The Problem with Markets

Although I'm a long-time market-watcher, that doesn't mean I always believe what I see. In fact, one problem with relying on price trends and trading activity to try and gauge what's going on in the world and what might happen next is that "the crowd" is occasionally dead wrong, especially at major turning points.

That was the case back in the spring of 2007, when credit markets were priced to perfection -- just as the financial world was poised to fall apart. Something similar happened in October 2007, when clueless equity traders ramped share prices to record highs even though it was clear that the economy and the banking system were spiraling into a dark abyss.

Another reason why market trends need to be assessed in light of other factors is because they can be affected by a variety of occasionally contradictory forces. For instance, sometimes foreigners will acquire goods or investments that locals believe are overpriced because the net cost in their own currency is less than they might pay at home.

People may also believe, as a great many apparently do nowadays, that those currencies and foreign assets that are risky in their own right are nevertheless a better bet than any of the alternatives --- that is, they are the best of the worst.

That's one reason why the U.S. Treasury market has remained buoyant even though Washington is spending and borrowing money like a drunken sailor and wrecking the nation's long-term creditworthiness in the process. From the perspective, say, of a European who is worried about the burgeoning debt crisis in his own backyard, our market might appear to be a safe haven.

But as The Economist's U.S. business editor suggests in a Yahoo! Finance Tech Ticker story (and video report), "'Longer-term Issues for America Are Really, Really Serious,' Bishop Says," such a perspective is dangerously short-sighted.

While the U.S. dollar and Treasuries are benefiting near-term from Europe's fiscal problems, Bishop anticipates tough times ahead for both America and Europe. "It's going to be a horrible roller coaster in Europe. There's going to be a lot of political stresses and strains," he says.

Meanwhile, Bishop remains skeptical a new Congress after the November mid-term elections will yield a return to fiscal discipline in the U.S. "The longer-term issues for America are really, really serious," adds Bishop, co-author of The Road from Ruin: How to Revive Capitalism and Put America Back on Top.

Comments

[we're all expendable]

Friday, June 4, 2010
Censored - NASA , FAA, and Press Censorship of the Gulf Leak, Financial ...

http://inpoints.blogspot.com/

[steve from virginia]

Matthew Bishop suggests that the dollar is 'benefited' by conditions in Europe and elsewhere. He should define what he means by benefit.

The dollar relationship with crude oil - the blood of modern economies - is what is damaging other currencies. Because a dollar can be exchanged on demand for a valuable physical good, it is becoming a hard currency. Most market pundits - and economists - have the market preference process completely backward.

Because each dollar is worth something real it is hoarded - for a rainy day when dollars are scarce. Believe me, dollar are now scarce; watch what happens next year. As the preferred means to buy fuel is with dollars, the relationship makes the dollar massively deflationary. At the same time the scarcity of dollars makes them valuable, which reinfoces the cycle.

What is happening in Europa (and China and Japan, too) is the effect of dollar preference; people dumping other derivatives including other currencies for dollars. This is no benefit! As the perception of dollar value gains traction, dollars will disappear from circulation. The first level effects have been on short- dollar trades, the next level effect will be on dollar- denominated securities including Treasuries which will be sold in increasingly disorderly markets to gain cash dollars.

You heard it here, first.

The conventional oil price paradigm has declines in production resulting in higher market prices that fewer can afford. This will be true for short periods causing short- term real economic infarctions leading to fuel demand destruction. Rather, crude prices will tend to decline as more and more customers go broke and run out of money. Producers will not accept credit and foreign producers will eventually not even accept their own currency for fuel!

Unlike other deflationary periods where currency/commerce relationships were corrected by disabling the connection between currency and the valuable physical good, here the connection is a byprodcut of industial commercial energy consumption. The solution is the addition of millions of more barrels of oil to the daily oil market ... fat chance of that!

The hard dollar mechanism is the doomsday machine, rather than a benefit, it will destroy completely the industrialized economies of the world. Just watch.

[robert]

The US is beset with enormous fiscal problems but so is the entire world. I have no illusions about the biggest (and last) domino to fall but timing is everything in investment and speculation. I suspect a lot of money is going to be lost betting against the US Dollar and Treasury market over the next few years.

[roger]

Money is not the motivation,money is the medium.
Money is used as a medium of exchange,as a weapon,
as a smokescreen in human relations as a process of
accumulation for power and much more.
The doomsday machine is the never ending struggle
to maximize profits while minimizing as much as possible
labor cost. The demise of the industrial west will come
from the unbeatable labor Chinese labor cost,
compliments of job exporting.
Of course 0f course....End of oil and of all.

[rankpay]

The conventional oil price paradigm has declines in production resulting in higher market prices that fewer can afford.

[Marion Shaw]

The post on the censorship of NASA and the FAA, if
true, is very disturbing. The notion that the gov't
must not create a panic is valid in some cases, but
if this oil disaster is really as bad as some are
saying, no pr or censorship in the world will be able
to cover up the accumulation of dead bodies, whether
animal, bird, fish or human. This thing is so serious
and has such far reaching implications on America's
immediate future, that the gov't and the oil companies
will be far better off if they keep the public informed.
The public is not stupid and my ten year old grandchildren can see the implications of ongoing
oil into the water. Preparedness of some sort is
better than the alternative of delusion.