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  #41  
Old 11-30-2007, 04:18 PM
xorbie xorbie is offline
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Default Re: The differences between 1929 and Today

[ QUOTE ]


"currency manipulation" is what china is doing to the yuan. the entire purpose of their open market operations is SOLELY to devalue their currency in order to expand export growth.

in the US, the fed's aim is not SOLELY to devalue the US dollar. it is to increase consumptive demand and reduce borrowing costs and smooth out the money markets. the effect on the currency is ancillary and certainly not the main thrust of the policy.


[/ QUOTE ]

This seems like a contradiction to me. You're saying China is trying to acheive one goal (expand export growth) and so they are doing something to their currency (keeping it devalued). You say this is bad.

Then you say the US is trying to acheive a different goal (increase consumptive demand and decrease borrowing cost) and that they are doing something else to their currency.

How is this better?
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  #42  
Old 11-30-2007, 05:13 PM
The once and future king The once and future king is offline
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Default Re: The differences between 1929 and Today

DcifrTHs.

This week the White House downgraded its growth forecast from 3.1% to 2.7% and data showed the housing slump to be the worst since WW2. The BoE went on the record and stated that the chance of a recession in the US was 50/50.

The US equity markets recorded there biggest upward trend since March. Why? Because to the markets bad = good.
Because bad = interest rate cuts. Thus we can see quite clearly that price action in the markets is motivated not by perceptions of fundamentals in the economy, but by perceptions about intervention/and of into/the the medium of exchange in which the traded vehicles are priced. This intervention of course being increase in supply.

Of course this isn't just a phenomenon of the last week, it has been observable for the last 6 months at least.

No one with even the slightest of intellectual honesty can deny that the primary engine of price movement in the DJI has been perception about the possibility that the Fed will cut/not cut interest rates for some time now.

To be clear I am responding to a post on the first page of this thread that claimed that recent price movements in equity markets were primarily motivated by fundamentals e.g. production and consumption and not considerations of "fiat" money. I am refuting that.

In a nutshell I am certain the following is irrefutable:

When the fed claims that there is a danger to growth going forward thus it will cut interest rates, the markets respond to such a statement by showing large gains. Thus we can see that the markets are not concerned with the danger to the fundamentals but are stimulated greatly by the prospect of increase in the money supply regardless of what is motivating that increase.

What cements the truth of this arguement is that the inverse is true also. If at the start of this week, the Fed had announced Credit crunch meh, fundamentals are really really good and we expect very good growth going forward that may pose an inflation risk so we may have to either hold interest rates or raise them, the markets would have bombed in a big way. (Assuming that there was data to back these claims).
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  #43  
Old 11-30-2007, 05:20 PM
adios adios is offline
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Default Re: The differences between 1929 and Today

[ QUOTE ]
[ QUOTE ]


"currency manipulation" is what china is doing to the yuan. the entire purpose of their open market operations is SOLELY to devalue their currency in order to expand export growth.

in the US, the fed's aim is not SOLELY to devalue the US dollar. it is to increase consumptive demand and reduce borrowing costs and smooth out the money markets. the effect on the currency is ancillary and certainly not the main thrust of the policy.


[/ QUOTE ]

This seems like a contradiction to me. You're saying China is trying to acheive one goal (expand export growth) and so they are doing something to their currency (keeping it devalued). You say this is bad.

[/ QUOTE ]

I missed the part where he said it was bad. Could you show it to me?

[ QUOTE ]
Then you say the US is trying to acheive a different goal (increase consumptive demand and decrease borrowing cost) and that they are doing something else to their currency.

How is this better?

[/ QUOTE ]

I missed the part where he said it was better too. Could you show that to me?
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  #44  
Old 11-30-2007, 05:30 PM
adios adios is offline
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Default Re: The differences between 1929 and Today

[ QUOTE ]
When the fed claims that there is a danger to growth going forward thus it will cut interest rates, the markets respond to such a statement by showing large gains. Thus we can see that the markets are not concerned with the danger to the fundamentals but are stimulated greatly by the prospect of increase in the money supply regardless of what is motivating that increase.


[/ QUOTE ]

It's not just that, stock market valuations should rise when interest rates fall. The present value of future earnings increase as a result. Also stocks become more attractive relative to bonds in reality.
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  #45  
Old 11-30-2007, 07:39 PM
The once and future king The once and future king is offline
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Default Re: The differences between 1929 and Today

[ QUOTE ]
[ QUOTE ]
When the fed claims that there is a danger to growth going forward thus it will cut interest rates, the markets respond to such a statement by showing large gains. Thus we can see that the markets are not concerned with the danger to the fundamentals but are stimulated greatly by the prospect of increase in the money supply regardless of what is motivating that increase.


[/ QUOTE ]

It's not just that, stock market valuations should rise when interest rates fall. The present value of future earnings increase as a result. Also stocks become more attractive relative to bonds in reality.

[/ QUOTE ]

Yes, but this can only explain a very very small fraction of the price volatility in regards perceptions about the sentiment of the fed.

[ QUOTE ]

Fed action --> increases liquidity from an artifical contraction ----> allows fundamental strength of the economy to be reflected in prices

[/ QUOTE ]

O I C.

When money markets reduce the supply of money that is artificial and when a quasi state institution increases it that is natural. Silly me.

Also the idea that a cut in interest rates was priced into the markets before this week is obviously blatantly false.

Before this week the perception of sentiment at the fed was viewed as hawkish on cuts due to inflationary pressures which switched to dovish this week as members of the fed committee and BB made several announcements that things were getting worse and thus cuts may now be required.
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  #46  
Old 12-01-2007, 01:53 PM
DcifrThs DcifrThs is offline
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Default Re: The differences between 1929 and Today

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
When the fed claims that there is a danger to growth going forward thus it will cut interest rates, the markets respond to such a statement by showing large gains. Thus we can see that the markets are not concerned with the danger to the fundamentals but are stimulated greatly by the prospect of increase in the money supply regardless of what is motivating that increase.


[/ QUOTE ]

It's not just that, stock market valuations should rise when interest rates fall. The present value of future earnings increase as a result. Also stocks become more attractive relative to bonds in reality.

[/ QUOTE ]

Yes, but this can only explain a very very small fraction of the price volatility in regards perceptions about the sentiment of the fed.

[/ QUOTE ]

and i'm assuming you have data to back this up?? because that was a central part to the claim that "fundamentals" (i.e. valuations) drive equity prices.

a small change in interest rates, imo, vastly changes the value of a stock since equities are basically perpetuities.

[ QUOTE ]


[ QUOTE ]

Fed action --> increases liquidity from an artifical contraction ----> allows fundamental strength of the economy to be reflected in prices

[/ QUOTE ]

O I C.

When money markets reduce the supply of money that is artificial and when a quasi state institution increases it that is natural. Silly me.

Also the idea that a cut in interest rates was priced into the markets before this week is obviously blatantly false.

Before this week the perception of sentiment at the fed was viewed as hawkish on cuts due to inflationary pressures which switched to dovish this week as members of the fed committee and BB made several announcements that things were getting worse and thus cuts may now be required.

[/ QUOTE ]

the equity markets aren't the "priced in" center. the fed funds futures/options markets are. show me some data and i'll gladly analyze it.

i do think that futures markets have priced in much more cutting than previous to this week (obviously) but i'm not sure how much since i haven't seen the fed funds futures/options price changes.

Barron
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  #47  
Old 12-01-2007, 01:55 PM
DcifrThs DcifrThs is offline
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Default Re: The differences between 1929 and Today

[ QUOTE ]
No one with even the slightest of intellectual honesty can deny that the primary engine of price movement in the DJI has been perception about the possibility that the Fed will cut/not cut interest rates for some time now.

[/ QUOTE ]

No one with even the slightest of intellectual honesty can deny that a primary engine of equity valuations are interest rate levels.

therefore you'd expect that during part of the late 3rd quarter of the business cycle, interest rate expectations are primary drivers of equity prices.

Barron
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  #48  
Old 12-01-2007, 01:56 PM
DcifrThs DcifrThs is offline
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Default Re: The differences between 1929 and Today

Xorbie,

could you answer adios's questions here?

thanks,
Barron

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]


"currency manipulation" is what china is doing to the yuan. the entire purpose of their open market operations is SOLELY to devalue their currency in order to expand export growth.

in the US, the fed's aim is not SOLELY to devalue the US dollar. it is to increase consumptive demand and reduce borrowing costs and smooth out the money markets. the effect on the currency is ancillary and certainly not the main thrust of the policy.


[/ QUOTE ]

This seems like a contradiction to me. You're saying China is trying to acheive one goal (expand export growth) and so they are doing something to their currency (keeping it devalued). You say this is bad.

[/ QUOTE ]

I missed the part where he said it was bad. Could you show it to me?

[ QUOTE ]
Then you say the US is trying to acheive a different goal (increase consumptive demand and decrease borrowing cost) and that they are doing something else to their currency.

How is this better?

[/ QUOTE ]

I missed the part where he said it was better too. Could you show that to me?

[/ QUOTE ]
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  #49  
Old 12-01-2007, 02:31 PM
Moseley Moseley is offline
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Default Re: The differences between 1929 and Today

[ QUOTE ]
A much greater problem arises if the OPEC countries try to compensate for lost buying power by raising prices. Thanks to our retarded energy policies (thank you Greenies) we are even more vulnerable than we were during the oil embargo.

[/ QUOTE ]

We are pumpin oil out of Alaska like it's goin outta style. Problem is: we are shippin the bulk of it to Japan, at a discount to the market price, in exchange for them financing our deficit.
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  #50  
Old 12-01-2007, 02:45 PM
DcifrThs DcifrThs is offline
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Default Re: The differences between 1929 and Today

[ QUOTE ]
[ QUOTE ]
A much greater problem arises if the OPEC countries try to compensate for lost buying power by raising prices. Thanks to our retarded energy policies (thank you Greenies) we are even more vulnerable than we were during the oil embargo.

[/ QUOTE ]

We are pumpin oil out of Alaska like it's goin outta style. Problem is: we are shippin the bulk of it to Japan, at a discount to the market price, in exchange for them financing our deficit.

[/ QUOTE ]

que tin foil hat.

please source this. i'm assuming you have data that show that japan's oil purchases from alaska are below market price.

espeically seeing as how oil is pumped out by private institutions and the deficit is a government issue, the govt would have to provide compensation to the companies for selling to japan at below market prices.

try again though

Barron
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