Thursday, October 16, 2008
Today Oil closed at USD69/barrel. In other words, the price of oil has collapsed at the same time as the stock market is vibrating like a plucked violin string. (Is it me, or does the $700B in bailout = $700B in imported energy from “folks who don’t like us very much” smell fishy? I’m just wondering.) The housing market has done what? Imploded? Been hit, nay battered, by Hurricane Fanny Mae?
• Oil price collapses.
• Stock market devastated, short term.
• Housing market miasma.
• Possibility of a tax-hiking, socialist presidency driving self-preservationist behaviour in the capitalist class.
• Impossible to ignore high-ranking political corruption.
• Obviously biased media.
• A new-style of campaign waged by McCain so beyond the ken of the yammering classes, both
Thursday, October 16, 2008
deadwood and other varieties. (I posit that McCain, the strategist, has devised something new, and that it has gone undetected by the opposition.)
- •Gold is skyrocketing.
- •The USD once strong was momentarily abandoned and then re-embraced by the world (under-reported), assuming that America will pull the world out of this. Again.
- •Communist China’s massive military build-up.
- •Putin’s neo-tzarist machinations.
- •A resurgent Russia with energy wealth.
- •Nuclear-obsessed maniac perpetrating mayhem in the middle east.
- •The mess that is Public Education.
- •Chavez and the “Bolivar Revolution”
- •Bank panics.
- •Massive organized crime involvement in the election
Clearly, history is on the march. Liberty’s enemies are surrounding her on all fronts. In economics we learn all theories based on “other things being equal” (ceteris paribus). It’s a handy way of saying that the theory holds while all actors are being rational. In times like these, it can hardly be said that “other thing are equal”. What this means is that it is likely to get weird. And scary as hell.
The stock market’s behaviour of the past several days reminds one of an oscilloscope trace of a circuit known as a feedback loop. (It’s that geeky looking thing that techs used to peer into to gleen the secrets of the circuits.) The trace shows oscillations or fluctuations of voltage around the steady state level and first above (the initial trigger of the circuit then below and then above and so on until it attenuates over time (flattens back) into the steady state, either the previously existing state or a new, more stable, state in the case in question. The trace shows how a properly functioning negative feedback loop attenuates big shocks (or triggers) back to the circuit’s preferred steady state. That the stock market is exhibiting this a sign that the system is working to absorb the shocks induced as new revelations become manifest. Can the US system handled it? Current currency trading would seem to indicate that the world holds the US economy to have the best prospects.
One of the prime components of the current stock trading environment is the presence and predominance of programmed trading. This is the field where gigantic models are run on computers that, based on the inputs of primary economic data, generate trading solutions aimed to optimize something. Usually that something is profit. It creates a very predictable environment insofar as “everyone knows” that a set X of economic data will produce Y effect that will then ripple on through in a series of predictable episodes. And it all becomes self-reinforcing, Ceteris paribus.
In my brief (one class) exposure to stock market trading many years ago, before/at the beginning of the craze of programmed trading, we were taught that future stock prices are dependent upon previous stock prices and a raft of spin-off financial hocus-pocus that derives from historical stock price data correlated with historica primary data. I remember questioning this procedure because, to me, it meant that the value of the companies in whose stock we were to be trading was nearly completely divorced from the real economy in which the real companies actually existed. It ignored (“flattened out”) the influence on a company that, for instance, exceptional leadership—either good or bad—has on the real business, made up of real people living real lives, providing real goods and services in real work environments. It further “abstracted” wealth from its reality, and created the mess we’re facing today.
Much depends on the outcome of the US election. It will become clear, in the aftermath, what has happened in the past year or so. This much we know: the tide of history is battering the eastern seaboard. What will remain when the waters recede? Will Lady Liberty still stand?
Will it be Obama or McCain? What can we expect to come from either? How could we know other than by scrutinizing their respective records. McCain’s is very much an open book. His is a record of action. A record of reform. A record of saying what he means. And 26 years of votes. Lots and lots of votes. Are any of them “present”? What of his associates? The worst we know of his Keating. Ancient history; repudiated players; cleared record; formative experience on the road to becoming a reformer.
Obama? Plainly secretive. Odious associates. Avowedly “radical”. Unashamedly “progressive”. A senate track record of what, exactly? Running for president is his major accomplishment during his single term. He calls it audacity. His moon-eyed followers call it brilliant. I call it hooey!