Tuesday, May 31, 2005

Buying oil

The Prudent Investor - seeing too many bubbles: China may use FX reserves to buy oil - plans SPR
Mundell said that China should ignore outside pressure and keep the Yuan exchange rate stable at a high-profile conference attended by several Nobel laureates in Beijing. If the Chinese currency were to be revalued, overseas direct investment will decrease and lead to more unemployment, affecting even the rest of East Asia, he said.
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Oil wins all

The Prudent Investor - seeing too many bubbles: Dollar hits Euro and Yen, oil hits all of them
What has changed the picture the most is the new threat to the Euro that the European constitution will not come into effect. If the Dutch will reject the constitution on Wednesday the common currency is likely to be hit again.
A weaker Euro will in turn burden Europe's economies because of higher commodity and especially oil prices through the exchange rate effect.
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Fifty Problems

The real problems with $50 oil By Henry C K Liu

Small scheme (read above article first):

- Is better to use the expression business spiral to business cycle. As example: the economy with oil barrel above $50 gives a total diferent view
- Cash flow increases with higher oil prices.
- Working longer hours does not translate into productivity increases, but it does increase income.
- Those who get paid by fixed commission on transaction volume are the winners.
- As cash flow increases for the same amount of material activities, the GDP rises while the economy stagnates.
- People eat less beef and put the meat money into the gas tanks of their cars to pollute the air, shifting cancer risks from their colons to their lungs.
- Since the monetary value of assets tends to rise in tandem over time, the net effect is a de facto depreciation of money, misidentified as growth.
- High oil prices threaten the economic viability of some commercial sectors, such as airlines and motor vehicles.
- Ironically, from a central bank's perspective, a commodity-price-pushed asset appreciation, which central banks do not define as inflation, is the best cure for a debt bubble that the central banks themselves created.
- America's wars will carry a higher price, which will either lead to a higher federal budget deficit, or lower social spending, or both. This translates into rising dollar interest rates, which is structurally recessionary for the globalized economy.
- Gasoline prices also will not come down, not because there is a shortage of crude oil, but because there is a shortage of refinery capacity.
- Refineries need to be located where the demand for gasoline is, but families that own three cars do not want to live near a refinery.
- According to the US Geological Survey, the Middle East has only half to one-third of known world oil reserves. There is a large supply of oil elsewhere in the world that would be available at higher but still economically viable prices. The idea that only the Middle East has the key to the world's energy future is flawed and is geopolitically hazardous.
- If the Mideast and the Persian Gulf implode geopolitically and oil from this region stops flowing, the US will be the main beneficiary of $50 oil, or even $100 oil, as would Britain with its North Sea oil and countries such as Norway and Indonesia. But the big winner will be Russia.
- Neo-classical economics views higher prices of consumables as inflation, but asset appreciation is viewed as growth, not inflation.
- Sustainable economic expansions are based on real production, not on speculative debt.
- The fact of the matter is that the term "market" is a misnomer for oil and currency transactions. These commodities change hands not in a market, but in an allotment schema arranged from a central control point in a neo-feudal regime.
- Current oil-price levels are a reflection of a fleeting inventory problem rather than a long-term pricing issue.
- At any rate, oil is no longer a critical factor for the US economy, which is increasingly less dependent on oil for growth. GE announced in February 2000 a new turbine that would be 60% more efficient than current models in generating electricity for the same energy input. The news did not help GE stock prices.
- There was solid evidence that the 1970s recycling of petrodollars, which mostly ended up in the dollar assets in the United States anyway, contributed to US inflation as much as the higher retail price of gasoline.
- The drop in oil prices after 1997 was mostly a cyclical effect of the drastic reduction of demand from the Asian financial crisis, which impacted the whole world.
- In oil, no one has told the truth for more than 80 years, or since its discovery.
- If Iraqi oil re-enters the world market, other OPEC members will reduce the production quota, so the real impact on prices will be minimum.
- In recent years of cheap oil, advances in conservation have all been abandoned. Until this year, US consumers were buying eight-cylinder SUVs that deliver only eight miles per gallon (29 liters per 100 kilometers), as well as air-conditioned convertibles.
- Member nations had experienced a decline in the real value of their oil since the foundation of OPEC.
- Oil prices at $35 per barrel would reduce South Korea's economic growth by 2%. Japan's former minister of international trade and industry, Takeo Hiranuma, said oil prices should drop to between $22 and $25 to benefit both consumers and exporters.
- The euro's continuing fall until 2002 when it bottomed at 1.1 to the dollar from its launching rate of 0.846 in 1999 dampened US multinational profits denominated in euros, which in turn hurt US equity markets. The lesson from this is that the trade deficit is not without benefits if it can be sustained. When the Japanese yen dropped to 147 per dollar in August 1998, it did not affect US export earnings much because of the large deficit in US-Japan trade. With the euro, it was a different story because US-European Union trade was relatively balanced. Also, it had been widely expected that the euro would be supported by the European Central Bank (ECB), so most US firms did not bother to hedge their euro earnings. In this case, derivatives would have saved the day. Thus structured finance is not always destructive. The high 2004 rate of 0.84 euro to a dollar did not reduce the US trade deficit.
- The only trouble is that $50 oil takes money from the pocket of consumers and delivers it to the oil producers (not just Arabs), who then reinvest it in Wall Street. The net result is a transfer of wealth from the "working families" of the world to the capitalists the world over.
- The current structure of the overcapacity economy is such that more debt can only go to support consumption and speculative, not productive, investment, causing the debt bubble to be unsustainable.
- .. But governments tend to resist fuel-tax reduction because of the flawed ideology that fuel taxes encourage conservation. Capital-gain tax measures are resisted on the doctrine that what hurts capital hurts the poor also, if not more.
- All central banks, except the US Federal Reserve, have a finite supply of US dollars. The Fed, under its own rules, cannot dump dollars into the market without raising interest rates, not to mention contradicting the US Treasury's policy of a strong dollar. When the ECB intervenes in the currency market, it buys euros with dollars to keep the former from falling in exchange value, in essence shrinking the euro-denominated economy, causing the euro to fall further in value. The bought euros held by the ECB must be unloaded to either the Fed or the Bank of Japan or the People's Bank of China, which then must invest or spend them in Euroland to counter the shrinkage of the euro-economy. But if investment opportunities in Euroland do not improve, then these euros must be held in reserves to collect interest, making it difficult for the ECB to raise euro interest rates, a move that is needed to strengthen the euro fundamentally.
- While $50 oil is not a problem in the long run, it could give Greenspan a super-size headache if it serves merely to fuel more debt.
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Everyone knows

Monkees
Interest rates are now the topic du jour around water coolers and in happy hours across America. Every group has at least one person who knows the answer. If there are two people who know the answer they are almost guaranteed to disagree, unless one of them is the other's boss. I am less certain about the answers, but nonetheless this week will proffer an idea or two.

.. the Leading Economic Indicators from ECRI are now down year-over-year. This has happened 10 times in the modern era, and we have had seven recessions and two serious slowdowns following those events.

..
1. There is now a strong downtrend in prices
2. The growth rate of US CPI seems to be capped at 3%
3. US CPI does not really accelerate with global economic activity
4. US CPI falls precipitously when economic activity decelerates

.."As Milton Friedman famously stated, and as History has proven time and again, a central bank can control only one thing at a time. It can control an exchange rate, short interest rates, or the growth rate of money supply... But not all at once. In the case of the Fed, the tool of action is usually the Fed funds rate.

.. is the ISM manufacturing number. I like to look at both the actual level of the number and the direction. If the number is above 50 it means there is growth in manufacturing and if it is under 50 manufacturing is slowing. Since hitting a high of 62.8 in January of 2004 (an excellent number) it has slowly and steadily dropped to 53.3 last April. The trend is not good. We will see the May data this Wednesday, and looking at other mid-month manufacturing figures, it looks like it will be lower again.

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Buy, buy

Is Your House Overvalued? - New York Times
On other hand, some economists say even Washington is in the midst of a run-up that is likely to end badly. Dean Baker, who predicted the stock market's fall and now says the housing market is headed for its own troubles, sold his Washington condominium, not far from Mr. Barson's loft apartment, last year for $445,000, after having bought it for $160,000 in 1997. Now Mr. Baker rents a similar-size apartment nearby.

"I felt stupid not doing it," said Mr. Baker, co-director of the Center for Economic and Policy Research, a liberal group. "To me, there's no doubt about the direction. The only question is timing."
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Propaganda

Don't Buy Housing Bubble Propaganda
My position is that housing is not in a bubble -- yet. But it is an increasingly extended asset class that may be subject to a significant correction in the future. But a 25%-35% retracement is a very different situation than a bubble (recall that the Nasdaq dropped 80%), primarily because there are very different consequences for both homeowners and investors.


I do not agree with the arguments of this article. I think there are a lot of risks involved. And house prices should be balanced with salaries, incomes and rents
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Monday, May 30, 2005

Ten tips

The Big Picture: John Murphy's Ten Laws of Technical Trading
Moving averages provide objective buy and sell signals. They tell you if existing trend is still in motion and help confirm a trend change. Moving averages do not tell you in advance, however, that a trend change is imminent.
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Living better

Why live frugally?
When I was a teenager, things totally were my identity. However, as I have gotten older and through one situation or another I have learned to separate myself from the items in my home.
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Learn from mistakes

The Kirk Report : Trading For A Living
A major disadvantage of trading for a living is that the bulk of your work time is in complete solitary.
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Systemic risk

What Markets Are Saying By John H. Makin
Most of those funds have sought higher returns by undertaking riskier strategies that provide higher expected yields without taking steps to anticipate possible higher risks tied to those higher yields.
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Sunday, May 29, 2005

The secret of wealth accumulation?

Who Wants to be a Millionaire?
I read eight newspapers a day (skim is a better phrase), about 25 magazines a week and numerous blogs and e-letters, and, of course, I watch TV news.
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The winner is ...

Contrarians Versus Trend-followers: and, the Winner Is...
The zero-sum S&P 500 futures market involves three categories of players: commercial hedgers; large (non-commercial) speculators; and, small (non-reportable) speculators. Do one or more of these groups predict stock market behavior with their futures trading?
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Wednesday, May 25, 2005

Even Playboy

Everybody's an Investor Now
A recent study by the National Association of Realtors showed that almost 25 percent of homes bought in 2004 in the United States were bought as investments. That's up a whopping 14.4 percent, compared with 2003. David Lereah, chief economist for the association, said the organization was surprised by how big the investors' share of the market had become.
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Tuesday, May 24, 2005

Juan Freire: La econom�a alegal: c�mo, d�nde, cu�nto y por qu�

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The higher the mountain, the deeper the valley

Telegraph | Money | China in for 'rude shock' over asset bubble
China is repeating Japan's worst mistakes in the asset bubble of the 1980s and could soon come down to earth with a "rude shock", a top Japanese official has warned.
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Scarcity

The Globe and Mail: Welcome to the age of scarcity
"After you drive a car off a cliff, it's too late to hit the brakes," he says. "In effect, we have gone over the edge of the cliff."
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Capitalists do not save

Is It a Savings Crisis or a Math Error? - New York Times
Virtually all economists argue that Americans could stand to consume less and save more. But some say that a flaw may exist not in our national character but in the way the government calculates savings: because the bureau's method of tallying income and consumption doesn't take into account structural changes in the finances of Americans, it may systematically understate income and overstate consumption.
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The tide is coming

Housing, hedge funds spur bubble worries / Some experts fear low interest rates may have pumped too much cash into global markets
One of the most common hedge fund strategies, fueled by ultra-low short- term interest rates, has been what's known as the carry trade.

In carry trades, investors borrow money at low short-term interest rates to purchase longer-term financial instruments that offer higher yields. Some investors cross national borders, borrowing in a country with low rates to invest wherever yields are richer.
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Sex War

Gender Gap: Women make fewer investing mistakes than men: survey - Financial - Financial Services - Personal Finance
Women seem to approach investing dispassionately, almost as a necessary inconvenience. They're more likely to let go of losing stocks faster and make fewer investing mistakes than men overall, even though they neither enjoy making portfolio decisions as much as men nor know as much about the market, according to a survey of 500 men and 500 women from Merrill Lynch.
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Follow the lider

Tomi Kilgore's Market Map: Stocks play 'follow the leader' - Financial - Financial Services - Markets/Exchanges - Opinion - Market News
One of the worst nightmares for traders is getting whipsawed. Another is to be right, and still lose money.
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All for nothing

Gunslingers No More: The Cautious Cash In - New York Times
Most hedge fund managers do make money for their investors. But even if a hedge fund manager doesn't make a cent for his investors, the manager invariably makes a fortune for himself. Think about it: just for showing up to work, the manager of a hedge fund with $1 billion in assets is guaranteed to earn $20 million a year in management fees alone. Why should he take any risks? Why should he alienate his cautious investors? If we add in his 20 percent cut of the gains, and assume that his returns last year were just average (in line with the S.& P. 500) he would have grossed a total of $41.8 million.
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Monday, May 23, 2005

Imbalance

Safe Haven | The Stock Market and the Interest Rate "Conundrum"
Another astute Fed watcher, Don Hays, observes that the current divergence between the 90-day T-bill and the Fed Funds rate should be sending a message to the Fed that "enough is enough" and that it's time to stop raising rates. The only question that remains is if Greenspan and Co. will heed the market's message.
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Saturday, May 21, 2005

Bananas

Asia Times Online :: Asian news and current affairs. We are a banana republic
And for him, the dollar is not weak enough: "It should go down more, for instance, against the yen." He does not realistically expect a major devaluation of the Chinese yuan - maximum 5%. Krugman admits it's hard to predict what happens next: "It needs a trigger. But I'm convinced it's the collapse of the housing market in the US that will trigger the dollar's decline."
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Free lunch

The Prudent Investor - seeing too many bubbles: There is no free lunch - higher rates equal higher risk
Every trader knows the first rule of thumb in investment that goes as follows: Higher chances of return are equalled by a higher risk. If you go for a return of say 3 percent your positive expectations will be matched by an equal risk that your investment might result in a 3 percent loss. If you look for 10 percent gain you have to be prepared not to shed tears for an equal loss. And if you fancy returns of 100 percent, for example by speculating in the options market, you have to be prepared for a loss of the same size. There is no exception to this rule, history shows. And don't forget about the second rule in investing: As long as there has been fiat money the markets have worked in cycles from top to bottom and back. It was never different.
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Friday, May 20, 2005

Namaste!

The Prudent Investor - seeing too many bubbles: For a stable currency turn (not too far) east
Bud did you ever read about the currency of a major nation that excels in high GDP growth while managing to lower inflation at the same time? A country that is building up its foreign exchange reserves relatively faster than China and improving its trade account, all built on private enterprise with only 12 percent of GDP coming from government spending.
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Don't be Complacent

Safe Haven | Don't be Complacent: Global Liquidity Waning
Firstly, the market never got that oversold per most of of my technical indicators during all the corrections in 2004 and early 2005. Virtually all my technical indicators got very oversold at some point in time during the last 12 to 15 months, but not all at once. Moreover, in terms price movements in the Dow Industrials and the S&P 500, we have never gotten a correction of 10% or more (although we did come close a couple of weeks ago when the Dow Industrials briefly touched 10,000). In recent months, indicators like the NYSE ARMS Index and the NYSE McClellan Summation Index did not really get to the oversold status that I wanted. Secondly, nothing is ever this easy when it comes to making money in the stock market.
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Two giants

The Prudent Investor - seeing too many bubbles: Two oriental giants will compete for economic dominance
China carried its repression further as it has its reforms than India. But in both countries the liberalization of foreign trade gave a boost to growth.
The major difference has been in their respective investment rates, with China’s at over 40 per cent of gross domestic product (GDP) being roughly twice that of India’s.
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Thursday, May 19, 2005

Economic 101

DallasNews.com | News for Dallas, Texas | Business Columnists | Too many houses is bad, too by Danielle DiMartino
Too often, local readers e-mail that they can't get their 1- or 2-year-old home appraised for what they paid. All the while, new developments keep popping up as fast and as far as the eye can see. Teardowns are occurring at a pace last seen just before the late 1980s crash.
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German children

Taipei Times - No babies please, we're German
Germans have stopped having children -- and the number of couples opting for a childless life is rising every year to the consternation of politicians and employers in the eurozone's biggest economy.
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Expensive and without deduction

Bloomberg.com: Bloomberg Columnists. It's Time to Drop the Home Mortgage Deduction: John M. Berry
Low mortgage interest rates are far more important than the deduction in making housing affordable. And while those rates undoubtedly will rise from their current very low level, the vast increase in competition among lenders in the mortgage market and the Federal Reserve's determination to keep inflation low should prevent mortgage rates from increasing to the high levels of the 1980s and early '90s.
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What do yuant from us?

What do yuant from us?
By some estimates, as much as three-quarters of China’s foreign-currency reserves are held in dollars; if the central bank allows the yuan to rise against the dollar, it will also in effect be allowing the value of its reserves to depreciate. Moreover, if slowing the flood of dollars that China’s central bank is pouring into American debt markets causes those markets—and the American economy—to contract, China’s exporting firms will have worse problems than a more expensive yuan. And problems for those firms could translate into big trouble for China’s frail banking system.
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LIzard

Sophisticated Investor: Scaling the depths of our 'lizard' investment brains
Our brains, like our bodies, reflect the world of our ancestors. In particular, our lizard brains are pattern-seeking, backward-looking systems that allowed us to forage successfully for food, and repeat successful behaviors. This system helped our ancestors survive and reproduce, but financial markets punish such backward-looking decisions. Consequently, our lizard brains tend to make us buy at market tops and sell at market bottoms
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Time Horizons

Bill Cara: Why time horizons are important
I categorize traders in the following five groups, depending on their time horizon:
· Intra-day i.e., < 5 session hours
· Intra-week i.e., < 5 session days
· Intra-month i.e., < 18 session days
· Intra-Year i.e., < 250 session days
· Extra-year i.e., > 250 session days

My profit objective for each time horizon:
· Intra-day i.e., > +0.5 pct per day
· Intra-week i.e., > 1.5 pct per week
· Intra-month i.e., > 5 pct per month
· Intra-Year i.e., > 40 pct per year
· Extra-year i.e., > 30 pct per year
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Wednesday, May 18, 2005

The next currency

The Prudent Investor - seeing too many bubbles: What will be the next big reserve currency?
The aureus had a respectable lifespan of more than 400 years before inflation diminished its reputation. Nothing has changed since: Whenever a currency loses its value, so does its popularity.
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Logic

Market Timing vs. Buy and Hold... and Book Recommendations
I'm skeptical about conspiracy theories as a rule, but, for a moment consider the special interests at work against the notion of market timing, and their motivations: Mutual fund managers want you to believe in efficient, completely unpredictable markets so that you will make their lives easier as they spot bargains, trends, and position themselves on the right side of the market. They also want you to believe in efficient, unpredictable markets because most of them cannot beat the market, due to the size of the portfolios they manage, and other factors, so these beliefs reduce the pressure on them to perform.
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Security is history

Scott Burns: Young workers face a harsh tax reality
You can understand this by considering the basic topic of the Social Security debate and how it affects every worker under the age of 50. While there is plenty of money to pay benefits to those 50 and over, there won't be enough to pay the same benefits when those under 50 retire.
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¿Stampede?

City hedge funds head for domino collapse - Sunday Times - Times Online
BAD investments by some of the biggest hedge funds in London have triggered unprecedented losses, record demands for money back and talk of a death spiral weighing heavily on stocks and bonds.
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Warren Buffett and Charlie Munger

Notes From The 2005 "Woodstock of Capitalists"
Warren Buffett: The most important characteristic is that a manager needs to have a passion for his business.

..

There are no secrets to investing that only some select priesthood knows. Successful investing requires a quality of temperament, not a high IQ. You need an IQ of 125, tops—anything more than that is wasted. But you do need a certain temperament, and must be able to think for yourself. Then constantly look for opportunities. You can learn every day. You can’t act every day, but you can learn every day. It’s like any game, if you enjoy playing it, you’ll do well. But start early, and follow a framework that’s been successful.

..

WB: The public education system in this country is dreadful. Like virginity, a good school system is not easily restored. Next to the nuclear threat, it is our number-one problem. I don’t like the idea of a two-tiered school system, one private, one public. I don’t care about the quality of the public golf courses in Omaha, because I play on a private course. Same thing in education: if the wealthiest and most privileged families send their children to private school, they won’t care about the public schools and the public schools will suffer.

..

WB: It’s tough for individuals to invest in foreign currencies. Better to invest in your own abilities. Anything you do to develop your own abilities and your business will be more productive than worrying about foreign exchange rates. If you own a good business in the U.S., you’ll do ok.

..

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Safe Haven | The Great Inflation Illusion: A Historic Perspective

The Great Inflation Illusion: A Historic Perspective
Since I was a child, the amount of money in the United States has grown significantly. According to the Federal Reserves Historical Data on the money supply (as measured by M3), when I was eighteen months old in 1959, the money supply stood at $292 billion. Of course it continued to grow so that by the time I started college in September 1975, it had reached $1,145 billion. Even though I was totally clueless as to what was causing inflation, I nevertheless, began to notice its impact on the world around me. Prices were going up everywhere. Paul Volcker would seek to curb what was the worst inflationary expansion of money and credit ever in US History by raising rates significantly. So by the early eighties the United States, and the rest of the world, was experiencing the highest interest rates in history. While interest rates had climbed to 14 percent on long-term government bonds by September 1981, this would be dwarfed by rates throughout most Latin American countries. In 1981 Chile's short-term bank loans were 47 percent and Brazil's were 49.
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18 years

Random Gleanings: Hot Commodities
Rogers’ thesis is that it’s no accident that both stocks and commodities had 18-year, negatively correlated up-cycles in the 20th Century. He argues stocks and bonds did well in the 1980s and 1990s partly because commodities were in a bear market. He finds conventional securities still unappealing because of their high valuations, believes there’s a bubble in housing, and thinks both the dollar and the euro are flawed currencies.
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Two seconds

Apprenticed Investor: Know Thyself
Statistical evidence suggests a high probability that you underperformed the broader market last year, and most investors will likely underperform again this year. But it's not just retail investors. The pros are barely any better. In fact, four out of five investors will do worse than the S&P 500 this year.
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Stratosphere

Are New York Apartments Like Dot-Com Stocks?
On a macro level, what all this boils down to is that despite record-low interest rates and surging house prices, we are spending more of our incomes on mortgage payments and owning less equity in our houses than ever before.
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Hedge fund in a garage

Behind the hedge fund facade - the usual herd
The hedge fund community has built a mystique that is both a marketing tool and a barrier to industry entry. Part secrecy, part intellect and part an aggressive appetite for risk, this mystique speaks to the observer of the inherent superiority of the hedge fund manager. He may not be able to master the markets but the odds are loaded in his favour by virtue of nature and nurture. Or so his marketing pitch might subliminally encourage you to believe.

..

The private day trader has no such aura of invincibility or even of respectability. Alone with his broadband connection and mobile phone, he relies on a series of market sources to give him some small edge in his battle against the big money.

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Tuesday, May 17, 2005

Printing Money

How Japan financed global reflation
If this was globally coordinated monetary policy (unorthodox or otherwise) it worked beautifully. The Bush tax cuts and the BOJ money creation that helped finance them at very low interest rates were the two most important elements driving the strong global economic expansion during 2003 and 2004. Combined, they produced a very powerful global reflation.
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30% versus 25%

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And the boss is ...

The Big Picture: Hu's in charge here?
Some might wonder just why the American politicians are upset. The way things work now, China sells to the world most everything the world wants and then buys United States Treasury securities. That helps hold down interest rates and stimulates consumer spending.
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Monday, May 16, 2005

Renaissance

Market Round-Up and the NYSE Specialist Short Ratio - MarketThoughts.com
Conclusion: The short-term trend of the major indices is still murky, although I believe the major brand name stocks will do well over the coming weeks. Investors should also pay a lot of attention to the NYSE Specialist Short Ratio going forward – in that we are to follow historical precedence, the market is due for a huge rally in the upcoming months.
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The forest of hedge funds

Seeing the Wood from the Trees
Well think of many of those Hedge fund assets: US Corporate bonds, and more interestingly, foreign currency denominated debt, emerging market bonds, commodities. Many are denominated in currencies other than US dollar. And many funds have been financing those non-dollar assets with cheap dollar debt, hoping for a "double gain": a yield pick up
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The devil is in the details

Bill Cara: Inflation data due
f you are holding a 10-year T-Note from Uncle Sam that is yielding a nice 4.11 pct as it is today, you are going to be furious if and when other traders can buy that exact same 10-year security in a year with a yield of say 6.11 pct. That’s because they will be paying a small fraction to own tomorrow what you own today.
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North Korean or Renminbi

Safe Haven | North Korean Nuclear Testing or Renminbi Revaluation - Which Will Come First?
The euro hit a valley recently as it traded traded as low as $1.2618 on Friday. Lackluster performance of the euro is partly to blame on vigorous US data. Such data will likely lead to the Federal Reserve maintaining its course of monetary tightening. Higher rates will continue to increase the appetite of foreign investors for dollar-denominated assets. By reaching a seven-month high against the euro as well as outshining sterling and the franc, the dollar is on a pedestal suggesting the US economy is on favorable ground. But for just how long will this situation last? The dollar performed poorly against three major currencies for the last three years. Could this be a preliminary upswing?
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Three times

Bifurcated US stock market indexes
History suggests the market will resolve this issue to the upside.
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Ten Dangers

Ten Potential Dangers
Traders only need to learn how to drive the car, but not how to build the car.
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Prices and poverty

Who profits from rock-bottom pricing? | csmonitor.com
In the early 1990s, business owners on the island of Kodiak, Alaska, hired a consultant to analyze how much they'd be hurt by a proposed Wal-Mart. But in gathering data at their request, Kenneth Stone also discovered how the store was apt to help another local group: the poor.
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Betting on the Dollar

Why Marathon Runners Aren't Betting on the Dollar - New York Times
Mr. Buffett's bet against the dollar resulted in a $307 million currency loss for his company, Berkshire Hathaway, in the first quarter.
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The value of being a smart consumer

Why That Doggie in the Window Costs a Lot More Than You Think - New York Times
A room at the Marriott may cost only $150, but the final bill looks a lot different once you have handed your car keys to the valet, used the high-speed Internet connection and eaten the $11 oatmeal. Late fees on credit cards have jumped. So have many mutual-fund fees.

..

Mr. Laibson, a professor at Harvard, has his own favorite example of shrouding: Hewlett-Packard's inkjet printers. The advertised price is as low as $35, but it includes no ink cartridges or paper, two necessary items for printing. "Here's my challenge to you," he said. "Go to the H-P Web site and pretend to be an individual purchaser of a computer, not a business. Go to the deskjet printers. See if you can find the cost of printing on a per-page basis. That is the most important information."

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Low debt

Bloomberg Columnists : Exxon, Old Republic Head My Low-Debt Stock List by John Dorfman
In my opinion, most investors underestimate the value of a strong balance sheet in picking stocks. I rarely buy stocks with debt greater than stockholders' equity, and many of the stocks I buy have debt less than 50 percent of equity.
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Companies buying companies

Newsday.com: Corporations Spot Investment Opportunities
For example, during the final days of the tech bubble, in the first quarter of 2000, individuals snapped up more than $100 billion in equity mutual funds; in July of 2002, in the midst of the bear market, they sold $50 billion in fund assets, and companies bought back shares. Biderman sees a similar pattern now.

..

"There are a lot of fears and many of them are contradictory, so I have to believe that some of them are not well-founded," Yardeni said. "Not everything terrible can happen at the same time. It's very hard to get higher inflation and a recession."

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Sunday, May 15, 2005

Yields<>Interest Rates

Bill Cara: Interest rates are not yields.
An interest yield represents the financial return on a fixed income (debt) security, whereas an interest rate represents the cost of money borrowed at your bank, for example.
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Saturday, May 14, 2005

The Problem With Indexes

Thoughts from the Frontline -The Problem With Indexes
So this is the first time we've circled back to some concrete implications for the market. It means that capitalization-weighted indexes on which our entire industry relies, are fundamentally, structurally flawed and will inherently overweight every stock that's above fair value and underweight every stock that's below fair value.
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Friday, May 13, 2005

Real Estate Bubble

Safe Haven | Real Estate Bubble
The Asian currency crisis in 1997-98 caused housing prices in Indonesia as well as other regions, in dollar terms, to decline some 80% virtually overnight. Currency instability is one of many external factors that can contribute to a Real Estate bust, and the United States is certainly not immune to financial crisis of that sort!

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"In the United States before 1960, people were living in a less avowedly capitalist economy, and they were not primed to believe that their well-being depended in large measure on their property. Today, with good public information about prices & widely available, our increasing public commitment to market solutions to economic problems has led people to worry more about home prices, and hence to make them more prone to the kind of feedback that generates bubbles.

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Manchester United Indicator

Safe Haven | UK Economy Big Picture - Part 2
Prices down and on hold, transactions more than 30% down on this time last year, this is typical of a housing market in the early stages of a big fall. Prices will not crash until sellers become forced sellers. That will happen when they cannot pay their mortgage. That will happen when they lose their jobs.
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Thursday, May 12, 2005

Moving Averages

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Sell in May

Safe Haven | The Six-Month Stock Market Timing Strategy
In one fascinating academic study I found on this issue, the research showed that stock market returns were higher in the November - April period versus the May - October period in 36 of 37 countries studied. Did you hear me right? Or perhaps I should say, did you read me right? In 36 of 37 countries! This study concluded that the effect seemed to be strongly related to the length and timing of vacations, especially in Europe.
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Recession now or later

Safe Haven | Cyclical Endgame
It seems that everyone wants a soft landing. Given the global imbalances, I do not think a soft landing scenario is possible for either the US or China (or anyone else for that matter, especially the UK), but certainly not everyone simultaneously. The World's economy is just too FUBAR'ed for multiple miracle soft landings.
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US to China: Revalue or... - or what?

US to China: Revalue or... - or what?
Finally, any disruption of Chinese monetary stability would have adverse repercussions for the growing global trend toward dollarization. Indeed, dollar pegs like China’s shouldn’t be discouraged but rather encouraged.
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Taxes, Gasoline, and the Coming Economic Slowdown

Safe Haven | Taxes, Gasoline, and the Coming Economic Slowdown
Richard Hoskins explains how taxes are used by the government to remove excess money from circulation in order to curtail inflationary pressures and to prevent imbalances in the accumulation of wealth. What is not widely known is how modern day governments employ the use of surrogates to tax money out of circulation in a non-official capacity. One such example of surrogate tax collectors are the petroleum concerns, which use their control over the price of gasoline and other fuels to tax consumers, mop up excess liquidity and reduce consumption.
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Monday, May 09, 2005

SPX Volatility Trends

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Sunday, May 08, 2005

Dark Clouds Over Europe

Safe Haven | Dark Clouds Over Europe
It is ironic and yet so plausible that the EU countries with the highest rates of unemployment also attract most immigrants who render the services which the natives do not choose or are prevented from performing.
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Stop Using Stops

Safe Haven | Stop Using Stops: Trading with Elliott Wave Analysis
Traders should often avoid using stops. Here's why: If you analyze the market you're trading, you shouldn't need a stop to tell you when to get out of the trade.
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Friday, May 06, 2005

The impact of Jobs Data release

Maybe it is only an excuse to shake the market.

The Big Picture: How Does Jobs Data Impact Trading?
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