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nlag
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cardboardbox?Youwerelucky
Niiiiii..!!
Joined: 16 May 2007
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Location: lincolnshire
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 Posted: Mon Mar 03, 2008 10:41 am Post subject: |
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| Quote: | Last week we just couldn’t believe it. The economic news coming out of the US was truly shocking – on Wednesday we headlined, “Is this meltdown for Uncle Sam?” after a stream of economic news painted a picture of real woe.
Yet, what did the markets do while all this bad news was being announced? Well, in the US in particular, instead of making for the nearest tall building, and then preparing to jump, traders went out and celebrated.
For economics news, last Tuesday was something of a black Tuesday – yet the Dow leapt up by over 100 points, and that was on top of a 189 point rise the day before. In fact, by the close of day on Tuesday, the Dow had risen by 400 points in just three working days.
And why were markets so gleeful? Their reasoning went like this. With news that bad, the Fed has got to lower the rate of interest. Three cheers for bad news, it means cheaper borrowing.
In reality, the US has a massive dilemma. Inflation is at 4.2 per cent. Producer price inflation, which can provide a guide to future consumer inflation hit its highest level since 1981 and, of course, the price of oil and wheat are at new all-time highs.
Yet, the Fed is cutting the rate of interest so fast, that its economic scissors must be getting blunt from overuse. US rates have fallen from 5.25 per cent, back in September last year, to just 3 per cent at the time of writing. And now many are predicting further falls to follow, with some saying rates could fall to 2.5 per cent.
This means that the real rate of interest, that’s the rate set by the Fed minus the rate of inflation, is currently minus 1.2 per cent.
On face value, that means it pays to borrow money. You just borrow as much as you can, and let inflation erode the true value of the debt. It also means there is no point in saving, you would be better off spending your money as quickly as it comes in.
In reality, it is not that simple, because interest rates set by the markets are not keeping up with the Fed’s moves. In fact, it’s tempting to say the Fed action is meaningless.
In reality, banks need to attract savers, because they need more money in their electronic vaults to be able to lend out.
So what does the Fed have to do? Before he was chairman of the Fed, Ben Bernanke once made waves when he said the solution to a credit crisis was to scatter money from a helicopter. This earned him the nickname of Helicopter Ben; over the last few months he has been living up to his nickname.
Not literally, of course, but, as an example, on Friday the Fed announced plans to auction another $60bn. The banks won’t lend to each other, so the Fed is lending to them instead. Ben has, in effect, climbed into the metaphorical helicopter and dished out money.
The curious thing though is this. When the economic news was dire, markets soared. Then on Friday, after the Fed announced its latest plan to dish out more money, precisely the kind of thing you would have thought markets wanted, the Dow went into something of a nosedive.
For on Friday, the Dow fell 315 points. Now, there was time a when a fall of 300 points would have been one of the main stories on the national news. Not any more, last year the Dow fell by 300 points or more in one day on no less than five occasions. And it suffered another big fall in January of this year.
Even so, Friday’s fall of 315 points was still pretty dramatic. The Index is now back to the level before the big rises seen at the beginning of last week and the end of the week before.
And if nothing else, it shows just how irrational the markets are. |
Figure that one out  _________________ 
BOXYS BAR - LIQUER UP FRONT AND POKER IN THE REAR |
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cardboardbox?Youwerelucky
Niiiiii..!!
Joined: 16 May 2007
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Location: lincolnshire
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| Posted: Mon Mar 03, 2008 10:45 am Post subject: |
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| Quote: | You may recall, it was around this time last year, when the Chinese stock market did a tumble. Investors feared that the long waited bursting of the Chinese stock market bubble was occurring, and took frights. Shares around the world fell in the wake of The Chinese woe, with the Dow Jones, for example falling over 400 points in just one day.
At the time there was a lot of talk about how the Chinese stock market was overvalued. Last year even the governor of the People’s Bank of China said the Chinese stock market was a bubble.
A quick browse though pervious articles by IABN on the Chinese stock market, those fateful two letters P and E keep appearing. The valuation of Chinese stocks to their projected profits was apparently, way to high.
Yet, Chinese stock shock of the woe from last year, and kept on rising. The bursting of a bubble kept being called, but it just didn’t happen.
Last week, it happended all over again.
At close of play on Friday the Chinese CSI 300 Index was 20 percent down from peak.
Yet, at 4,674.55 it was still way above the levels seen last year, when we warned it was too high.
The ratio of stocks to projected profits is now 41. More tellingly, look at companies which are listed in both mainland China and Hong Kong. Bloomberg tells how one company, Jiangxi Copper Co., China’s second-largest producer, is seeing its share price trade at 30.26 times profit in Shanghai, but just 11.88 in Hong Kong.
What you need to bear in mind about the Chinese stock market, is that so often markets rise for no greater reason than they had been rising before. Investors put their money in, not because the stock is good value, but because it rose the week before.
Calling the end of a bubble is incredibly difficult. Even Sir Isaac Newton got caught out. He had invested into the South Sea craze, got out, then changed his mind and bought back in again, only to lose £20,000 – a fortune for those days.
We are told things are different in China, that cultural differences mean Western valuation criteria don’t apply.
Don’t you believe it. People are the same all over the world.
The Chinese stock market, even after the falls seen so far, is still a bubble. |
Put your fingers in you rears and go la lal lalallal_________________
BOXYS BAR - LIQUER UP FRONT AND POKER IN THE REAR |
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nlag
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| Posted: Mon Mar 03, 2008 10:58 am Post subject: |
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| Was tracking the markets last week. Any gains early week were more than lost Thursday and Friday.....And again today. Seems to me that however they try to "fix" the market in the US, it is not convincing the big institutions or consumers to be bold with their cash.
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raveydavey
Lucas Radebe
Joined: 12 May 2007
Posts: 2061
Location: Leeds Yorkshire England
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| Posted: Mon Mar 03, 2008 7:21 pm Post subject: |
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nlag
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| Posted: Mon Mar 03, 2008 8:11 pm Post subject: |
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Over to our economic correspondent......
Sport.......
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cardboardbox?Youwerelucky
Niiiiii..!!
Joined: 16 May 2007
Posts: 1880
Location: lincolnshire
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raveydavey
Lucas Radebe
Joined: 12 May 2007
Posts: 2061
Location: Leeds Yorkshire England
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| Posted: Tue Mar 04, 2008 6:42 pm Post subject: |
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Honestly, it makes my head hurt even thinking about it... 
Still, things could be worse, eh?
I'm only currently being threatened with redundancy with my highly skilled job for which I have worked hard to get several professional qualifications about to be outsourced to someone who has no qualifications but will do it more cheaply*.
I've not actually been laid off yet....
* - cheaply means at a lower headline cost - if all factors are taken into account the net result will be to cost the company more money, but that doesn't matter as those figures will appear on someone else balance sheet and the financial genius who laid us all off will have saved a wedge of money off his budget.... |
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