The Credit Crisis Financial Stocks Short Journal
- Thread starter Daal
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Well, the 1998 Asia crisis showed the opposite - Hong Kong had a fixed dollar peg and recovered very fast, avoided taking on huge government debt etc. Other places in Asia also recovered pretty quickly from an equivalent of a 1929-32 experience. The one that didn't was Japan, which followed textbook Keynesian orthodoxy.
Besides, under what school of thought is 1 data point considered reliable evidence?
As for the idea of fiddling with central bank appointment rules, this doesn't avoid the central problem that one man, or 10 men (who are almost never the most able in their profession or even close to it) are unable to forecast the economy. IMO it seems obvious that making the system more robust is far better than trying to make the predictors better. It's like civil aviation - do you add more failsafes and robustness to safety systems, or just tell your pilots to sharpen up their act? The best pilot operating a dangerous system is still a risk. The average pilot in such a system is a disaster waiting to happen. Ditto with central bankers, we get a Volcker once a century, and a succession of average guys the rest of the time, unwitting human timebombs like Greenspan, Bernanke, or the chumps in the 1970s or 30s. We should accept that power in government is just dangerous, period, and limit it for that reason. Accept that fractional reserve banking is inherently prone to devastating busts, and put in rules to deal with or prevent them - either leverage limits or full-reserve banking if you are cautious, or strict no-bailout rules and let the banks go under, no tears.
Don't forget that increasing government powers, especially in little-understood areas like monetary economics, or ill-disciplined areas like fiscal spending, carries its own and very large grey & black swan risks. No laissez-faire government has ever ended up as bad as Weimar or Zimbabwe, for example. Argentina used to be richer than the USA, Manaus richer than New York, all it took was a cultural shift to interventionist government and an entire century was written off, turning rich places into 3rd world economic backwaters while the US become the most powerful and richest country on earth. That's a pretty fucking huge risk to take with a society, for the sake of a few theories that no one has come even close to supporting with facts, let alone proving beyond a doubt.
That's why a large section of the US public is radicalising. They understand the political and social - not just economic - risks that technocratic thinkers like Bernanke and yourself overlook.
Although in commodities the prices skyrocketed on the news, and are still higher than before the announcement. Not sure it's quite that clear cut.
What is interesting is that both bonds and Yen were down on a big down day for stocks; and commodities were down despite a weaker dollar, reversing the previous inverse correlations.
Looks like a bunch of new trends will get started, the old stories are now priced in IMO. Candidates:
Euro resumes its multi-year secular bear market on debt woes, GDP malaise, incompetent government, and complete absence of political, cultural, or social unity. It should be trading 10-20% below PPP, not above it.
Japan - will they finally go all QE on us and crash the Yen to put a permanent end to deflation? Might be a bit early for this one, but worth watching.
Gold - was it just an anti-dollar play, or can it hold its ground or even rally in the face of global fiat currency debasement?
GBP - trading like its immune to the EU woes, despite huge debt, massive austerity in the works a la Ireland, and a shitty fragile banking sector that is government controlled and still way too big, and still massively overpriced housing. Another good currency to short IMO.
Australia - world's most overvalued major currency and property markets. Only question is does it start collapsing now, or wait until the end of the current credit cycle (e.g. blow up in 3-4 years at the peak of this growth period). Will probably be the short of the decade at some point.
US Treasuries - is the 30 year boom finally going into reverse?
Greece/PIGS - prepare for a 1998 style meltdown some time in the next 1-2 years, maybe 3-4 if the EU send a trillion good(ish) Euros after bad. Will throw up the greatest bargains since the depths of late 2008 and early 2009, once they default, but no way near there yet.
I never studied the asian crisis deeply so I can't comment on it except I'd be shocked if the govermnent allowed M2(or whatever is their broad money supply measure) collapse and massive deflation to take place. As far as I know their currencies collapsed and they had quite a bit of inflation, avoiding the thing I'm concerned about(debt deflation spirals)
Regarding the 1 data point thing. Well there are not a lot of episodes of deflation after WW2(only Japan) and before the 30's the deflations took place under low debts so they didnt hurt the economy. Its only 1 data point because its the only one that exists
As far as giving government power carrying risks, well, if the 30's was caused by debt deflation then the biggest risk is to allow a monetary system send the world into deflation. The 30's was the worst economic period in history, the monetary airplane can't be left to be flown by itself because 30's type's periods would happen again, yes the pilots can make mistakes but someone needs to fly. Its better to risk some inflation than to guarantee depressions
Bottom picking is the most expensive form of speculation
Bonds and the short end selling off again this morning. The 10 year is at 2.84%. 2 year at 0.54%. A bit of good economic news and the 10 year could hit 3.25% in a heartbeat.
Great stuff from GofC recently. Jim Grant, as one might expect, has been covering similar ground (among other things) lately. For the pikers who don't subscribe to GIRO, he penned a column for the NYT yesterday ...
http://www.nytimes.com/2010/11/14/opinion/14grant.html?_r=2&hp=&pagewanted=print
Just yanking your chain a bit - you know I'm with you on the theory that the Fed stays on hold through 2011 at least. For only the 3rd or 4th time in my career, I actually exited a trade almost near the top when I sold my Dec11 FF at around 99.75 or so a couple of weeks ago. I currently have no position. I do have a boxful of Dec10 and Mar11 deep OOM T-bond puts which I had assumed would expire at 0, but which all of a sudden have sprung to life. Things could get interesting over the next few weeks.
Quote from ralph00:
Just yanking your chain a bit - you know I'm with you on the theory that the Fed stays on hold through 2011 at least. For only the 3rd or 4th time in my career, I actually exited a trade almost near the top when I sold my Dec11 FF at around 99.75 or so a couple of weeks ago. I currently have no position. I do have a boxful of Dec10 and Mar11 deep OOM T-bond puts which I had assumed would expire at 0, but which all of a sudden have sprung to life. Things could get interesting over the next few weeks.
Bonds were mercilessly beaten w/the ugly stick today. 10 year to 2.96%. 30 year to 4.42%.:eek: Yields up roughly 50 basis points since the QE part deux announcement. I assume this was the cause of the reversal in equities this afternoon.
The put options, which crept up last week, exploded in value today. Looks like the guys short the Dec10 120, 121, and 122 puts as well as the Mar11 107-110 puts couldn't take the pain anymore.
The time value of those Dec puts is rapidly eroding with every stroke of my keyboard. It would probably be prudent to sell a good chunk of those tomorrow morning.