At least this is the likely outcome of the current regulation imposed by the SEC and Britain's FSA. They are targeting "short sellers" and saying they are leading to erratic and unjustified market trepidation and volatility. The idea is that short sellers are "shorting" equities in droves and doing what is called a "naked short", this is when a short seller shorts a stock without first officially borrowing the stock. They thus imposed rules that say this can no longer happen.
While I agree laws should not be broken, there are laws that already disallow this to some measure, this type of legislation at this stage of an economic downturn is unhelpful. Markets are living dynamic places with, for lack of a better term a heartbeat and a soul (not in the same vein as the one provided for us by God) but a conscience and self awareness. That said, typically in a downturn you will see a leg down followed by a relief rally, followed by a leg down etc. until you see this giant massive capitulation and this will be the firm floor the market will put in to build off of.
This Chart of the USD/JPY is a good example of what a down trend looks like. You can clearly see the relief rally that took place during the month of December. However, you see the massive capitulation from the end of December through the middle of March. I'm slightly overstating massive capitulation but you can see where the market is searching for a bottom. Once it found the bottom in the beginning of March you can see it begin to recover and form a nice uptrend.
Now I'm not suggesting that the Dollar is going to get stronger versus the Yen, in fact my feeling is the exact opposite, but I wanted to point out this chart as an example.
With the regulation put forth in the last week we are not likely to see a capitulation where the market has an opportunity to find a bottom. Instead, because of the terrible fundamentals in the US and the increase of regulation we are likely to see a slow bumbling economy and stock market over the next few years.
It is the same with Housing, we are trying to prop up banks and the Housing sector and instead of values for houses massively falling all at once they will slowly be nibbled away over a greater period of time.
When I was younger, and would get in trouble, my Dad would always ask my brother and I if we wanted a spanking or to be put on restriction. We learned very quickly a spanking, though painful, was over quickly and we were outside playing, restriction lasted longer and was more annoying. All of this supposed help in the form of government intervention is exactly like being put on restriction for the next 3-5 years. I would much rather go through some pain in the next 6-18 months then sit and watch out the window over the next 3-5 years waiting for the time I can go out to play. But that is just me. Good luck in the market.
My Thoughts on the economy and investing, food, family, News, events, church and all things Billy Bayne.
July 26, 2008
1 cup of starter
1/3 cup of oil
3/4 teaspoon of baking soda
1/4 teaspoon of salt
1 cup of flour
Mix starter and oil. Add dry ingredients. Mix well. Drop by tablespoons on an ungreased cookie sheet. Bake at 350ºF. for 10 to 15 minutes.
These are simple quick and great.
July 20, 2008
My wife and I decide to re-do all of our landscaping. It was simply to hot and dusty for the kids to easily play outside and I finally relented and agreed with my wife. Anyway, this was completely her design with a little input from the landscaper and I about the fruit trees and arbors. I'm extremely pleased with the design and excited about all of the fruit trees.
Current Economic Thoughts
So lately I've been listening to the Fed brow beat the world into thinking they are going to increase interest rates. I personally have a hard time believing that considering how weak the banking sector is, it seems as though many banks are a stone throw from insolvency. I guess that is the problem with taking on too much debt and using leverage to the degree they have. I have yet to understand why the Fed lowered the rates so quickly at the beginning of the year. Now they have committed a lot and need to pull back and it will come at the cost of credibility and likely a mild depression or continued recession.
Oil is down a bit from it's highs but with trouble brewing between Iran and Israel we are a day away from record high prices. That said I don't think our oil issues are going away anytime soon. Hopefully, they will continue to slowly erode over the next few weeks but unfortunately I won't be betting on that.
Went to church today and you know you are in economic hard times when someone has stolen the condensers out of the AC units to melt down and sell the copper. It was awfully warm and we got a taste of what life was like for the pioneers when they came into this valley albeit we are still a lot better off.
I really have been betting against the dollar lately but am getting more and more nervous to. I can't believe the fed will let the dollar continue to sink. I personally don't think they will raise rates but I do think they will convince the G8 to do a dollar intervention and buoy the dollar up which would further reduce oil costs, since oil is priced in dollars, and give the Fed more time on increasing the interest rates or allow them to raise them at a much more minimal controlled pace. Right now I'm focusing on taking just a few points a trade and trying not to hold trades very long.
Well hopefully everyone is having a good summer.
4th of July
We had a great time in Tahoe for the 4th of July. The kids enjoyed themselves and it is an absolutely gorgeous place to spend time.
July 13, 2008
INGREDIENTS (Nutrition) * 1 cup shortening * 1 1/2 cups white sugar * 2 eggs * 2 3/4 cups all-purpose flour * 1 teaspoon baking soda * 2 teaspoons cream of tartar * 1/2 teaspoon salt * 1 teaspoon almond extract * 2 tablespoons white sugar * 2 teaspoons ground cinnamon DIRECTIONS Preheat oven to 375 degrees F (190 degrees C). Cream the Shortening and the sugar together, add eggs and cream well, add baking soda, cream of tartar, salt and almond extract and cream well. Last add the flour and beat for about 2 minutes or until the mixture is very well mixed. Form into small little balls with your hand and roll in cinnamon and sugar, place onto a cookie sheet (parchment lined if possible) and cook in the oven until lightly brown, about 10 minutes. Cool on tin foil. These make great cookies and as long as you don't overbake them they are slightly crispy with a chewy center. Fantastic.
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