2 replies to this topic

[zman]

September, the original headline for August jobs was actually erroneous. Announcement of the September payrolls last Friday saw an upward revision of the August number to a positive 89,000 jobs, along with a substantial rise of 110,000 in September. That sent bond yields higher around the world, and probably caused billions of dollars of losses across Asia, where central banks hold a bulk of their countries' reserves in US Treasury bonds. Investors rejoicing about the rise in global stock markets though must stop and think about their gains in the context of other asset prices, such as gold. When used as the benchmark, ie, index prices as a function of gold prices, America's stock markets are actually down around 9% this year, rather than being up 10% as people report. For much the same reason, the Hong Kong stock market is up "only" 20% this year, rather than the 45% gain that newspapers report using simplistic index calculations. In effect, the rise in nominal stock market values shows a lack of confidence in monetary policy by investors who are looking to re-leverage their portfolios in order to avoid inflation. This is an important point that is not always appreciated by central bankers - investors behave in relation to expected price changes, rather than observed variables. Thus, even in places where interest rates are being kept steady, when investors expect a rise in inflation, their view of the real cost of borrowing changes, ie, it becomes lower. Reduced cost of borrowing, in their minds, would then equate with higher borrowing. Look at this from the perspective of savers, and the view is much the same. When Bernanke cuts interest rates as he did last month, he reduces the amount paid to savers each month. Even as their incomes are reduced, they may find that expenses remain the same or actually increase. Under this scenario, keeping money with a bank is not an option, so investors have to go out and buy assets with greater chances of appreciation. Now that no one in the US believes in buying houses, they have gone back to chasing stocks. This is of course a wonderful cycle. Confronting the dotcom bubble in 2000, former Federal Reserve chairman Alan Greenspan cut interest rates aggressively, in effect encouraging speculation on home ownership. Now that house prices are falling after the boom went just a bit too far, his successor has attempted the same medicine but this time to favor stock markets. Many companies are now trading at multiples that are similar to those observed in 1999, just before the dotcom bubble broke.

[Tor]

NO BUBBLE IN CHINA. ABOUT HALF WAY THRU imo.

[pdx5]

NO BUBBLE IN CHINA. ABOUT HALF WAY THRU imo.

I think you may be right. It is extremely risky to try to pick a top
of ANY bubble, including Shanghai. But never forget, every bubble
and every parabolic rise has ended badly going back a thousand years.

Even those who chased Gold during its parabolic rise 25 some years ago
are way behind other investments in purchasing power.

Edited by pdx5, 12 October 2007 - 11:07 PM.