The differences between 1929 and Today

[DcifrThs]

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I am saying that price action in equity markets is due to perceptions about currency manipulation not perceptions about economic fundamentals.

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could you define what you mean by currency manipulation and provide evidence for your price action claim?

thanks,
Barron

[Zygote]

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I am saying that price action in equity markets is due to perceptions about currency manipulation not perceptions about economic fundamentals.

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could you define what you mean by currency manipulation and provide evidence for your price action claim?

thanks,
Barron

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i think he means rate cuts, but perhaps more including things like the presidential financial working group.

tobliny has been doing a great job in this thread and i want to see exsub keep trying to respond until he concedes.

[DcifrThs]

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I am saying that price action in equity markets is due to perceptions about currency manipulation not perceptions about economic fundamentals.

[/ QUOTE ]

could you define what you mean by currency manipulation and provide evidence for your price action claim?

thanks,
Barron

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i think he means rate cuts, but perhaps more including things like the presidential financial working group.



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now i don't want to wake the borodog beast here but i do think that calling rate cuts "currency manipulation" is bad taste.

"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.

in fact, i'd say the currency situation is the lever that keeps the fed in check right now since ben can't lower rates too much otherwise inflationary pressures would simply be too much.

to call the fed's rate cuts "currency manipulation" imo is just poor taste. the reason is that "currency manipulation" has a very specific meaning too it which is not the case at this point.

in the 1980s while the USD was moving too high (and then too low) there was definite "currency manipulation" with the stated goal of having the dollar reach a certain point. there is no such goal here and the purpose of the fed's actions is clearly to spur the US economy, not reduce the value of the dollar.

as i've mentioned before, a 50% increase in exports means less to GDP growth than a 10% increase in domestic consumption.

Barron

[Zygote]

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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.

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the means of them achieving any of those goals cannot occur without the currency effects. its not unreasonable to say the currency is manipulated so these goals can be achieved.

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in fact, i'd say the currency situation is the lever that keeps the fed in check right now since ben can't lower rates too much otherwise inflationary pressures would simply be too much.

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this is the joke of keynesian theory. They can't do one without the other so the idea of the fed having a duel mandate is ridiculous. Its like telling someone to turn left and right at the exact same time.

stagflation again, unfortunately, will need to reveal the ineffectiveness of this non-sense.

[xorbie]

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"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.


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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?

[adios]

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"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.


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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.

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

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

[DcifrThs]

Xorbie,

could you answer adios's questions here?

thanks,
Barron

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"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?

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

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[The once and future king]

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).

[adios]

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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.


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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.

[The once and future king]

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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.


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

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

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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.