Why does President Obama refer to S&P as an "Agency?" They are a corporation. They act as a person with opinions, as does Goldman Sachs, Jim Rogers, and Gary Kaminsky. Why should they have any authority when they say the full faith and credit of the United States is riskier today than it was yesterday? The interest rate on the 10 year treasury tells me more than S&P. If they are an agency, to whom do they answer when they make mistakes?
Making Bush tax rates permanent will require bipartisan support. Re
publicans will insist on adherence to the Norguist no tax rate increase pledge. Democrats will require increased revenues to replace the loss which will come with no change in existing tax law. There is a $600 trillion market which will accommodate both conditions.
Derivatives.
The $600 trillion market for Derivatives is 40 times the value of the US stockmarket - yet most Americans have never heard of it. A tiny 0.5% transfer fee when these billion dollar contracts trade would raise $4 trillion over 10 years - enough to cover the Bush tax rates (which are scheduled to bring in an additional $3.8 trillion) at current levels. Something both sides can agree to and still declare victory.
No change from current income tax brackets. No cuts to Medicare or Social Security.
Whoever announces this solution first will reap a publicity windfall which will improve their standing in the polls and bring in substantial campaign contributions. It is a race to be the leader who puts this idea into the public domain and champion a position both sides can support.
See www.howtopayoffthenationaldebt.wordpress.com for details.
Destruction of evidence may not have been 'authorised' but it appears to have been an ingrained policy and modus operandi of the SEC that goes back a long time. A 'you commit the crime and we'll clean up the evidence behind you' approach.
So no evidence, no paper or electronic trails, no chance of being caught....total and utter regulatory failure. Rotten to the core.
He really does a pretty good job in forecasting, but he uses a lot of multipliers.
Some of these, due to globalization, and conditions not implemented, I have to wonder about in 2011.
That said, these graphs are not correlations. I have to run the numbers and frankly my Matlab skills don't translate to Excel so easily, but regardless I'll run some.
but putting up a matching time line and then two lines of data does not a ocrrelation EQ make.
I was just curious, I literally didn't know about all of this research correlating the two.
This 30.7 index point plunge is dramatic, even for a survey, but you can see it happened in 11/08 too. That's pretty damn bad.
Anyway, we're working on it. Gotta get that "formula" section of Excel humming it looks like.
Ever since the collapse of Enron, taking down the most reputable accounting firms, involving suicides, prison sentences and paper trails ending in Grand Cayman POBs for limited partnerships ... it's been obvious.
The old days when there were honorable giants such as A.P. Giannini active in financial circles, when there was still a creditable honor system, when at least life insurance firms invested into a future with a horizon of 50 years ... those days are long gone. (Well, except that we do have Warren Buffet, although Berkshire owns or controls Moody's.)
What we have today is a world system that is best briefly described as the WTO or finance-capitalism world-system of currency mercantilism, where mercantilism means that governments are involved in every business decision. Indeed, governmental action is at the heart of every business decision. And, accordingly, corruption is endemic, integrated like the rest of the global economy into a profits-over-all corporatist structure. It is puerile in this world to object to governmental regulation as such, as though on principle.
As for ratings agencies, the proof is in the pudding. They have always been based, and can only be based, on their performance records continuing over time as good as gold. Those agencies developed in another world, specifically a pre-computer world of big expensively bound books. What's the point today? They are being replaced as we speak. Do we really imagine that the U.S. committee at the People's Bank of China turns to a shelf and pulls out Moody's and S&P when considering what to do about US Treasuries?
When they fail to adhere to their own high standards, these credit agencies are done ... kaput ... finished. Somebody needs to start over from scratch. Many somebodies. And they are!
Berkshire is scrambling to keep Moody's alive. Maybe Moody's will survive. But for my 2¢ worth, what's the point? It's mostly become a defensive thing for Berkshire in the currency wars.
I am always afraid that some will think that when I use words such as "currency mercantilism," I am arguing for socialism or whatever. I do advocate monetary-financial reforms, but when I describe economic/financial conditions, I am really intending objective, not polemical, interpretation of every word that I use.
As for '2008 redux', I don't see any great advantage for our understanding in that characterization, although of course we should keep all history in mind always.
About that governments have failed and are failing to institute necessary controls on global capital flows? NO DOUBT! This has been noted by European economists for at least two decades now. Part of the 2011 story is that some factions of 'Wall Street' (in an international form) may be waging a 'scorched earth' defense in a war with regulators. We can't say that all of 'Wall Street' is involved because Warren Buffet leads a substantial part of 'Wall Street'.
Gold
I have previously, and continue now, neither to confirm nor to deny your estimate or "target" (to use goldbug terminology) of $2100 per Troy ounce by EOY 2011. I did raise the question 'Gold fever breaking?', and there was some cooling off. I considered that important because anytime that there are margins made available and there appears to be an irreversible (monotonic) trend line, we're risking courting a bubble, IMO. Of course, gold has turned around to continue its ascent heavenward, as I have noted in my earlier blog (above) or as stated so eloquently by 'Forex Tutorial' -- who was kind enough to take a moment away from a very busy day filling orders at Forex .
Any discussion of the global gold market here at EP, I presume, concerns the price of gold as the primary indicator of the global liquidity crisis. There was a point recently, as the budget show was closing in Washington (with whatever insider trading effects we will never know) and an ounce of platinum fetched more than an ounce of gold, that the irrationality of the gold market was exposed, resulting in a correction, a momentary breaking of the gold fever. See, Thousands of circuit breakers!
On 12 August 2011 -- in a comment titled 'CME raised Gold margins by 22%' -- I described conditions such that your reply was 'Ah, implies it's a real bubble'. Of course, when platinum goes over gold, that's a "real bubble," and some professional goldbugs at that time were advising their followers to sell bullion in favor of taking bullish positions in gold miners (equity shares).
This is a time that many investors who normally would not be goldbugs turn to gold simply because of uncertainty (see, Fear, Greed and Uncertainty on what I call the "uncertainty industry") In such a time, I don't pretend to know if the global gold market is a "real bubble" or not. The way I prefer to state the situation is that the price of gold is the primary indicator of the global liquidity crisis, although there are important questions as to diminishing resources and increasing production expense.
Obviously, there are bubble-like aspects, but in the nature of financial bubbles, solid proof that it is a "real" bubble can only be retrospective -- when the bubble bursts in a crash. I doubt very much whether there will be such a gold crash in 2011. I would describe the current gold market in terms of bounded rationality.
Rule 48 is also describable in terms of bounded rationality.
About your link to Matt Phillips "Cliff Notes version" of Rule 48, here's my 2¢ --
(1) What is the operational meaning of Phillips' part (a) -- stating the precondition necessary for "a qualified Exchange officer" to "declare an extreme market volatility condition" for the purpose of invoking Rule 48 before the opening after a more-or-less normal closing -- a close that was about as "fair and orderly" as things get these days? The answer in the context of 18 August 2011 is that "a qualified Exchange officer" made a finding based on futures markets (not necessarily limited to NYSE) that "extremely high market volatility is likely to have a Floor-wide [involving many Market Makers or categories] impact on the ability of [Market Makers, i.e., certain specialized brokers on the Floor] "to arrange for the fair and orderly opening following any, (including relatively normal) "closing of trading at the Exchange." Operationally, futures trading between market closing and market opening can be the basis for an anticipatory invoking of Rule 48 at the next opening, in a less-than-fully-transparent process.
(2) According to Phillips' part (b), as applied to the case of 18 August 2011, Rule 48 suspends at the opening all normally "applicable requirements to make pre-opening indications in a security (Rules 15 and 123D(1))." What happens operationally as described at Phillips' part (b)? The answer can be seen in a hypothetical example: Widget Maker X ('WMX') closed at a low of $10.50 (down from a high in March of $11.25) and then it opens with a discontinuity at $9.95. Anyone, including computers, who has decided that $10.00 (or $10.10 or $10.25) was their floor immediately sells. The price falls. Others, seeing that this discontinuous jump downward has occurred will jump on the bandwagon ASAP. The price falls further. If there is any kind of bad economic and/or politico-economic news and if fear is dominating the market ... well, it's obvious, isn't it?
I cannot say for sure that invoking Rule 48 did not have adequate justification in fundamentals reflected in futures trading noticed by "a qualified Exchange officer." However, I can say that Rule 48 opens up all kinds of opportunities for brokers -- especially if there is insider advance information available to some but not others and especially when it's far from impossible to make anticipatory moves (computer managed) in markets open while New York is closed.
I am not convinced of the rationale that Rule 48 works for the good of all by "smoothing" at the open. I may even suggest that such theorizing verges on the area of untested "economic fiction" that should not be tolerated at EP. At the least, we should not accept without questioning the official explanation of what Rule 48 does, why it is invoked in a particular case, the wisdom of invoking it in a particular case, and so forth.
Market as cause or effect of fundamentals.
Yes, of course. It's the Chinese puzzle, isn't it? The riddle wrapped in the enigma? Synergy? Synchronicity? Parasitism? Symbiosis? Stupidity? Greed? Conspiracy? Coincidence?
My answer is, "Ya sure! "
That's my 2¢ and I suppose, in the interest of full disclosure, I should say that I distrust brokers without exception. And brokers' licensed sales people? Don't get me started!
Since I just did up these graphs as an fast exercise, to see if there was a pattern by "eyeballing it". I went reading after I wrote this and posted some basic graphs and found the Philly Fed Business activity index has a historic 75% correlation to the ISM manufacturing PMI. That doesn't surprise me at all from the above exercise in comparing the ISM manufacturing new orders to the Philly Fed new orders index, especially considering the region the Philly Fed index covers in manufacturing.
I also found other research which showed the Chicago index as well as another index are correlated to predicting future economic growth, see SF Fed link.
Seems the CFNAI, or Chicago index, is also a good predictor of recessions, early predictor.
Previously, I ignored regional indicators, preferring more quantitative metrics, such as how much stuff has been sold, how many people have been hired and so on...
The above exercise in graphs has prompted me to cover these additional indexes in overviews and possibly do some regression analysis, correlations. ....stay tuned!
First, it's a very good idea to explain what you are talking about. Rule 48 is a method to smooth the market open with stops.
On the markets, I saw a commentary on CNN international which says it all, this is "like" 2008 because politicians never solved the original problems plus sovereign nations simply took on the banks liabilities (bail outs).
Yes, we have scum trying to claim reductions in social safety nets (the call them entitlements to mask the fact they are going to screw over most of America), is the thing to do.
Completely false. But is this 2008 redux? I don't know. I certainly think a market crash to this degree and global, almost pushes a recession to happen.
When markets crash, corporations slash and burn their workforce and all sorts of other things happen which cause the real economy to contract.
So, bottom line, in terms of more recession, it's looking bad at the moment. I hate covering markets because it changes too fast and this is a print, not TV.
But probably a weekly summary is in order. I stick by that $2100 gold high.
A global downward economic trend appears to be clear, as EP has predicted for the U.S. as a result of willy-nilly congressional budget cuts and other asinine legislation or lack of legislation, plus effects of corporate outsourcing.
"Seems traders were right to plunge the Dow -419.63 on news of this regional data release, from examining the above graphs." -- Robert Oak
Financial commentators seem to have two theories that together cover all possibilities: if nothing happens, that means the news was discounted by the market, or, if something happens, that means the market "reacted." It's much better for brokers when the market "reacts" ... the oftener and more sharply the better.
Yesterday, it was all 'reaction', as the market put on its dunce hat and bragged about its lack of prescience. It was, commentators opined, delayed reaction to regulatory action (such as subpoenas) and to threats of new regulatory methods (Merkozy). Then, almost as an afterthought, commentators noted reaction to economic fundamentals -- where fundamentals such as business activity indexes are themselves influenced by business and investor reaction to such things as the S&P downgrade of US Treasury notes. (Of course, it's speculative about reaction affecting business activity, but there are apolitical sources like Random Lengths expressing such opinions.)
What I wonder about is corporate 'regulatory' action not subject to governmental regulation -- namely NYSE's Rule 48. Could invoking Rule 48 have telegraphed a message that assured a somewhat precipitous decline at the open yesterday (Thursday, 18 August 2011)?
After all, what are people or computers going to do when the open today is suddenly under what they thought was the floor yesterday? Buy? ... Yeah, maybe, if the news on fundamentals happened to be approximately good, but then Rule 48 would not have been invoked. Besides, why buy at the open when a decline has been telegraphed in advance by the very wise powers-that-be? (Of course, invoking Rule 48 is based on somebody's interpretation of recent futures trading.)
It doesn't have to be a major shift in the floor to have a tremendous psychological effect. It's like an earthquake. Even a small sudden lowering of the floor in your office on the 34th floor or of the street level outside can cause major traffic jams and overflow crowds at downtown pubs. It can also get you results if you can place winning bets on it happening.
This kind of 'regulatory' action had better have some fundamentals underpinning it, considering that it opens opportunities for brokers as to volume plus possible insider connections plus whatever is collaterally happening on the other side of the planet, between New York's close today and New York's open tomorrow.
Rule 48 is presented as the NYSE's contribution to the cause of global stability. Supposedly, Rule 48 "smooths" the open. Hmmmm. Really?
From the point of view of the economy, the only thing that we would like to see now in financial markets is stability. Many investors could be open to looking to feed on a bottom, but they are fearful of "catching a falling knife". Of course, none fear a blade of gold ... except that if you catch that knife on the way up, you're likely to hold on to it for dear life, like Gollum and the Ring ... which could mean that you risk losing out on investments that produce dividends over the long term.
Goldbugs cannot quite suppress the idea that gold delivers no dividends. There's this almost legendary idea about people who bought AT&T in 1935 and lived off the dividends for many good years thereafter, ultimately raking in fortunes when AT&T was split up.
Of course, back in the 1930s, the regulation-monster FDR made it illegal to own gold, which put a real crimp into the gold market. (You didn't have to be a 'leftist' back then to praise FDR for that restriction on gold.) Also, back then, U.S. investors weren't crazy about investing in 'emerging markets' like China. Plus, there were (shudder!) tariff barriers!
Tea Party rhetoric about families balancing budgets is that families do not have to go to war, fix roads, bridges, and airports and they can tell their neighbors to go to hell when hard times hit. When granny gets a terminal illness, you can't just put her out to feed the bears. If you tell the government to use the family as a model for budgeting, how do they get the scientific expertise to treat cancer, the tanks and aircraft to keep the Russians from taking back Alaska and what do you do when BP spills mega-quantities on the beaches near your home? Next time you feel like drinking clean water, drill a well in your back yard. Oh yes, also tell the banks to budget like a family -- don't borrow money you can't pay back or take the depositors money to Las Vegas and put it all on red.
Aside from that I am very attached to my rights as spelled out in the Bill of Rights, I don't mind that the Tea Party has some religious fervor. If their mantra is entirely negative and about lowering taxes without closing loopholes, then NO, that's a scam, not religious fervor. But if their mantra is about the best interests of working families in America, then OKAY, let's all be religious about that!
So what I say is:
Give the Tea Party a chance!
Let's see what happens on the FTA votes coming up.
Will there be any real opposition on the Republican side of the House? There is some opposition on the Democrat side. See ...
What's happening this week so far on "Wall Street" (U.S. face of global capital)? That is, what is the context of today's disaster on the NYSE and DJIA? In general, the context appears to be a recommencing of the global liquidity crisis, with gold seeking new highs. Whether the gold market is a "true bubble" (Robert Oak), or not, I cannot say. IMO, the price of gold is an indicator of the liquidity crisis more than a matter of ordinary supply and demand based on diminishing resources. Silver price, on the other hand, I see more as an indicator of increasing social instability. There's also rising value of agricultural land to be considered, although that's a much more complex equation.
The broader market has given a big raspberry to the Merkel-Sarkozy Press Conference to Save the Universe, but stock-exchange operators are taking it particularly hard ...
This could also be part of what’s bothering bank stocks although they were falling before the Merkozy comments.
The New York Stock Exchange and NYSE Amex Cash Markets on Thursday invoked a rule to smooth trading at the market open ... Rule 48 allows the exchange to suspend price indications that help determine the floor price at the open [due to] "substantial activity in the futures market before the open."
U.S. stock index futures pointed to a sharply lower open as a report that regulators were intensifying their review of European banks' U.S. units shook up investors.
That's my citation to fact. And here's my spin, my 2¢ worth, although I cite sources as in support of my argument.
Let's grant that the "Merkozy comments" amount to a proposal "to Save the Universe" -- or anyway a proposal to save the old 'First World' part of the brave new WTO world system. Mere announcement of the possibility of a regulatory attempt at the control of global capital flows appears to be marked to play a major "fall guy" to be blamed for further flight from currency by global capital, that is, a further global liquidity crisis.
Sarkozy-Merkel announcement, however, is only one aspect of the total U.S. economic outlook within a global liquidity crisis. See, e.g., comment today by Robert Oak, let me fix your fallacy
Can it be that democratic governments are, or are rapidly becoming, powerless to intervene in what may well be the Second Great World Depression? If so, that will surely mean that democratic governments will inevitably become either radicalized in one direction or another and/or dysfunctional. In the U.S.A. in particular, trade and/or capital flow barriers will become as inevitable as strengthened barriers to the flow of labor already are.
(It's clear that strengthened barriers to labor inflows have become inevitable -- even though the Obama administration continues to oppose them and even though elimination of barriers of all kinds continues supported by national corporate media and by virtually all national political elites.)
An important factor in the trend toward strengthening barriers has been social instability correlating with advance of the internationalist agenda to eliminate national barriers. I hope no one will read me as using the word "internationalist" as meaning "evil" or whatever. When I use words like "internationalist" or "corporatist", I intend narrow and non-emotional interpretations. The bottom line is that the political situation today would be very different if the agenda implemented on behalf of global capital -- and designed according to pie-in-the-sky 'free' trade theories -- were a great success story for American working people or for other peoples globally.
The Gordian Knot that cannot be disentangled will by rent by a radical sword. This may, or may not, be a sword of peace. Hopefully, the sword used here in the U.S.A. will be the monetary/financial reform proposed by the American Monetary Institute, but that sword could be something much uglier and with much bloodier consequences.
Meanwhile, there do not appear to be any successful barriers to global social unrest unless those barriers include loss of our basic Constitutional liberty. (Guardian, Ted Trautman, photo by Jeff Chiu, AP, 18 August 2011). If this is radical talk, then many former Republicans, such as Paul Craig Roberts, have become radicalized recently.
Our effective political choice, if we have a choice beyond the media-managed presidential circus of 2012, may be between some version of a radical populist reform, including aspects of protectionism, and an increasingly repressive police state. The repressive police state option is well represented, but where are the populist leaders?
BTW: Don't miss great photo (by Jeff Chiu of AP) of recent BART protest! (I did not grab the photo and post it here only because of the copyright issue.)
Watch votes by your congress critturs on these FTAs! The people shall judge! Ye shall know the truth, and the truth shall make you free!
That is false. The reason it's false is reduced government spending as well as reduced taxes do not create jobs. It's false statistically and it's false theoretically and this is why: savings, investment and globalization. When giving away money to corporations through paying no taxes they do not expand, they redistribute those profits to investors, often through dividends. Investors, the higher income brackets to not increase spending, they use the money to reinvest, save.
Also, these days it's common for investors as well as corporations to move offshore, expand overseas and they love to invest in emerging economies, not the United States.
Statistically the evidence shows that tax cuts do not generate jobs. From GDP multipliers to correlations, it's not there. You can put money into the hands of the bottom of the income ladder and that does help the economy, because they spend it, goes into personal consumption expenditures but private investment? Nope.
We're proved this many a time on this site, with the statistics, graphs, historical data.
Let me fix your fallacy to reflect reality: "By taking one half of this equation out of the discussion, the Tea Party is" attempting to force government to balance it's budget like every American family. Unless the average American family has the ability to put a gun (the government uses the IRS) to the head of their employer and force their employer to pay them more in salary. (which is what raising taxes is all about...putting a gun to the head of the people and demanding more money)
what don't you get...is that the TEA party is tired of the class warfare and redistribution of wealth on the part of government.
Increasing Government jobs demand more tax dollars...allowing more money (NOT GOVERNMENT HANDOUTS WHICH ARE TAX DOLLARS TO BEGIN WITH) into the private sector will create private sector jobs that are paid by the economy and generate revenue twice...on the business' profit and on the salary paid to the employees...not to mention sales tax and other taxes that affect the equation.
Your are welcome for this brief but insightful education regarding your illogical reasoning.
This is a good collection of the statistics in a single document. I think the notion of a 'war' is an appropriate one in the context of what is happening. The stats are scary and extrapolating them is even scarier I think. One observation in the paper is that the US spent more on prison construction than on homes for the poor - if you want a home go prison.
is due to trade. It can act like a tariff and can be dynamic, adjusted daily even. They are already legal w/n the WTO.
It is regressive and it is on the consumer, end good. You're right, in Europe you cannot afford certain things due to a VAT and politics with their whatever agendas can make it very irritating, say "we've decided no one should be able to buy an imported luxury car" and out comes a VAT.
On the other hand almost every other nation has a VAT and this is another reason we have such a large trade deficit, are getting tanked by globalization.
Why does President Obama refer to S&P as an "Agency?" They are a corporation. They act as a person with opinions, as does Goldman Sachs, Jim Rogers, and Gary Kaminsky. Why should they have any authority when they say the full faith and credit of the United States is riskier today than it was yesterday? The interest rate on the 10 year treasury tells me more than S&P. If they are an agency, to whom do they answer when they make mistakes?
Making Bush tax rates permanent will require bipartisan support. Re
publicans will insist on adherence to the Norguist no tax rate increase pledge. Democrats will require increased revenues to replace the loss which will come with no change in existing tax law. There is a $600 trillion market which will accommodate both conditions.
Derivatives.
The $600 trillion market for Derivatives is 40 times the value of the US stockmarket - yet most Americans have never heard of it. A tiny 0.5% transfer fee when these billion dollar contracts trade would raise $4 trillion over 10 years - enough to cover the Bush tax rates (which are scheduled to bring in an additional $3.8 trillion) at current levels. Something both sides can agree to and still declare victory.
No change from current income tax brackets. No cuts to Medicare or Social Security.
Whoever announces this solution first will reap a publicity windfall which will improve their standing in the polls and bring in substantial campaign contributions. It is a race to be the leader who puts this idea into the public domain and champion a position both sides can support.
See www.howtopayoffthenationaldebt.wordpress.com for details.
How many have been writing about the credit rating agencies and how many SEC scandals does it take?
Our government is so corrupt, it's clear if you're a > $100M anything you can get away with anything.
Destruction of evidence may not have been 'authorised' but it appears to have been an ingrained policy and modus operandi of the SEC that goes back a long time. A 'you commit the crime and we'll clean up the evidence behind you' approach.
So no evidence, no paper or electronic trails, no chance of being caught....total and utter regulatory failure. Rotten to the core.
http://www.ritholtz.com/blog/2011/08/the-real-reason-the-sec-has-been-sh...
He really does a pretty good job in forecasting, but he uses a lot of multipliers.
Some of these, due to globalization, and conditions not implemented, I have to wonder about in 2011.
That said, these graphs are not correlations. I have to run the numbers and frankly my Matlab skills don't translate to Excel so easily, but regardless I'll run some.
but putting up a matching time line and then two lines of data does not a ocrrelation EQ make.
I was just curious, I literally didn't know about all of this research correlating the two.
This 30.7 index point plunge is dramatic, even for a survey, but you can see it happened in 11/08 too. That's pretty damn bad.
Anyway, we're working on it. Gotta get that "formula" section of Excel humming it looks like.
Ever since the collapse of Enron, taking down the most reputable accounting firms, involving suicides, prison sentences and paper trails ending in Grand Cayman POBs for limited partnerships ... it's been obvious.
The old days when there were honorable giants such as A.P. Giannini active in financial circles, when there was still a creditable honor system, when at least life insurance firms invested into a future with a horizon of 50 years ... those days are long gone. (Well, except that we do have Warren Buffet, although Berkshire owns or controls Moody's.)
What we have today is a world system that is best briefly described as the WTO or finance-capitalism world-system of currency mercantilism, where mercantilism means that governments are involved in every business decision. Indeed, governmental action is at the heart of every business decision. And, accordingly, corruption is endemic, integrated like the rest of the global economy into a profits-over-all corporatist structure. It is puerile in this world to object to governmental regulation as such, as though on principle.
As for ratings agencies, the proof is in the pudding. They have always been based, and can only be based, on their performance records continuing over time as good as gold. Those agencies developed in another world, specifically a pre-computer world of big expensively bound books. What's the point today? They are being replaced as we speak. Do we really imagine that the U.S. committee at the People's Bank of China turns to a shelf and pulls out Moody's and S&P when considering what to do about US Treasuries?
When they fail to adhere to their own high standards, these credit agencies are done ... kaput ... finished. Somebody needs to start over from scratch. Many somebodies. And they are!
Berkshire is scrambling to keep Moody's alive. Maybe Moody's will survive. But for my 2¢ worth, what's the point? It's mostly become a defensive thing for Berkshire in the currency wars.
I am always afraid that some will think that when I use words such as "currency mercantilism," I am arguing for socialism or whatever. I do advocate monetary-financial reforms, but when I describe economic/financial conditions, I am really intending objective, not polemical, interpretation of every word that I use.
Robert Oak:
As for '2008 redux', I don't see any great advantage for our understanding in that characterization, although of course we should keep all history in mind always.
About that governments have failed and are failing to institute necessary controls on global capital flows? NO DOUBT! This has been noted by European economists for at least two decades now. Part of the 2011 story is that some factions of 'Wall Street' (in an international form) may be waging a 'scorched earth' defense in a war with regulators. We can't say that all of 'Wall Street' is involved because Warren Buffet leads a substantial part of 'Wall Street'.
Gold
I have previously, and continue now, neither to confirm nor to deny your estimate or "target" (to use goldbug terminology) of $2100 per Troy ounce by EOY 2011. I did raise the question 'Gold fever breaking?', and there was some cooling off. I considered that important because anytime that there are margins made available and there appears to be an irreversible (monotonic) trend line, we're risking courting a bubble, IMO. Of course, gold has turned around to continue its ascent heavenward, as I have noted in my earlier blog (above) or as stated so eloquently by 'Forex Tutorial' -- who was kind enough to take a moment away from a very busy day filling orders at Forex
.
Any discussion of the global gold market here at EP, I presume, concerns the price of gold as the primary indicator of the global liquidity crisis. There was a point recently, as the budget show was closing in Washington (with whatever insider trading effects we will never know) and an ounce of platinum fetched more than an ounce of gold, that the irrationality of the gold market was exposed, resulting in a correction, a momentary breaking of the gold fever. See, Thousands of circuit breakers!
On 12 August 2011 -- in a comment titled 'CME raised Gold margins by 22%' -- I described conditions such that your reply was 'Ah, implies it's a real bubble'. Of course, when platinum goes over gold, that's a "real bubble," and some professional goldbugs at that time were advising their followers to sell bullion in favor of taking bullish positions in gold miners (equity shares).
This is a time that many investors who normally would not be goldbugs turn to gold simply because of uncertainty (see, Fear, Greed and Uncertainty on what I call the "uncertainty industry") In such a time, I don't pretend to know if the global gold market is a "real bubble" or not. The way I prefer to state the situation is that the price of gold is the primary indicator of the global liquidity crisis, although there are important questions as to diminishing resources and increasing production expense.
Obviously, there are bubble-like aspects, but in the nature of financial bubbles, solid proof that it is a "real" bubble can only be retrospective -- when the bubble bursts in a crash. I doubt very much whether there will be such a gold crash in 2011. I would describe the current gold market in terms of bounded rationality.
Rule 48 is also describable in terms of bounded rationality.
About your link to Matt Phillips "Cliff Notes version" of Rule 48, here's my 2¢ --
(1) What is the operational meaning of Phillips' part (a) -- stating the precondition necessary for "a qualified Exchange officer" to "declare an extreme market volatility condition" for the purpose of invoking Rule 48 before the opening after a more-or-less normal closing -- a close that was about as "fair and orderly" as things get these days? The answer in the context of 18 August 2011 is that "a qualified Exchange officer" made a finding based on futures markets (not necessarily limited to NYSE) that "extremely high market volatility is likely to have a Floor-wide [involving many Market Makers or categories] impact on the ability of [Market Makers, i.e., certain specialized brokers on the Floor] "to arrange for the fair and orderly opening following any, (including relatively normal) "closing of trading at the Exchange." Operationally, futures trading between market closing and market opening can be the basis for an anticipatory invoking of Rule 48 at the next opening, in a less-than-fully-transparent process.
(2) According to Phillips' part (b), as applied to the case of 18 August 2011, Rule 48 suspends at the opening all normally "applicable requirements to make pre-opening indications in a security (Rules 15 and 123D(1))." What happens operationally as described at Phillips' part (b)? The answer can be seen in a hypothetical example: Widget Maker X ('WMX') closed at a low of $10.50 (down from a high in March of $11.25) and then it opens with a discontinuity at $9.95. Anyone, including computers, who has decided that $10.00 (or $10.10 or $10.25) was their floor immediately sells. The price falls. Others, seeing that this discontinuous jump downward has occurred will jump on the bandwagon ASAP. The price falls further. If there is any kind of bad economic and/or politico-economic news and if fear is dominating the market ... well, it's obvious, isn't it?
I cannot say for sure that invoking Rule 48 did not have adequate justification in fundamentals reflected in futures trading noticed by "a qualified Exchange officer." However, I can say that Rule 48 opens up all kinds of opportunities for brokers -- especially if there is insider advance information available to some but not others and especially when it's far from impossible to make anticipatory moves (computer managed) in markets open while New York is closed.
I am not convinced of the rationale that Rule 48 works for the good of all by "smoothing" at the open. I may even suggest that such theorizing verges on the area of untested "economic fiction" that should not be tolerated at EP. At the least, we should not accept without questioning the official explanation of what Rule 48 does, why it is invoked in a particular case, the wisdom of invoking it in a particular case, and so forth.
Market as cause or effect of fundamentals.
Yes, of course. It's the Chinese puzzle, isn't it? The riddle wrapped in the enigma? Synergy? Synchronicity? Parasitism? Symbiosis? Stupidity? Greed? Conspiracy? Coincidence?
My answer is, "Ya sure! "
That's my 2¢ and I suppose, in the interest of full disclosure, I should say that I distrust brokers without exception. And brokers' licensed sales people? Don't get me started!
Which indicators work as predictors, leading correlation, etc.?
Excellent research questions. Good work! (And I think we do all realize that there's a lot of work involved.)
Since I just did up these graphs as an fast exercise, to see if there was a pattern by "eyeballing it". I went reading after I wrote this and posted some basic graphs and found the Philly Fed Business activity index has a historic 75% correlation to the ISM manufacturing PMI. That doesn't surprise me at all from the above exercise in comparing the ISM manufacturing new orders to the Philly Fed new orders index, especially considering the region the Philly Fed index covers in manufacturing.
I also found other research which showed the Chicago index as well as another index are correlated to predicting future economic growth, see SF Fed link.
As well as the real time business conditions index, also by the Philadelphia Fed.
Seems the CFNAI, or Chicago index, is also a good predictor of recessions, early predictor.
Previously, I ignored regional indicators, preferring more quantitative metrics, such as how much stuff has been sold, how many people have been hired and so on...
The above exercise in graphs has prompted me to cover these additional indexes in overviews and possibly do some regression analysis, correlations. ....stay tuned!
Ahem. The stock market crash is also impacting the forex trade, if you know what I mean. the rest as they say, will be history soon! :-|
First, it's a very good idea to explain what you are talking about. Rule 48 is a method to smooth the market open with stops.
On the markets, I saw a commentary on CNN international which says it all, this is "like" 2008 because politicians never solved the original problems plus sovereign nations simply took on the banks liabilities (bail outs).
Yes, we have scum trying to claim reductions in social safety nets (the call them entitlements to mask the fact they are going to screw over most of America), is the thing to do.
Completely false. But is this 2008 redux? I don't know. I certainly think a market crash to this degree and global, almost pushes a recession to happen.
When markets crash, corporations slash and burn their workforce and all sorts of other things happen which cause the real economy to contract.
So, bottom line, in terms of more recession, it's looking bad at the moment. I hate covering markets because it changes too fast and this is a print, not TV.
But probably a weekly summary is in order. I stick by that $2100 gold high.
A global downward economic trend appears to be clear, as EP has predicted for the U.S. as a result of willy-nilly congressional budget cuts and other asinine legislation or lack of legislation, plus effects of corporate outsourcing.
Financial commentators seem to have two theories that together cover all possibilities: if nothing happens, that means the news was discounted by the market, or, if something happens, that means the market "reacted." It's much better for brokers when the market "reacts" ... the oftener and more sharply the better.
Yesterday, it was all 'reaction', as the market put on its dunce hat and bragged about its lack of prescience. It was, commentators opined, delayed reaction to regulatory action (such as subpoenas) and to threats of new regulatory methods (Merkozy). Then, almost as an afterthought, commentators noted reaction to economic fundamentals -- where fundamentals such as business activity indexes are themselves influenced by business and investor reaction to such things as the S&P downgrade of US Treasury notes. (Of course, it's speculative about reaction affecting business activity, but there are apolitical sources like Random Lengths expressing such opinions.)
A big idea for many commentators -- who are, for the most part, on the payrolls of MNCs -- is that it's all the fault of regulatory efforts. See, e.g., current Breakout interview of Jon Najarian (Yahoo! Finance)
What I wonder about is corporate 'regulatory' action not subject to governmental regulation -- namely NYSE's Rule 48. Could invoking Rule 48 have telegraphed a message that assured a somewhat precipitous decline at the open yesterday (Thursday, 18 August 2011)?
After all, what are people or computers going to do when the open today is suddenly under what they thought was the floor yesterday? Buy? ... Yeah, maybe, if the news on fundamentals happened to be approximately good, but then Rule 48 would not have been invoked. Besides, why buy at the open when a decline has been telegraphed in advance by the very wise
powers-that-be? (Of course, invoking Rule 48 is based on somebody's interpretation of recent futures trading.)
It doesn't have to be a major shift in the floor to have a tremendous psychological effect. It's like an earthquake. Even a small sudden lowering of the floor in your office on the 34th floor or of the street level outside can cause major traffic jams and overflow crowds at downtown pubs. It can also get you results if you can place winning bets on it happening.
This kind of 'regulatory' action had better have some fundamentals underpinning it, considering that it opens opportunities for brokers as to volume plus possible insider connections
plus whatever is collaterally happening on the other side of the planet, between New York's close today and New York's open tomorrow.
Rule 48 is presented as the NYSE's contribution to the cause of global stability. Supposedly, Rule 48 "smooths" the open. Hmmmm. Really?
From the point of view of the economy, the only thing that we would like to see now in financial markets is stability. Many investors could be open to looking to feed on a bottom, but they are fearful of "catching a falling knife". Of course, none fear a blade of gold ... except that if you catch that knife on the way up, you're likely to hold on to it for dear life, like Gollum and the Ring ... which could mean that you risk losing out on investments that produce dividends over the long term.
Goldbugs cannot quite suppress the idea that gold delivers no dividends. There's this almost legendary idea about people who bought AT&T in 1935 and lived off the dividends for many good years thereafter, ultimately raking in fortunes when AT&T was split up.
Of course, back in the 1930s, the regulation-monster
FDR made it illegal to own gold, which put a real crimp into the gold market. (You didn't have to be a 'leftist' back then to praise FDR for that restriction on gold.) Also, back then, U.S. investors weren't crazy about investing in 'emerging markets' like China. Plus, there were (shudder!) tariff barriers!
Tea Party rhetoric about families balancing budgets is that families do not have to go to war, fix roads, bridges, and airports and they can tell their neighbors to go to hell when hard times hit. When granny gets a terminal illness, you can't just put her out to feed the bears. If you tell the government to use the family as a model for budgeting, how do they get the scientific expertise to treat cancer, the tanks and aircraft to keep the Russians from taking back Alaska and what do you do when BP spills mega-quantities on the beaches near your home? Next time you feel like drinking clean water, drill a well in your back yard. Oh yes, also tell the banks to budget like a family -- don't borrow money you can't pay back or take the depositors money to Las Vegas and put it all on red.
Aside from that I am very attached to my rights as spelled out in the Bill of Rights, I don't mind that the Tea Party has some religious fervor. If their mantra is entirely negative and about lowering taxes without closing loopholes, then NO, that's a scam, not religious fervor. But if their mantra is about the best interests of working families in America, then OKAY, let's all be religious about that!
So what I say is:
Give the Tea Party a chance!
Let's see what happens on the FTA votes coming up.
Will there be any real opposition on the Republican side of the House? There is some opposition on the Democrat side. See ...
A test for the Tea Party
What's happening this week so far on "Wall Street" (U.S. face of global capital)? That is, what is the context of today's disaster on the NYSE and DJIA? In general, the context appears to be a recommencing of the global liquidity crisis, with gold seeking new highs. Whether the gold market is a "true bubble" (Robert Oak), or not, I cannot say. IMO, the price of gold is an indicator of the liquidity crisis more than a matter of ordinary supply and demand based on diminishing resources. Silver price, on the other hand, I see more as an indicator of increasing social instability. There's also rising value of agricultural land to be considered, although that's a much more complex equation.
Excerpting from August 16 WSJ MarketBeat (Mark Gongloff) --
Excerpting from August 18 Reuters report 'NYSE Braces for Volatile Open' --
That's my citation to fact. And here's my spin, my 2¢ worth, although I cite sources as in support of my argument.
Let's grant that the "Merkozy comments" amount to a proposal "to Save the Universe" -- or anyway a proposal to save the old 'First World' part of the brave new WTO world system. Mere announcement of the possibility of a regulatory attempt at the control of global capital flows appears to be marked to play a major "fall guy" to be blamed for further flight from currency by global capital, that is, a further global liquidity crisis.
Sarkozy-Merkel announcement, however, is only one aspect of the total U.S. economic outlook within a global liquidity crisis. See, e.g., comment today by Robert Oak, let me fix your fallacy
Can it be that democratic governments are, or are rapidly becoming, powerless to intervene in what may well be the Second Great World Depression? If so, that will surely mean that democratic governments will inevitably become either radicalized in one direction or another and/or dysfunctional. In the U.S.A. in particular, trade and/or capital flow barriers will become as inevitable as strengthened barriers to the flow of labor already are.
(It's clear that strengthened barriers to labor inflows have become inevitable -- even though the Obama administration continues to oppose them and even though elimination of barriers of all kinds continues supported by national corporate media and by virtually all national political elites.)
An important factor in the trend toward strengthening barriers has been social instability correlating with advance of the internationalist agenda to eliminate national barriers. I hope no one will read me as using the word "internationalist" as meaning "evil" or whatever. When I use words like "internationalist" or "corporatist", I intend narrow and non-emotional interpretations. The bottom line is that the political situation today would be very different if the agenda implemented on behalf of global capital -- and designed according to pie-in-the-sky 'free' trade theories -- were a great success story for American working people or for other peoples globally.
The Gordian Knot that cannot be disentangled will by rent by a radical sword. This may, or may not, be a sword of peace. Hopefully, the sword used here in the U.S.A. will be the monetary/financial reform proposed by the American Monetary Institute, but that sword could be something much uglier and with much bloodier consequences.
Meanwhile, there do not appear to be any successful barriers to global social unrest unless those barriers include loss of our basic Constitutional liberty. (Guardian, Ted Trautman, photo by Jeff Chiu, AP, 18 August 2011). If this is radical talk, then many former Republicans, such as Paul Craig Roberts, have become radicalized recently.
Our effective political choice, if we have a choice beyond the media-managed presidential circus of 2012, may be between some version of a radical populist reform, including aspects of protectionism, and an increasingly repressive police state. The repressive police state option is well represented, but where are the populist leaders?
BTW: Don't miss great photo (by Jeff Chiu of AP) of recent BART protest! (I did not grab the photo and post it here only because of the copyright issue.)
Watch votes by your congress critturs on these FTAs! The people shall judge! Ye shall know the truth, and the truth shall make you free!
It's a Test for the Tea Party!
That is false. The reason it's false is reduced government spending as well as reduced taxes do not create jobs. It's false statistically and it's false theoretically and this is why: savings, investment and globalization. When giving away money to corporations through paying no taxes they do not expand, they redistribute those profits to investors, often through dividends. Investors, the higher income brackets to not increase spending, they use the money to reinvest, save.
Also, these days it's common for investors as well as corporations to move offshore, expand overseas and they love to invest in emerging economies, not the United States.
Statistically the evidence shows that tax cuts do not generate jobs. From GDP multipliers to correlations, it's not there. You can put money into the hands of the bottom of the income ladder and that does help the economy, because they spend it, goes into personal consumption expenditures but private investment? Nope.
We're proved this many a time on this site, with the statistics, graphs, historical data.
Let me fix your fallacy to reflect reality: "By taking one half of this equation out of the discussion, the Tea Party is" attempting to force government to balance it's budget like every American family. Unless the average American family has the ability to put a gun (the government uses the IRS) to the head of their employer and force their employer to pay them more in salary. (which is what raising taxes is all about...putting a gun to the head of the people and demanding more money)
what don't you get...is that the TEA party is tired of the class warfare and redistribution of wealth on the part of government.
Increasing Government jobs demand more tax dollars...allowing more money (NOT GOVERNMENT HANDOUTS WHICH ARE TAX DOLLARS TO BEGIN WITH) into the private sector will create private sector jobs that are paid by the economy and generate revenue twice...on the business' profit and on the salary paid to the employees...not to mention sales tax and other taxes that affect the equation.
Your are welcome for this brief but insightful education regarding your illogical reasoning.
This is a good collection of the statistics in a single document. I think the notion of a 'war' is an appropriate one in the context of what is happening. The stats are scary and extrapolating them is even scarier I think. One observation in the paper is that the US spent more on prison construction than on homes for the poor - if you want a home go prison.
http://ampedstatus.org/download-free-pdf-kindle-word-doc-of-full-report-...
As for the right wing religious nutters they are scary.
Anon. says "You're forgetting gas industry. Fracking."
... but that was included by reference to toxic pollution of water table and also air pollution.
is due to trade. It can act like a tariff and can be dynamic, adjusted daily even. They are already legal w/n the WTO.
It is regressive and it is on the consumer, end good. You're right, in Europe you cannot afford certain things due to a VAT and politics with their whatever agendas can make it very irritating, say "we've decided no one should be able to buy an imported luxury car" and out comes a VAT.
On the other hand almost every other nation has a VAT and this is another reason we have such a large trade deficit, are getting tanked by globalization.
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