Hi Pezz,
<<”Equity investment has for the most part, in the aggregate, been dead money for the year, per Collapse script”
Well you may or may not be right about that. A little known fact is that the "Bubble" year of 1999 showed more losers than winners on the NASDAQ.>>
You are right. I am right about the past year, and the little known fact is a surprise to me:0)
The idea that net-net money could have been lost in 1999 calendar year in aggregate is surprising, and not surprisingly to you, alarming to me. You know me, alarmed these days by my own shadows.
The little known fact suggests that the number of day-week-month trading clan overwhelmed the buy-and-hold tribe in absolute numbers, and/or the trading clan was/may still be playing with amounts greater than that of the holding tribe. The clan bought more heavily for shorter periods and got whacked, thus resulting in more folks losing more money during a year when the index rose. Else how can aggregate money be lost during a fabulous ‘NASDAQ index-up’ year?
<<I ain't sure what the tally will be at the end of 2001>>
I know your tally is none of my business, but I am of course curious, especially comparing a short term momo trading strategy to a, oh, say, sell NEM puts and covered calls strategy, risk adjusted, of course.
<<ugly scenario for my 2002 tax quarterlies>> Unavoidable frictional heat loss when making money. Do not dwell on it as you sign the heavy un-cashed check with pen held by trembling hand. You would like Hong Kong. While we do not have any fishing to speak of other than the seafood restaurants all around, we also do not have any material (only stamp duty of about 1%) frictional loss to stock holding (dividend) and selling (capital gains). We do have free hospitals, but not any social security net worth anything, but then we do not directly pay for it either.
<<my working life … removing a "bearing" wall … Drywall , plaster ,joist nailing ,top plates some times glue things together till a permanent support can be built. Thus creating a short cut to completing the job>>
I had wanted to be an architect at one time, taking the trouble to take one course in University. My interest was piqued by my parents plan to move to the islands. My interest was destroyed when I learnt the nature of my semester long assignment. I was to design an airport lounge area. I had also, as a trainee, carried tools up and down the elevator shaft way of fairly tall buildings. This was done to earn money. How far we have progressed.
I have supervised the renovation of buildings, resort, and my own home, and my approach has so far been consistent and conservative. Start from the top level, working downward; when in doubt, replace; when in further doubt, choose the heavier gauge material and components.
I do understand the business model of fast work, less money, more flow. I also understand the premise behind momo trading. I just do so only very sparingly, during a period of minimum danger, real, imagined, perceived, or fabricated.
.
<<ever increasing deficits … an irreversible spiral … too high … collapse...>>
I do not think the story is over yet, and given that the total (private + government) US debt level is at historic peak, interest rate at millennium low, mostly financed by Japan, a country in the stew pot, where the outcome is not yet certain.
biz.scmp.com
QUOTE
Saturday, December 15, 2001
An overdose of dollars
YOSHIKO MORI of Reuters
For most countries, it would be a measure of economic virility; but for Japan, holding the world's biggest pile of foreign-currency reserves is becoming a major economic headache with risks that are growing by the month. The steadily rising reserves not only serve little purpose but are adding to an already intolerably high debt load, economists and fund managers say.
Japan's foreign-exchange reserves stood at US$403.88 billion at the end of last month - four times the level of seven years ago. By comparison, United States reserves stand at about US$71.7 billion. Because they are held predominantly in US dollars, the reserves are vulnerable to a fall in the value of the dollar or of any narrowing in the US-Japan interest-rate differential.
"Japan's foreign currency reserves at this level do not appear to be sustainable. Japan has to think about ways to bring it down," said Sayuri Kawamura, senior economist at the Japan Research Institute.
If Japan does not reduce its US dollar exposure, only a small fall in the dollar's value would incur huge losses.
"At least we should diversify the risk of holding the reserves almost all in the US dollar," said Yoshiichi Taguchi, a fund manager at Tokio Marine and Fire Insurance.
The problem is, the only way to reduce the dollar reserves, or to reposition the reserves away from the dollar, would be to sell off huge amounts of the US currency - a move that policymakers fear could strain relations with Washington.
The rapid growth in reserves has been left unchecked until now by the Government's support of the dollar, which it justifies as support for Japan's export-oriented industrial structure.
In theory, a weak dollar undermines the export competitiveness of Japanese products. However, that is not the only explanation for the ever-rising volume of dollar reserves. The reserves reflect Japan's role in supporting the dollar as it steadily declined after the collapse of the fixed-rate foreign exchange regime in 1971. In April 1995, the dollar hit a record low of 79.75 yen, versus 126 yen today.
"Forex intervention has been considered a virtue as it brings the state a handsome revenue," said Mr Kawamura.
Japan uses dollars bought from the market to buy US Treasury securities, which bring in hefty income gains. The build-up of reserves does not come cheap for a country that already has the industrialised world's biggest public debt, at about 130 per cent of gross domestic product. To fund dollar buying intervention, Japan issues special short-term paper called financing bills (FB) to procure yen funds to give to the banks in exchange for the dollars bought.
The net income from coupon gains on US Treasury holdings less interest payments on FBs was nearly two trillion yen in the year to March 31. That income goes into a special foreign exchange account that will provide 1.37 trillion yen to the state this year, the biggest contribution from 37 such off-budget accounts.
The outstanding volume of FBs was 44.27 trillion yen in June and is estimated to have reached nearly 50 trillion yen, or US$397 billion, after Japan's dollar buying in September.
Prime Minister Junichiro Koizumi has pledged to keep new debt issuance to 30 trillion yen this year and next, but the special accounts are not covered by this.
Nobody in official circles has stood up to criticise the dollar-buying intervention, which brings the government such good revenue, even though it has sometimes been overdone and is poorly disciplined, Mr Kawamura said.
In September, Japan spent a hefty US$26 billion to cap the yen's rise against the dollar and euro.
Currency traders doubt whether intervention has any big effect in the longer term and say it distorts natural supply and demand in the short term while stimulating speculative activity. Some analysts believe the authorities, despite their statements to the contrary, are trying to manipulate rates, not merely smooth market movements.
"The massive forex reserves are clear evidence that Japan has aggressively tried to manipulate the currency, rather than smooth a dollar fall," said a fund manager in Singapore.
Now the dollar reserves have become so large due to the lack of intervention discipline, the only way to reduce them is to sell the US currency, analysts said. That has not been a desirable option recently, when the authorities have been trying to hold down the yen, but even when dollar sales have been possible, Japan always seems to have held back out of deference to the US, analysts said.
"Japan's reserves kept rising because Tokyo has long been unable to do reserve management on its own for fear of offending the United States," Mr Taguchi said.
Japan last conducted dollar-selling intervention in June 1998, when the dollar topped 142 yen. But it took months before US authorities gave the go-ahead, monetary sources said. Furthermore, the amount of dollar selling is historically small compared with dollar buying and Japan only sold US$1.61 billion at that time.
There are other problems with the present policy.
Mr Kawamura said the cherished revenue from the foreign exchange account has been generated thanks to the wide interest rate gap between the United States and Japan. The yield differential between 10-year US Treasuries and Japanese government bonds was at 375 basis points on Tuesday.
"It is possible for the gap to totally disappear or for Japanese rates to go higher than those of the US," Mr Kawamura said.
If that happened, the government would lose what has become a vital source of funding. The gap has been sustained by Japan's ultra-loose monetary policy, but the US Federal Reserve has also slashed key short-term rates this year and is likely to cut further if the economy continues to stagnate.
The evaporation of the rate gap would highlight the accounting system used for the intervention account, unlike anything used in the private sector. On the flow side, the forex accounts generate profits, but on the stock side they incur huge currency losses that can accumulate over decades. The Ministry of Finance says the account has nearly 10.5 trillion yen in foreign exchange losses, accumulated as it has bought the dollar through its fall from higher than 200 yen.
"The state needs appropriate asset and liability management, just like the private sector," Mr Kawamura said.
UNQUOTE
The bubble of financial deluge, by my reckoning, formed during the Vietnam war (or further back, if one cares to track it), got successively bigger with each pass, like a hot potato, moved to Arabia via oil shock, got the Saudi army patrolling in air-conditioned, leather upholstered Italian Lambo armored 4-wheel drives, got further concentrated, with less outlet in the desert, moved to US, than Japan, via transfer of manufacturing activities, and back to the US via Japan bubble to US real estate … and now, rests for a bit in global telecom and on US private balance sheet. The relationship between the US and Japan is a symbiotic one, with Japan holding 40% of global savings, and US-Japan trade accounting for 48% of global trade.
Message 15499316
“(i) <<Japan has bottomed, having given back all that was unearned, readying for another charge upward, fueled by liquidity level rivaling any historic period>>
Rome bottomed eventually, but even in its last days, exacted victims. Japan and its liquidity have not yet done its work. The original liquidity bubble, born of the ‘70s oil crisis and resulting aggregation of funds, forced the US and Japan to seek solutions (recycling), thus generating a conduit for the bubble to move from the oil basins back to centers of production. The last twenty years merely witnessed the same bubble being passed back and forth between the two main centers of physical production, gathering more strength with each pass. Ask yourself, which good folks paid the most outrageous sums for US real estate (hint, not the US folks). Let’s hope there is one more pass to go around.
When Japan eventually (sometimes I think “if” rather than “when”), the recovery may be led by massive inflation hereto unseen by history, as the liquid solution of old cause new problems for the future. History is a connected whole, not a series of discrete events.”
And from an earlier time …
Message 15137009
“I think being absolute exhibits conviction, leaves no room for error, and sets up for the great fall from greater heights. Such conviction has a place in the market place, for the good of the market place. The fabled softlanding is just that, soft for now, just as a great fall from the 21st floor would be, until the moment of sharp and slightly stinging impact.
The Japanese central bank, its government and the people ruled by the government had almost all the liquid money in the world and that was precisely the problem.
The Japanese trade surplus was and still is real, and that was how the big liquidity bubble transferred itself to Japan in the first place. As far as financial market comparisons, the similarities are, well, quite similar, except for the P/E (a function of accounting system and extent of the bubble).
The Japanese certainly wants to save the Japanese economy from the outside world, and yet, even with their astronomical savings, they have yet to succeed ... the means are theirs to use, the will is lacking.”
Japan is depressed, demoralized, deflating, devaluing, degenerating, defaulting, de-populating, and desperately devoid of options. As a heavy USD denominated asset and currency holder, I am concerned about what the Japanese electorates may have to decide for, soon, and as a global investing electorate, I trust democracy of the mob to do me harm, and I am becoming more cautious with each successive passing of the aforementioned hot bubble, taking advantage of it when I can, and decamping when I think the odds are against me.
The longer the USD is strong, the more harm is done to the US manufacturing sector, and the more debt strangulation is possible, while concurrently not doing any good for the rest of the oil importing countries, saved one, not surprisingly, Japan, for a short while. As rates is manipulated lower in the US by Al the magician, the incentive for Japan to make safe treasury investment is lowered, either driving them to riskier assets or decamp. Your guess is as good as mine. Too complicated to work out the sequence and consequence, and so I stay home and watch TV.
<<Collapsing bubbles, poor earnings, recession ...and yet the glue of AG's liquidity holds the market together till a more permanent support structure can be built.>> so far …
I am not convinced that Uncle Al is able to charm reality this one time, and it is not as if he hasn’t been trying. 11 cuts in as 12 months, and according to the article I reference above, only setting us up for the next down.
<<So once again I say to you "enjoy, enjoy, don worry be happy">>
I enjoy worrying, and I am mostly happy, so Pezz should not doubt that I am, at the core, a person of good cheer, maximum fun, even as I am conservative, which should not be simply interpreted as bearish, and see clear danger, which should not be labeled as wishing to see anarchy.
See here for my happy thoughts from Christmas long past ...
Message 16795662
Chugs, Jay |
