Greg Silberman in Safe Haven yesterday uses the chartist approach to suggest an analogy with the lead-up to the 1987 crash.
I don't know. Over the late '86/early '87 period I watched my little investment soar and began to wonder how everybody could get rich at the same time. I heard reports that people were borrowing against their houses to trade, and schoolboys were making money on the market. I don't read quite that degree of crazy optimism and greed today.
Maybe the difference is reflected in the degree of monetary inflation. In the UK, the 3 years leading up to October 1987 showed an average annualized increase in M4 of 18.59%, compared with an average 12.07% annualized over the 12 quarters to March 2007. And over here at least, people are much more leery of investments and pensions than they were then.
But there's loads more debt now. It could be that a drop happens, not because of a change in investor confidence, but on account of running short of spending cash.
Friday, July 27, 2007
Cycles and charts
For the analytical, here's an essay on Kress Cycles in Safe Haven.
This, together with Kondratieff cycles and other patterns used by market chart-interpreters, has one flaw to my not-quite-so-mathematical mind: predicting human behaviour involves feedback loops. If I secretly write down what I think you're going to do tomorrow, I could be right every time; but if I reveal my thoughts to you, that changes the situation. It's a sort of Heisenberg uncertainty principle: to observe is to be involved, and therefore part of the nexus of causes.
Having said that, human behaviour does have patterns, and I believe some have theorised that the growth of our brains is in response to the competition to predict the other person's behaviour better than he can predict yours.
This, together with Kondratieff cycles and other patterns used by market chart-interpreters, has one flaw to my not-quite-so-mathematical mind: predicting human behaviour involves feedback loops. If I secretly write down what I think you're going to do tomorrow, I could be right every time; but if I reveal my thoughts to you, that changes the situation. It's a sort of Heisenberg uncertainty principle: to observe is to be involved, and therefore part of the nexus of causes.
Having said that, human behaviour does have patterns, and I believe some have theorised that the growth of our brains is in response to the competition to predict the other person's behaviour better than he can predict yours.
Gold - or cash?
Brady Willett in Safe Haven (yesterday) warns us off some "bright ideas" for preserving wealth in a market drop. He notes that gold is a hedge when everyone wants out of cash, and that's been quite some time.
I guess his position is close to that of Marc Faber, who said recently that all asset classes are inflated and on the whole, he'd prefer to stand on the platform rather than get on any of the waiting trains.
I guess his position is close to that of Marc Faber, who said recently that all asset classes are inflated and on the whole, he'd prefer to stand on the platform rather than get on any of the waiting trains.
Is the credit system cracking up?
Bob Hoye, in Prudent Bear (yesterday), discusses "the Unholy Trinity of central banking, derivatives and artificial rating of credit". He sees these as systemic risks - I'll say more about that when I come to Richard Bookstaber's interview on Financial Sense last Saturday.
Should US Treasury bonds be downgraded?
iTulip's President, Eric Janszen (Wednesday) goes over the now-familiar arguments for a coming period of US recession/inflation, caused by the trade, budget and fiscal deficits.
He also links to Paul Farrell's article in Marketwatch (Monday), which questions America's creditworthiness as a result of having to finance the war in Iraq. Maybe we're going around the same track as with Vietnam, which burned up money (I remember a contemporary American cartoon of a steam engine with dollars being shovelled into the firebox).
Has the UK tied one of its little boats to the anchor chain of the Titanic? I calculate its loan to Uncle Sam's Treasury to be worth $2,757.65 per capita (British heads), or £1,345.99.
My wife and I could have a nice little holiday on that, which would be more fun, or a day at the races, which might get us a better return.
He also links to Paul Farrell's article in Marketwatch (Monday), which questions America's creditworthiness as a result of having to finance the war in Iraq. Maybe we're going around the same track as with Vietnam, which burned up money (I remember a contemporary American cartoon of a steam engine with dollars being shovelled into the firebox).
Has the UK tied one of its little boats to the anchor chain of the Titanic? I calculate its loan to Uncle Sam's Treasury to be worth $2,757.65 per capita (British heads), or £1,345.99.
My wife and I could have a nice little holiday on that, which would be more fun, or a day at the races, which might get us a better return.
Desperately holding down gold
Jim Willie of the Hat Trick Letter thinks that bank selloffs of gold are to make dodgy bonds look better than they are. If the mortgage bonds unravel, there's a lot of fast talking to be done by banks and brokers.
More on US housing woes
An informative piece in Dr Housing Bubble on the various factors that are turning the housing market upside down.
If I read the first graph rightly, there's a peak in the numbers of temporarily-fixed US mortgages that are due to come back onto the current variable rate in November this year, which suggests we may have a difficult autumn ahead. Further cutbacks in discretionary spending, presumably.
If I read the first graph rightly, there's a peak in the numbers of temporarily-fixed US mortgages that are due to come back onto the current variable rate in November this year, which suggests we may have a difficult autumn ahead. Further cutbacks in discretionary spending, presumably.
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