I've made up my mind about the recent developments. Here are my current conclusions. 1.) This is a global financial crisis. Things are gonna get worse, but the financial system will not implode for two reasons: a.) It cannot implode, since we have no gold standard. b.) The masters of the universe do not want int to implode. 2.) Of course there will be a bailout, the question is just what kind of bailout - directly (e.g. through a truly global "PPT"-measures) or indirectly (adding liquidity into the market, granting loans directly to the major banks, taking over credit risks). 3.) Possibly a good and very speculative indicator current market sentiment is the future direction the Interactive Brokers stock price will take in the very near future (http://finance.yahoo.com/q/bc?s=IBKR&t=6m&l=on&z=m&q=c&c= ) Watch for behavior at the 25$ level - support or resist? Here are some explanations: The financial system cannot collide, since global interdependencies have grown to a scale, where isolated economic cuts by one country do not just have direct impact on the other country, but on the country of origin as well. China China cannot afford the US economy to collide. This is for several reasons: - China sees a huge inflow of poor immigrants from the villages, and is about to stage the Olympic games, a hugely symbolic event for this country. If you were amongst those in charge in Beijing, would you prefer civil unrest from unemployed masses and depressive games, or would you rather have a steaming economy with high employment and a joyful people in a restrictive communist state in transformation? One risk remaining with China might be that they could try to seize Taiwan, taking the chance of upcoming US-elections and using their $-deposits as a threat towards the US? Even if they would, they couldn't enjoy their victory, they cannot afford another massacre like in the 80's, now that even the peasants have mobile phones they could organize an agression with. If the chinese party leaders really want Taiwan, then this is their opportunity. But in my opinion, they will not use it. They rely too much upon cheap exports of mass fabricated goods, their economy would suffer severely. Also, the western world profits from stability in China, since inflation would be higher these days, than it already is. Arabs Looks like the Arabs (i.e. OPEC) have gotten greedy again. They've raised the oil price to a level, where it has economic impact equalling a central bank's interest rate. They know that they cannot afford to raise the oil price to the sky again as in the 80's. Back then, they were blinded by their leadars, but nowadays, Iran (!) is a net importer of gasoline, and if could become the peak of an economic cycle, this is their last chance of earning oligopoly profits by overproducing oil. Watch for OPEC to announce overproducion in general, or better yet, watch the crude oil futures, since it doesn't matter whether future oil supply stems by OPEC or it's cheating members. Hey, after all, when we're talking about oil, we're talking about the Arabs here (writes a South-Eastern European here ) Russia I have no clear opinion about Russia yet. The coming months will show, whether it's the old communists return, willing to use economic weapons (such as oil) or whether they, too will cooperate. Since Russia's main energy is Europe, a drench of the pipeline would hurt the wrong ones, us Europeans. And besides, Germany's former chancellor Schröder holds a high post in Gazprom, and was recognized as a very good friend of Putin during his chancellorship. If need arises, Schröder can put up political pressure. Japan The Japanese might be considered the country, it started from. Until about a month or two ago, we had a high level of insecurity stemming from the Yen-carry trades; big players (and worse, gamblers too!) taking free credits in JPY and investing them abroad. Now that the Japanese economy seems to recover, their central banks are inclined to raise the interest rates after years of economic misery. I remember watching the charts two weeks ago, and saw that the decline begun with the tanking of the JPY towards the USD and EURO simultaneously. Watch Japan's reaction, whether and if so how much money they're injecting into the markets! In general, the market will, off course, rise again. The central bankers are the masters of the financial universe, it's not the amount of gold a country has to back it's currency like in 1929. They'll just print more currency. No big deal. And, unlike in 1987, we do not have a competition among two different economic systems, where one tries to crush the other. Hey, Russians like BMW's nowadays, and the Chinese too. No more fear of nuclear annihilation, just like during the early days of the Corean war. The only macro-economic setback is, of course, that the respective currency zones price (i.e. currency value) might take a direction, they do not want it to take (esp. Japan and China) Regarding my close watch at the IB share price: I'll just watch it as a kind of sentiment indicator, perhaps with other similar companies (like MAN U.K.). Since one of the biggest fears is that plenty of credits will implode and hedge funds and economies with them together, why not look directly at the price of a company, that makes money with them? If Hedge Funds are going bust, then their brokers should too, right? Well, we cannot monitor a hedge fund's fair value (whatever that is), but we can watch the share price of a company, that makes money with them.
Oh, and here's a nice short video of legendary and late speculator André Kostolà ny, where he answers the question what a Crash ("Krach") is: http://www.youtube.com/watch?v=BDkmbMjbdu0 More on him: http://en.wikipedia.org/wiki/André_Kostolany
Kostolanys DACKEL - Theorie ! HA, HA, HA...wie geil...schön, dass der alte Haudegen immer noch mit seinen Börsenweisheiten in steter Erinnerung bleibt...vermisse die sonorige Stimme und seinen Gehstock - von dem man immer die Befürchtung haben musste, getroffen zu werden !...HA, HA, HA...
They are printing money and pumping it into the markets. It prevents the meltdown temporarily, but at some point people will see that if they just print it to make everyone feel good, that its value just declined. What is the record length of time for a Fiat currency to survive with at least 5 or 10% of its value, anyway?
They (FED) can only continue to print $$$ for so long before the US becomes the 21st century equivalent of the Weimar Republic. http://www.brillig.com/debt_clock/
And when that finally happens it is game over - but I love how everyone thinks NOW is it. Lots of shorts pressing right now and hell bent on fighting the Fed...we'll see what happens...
the folly that's happening is the Fed is trying to make bad credits into good credits by using the printing press..... this never works.........
I'm taking the Swiss approach to the current market war.....I'm neutral and watching from the sidelines happy to hold money in the bank.
The smartest ones here are actually making money..... But I do agree that in times like these, preserving capital is more important than earning profits.