Volume - shares and gold

(Picture source)

David Yu (Safe Haven, yesterday) comments on the unusually high volume of trade on the NASDAQ recently, and so expects a fallback sometime.

Peter Degraaf (GoldSeek, Friday) thinks gold can't be shorted or held down forever. He reminds us of the extraordinary volumes of bullion traded in 1967-68, and the explosive rise in the price when the containment attempt finally failed. Degraaf believes Frank Veneroso's theory that central banks are surreptitiously dumping gold again today, playing the same game - and expects the same result.

Faber: why the dollar may bounce back

The International Herald Tribune ( October 24) reports a mechanism by which the dollar may recover some lost ground:

Faber said if bubbles in emerging markets deflated, the dollar may rebound from all-time lows against the euro as fund managers who have invested in emerging markets shift investments to the United States.

China: a positive view - and a challenge to India

An old (Jan 2006) interview on Financial Sense with George Gu gives some more hopeful signs: progress towards the rule of law (as we in the West slide into bureaucratic authoritarianism); opening up the economy to outsiders; a reducing role for the military.

Like James Kynge, Gu makes the point that the big profits are made by the multinationals - the cheap labour input from China is only a small factor. (Surely this shows that there is a very strong incentive for China to develop its own marketing and management class.)

Gu explains that although India's labour costs are even lower than China's, India hasn't yet developed its supply chain and infrastructure to the same degree:

... China, over the last 26 years has gotten all of them in one place. For example, in consumer electronics you can set up your shop in Guangdong, then you get more than 10,000 component makers.

So, the gauntlet is thrown at India's feet.

Rapid fire

(Picture source and story)

Duff McDonald in New York Magazine (Saturday) goes through various doomsters' scenarios. How many bullets can we dodge, especially when the system is becoming automated?

By the way, he says CNBC calls Peter Schiff "Dr Doom" - surely that would be Marc Faber?

... and the brakes have been greased

How to stop a car without brakes

Further systemic risk. Jim in San Marcos comments on changes at the New York Stock Exchange, which has completed its conversion to electronic trading and has now removed some safety checks that were designed to reduce volatility in extreme conditions.

He says that a change in sentiment (perhaps initially caused by an error) could now lead to a much more rapid drop on the markets, since pension funds and investment companies are also using programmed trading.

Trouble ahead

The money-lender's pleasant dream

Market Ticker reports that a bank has borrowed $75 million at exceptionally high interest rates, suggesting that the collateral they were offering wasn't sound enough to be acceptable. And there are futures contracts being taken out that indicate some traders expect a major financial dislocation.

In other words, this bet is one that the credit markets will go supercritical.

And it wasn't made by just one firm, one speculator, or one guy.

A few months ago I pointed out that every big equity market dump - every last one of them - has started in the credit markets. It always starts there, simply because of the volume of business transacted and the sensitivity to problems. In the equity markets one company can go "boom" and it doesn't mean much. But in the credit markets "systemic risk" - that is, a refusal to trust people as a foundational principle - once it takes hold is very, very difficult to tamp back down.

Read the whole post here. And here's the evidence (source):

"Dow 9,000", UK loans to US, poll, doom

Not as bad as this, we trust...

Dow 9,000 update

The Dow is currently at 13,806.70, up slightly from its July 6 valuation of 13,611.69. But gold has risen from $647.75 to $783.50 in the same period - up 21% in 113 days, or around 85% annualised. This means the "gold-priced Dow" is worth 11,414.54. At this rate, Robert McHugh's prediction will be fulfilled by March 8 next year.

UK holdings of US Treasury securities

The dollar has dropped by 1.8% against the British pound since July 6, which may not seem like much, but is equivalent to 5.72% annualised. The capital loss pretty much wipes out the income payable to the UK.

I have tried to publicise Britain's recent heavy increase in ownership of US debt, but it seems nobody wants to make political capital out of it. Perhaps this is because some think the pound will eventually drop even faster than the buck. Or maybe the silence is because the markets are jittery enough already, without further evidence of American financial crisis.

Poll

Please take part in the "Wall of Worry" poll (sidebar)!

Hogarth on corrupt electioneering practices

Doom

Some people are so Eeyorish that you start to cheer up. Although an American, Jeffrey Nyquist gave us a good dose of Northern European apocalyptic prophecy in Financial Sense yesterday: computer viruses, Russia and China on the march, debt, war - the lot. Pass Pappy the liquor, son, and go git mah fiddle.

Bluegrass

Having said that, the (commendably) idealistic young and their left-wing Pied Pipers should learn more about the real nature and continuing threat of communism. George Orwell said the British Left played with fire and didn't know that it was hot. I suspect that happiness for the many is more likely to come from a restrained, green-conscious form of capitalism, than from the destructive dreams of millenarian socialists.

I also suspect that a major theme this century will be the contest between Marxism and Islam. I hope for a bloodless final end to the former, which has caused such suffering to so many millions in the last century; and the ascendancy of the civilised, cultured, intellectual and tolerant traditions within the latter.