Addison Wiggin in yesterday's The Daily Reckoning Australia spells out how the dollar, US debt and declining American living standards are related. Some will contest this proposition fiercely - have a look at the recent globalization thread on Cafe Hayek, for example.
For those who read the bruising commentaries (this seems to be typical of blog-related correspondence), I did look at the articles to which LowCountryJoe referred me, but the first only makes clear what a fiat currency is, and the second theorized that all currencies must originally have had some intrinsic value. Neither of these articles disproves the bears' contention that there is a horrible temptation to inflate fiat currencies for temporary advantage, and that the end result is a flight from those currencies. We shall have to see.
Saturday, June 30, 2007
It's an ill wind...
A funny piece by Tim Hanson in The Motley Fool for June 26. He makes the point that travelling to a place may not change the facts, but can change your perspective, and he is bullish on some sectors of China stocks.
As you might expect, given that the outgoing tide of wealth from the West is rising in the East and floating Chinese boats. They will bob up and down, and some may tip over, but that seems to be the trend.
Richard Duncan's worry is that the ever-inflating dollar is causing the markets to operate inefficiently, so that China's rise may be preceded by a crisis that creates a long and deep global slump. I really must post a summary of his book soon.
As you might expect, given that the outgoing tide of wealth from the West is rising in the East and floating Chinese boats. They will bob up and down, and some may tip over, but that seems to be the trend.
Richard Duncan's worry is that the ever-inflating dollar is causing the markets to operate inefficiently, so that China's rise may be preceded by a crisis that creates a long and deep global slump. I really must post a summary of his book soon.
Thursday, June 28, 2007
Richard Daughty becomes spotty
Another entertaining rant from Richard Daughty, aka The Mogambo Guru. He passes on to us a sighting of Hindenburg Omens (see Investopedia definition here), raves about credit creation, and finally breaks out in sunspots...
Apparently several different sunspot cycles can be correlated with variations in marine life productivity, and the biggest threat to the environment since 200 years ago is a predicted global cooling, starting in 2020. Read the Financial Post article here and Melanie Phillips' related eco-contrarian article here.
Apparently several different sunspot cycles can be correlated with variations in marine life productivity, and the biggest threat to the environment since 200 years ago is a predicted global cooling, starting in 2020. Read the Financial Post article here and Melanie Phillips' related eco-contrarian article here.
More on railroads, Buffett, Soros
Further to the last post, the Santa Fe railway is now owned by Burlington Northern (BNI), in which Warren Buffett's Berkshire Hathaway has recently increased its stake to over 10%; and this 2002 article in the Observer reveals that George Soros worked as a railway porter. I expect Soros has his hard-headed reasons for his own investment, but it's hard to rid yourself of the love of choo-choos.
Soros' views as summarised in the Observer article resonate today:
His basic arguments remain the same - that centralised institutions need strengthening as a political counterweight to economic globalisation; financial markets are inherently unstable; and there is an inbuilt inequity, or centre-periphery, problem.
...he is examining the minutiae of the workings of the World Trade Organisation, and statistics on capital flows to developing countries.
...there is no level playing field in the world economy. The rules of the game favour the rich, or 'centre', countries. 'Within the well-developed global markets, the centre has a considerable advantage over the periphery because the centre is in charge. And contrary to the false ideology of market fundamentalism, financial markets do not tend towards equilibrium, they need to be managed. So whoever is in charge has a distinct advantage,' he says.
He says conditions set by the IMF during financial crises tend to reinforce boom-and-bust cycles. 'They push countries into recessions by forcing them to raise interest rates and cut budgets - exactly the opposite of what the US is doing in similar circumstances,' he writes in the new book. [i.e. "On Globalization"]
He is also critical of the US obsession with 'moral hazard' - that intervening in financial crises rewards incompetent investors. Bailing-in private investors has replaced bailing-out crisis-ridden countries, he argues. Such policies are building a 'new Maginot line', fighting yesterday's war against credit crises rather than focusing on the real problem of the calamitous collapse in investment flows to developing countries.
Soros' views as summarised in the Observer article resonate today:
His basic arguments remain the same - that centralised institutions need strengthening as a political counterweight to economic globalisation; financial markets are inherently unstable; and there is an inbuilt inequity, or centre-periphery, problem.
...he is examining the minutiae of the workings of the World Trade Organisation, and statistics on capital flows to developing countries.
...there is no level playing field in the world economy. The rules of the game favour the rich, or 'centre', countries. 'Within the well-developed global markets, the centre has a considerable advantage over the periphery because the centre is in charge. And contrary to the false ideology of market fundamentalism, financial markets do not tend towards equilibrium, they need to be managed. So whoever is in charge has a distinct advantage,' he says.
He says conditions set by the IMF during financial crises tend to reinforce boom-and-bust cycles. 'They push countries into recessions by forcing them to raise interest rates and cut budgets - exactly the opposite of what the US is doing in similar circumstances,' he writes in the new book. [i.e. "On Globalization"]
He is also critical of the US obsession with 'moral hazard' - that intervening in financial crises rewards incompetent investors. Bailing-in private investors has replaced bailing-out crisis-ridden countries, he argues. Such policies are building a 'new Maginot line', fighting yesterday's war against credit crises rather than focusing on the real problem of the calamitous collapse in investment flows to developing countries.
Buffett, Soros, railways - a thought
Many years ago, I read a series of books by a financial expert calling himself "Adam Smith". In one, he spoke to an investment manager who had bought a holding in a railway, I think the Santa Fe, and asked him why so, since the company was somewhere around bankrupt. The manager replied that he was looking at the value of the tangible assets still owned by the company - land, rolling stock etc.
Railways tend to own a lot more land than the bit the rails run on. Is this a reason for Buffett and Soros to have gotten into that kind of business?
Railways tend to own a lot more land than the bit the rails run on. Is this a reason for Buffett and Soros to have gotten into that kind of business?
Not yet, the crash - Puru Saxena
Puru Saxena submits "The Solitary Bear" in today's Daily Reckoning Australia. He agrees with Marc Faber that there's bubbles in equities and commodities, but thinks we have some years yet before the crisis hits.
This is because he can't see central bankers having the virility to raise interest rates sufficiently to curb inflation, which is rotting savers' money (the "solitary bear" market being cash). Why the reluctance? "The central banks know full well that with debt at its current level, such drastic measures would probably cause a global depression, widespread unemployment and social unrest. So, they will try and avoid or delay this outcome as much as possible..."
We're practically forced to invest in something. The danger, particularly for small guys, is not knowing when to head for the exit, ahead of the rest of the panicky crowd. It's a tough one:
"...investors will have to become more selective when making decisions and deploying their capital. For maximum success and safety, I would urge you to invest your capital during pullbacks whilst avoiding overstretched markets. Despite all the talk of "doom and gloom", this strategy should continue to deliver reasonable returns in the period ahead."
I wonder whether the "gloom and doom" is in part an oblique reference to Marc Faber, whose website is self-deprecatingly named gloomboomdoom.com. See Faber's comments in the Market Oracle round-table discussion yesterday (previous post) - he, too, admits he can't call the turn but forecasts a continuing rise in equities (except maybe emerging markets) relative to cash - but not a rise in real terms. Faber is looking, I suspect, for quiet bargains in commodities and resources, e.g. low-priced agricultural land.
This is because he can't see central bankers having the virility to raise interest rates sufficiently to curb inflation, which is rotting savers' money (the "solitary bear" market being cash). Why the reluctance? "The central banks know full well that with debt at its current level, such drastic measures would probably cause a global depression, widespread unemployment and social unrest. So, they will try and avoid or delay this outcome as much as possible..."
We're practically forced to invest in something. The danger, particularly for small guys, is not knowing when to head for the exit, ahead of the rest of the panicky crowd. It's a tough one:
"...investors will have to become more selective when making decisions and deploying their capital. For maximum success and safety, I would urge you to invest your capital during pullbacks whilst avoiding overstretched markets. Despite all the talk of "doom and gloom", this strategy should continue to deliver reasonable returns in the period ahead."
I wonder whether the "gloom and doom" is in part an oblique reference to Marc Faber, whose website is self-deprecatingly named gloomboomdoom.com. See Faber's comments in the Market Oracle round-table discussion yesterday (previous post) - he, too, admits he can't call the turn but forecasts a continuing rise in equities (except maybe emerging markets) relative to cash - but not a rise in real terms. Faber is looking, I suspect, for quiet bargains in commodities and resources, e.g. low-priced agricultural land.
Wednesday, June 27, 2007
Marc Faber: bonds turning bearish, stocks to lose real value
Marc Faber and others give their investment views today on The Market Oracle. A quote from Faber:
We are now at the onset of a major bear market in bonds worldwide that should bring interest rates above the level in 1981 when US Treasuries were yielding over 15 per cent. But this process will take at least 10 years. In this environment stocks will not do well in real terms but will rise in nominal terms. How high will depend on (US Federal Reserve chairman Ben) Bernanke's money printing presses.
I think I have already suggested that, adjusted for inflation, stockmarkets have already fallen far below their 1999 positions, and this looks like confirmation that more of the same is expected.
We are now at the onset of a major bear market in bonds worldwide that should bring interest rates above the level in 1981 when US Treasuries were yielding over 15 per cent. But this process will take at least 10 years. In this environment stocks will not do well in real terms but will rise in nominal terms. How high will depend on (US Federal Reserve chairman Ben) Bernanke's money printing presses.
I think I have already suggested that, adjusted for inflation, stockmarkets have already fallen far below their 1999 positions, and this looks like confirmation that more of the same is expected.
Is gold a bargain?
In Monday's The Daily Reckoning, Richard Daughty notes that annually, the US is creating 24 times more new money than the world is producing in new gold at current prices, and he comes to the obvious conclusion: "Planetary Super Bargain".
But there are other ways to do the figures. The same edition of TDR reveals that we already have 150,000 tonnes of gold above ground, so 2,500 new-mined tonnes per year represents 1.67% p.a., compared with the 12% increase in the US M3 money supply. Okay, that looks like a mismatch of supply and potential demand, but this particular ratio is 7.2 times, rather than 24.
Another thought: gold and paper notes are not the only two things in the economy. People have other things to spend their money on, such as their rapidly-growing debts. And if we accept the worst-case future scenario, maybe tins of baked beans and boxes of ammunition will be in even greater demand.
Also, how far has the gold price already factored-in inflation? Using figures from Kitco.com's website, I've compared the average London PM fix in June 2002 with today's New York spot price. Per ounce, gold has gone from $356.53 to $642.50 in 5 years, a rise of around 80% overall. This equates to some 12.5% compound per annum - rather similar to the M3 figure previously quoted. So maybe gold is doing its traditional thing of storing value, more or less, rather than being a sort of asset Cinderella about to hit the big time.
But then again, I could be wrong.
But there are other ways to do the figures. The same edition of TDR reveals that we already have 150,000 tonnes of gold above ground, so 2,500 new-mined tonnes per year represents 1.67% p.a., compared with the 12% increase in the US M3 money supply. Okay, that looks like a mismatch of supply and potential demand, but this particular ratio is 7.2 times, rather than 24.
Another thought: gold and paper notes are not the only two things in the economy. People have other things to spend their money on, such as their rapidly-growing debts. And if we accept the worst-case future scenario, maybe tins of baked beans and boxes of ammunition will be in even greater demand.
Also, how far has the gold price already factored-in inflation? Using figures from Kitco.com's website, I've compared the average London PM fix in June 2002 with today's New York spot price. Per ounce, gold has gone from $356.53 to $642.50 in 5 years, a rise of around 80% overall. This equates to some 12.5% compound per annum - rather similar to the M3 figure previously quoted. So maybe gold is doing its traditional thing of storing value, more or less, rather than being a sort of asset Cinderella about to hit the big time.
But then again, I could be wrong.
Making money out of disaster?
The Contrarian Investors' Journal concludes its series on exploiting the possibility of a crash, by suggesting a series of short-term bets on the drop. It's a gamble, of course, but appeals to the Black Swan types who look for an "asymmetric outcome" - a disproportionately large payoff if the unlikely event happens. In other words, if the event has 100-1 odds against occurring, but the bet is offering 500-1, it seems worth taking - if you're a gambler.
But there's another risk involved: the "bookie" may not be willing, or able, to pay out. A prudent investor should consider counterparty risk.
But there's another risk involved: the "bookie" may not be willing, or able, to pay out. A prudent investor should consider counterparty risk.
More credible warnings
The Bank for International Settlements is joining its voice to the chorus, warning of excesses and a Thirties-style crash, as reported in the Wall Street Journal for 25 June.
Monday, June 25, 2007
Double indemnity
Dan Atkinson in the Mail on Sunday begins with what seems to be praise for the Chancellor's control of the economy, but goes on to note our growing indebtedness. The Bank of England figures he cites, comparing January 2000 with April 2007, show an increase in combined mortgage and consumer debt of around 116%; earnings rose only 31.7% over the same period.
To put it another way, as I calculate it, average indebtedness, adjusted for earnings, has increased by 63.9%. That's an awful lot of future spending power thrown away. The UK appears to have similar problems to the USA.
To put it another way, as I calculate it, average indebtedness, adjusted for earnings, has increased by 63.9%. That's an awful lot of future spending power thrown away. The UK appears to have similar problems to the USA.
Crisis report from a very credible source
I looked up an important official today, of whom most of us may not have heard. His job is to review on government spending and report to Parliament. His name is Sir John Bourn and his title is the Comptroller and Auditor General, at the National Audit Office.
Now imagine that this person was so worried about the unravelling of the country's finances that he began touring the country, warning the general public and trying to get the issue onto the agenda for the General Election. I think you'd start to worry, too.
This is exactly what's been happening in the USA, as commented on by Michael Panzner in his website. David M Walker, the Comptroller General, has been playing Cassandra for months. To see the 60 Minutes video about this man, click here.
Could someone tell me the situation here in the UK? We don't seem to have such frank and authoritative public discussion as in the US.
UPDATE
In the CBS video, David Walker notes not only the expense of US medical care, but how many people are uninsured, and the rate of medical error. If you'll also read some of my comments in the globalization thread on Cafe Hayek, you'll see I'm of the view that we should start taking better care of ourselves, rather than trust to Dr Kilpatient.
Now imagine that this person was so worried about the unravelling of the country's finances that he began touring the country, warning the general public and trying to get the issue onto the agenda for the General Election. I think you'd start to worry, too.
This is exactly what's been happening in the USA, as commented on by Michael Panzner in his website. David M Walker, the Comptroller General, has been playing Cassandra for months. To see the 60 Minutes video about this man, click here.
Could someone tell me the situation here in the UK? We don't seem to have such frank and authoritative public discussion as in the US.
UPDATE
In the CBS video, David Walker notes not only the expense of US medical care, but how many people are uninsured, and the rate of medical error. If you'll also read some of my comments in the globalization thread on Cafe Hayek, you'll see I'm of the view that we should start taking better care of ourselves, rather than trust to Dr Kilpatient.
Planning for the crash
The Contrarian Investor's Journal reveals Part 3 of its thoughts on the crash-to-come, and addresses the dilemma of whether we are to prepare for inflation, or deflation.
I think I agree with the writer's analysis that it may play out as follows:
1. The current inflation will continue until some big scare or crisis starts the run
2. Then there will be deflation, but governments will try to get out of it by printing even more money
3. Printing more money won't work, because people will have lost faith in the currency, so (if you follow the link provided by the writer) we will eventually get to a surge in the price of gold
But we don't know when stage 1 will end, and holding cash may reduce your wealth relative to other assets. So where do you invest?
Buying gold now may mean a long wait before the market comes round to your point of view (if it ever does) and as some (e.g. Peter Schiff) have pointed out, even if you're right, you may find the government forces you to give up your gold, as it did before.
Houses are overpriced, but rather than a general sell-off of real estate I could imagine a long period of house price stagnation, with people staying put if possible. You haven't lost money till you've sold, or the bank has forced you to sell. If you really have nerve, you might sell, live in a tent and buy a bargain when (if!) the housing market tanks - but would your partner agree? Christopher Fildes was suggesting (in the Spectator magazine) moving into a hotel, some years ago - but look at what's happened to London house prices since then.
Some businesses continue even during a depression, if they provide essential services. It's interesting that Warren Buffett and George Soros have both bought into railways recently.
I can't call the play - personally, I am looking to reduce debt and trim personal expenditure, increase cash savings, and otherwise invest with a weather eye on the macroeconomic situation.
I think I agree with the writer's analysis that it may play out as follows:
1. The current inflation will continue until some big scare or crisis starts the run
2. Then there will be deflation, but governments will try to get out of it by printing even more money
3. Printing more money won't work, because people will have lost faith in the currency, so (if you follow the link provided by the writer) we will eventually get to a surge in the price of gold
But we don't know when stage 1 will end, and holding cash may reduce your wealth relative to other assets. So where do you invest?
Buying gold now may mean a long wait before the market comes round to your point of view (if it ever does) and as some (e.g. Peter Schiff) have pointed out, even if you're right, you may find the government forces you to give up your gold, as it did before.
Houses are overpriced, but rather than a general sell-off of real estate I could imagine a long period of house price stagnation, with people staying put if possible. You haven't lost money till you've sold, or the bank has forced you to sell. If you really have nerve, you might sell, live in a tent and buy a bargain when (if!) the housing market tanks - but would your partner agree? Christopher Fildes was suggesting (in the Spectator magazine) moving into a hotel, some years ago - but look at what's happened to London house prices since then.
Some businesses continue even during a depression, if they provide essential services. It's interesting that Warren Buffett and George Soros have both bought into railways recently.
I can't call the play - personally, I am looking to reduce debt and trim personal expenditure, increase cash savings, and otherwise invest with a weather eye on the macroeconomic situation.
Globalisation - is it having an impact on our wealth?
Please see this article on wages and fringe benefits in the US, in which the free-marketers try to show that free trade has not made American wage-earners worse off. I put in a few comments to suggest that healthcare is not a benefit in the same way as cash. I also try to disturb the free-traders' complacency about globalisation.
Thursday, June 21, 2007
On the bright side
Time to count our blessings. Here's an essay by Don Boudreaux of the "Cafe Hayek" blog, showing how much wealthier we are than we used to be. And that was 7 years ago.
Nassim Taleb on "Black Swans"
A very interesting article today in The Daily Reckoning Australia by Nassim Taleb, on asymmetric outcomes.
As the Daily Reckoning put it on May 14th, "...the importance of any event is equal to the likelihood TIMES the consequences." Most people underestimate the impact of rare events and so their risk calculations are skewed.
They may also miscalculate the probability of such an event occurring. I believe this was a factor in the 1986 Space Shuttle disaster. As Wikipedia puts it:
...NASA's organizational culture and decision-making processes had been a key contributing factor to the accident. NASA managers had known that [the] design of the [booster rockets] contained a potentially catastrophic flaw, but they failed to address it properly. They also ignored warnings from engineers about the dangers of launching on such a cold day and had failed to adequately report these technical concerns to their superiors.
We could use this a metaphor for the economic system and its technical risks, of which some of our bears continue to warn.
As the Daily Reckoning put it on May 14th, "...the importance of any event is equal to the likelihood TIMES the consequences." Most people underestimate the impact of rare events and so their risk calculations are skewed.
They may also miscalculate the probability of such an event occurring. I believe this was a factor in the 1986 Space Shuttle disaster. As Wikipedia puts it:
...NASA's organizational culture and decision-making processes had been a key contributing factor to the accident. NASA managers had known that [the] design of the [booster rockets] contained a potentially catastrophic flaw, but they failed to address it properly. They also ignored warnings from engineers about the dangers of launching on such a cold day and had failed to adequately report these technical concerns to their superiors.
We could use this a metaphor for the economic system and its technical risks, of which some of our bears continue to warn.
Further concern re derivatives
The Contrarian Investor's Journal continues its series on crash preparation. Part 1 showed how you could lose your shirt on shorts; now part 2 sounds a warning on derivatives - like Peter Schiff, Michael Panzner and Richard Bookstaber.
Michael Panzner: risky lending and expert complacency
Michael Panzner usefully quotes and comments on an article in the Wall Street Journal (the WSJ online edition charges a fee). The piece is by Steven Rattner, a private equity investment manager, and its theme is risky lending. Here are a couple of snippets:
In 2006, a record 20.9% of new high-yield lending was to particularly credit-challenged borrowers, those with at least one rating starting with a "C." So far this year, that figure is at 33%... money is available today in quantities, at prices and on terms never before seen in the 100-plus years since U.S. financial markets reached full flower...
...The surge in junk loans has also been fueled by a worldwide glut of liquidity that has descended more forcefully on lending than on equity investing. Curiously, investors seem quite content these days to receive de minimis compensation for financing edgy companies, while simultaneously fearing equity markets. The price-to-earnings ratio for the S&P 500 index is currently hovering right around its 20-year average of 16.4, leagues below the 29.3 times it reached at the height of the last great equity bubble in 2000.
Some portion of this phenomenon seems to reflect tastes in Asia and elsewhere, where much of the excess liquidity resides: Foreign investors own only about 13% of U.S. equities but 43% of Treasury debt.
I think this tends to support what I suggested yesterday. The tide of money has not risen evenly on all shores - in real terms, equities have failed to keep up. Some bearishness is now already built into the price of shares.
But not, perhaps, sufficient bearishness, so the market is not an accurate measure of the health of the economy. Much investment wealth is in the hands of the over-50s, the golden generation who had good pensions and in many cases got early retirement. They also rode the inflation train on their houses and have paid off their mortgages. At least in my country, many of that generation don't bother to keep a close eye on their investments, because they don't depend on them much. For them, ignorance is bliss.
For institutional investors, ignorance is well-paid. That's putting it a little harshly, but Panzner's piece, and his most recent post, comment on the complacency of analysts and investment managers, suggesting that it may be self-serving (when do they tell you to cash-in?). Besides, many are relatively young, so their optimism is supported by a lack of direct experience of truly dark days, and by the general health and strength of youth. When the market drops, they will look for what they think are support levels and buy-in for the long term. Bad markets often see a transfer of investments from private to institutional investors, I believe; it's a kind of vampirism. The average private investor sells too late, and buys too late.
But institutional support may explain why a major equity descent takes years: it's the jerky learning curve of the naturally upbeat investment manager.
And in any case, the equity market is more often the vic than the perp, to put it in police jargon. The Wall Street Crash was, I understand, the consequence of a banking crisis, itself created by years of monetary inflation, according to Richard Duncan.
So now it's the banks and the money supply we have to watch. And that's why we need to listen to the analysts of the money system, before the investment analysts.
In 2006, a record 20.9% of new high-yield lending was to particularly credit-challenged borrowers, those with at least one rating starting with a "C." So far this year, that figure is at 33%... money is available today in quantities, at prices and on terms never before seen in the 100-plus years since U.S. financial markets reached full flower...
...The surge in junk loans has also been fueled by a worldwide glut of liquidity that has descended more forcefully on lending than on equity investing. Curiously, investors seem quite content these days to receive de minimis compensation for financing edgy companies, while simultaneously fearing equity markets. The price-to-earnings ratio for the S&P 500 index is currently hovering right around its 20-year average of 16.4, leagues below the 29.3 times it reached at the height of the last great equity bubble in 2000.
Some portion of this phenomenon seems to reflect tastes in Asia and elsewhere, where much of the excess liquidity resides: Foreign investors own only about 13% of U.S. equities but 43% of Treasury debt.
I think this tends to support what I suggested yesterday. The tide of money has not risen evenly on all shores - in real terms, equities have failed to keep up. Some bearishness is now already built into the price of shares.
But not, perhaps, sufficient bearishness, so the market is not an accurate measure of the health of the economy. Much investment wealth is in the hands of the over-50s, the golden generation who had good pensions and in many cases got early retirement. They also rode the inflation train on their houses and have paid off their mortgages. At least in my country, many of that generation don't bother to keep a close eye on their investments, because they don't depend on them much. For them, ignorance is bliss.
For institutional investors, ignorance is well-paid. That's putting it a little harshly, but Panzner's piece, and his most recent post, comment on the complacency of analysts and investment managers, suggesting that it may be self-serving (when do they tell you to cash-in?). Besides, many are relatively young, so their optimism is supported by a lack of direct experience of truly dark days, and by the general health and strength of youth. When the market drops, they will look for what they think are support levels and buy-in for the long term. Bad markets often see a transfer of investments from private to institutional investors, I believe; it's a kind of vampirism. The average private investor sells too late, and buys too late.
But institutional support may explain why a major equity descent takes years: it's the jerky learning curve of the naturally upbeat investment manager.
And in any case, the equity market is more often the vic than the perp, to put it in police jargon. The Wall Street Crash was, I understand, the consequence of a banking crisis, itself created by years of monetary inflation, according to Richard Duncan.
So now it's the banks and the money supply we have to watch. And that's why we need to listen to the analysts of the money system, before the investment analysts.
Wednesday, June 20, 2007
China: a winner you shouldn't back?
This 14 June article by Doug McIntyre for Investopedia explains some of the pitfalls and concerns for those who would like to invest in China.
Another thing to remember is that many Chinese companies make scarcely any profit, which is why their banking system is carrying a lot of poor-quality debt.
The real profit appears to be, not in China's factories, but in transporting their goods worldwide, and selling them: not sheds, but ships and shops. The traders are surfing the wave of wealth out of the West.
Another thing to remember is that many Chinese companies make scarcely any profit, which is why their banking system is carrying a lot of poor-quality debt.
The real profit appears to be, not in China's factories, but in transporting their goods worldwide, and selling them: not sheds, but ships and shops. The traders are surfing the wave of wealth out of the West.
How far could the Dow (and FTSE) fall?
Some (e.g. a commenter on one of my May 12 posts) think the Dow couldn't possibly fall 50%, but there is no objective support level for a falling market, it's just a balance between buyers and sellers.
The Wall Street Crash started dramatically, but took about 3 years to complete its decline. On September 3, 1929 the Dow reached a peak at 381.17; by July 8, 1932 it stood at 41.22.
Serious, experienced analysts like Michael Panzner and Peter Schiff tell us that in some respects, the systemic financial problems we now face are indeed comparable to those times. Our advantage is that we have that history to warn us.
UPDATE
More recently, the FTSE 100 reached a peak of 6,930 on December 31, 1999 and a low of 3,287 in March 2003, as shown here. That's a drop of over 52%.
At the time of writing (5:42 pm GMT) it stands at 6,649, but you have to see this in the context of massive monetary inflation; compared with the end of 1999 in real terms, it's lost a lot of ground already. That's why I've suggested that we may already be in a bear market that is disguised by inflation. As in Alice in Wonderland, it has to run quite hard just to stay in the same place.
The Wall Street Crash started dramatically, but took about 3 years to complete its decline. On September 3, 1929 the Dow reached a peak at 381.17; by July 8, 1932 it stood at 41.22.
Serious, experienced analysts like Michael Panzner and Peter Schiff tell us that in some respects, the systemic financial problems we now face are indeed comparable to those times. Our advantage is that we have that history to warn us.
UPDATE
More recently, the FTSE 100 reached a peak of 6,930 on December 31, 1999 and a low of 3,287 in March 2003, as shown here. That's a drop of over 52%.
At the time of writing (5:42 pm GMT) it stands at 6,649, but you have to see this in the context of massive monetary inflation; compared with the end of 1999 in real terms, it's lost a lot of ground already. That's why I've suggested that we may already be in a bear market that is disguised by inflation. As in Alice in Wonderland, it has to run quite hard just to stay in the same place.
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