The differences between 1929 and Today

[The once and future king]

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Its an easy trap to fall into, but overall markets are not driven by currencies, they are driven by production of goods and services.

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This may have been true once, but in recent times no longer applies. This can be easily proven by looking at recent movements in Equity markets.

In August subprime broke the surface the US housing market began to decline, and the credit crunch was underway. A few months later the DOW was hitting record highs. Why?

Because all the market cared about was the fact that the FED said it would increase the money supply which it went on to do by dropping interest rates by .5%. SO the markets didnt care about any downside to production or consumption, they only cared that the Fed was going to increase the money supply. The movement in the markets was purely driven by perceptions of currency manipulation by the central bank.

This has led to the bizare state that if the Fed says something along the lines of "There is danger of a downswing in growth in production, therefore we will cut interest rates" this is considered good news by the equity markets. Whatever the dangers are that are creating the possibility of retarded growth in production are seen as irrelevant all that matters is the growth in the money supply.

This can be clearly seen in the market movements over the last few day. Western CBs and major financial players have all issued increasingly bearish if not rabid bearish statements over the last week about the prospects for growth going forward, yet the Dow has has gone up over 200 points 3 days in a row. That is because the fed has indicated that given the negative outlook it will probably cut rates on 21st December. So again, in price movements, the actual negative data that leads to fears about growth and actual production etc, the real economy are seen as irrelevant and price movements have all been driven by the belief that an interest cut is due 21/12/07.

Thus it can be seen that price movements in the Dow and other Equity markets are driven allmost entirely by how those markets see currency manipulation occurring in the short to medium term. In short its all about the currency baby.

[lehighguy]

Perhaps you should think in real terms nominal terms. Sure the market went up on the 50bp, but the dollars it was price in lost a huge amount of value. Nominal, not real, gain.

[The once and future king]

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Perhaps you should think in real terms nominal terms. Sure the market went up on the 50bp, but the dollars it was price in lost a huge amount of value. Nominal, not real, gain.

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Yea but I am talking about price action.

Or are you suggesting that upward trends are a calculated attempts by markets to compensate for the loss of value in the dollar that any fed cut will cause?

Roughly estimating on the fly (I could look it up but I cant be far out)I would say the DJI has gained about 9% in the last year. Its gone from circa 12200 to 13300 reaching 14200+ on the way (after the credit crunch started) so dollars in the DJI will have retained value much better than dollars kept under the mattress or in a standard saving bank account. That 9% is also alot bigger than CPI (CPI LOL).

I see entirely the point you are making, but it is not relevant to my arguement. I am rejecting the point that Equity markets react via price action to events in the real economy by stating that the price action (in recent history) is mostly motivated by events in currency manipulation.

[Copernicus]

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Perhaps you should think in real terms nominal terms. Sure the market went up on the 50bp, but the dollars it was price in lost a huge amount of value. Nominal, not real, gain.

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Yea but I am talking about price action.

Or are you suggesting that upward trends are a calculated attempts by markets to compensate for the loss of value in the dollar that any fed cut will cause?

Roughly estimating on the fly (I could look it up but I cant be far out)I would say the DJI has gained about 9% in the last year. Its gone from circa 12200 to 13300 reaching 14200+ on the way (after the credit crunch started) so dollars in the DJI will have retained value much better than dollars kept under the mattress or in a standard saving bank account. That 9% is also alot bigger than CPI (CPI LOL).

I see entirely the point you are making, but it is not relevant to my arguement. I am rejecting the point that Equity markets react via price action to events in the real economy by stating that the price action (in recent history) is mostly motivated by events in currency manipulation.

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So the decline in oil prices, the confidence in the dollar shown by Abu Dhabi's investment in CitiCorp, robust retail sales are all minor effects compared to a discount rate cut that could have been anticipated and priced into the market after the last Fed meeting (and I believe was)?

The realization that there was an over-reaction in the markets to the sub-prime problem had nothing to do with the recovery it was all the Fed?

Things are much more complex and robust then you are willing to admit, because of your political agenda.

Back in August I said that the Fed should shock the system back into equilibrium with a 50 bp reduction in the discount rate, and was disappointed it was only 25. I also reported the belief of one of the major investment firms itn the country that an immediate 50bp cut would be sufficient to drive the Dow up to 15,000 in short order. If they were correct, the subsequent actions of the Fed are nowhere near fully priced into the market (unless they have already been offset by the Hillary effect, which I don't believe to be the case). There is a lot of upside to go before the Dems drag things down, imo.

[lehighguy]

There is no political agenda here. I can simply go to the source and actually think about it.

http://www.federalreserve.gov/releases/h6/hist/

[Copernicus]

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There is no political agenda here. I can simply go to the source and actually think about it.

http://www.federalreserve.gov/releases/h6/hist/

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what is this supposed to be a repsonse to?

[The once and future king]

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Things are much more complex and robust then you are willing to admit, because of your political agenda.

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I dont have any agenda, Im not American and I am not an Acists, Im just calling it as I see it.

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(unless they have already been offset by the Hillary effect, which I don't believe to be the case). There is a lot of upside to go before the Dems drag things down, imo.

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Your agenda is plain to see.

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I also reported the belief of one of the major investment firms itn the country that an immediate 50bp cut would be sufficient to drive the Dow up to 15,000 in short order.

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Thanks for making my arguement for me.

[Copernicus]

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Things are much more complex and robust then you are willing to admit, because of your political agenda.

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I dont have any agenda, Im not American and I am not an Acists, Im just calling it as I see it.

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(unless they have already been offset by the Hillary effect, which I don't believe to be the case). There is a lot of upside to go before the Dems drag things down, imo.

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Your agenda is plain to see.

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I also reported the belief of one of the major investment firms itn the country that an immediate 50bp cut would be sufficient to drive the Dow up to 15,000 in short order.

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Thanks for making my arguement for me.

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I didnt make your argument for you.

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

NOT

Fed action ---->artificial liquidity---->market increases due to perception of liquidity

[Exsubmariner]

Is it me or did you say in one post that there was contraction of the money supply underway due to the credit crunch and then refute your own arguement by stating it wasn't the case and asserting its all about the currency?

Come on, man. You can't have it both ways.

[The once and future king]

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Is it me or did you say in one post that there was contraction of the money supply underway due to the credit crunch and then refute your own arguement by stating it wasn't the case and asserting its all about the currency?

Come on, man. You can't have it both ways.

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Huh? Two completly different things. I am saying that there is a contraction in the money supply due to the credit crunch and I am saying that price action in equity markets is due to perceptions about currency manipulation not perceptions about economic fundamentals.