Monday, May 19, 2008

Has the Market lost its Marbles?

I have worked in the U.S. financial services industry for over 2 decades, with over 15 years on the sell side - and I have never seen anything like this.  

The U.S. equity market is either out of its mind, or a brilliant discounter of a glorious future that somehow I fail to see.

In addition to a negative trade balance, the U.S. has a negative balance of capital flows.  For the equity market to continue to rise, this absolutely MUST continue.  By definition, if net capital were to flow out, considering the circumstances, the U.S. equity market would, unequivocally, SHIT THE BED (that is a technical term of art in common usage on Wall Street.  Loosely translated it means the market would averages would head down rather briskly).  Now, in order for foreigners to buy holdings in our markets, they first have to own U.S. $'s.


Seems to me they are taking CURRENCY risk in so doing...  So what would make a currency worth more relative to other currencies?

A Growing Economy    -   Not the U.S.

A Trade Surplus   -  Not the U.S.  (Think Canada... Hmmm... they EXPORT oil, the U.S. IMPORTS OIL)

Improving Productivity  -  Not the U.S. Folks, unless you consider our ability to increase sales of worthless securities, unimaginative pornography, People Magazine (sorry, I am being redundant.  I ALREADY mentioned pornography), and other truly unimportant and unnecessary goods and services (mortgage, stock, and insurance brokering comes mind... and yes, my firm is licensed to do all 3.  Never said I added any true value to the economy, did I?)

A Budget Surplus

OK, so the U.S. possesses none of the circumstances that would support the currency.  So why would foreign investors continue to pour money into the U.S.?  Because the U.S. $ has no ready replacement.  That does not mean, not for a second, that this will all turn out to be a mirage.  No, this is more like the U.S. healthcare system, spending the perponderance of its resources on the last 3 weeks of some poor dying bastards life, but not ONE DIME on keeping him healthy in the first place.  The U.S. $, while terminal and on life support, will gag and cough and twist and grimace and suffer for some time yet.

Be thankful.  This is giving you the opportunity of a lifetime to trade your dollars for something of real value.  

Or you could just write me off as just another merchant of "Doom and Gloom"... but before you do, let me ask you something:

Did you spend more time last year watching reruns of Giligan's Island and American Idol than examining government data (I know the data isn't perfect, but Giligan's Island?) on trade, energy, money supply, and capital flows?  

Look I don't blame you, this is boring, tedious stuff.  Still, trading against the guys that did their homework is EXACTLY the reason investors lose money.  Calling people names won't help you win.  In Bear markets, optimists get killed and their bodies laid out as a warning.  Getting the call RIGHT is what matters.  Long or Short.

Good luck.

Mentatt (at) yahoo (d0t) com


Anonymous said...

When junkies need a fix, won't they go for it no matter how nasty the dealer, how bad the cut, how dirty the needle??
How about the meth addicts, they know it's rotting their teeth and bones away, killing them, destroying their lives and yet they still go back to the lab in the back room of the trailer for that delusional thrill.
It could go on for a long time. It's harder than most people think to kill a junkie with junk.

Greg T. Jeffers said...

Not sure what you addiction you are refering to.

The addiction to trade even though one has not done their research? The addiction to il? The need to cling to certain belief systems even when presented with conflicting results?

Greg T. Jeffers said...

I was writing on what appeared to me a divergence in probabilites regarding the equity market and the oil market.