of gold rises or falls against other currencies? Does it become .8 or 1.2 ounces or do other currencies be worth more? How does this reflect the economic strength or weakness of the country?

Under the Gold standard governments still borrowed.

Anyway busy day ahead and up to no good.

I have a lot of time for your knowledge of and interpretation of global financial system youngdan, but part company when it comes to solutions, including the gold standard.

This is a summary of some of the reasons why:

Why Not the Gold Standard? Talking Points on the Likely Consequences of Re-Establishment of a Gold Standard:Brad DeLong
U.C. Berkeley

Consequences for the Magnitude of Business Cycles:

Loss of control over economic policy. If the U.S. and a substantial number of other industrial economies adopted a gold standard, the U.S. would lose the ability to tune its economic policies to fit domestic conditions.

• For example, in the spring of 1995 the dollar weakened against the yen. Under a gold standard, such a decline in the dollar would not have been allowed: instead the Federal Reserve would have raised interest rates considerably in order to keep the value of the dollar fixed at its gold parity, and a recession would probably have followed.
  

Recessionary bias. Under a gold standard, the burden of adjustment is always placed on the "weak currency" country.

• Countries seeing downward market pressure on the values of their currencies are forced to contract their economies and raise unemployment.
  
• The gold standard imposes no equivalent adjustment burden on countries seeing upward market pressure on currency values.
  
• Hence a deflationary bias which makes it likely that a gold standard regime will see a higher average unemployment rate than an alternative managed regime.
  

The gold standard and the Great Depression. The current judgment of economic historians (see, for example, Barry J. Eichengreen, Golden Fetters) is that attachment to the gold standard played a major part in keeping governments from fighting the Great Depression, and was a major factor turning the recession of 1929-1931 into the Great Depression of 1931-1941.

• Countries that were not on the gold standard in 1929--or that quickly abandoned the gold standard--by and large escaped the Great Depression
  
• Countries that abandoned the gold standard in 1930 and 1931 suffered from the Great Depression, but escaped its worst ravages.
  
• Countries that held to the gold standard through 1933 (like the United States) or 1936 (like France) suffered the worst from the Great Depression
  
  
  
  • Commitment to the gold standard prevented Federal Reserve action to expand the money supply in 1930 and 1931--and forced President Hoover into destructive attempts at budget-balancing in order to avoid a gold standard-generated run on the dollar.
    
  • Commitment to the gold standard left countries vulnerable to "runs" on their currencies--Mexico in January of 1995 writ very, very large. Such a run, and even the fear that there might be a future run, boosted unemployment and amplified business cycles during the gold standard era.
    
  • The standard interpretation of the Depression, dating back to Milton Friedman and Anna Schwartz's Monetary History of the United States, is that the Federal Reserve could have but for some mysterious reason did not boost the money supply to cure the Depression; but Friedman and Schwartz do not stress the role played by the gold standard in tieing the Federal Reserve's hands--the "golden fetters" of Eichengreen.
    
  • Friedman was and is aware of the role played by the gold standard--hence his long time advocacy of floating exchange rates, the antithesis of the gold standard.
    
  
  Consequences for the Long-Run Average Rate of Inflation:
  
  
  Average inflation determined by gold mining. Under a gold standard, the long-run trajectory of the price level is determined by the pace at which gold is mined in South Africa and Russia.
  
• For example, the discovery and exploitation of large gold reserves near present-day Johannesburg at the end of the nineteenth century was responsible for a four percentage point per year shift in the worldwide rate of inflation--from a deflation of roughly two percent per year before 1896 to an inflation of roughly two percent per year after 1896.
  
• In the election of 1896, William Jennings Bryan's Democrats called for free coinage of silver as a way to end the then-current deflation and stop the transfer of wealth away from indebted farmers. The concurrent gold discoveries in South Africa changed the rate of drift of the price level, and accomplished more than the writers of the Democratic platform could have dreamed, without any change in the U.S. coinage.
  
• Thus any political factors that interrupted the pace of gold mining would have major effects on the long-run trend of the price level--send us into an era of slow deflation, with high unemployment. Conversely, significant advances in gold mining technology could provide a significant boost to the average rate of inflation over decades.
  
• Under the gold standard, the average rate of inflation or deflation over decades ceases to be under the control of the government or the central bank, and becomes the result of the balance between growing world production and the pace of gold mining.
  

http://www.j-bradford-delong.net/Politics/whynotthegoldstandard.html

This site goes in more detail into the discussion by friedmanites and Paul on the Gold Standard. The writer thinks that the problem with the Gold Standard was mismanagement much as mismanagement is used as an excuse for market failures by Friedman. This is not impressive, as the ''mismanagement'' arises in every case from inherently contradictory interests within the system between individuals, institutions and nation states, each doing what is in their immediate self interest.

The return to the Gold Standard was followed by the Great Depression and that only ended with World War.


http://everydayecon.wordpress.com/2007/11/13/the-gold-standard/

I should be a trader - I opened a demo account on worldspreads and with my initial fantasy investment of €10,000 I am now worth €18,000. Woohoo!

Cactus. That says that the depression was caused by the return of the gold standard. That is not historically correct. The gold standard went in 1933 and it never returned.

It is important Squire to begin at the very basics. There is nonsense being spouted on P.ie that can not be even commented on as the posters know nothing at all about it.

Some say that the punt could or could not be tied to gold. The lugs don't realise that to tie a currency to gold you have to actually own the gold and have it sitting in a vault. Ireland does not have any gold so the option of tying the punt to gold does not exist

It is worth having a look at what they did in Argentina in the 90s. The currency was chronic and inflation was rampant. The only option was to back the currency. Gold and silver are not liked by the American power brokers obviousely so what they did was introduce what is known as a Currency Board. How this worked is a new currency called the Cruzedo was introduced. For each cruzedo put into circulation there was a dollar bill set aside in a vault. In this way the cruzedo was always worth 1 dollar. It never flucuated. This eliminated the rampant inflation over night and it also eliminated the speculators in the currency markets as the cruzedo exactly followed the dollar. It restricted the deficit spending and the cure was harsh but at least the patient survived. The problem arose later when they cheated and printed more cruzedos than the dollars that were set aside.

Currency Boards work pretty well compared to what they replace.

We are going on the assumption that the US actually has the amount of gold it says it has. If the US has none it is in trouble. If it has most of the gold on Earth then they are top dogs as they can set the price at whatever level they choose.

They may choose to set their new currency to 1000 superdollars an ounce. The amount of superdollars would be the number of ounces in the vault multiplied by 1000. The value of the superdollar versus the ounce would never change. It is tied. The superdollar would be in great demand as it would be As Good As Gold. Politicians resist this as deficit spending and inflation would be no more.

If the Americans own most of the gold they can set the price at 1000000 superdollars an ounce and they would not have to default on the bonds even. They could just pay them.