Does anyone have enough buying power to stock a market slide?
There was a time when banks could stop the slide in currency by stepping in and buying huge amounts of that currency. But with the advent of the FOREX, those days are long gone. The FOREX sparked a boom in worldwide currency trading and speculation. The average daily volume on the FOREX is 1.5 trillion dollars. That is such a huge number it is hard to imagine. That is 1.5 thousand billion dollars, or 1.5 million million dollars. No bank has even a single billion dollars to risk in such a venture. Besides, what would happen tomorrow even if they did stop the slide today.
Though the dollar volume on the NYSE is no where near that of the FOREX, the same principle still applies. And besides, like the crash of 1929, there is always tomorrow, or next Monday.
On what has become known as Black Thursday, October 24th 1929, the market surprised everyone by going into a nosedive. Panic selling was everywhere. 12.9 million shares changed hands that day at a time when 4 million shares was a busy day. But then:
self-confident Richard Whitney, vice-president of the NYSE and floor broker of J.P. Morgan and Company, walked into the exchange floor. The crowd went silent. Everyone expected an announcement that the NYSE would be closed. Instead, Richard Whitney surprised everybody. Whitney asked for the latest bid on U.S. Steel. “195” someone shouted. Then he promptly announced that he was buying 10,000 shares of U.S. Steel at 205. He immediately received 200 shares and then left the rest of the order with the specialist. He continued to make similar orders for over a dozen more stocks. Fear evaporated as investors became worried that they would miss the new boom.
Alas, it might have worked had not Black Thursday not been followed a few days later by Black Monday.
Black Monday was a terrible day in the market. Unlike the Black Thursday, no "hero" stepped in to regain investor’s confidence. Richard Whitney did not walk into the NYSE and the bankers and Mr. Lamont didn't make comments until after market close and those words weren't that optimistic.
And the crash continued....for three more years. The market did not hit bottom until 1932. It turned out that Whitney lost a lot of money for the Morgan Bank with this bit of bravado. Which all goes to prove that market momentum may be paused but if it is strong enough, it cannot be stopped. But I digress.
My point is all this happened in days when market volume was less than 4 million shares a day. In 2005 the average daily volume was 1.61 billion shares, over 400 times as great. No bank vice president would dare walk onto the floor of the exchange and risk millions, or billions of his banks dollars in an effort to stop a slide. They learned a lesson from Richard Whitney, all it will wind up doing is costing you a lot of money. If it didn’t work when the average volume was 4 million shares, it sure as hell would not work when the volume is 400 times as great. No one has that much money. And if the market is really ready to head south, nothing is going to stop it.
Is the market ready to head south? Hell, I don’t know, but I have a strange feeling that it just might. It’s getting jittery and all it needs is a trigger. A trigger might be something like: “Confirmed: Saudi Arabian oil production in terminal decline!”
I guess the sheer volume of currency trades is why the Chinese yuan swings around so wildly. No central bank can regulate a currency anymore.
Ron, you keep thundering like Jehovah while making claims that are simply contrary to fact.
Old Hippie, The Chinese Yuan is not traded on the Worldwide FOREX market. China has it's own internal Foreign Exchange Market with $200 billion in funds with which to trade. This is really a farce. China still controls everything. This is supposed to be an open market for the Yuan yet it is still under the Chinese' control. The Yuan swings in spite of the fact that the Chinese are trying desperately to peg it to the dollar and stabilize the swings. If there is truly an open market for a currency it cannot be actively managed by its country or origin.
The US cannot actively manage the value of the dollar, nor can any other country do the same if their currency truly floats.
Two things Old Hippie. You should get your facts straight before you post. And second, you should have a reference, preferable a URL, to back up your claims.
Just declaring that my claims are contrary to the fact rings hollow. You must prove what you claim with a reference, or at least a logical argument. You do neither.
China to actively manage forex reserves
China recently announced plans to begin actively managing its foreign exchange reserves, currently valued at more than $1 Trillion. Concurrent with this announcement, China formally created The State Foreign Exchange Investment Company, which will initially be capitalized with more than $200 Billion. Another Chinese investment company will be given $100 Billion. These steps represent the culmination of several years of intense speculation that China would make more of an effort to manage its burgeoning reserves in order to maximize returns. Whether these two investment companies intend to diversify the reserves by investing in non-US assets is anyone’s guess, but at the very least, the US cannot be certain that China will continue to support the USD through its purchase of US Treasury bonds, which offer minimal yields.
Stating that for instance the Fed has no control over the value of the US dollar, or the Bank of England over sterling, is the same as calling the people who have had absolute power over the issuance of a currency for a very long time, a fact that makes them the richest and most powerful people ever to walk this planet, a bunch of fools. Well, no sale here on that idea.
The control in 1929 was in the same hands it is in now, and the argument that the world economy is so much bigger now presupposes that the very people who issue the money and made it so much bigger, wouldn't have grown proportionally with it, that they "let" it grow to a size where they lose their control. Other then them being really stupid, how do we explain that?
Stating that for instance the Fed has no control over the value of the US dollar, or the Bank of England over sterling, is the same as calling the people who have had absolute power over the issuance of a currency for a very long time, a fact that makes them the richest and most powerful people ever to walk this planet, a bunch of fools. Well, no sale here on that idea.
SoFly, please, please, please do not put words in my mouth that I never wrote or spoke. I never said that the Fed has no control over the value of the dollar. What I said was:
The US cannot actively manage the value of the dollar, nor can any other country do the same if their currency truly floats.
The Fed, the Congress and the Executive Department can try to control the value of the dollar. The Fed can do it by changing interest rates. The Congress and the President can do it by trying to manage the budget and decrease the deficit. Though they appear to be doing a poor job of it at the time. But they cannot actively manage, (manipulate), the value of the dollar. They can only act responsibility and hope this stabilizes the dollar. But if the dollar falls today and rises tomorrow, that is entirely beyond their power to change it. The market determines the value of the dollar, not the Fed.
Old Hippie, there is a tremendous difference between trying to stabilize a currency via responsible government behavior and trying to manipulate a currency by buying or selling huge blocks of that currency.
I think you, or anyone else for that matter, clearly recognizes that difference. You are just being obnoxious by pretending there is no difference. But if I am wrong, if you truly cannot tell the difference, then that says something entirely different, something not very complementary of your intellect.
I only locate markets so magically large the big players all bow down and worship or "responsible government behavior" when in seriously deep mystical trances.
I also don't think I outrank George Stephanopoulos. Handwaves all around.
I personally ran up against blatant PPT intervention in the stock market in 2004, 2005, 2006, that I finally gave up and bowed out. Each time, I was trying to buy PUTS on either GM, Fannie Mae, or Ford. For those not in the know, PUTS are a bearish bet.
Each time I was told "U R OUT" and my order was canceled. Each time I called them to find out why. All they would tell me is that "we are not allowed to open any new positions on that security." When I asked about the free market, i.e., "if you have a willing buyer and a willing seller, what business is it of yours?" I received NO answer whatsoever---just stony silence.
Just on a lark, I tried to open a CALL position each time on the same security. A CALL is a bullish bet. I put them in with a limit order that I was pretty sure would not get executed. Each time I did this, the CALL orders did NOT get canceled.
First hand experience. I don't need any more evidence to know that the stories of manipulation are true. And the currency is most certainly manipulated right along with everything else. It is done by creating new money (via the fractional reserve banking system and/or the presses) and by reigning in the same.
Also, just out of curiousity Ron, do you know what the leverage is on the FOREX exchange? I trade forex, and I can tell you that it is obvious whenever a central bank buys or sells a currency because of what it does to the price. The buy and sell such huge quantities, that combined with leverage, it has a huge impact on the market. After the fact, you can always tie these moves to the central bank currency disclosures.
I wish I still believed that we have the best government in the world and that we lived in Wonderland. But we don't. All governments are corrupt, and that includes ours.
Ckaupp, I am having trouble with your story. I know what puts are, I was a stockbroker for all of six months back in 1986. A put cannot possibly affect the price of the stock and neither can a call. A put is a bearish bet but it has no bearish effect on the market whatsoever. It is only a bet that the stock will go down. Purchasing a put or a call has absolutely no effect on the price of the stock.
Even if a PPT actually existed, why on earth would they care whether you buy puts are not. That just does not make any sense whatsoever.
I know EXACTLY what they are---I've been trading them for years. I did NOT say purchasing either a PUT or a CALL has ANY effect on the share price of a stock. 6 months versus 8 years of options trading....
I was there and experienced first hand. My impression was that it was about perception control.
You have 2 of the biggest US Corporations and a huge GSE (Government Sponsered Entity) -- all 3 of them having serious financial trouble. A HUGE number of BEARISH bets looks BAD when you consider the old saying that "Where goes GM goes the US."
Since they were willing to let me open CALLS, or BULLISH bets, but not PUTS or BEARISH bets, I was left with the impression that it was all about PERCEPTION CONTROL. Lots of people really do look at such things at PUT/CALL ratios. It was not about controlling the stock price, but it most certainly was about "managing the market" and perceptions of these companies. If foreigners really knew the state of our economy, they would bail on US debt instruments and we'd be in a world of hurt.
Ckaupp, I traded options for years also, I was a broker for six months.
A put is only a bearish bet for the buyer of the put. It is a bullish bet for the seller of the put. Likewise a call is a bullish bet for the buyer of the call but a bearish bet for the seller of the call.
But no one pays the slightest bit of attention of the put or call volume or the put/call ratio for any given stock. Hell, they are not even listed in the newspaper.
Since they were willing to let me open CALLS, or BULLISH bets, but not PUTS or BEARISH bets, I was left with the impression that it was all about PERCEPTION CONTROL. Lots of people really do look at such things at PUT/CALL ratios. It was not about controlling the stock price, but it most certainly was about "managing the market" and perceptions of these companies. If foreigners really knew the state of our economy, they would bail on US debt instruments and we'd be in a world of hurt.
This is absurd! Puts and calls are market neutral since either is a bet by two people, one betting the stock will go up and the other betting the stock will go down. Do you think if you tried to sell a put, a bullish bet, that your order would have been cancelled. Well, if the cancelled the buyer they would also have to cancel the seller. That just makes no sense whatsoever.
In 2001, the SEC widely published new regulations preventing investment houses from selling shares short over which they had no control. The diminished supply was reserved for Preferred customers.
Rather than corruption, this is an issue related to novice participants.
The leverage on the FOREX exchange is pretty amazing. A small time investor can purchase millions of any currency he wants with a relatively little account. I have at least 20-40 thousand of different currencies at all times sloshing around
A billion or so by a bank would hugely move the FOREX market.
Indeed. When I first opened my puny little forex account, I opened a regular account.
After my first trade, I watched the huge swings in my tiny account as the losses/gains swung back and forth precipitously to what is essentially a "margin" call (but not handled like in the stock market---in forex if your losses breech your margin they automatically close your position).
When it finally swung back near where I started, I closed the position and closed the account and opened what is called a "mini" account.
In a regular forex account, currencies are trades in blocks of 100,000 units, such as $100,000 at a time. You can get leverage all the way to 1% -- meaning you only have to put up 1% of the value of the trade. Can you see where this can go? With 1% leverage, you can control $100,000 with $1,000.
In a mini account, you trade in blocks of 10,000 units, such as $10,000. I also had them decrease my leverage to prevent heart failure.
You can get leverage all the way to 1% -- meaning you only have to put up 1% of the value of the trade. Can you see where this can go? With 1% leverage, you can control $100,000 with $1,000.
There are accounts that require only 1% margin. These accounts automatically liquidated at .99%.
Margin liquidation occurs automatically at 0.99%. Liquidation is 100% automatic (no dealer intervention, no margin calls). Trading accounts are therefore protected from a negative balance situation.
I didn't say anything different that what you just said. I said you "can" get 1% margin, and I said they automatically close your position when you get close to breeching your margin. I just didn't give the actual number.
I think you like to argue just to argue. I'm done here. You win.
The margin requirments for the FOREX is 2% for the major currencies. But if the currency moves against you by 2% you lose your entire investment. A billion dollars would purchase 50 billion dollars worth of any other currency. Or you could go the other way and buy 50 billion dollars, in Euros or whatever, worth of dollars.
When you invest (gamble) on the FOREX you must bet one currency against the other an in USD/Euro. And if you bet the wrong way, you start to lose money very fast.
But the question is, why would any bank do such a thing. The truth is they don't. Banks don't really give a damn which way the currency moves. A FOREX member bank makes its money by taking both sides of the bet. They make their money by taking the difference between the bid and the ask. That is usually about three basis points, (three one thousandths), greater for the thinly traded currencies. Banks or FOREX brokers charge no commission because they make their money from the difference between the bid and ask price of the currency. A trade always involves two parties. The bank never takes one half of the trade, there is always a bid and ask price.
Banks are not in the gambling business and it is simply foolish to think they are.
Yes, you can get margin to 1%. It isn't uncommon. And no, your calcs are not correct since a unit in one currency doesn't usually equal the $ units in your account. I'm not sure where commissions came into this discussion at all. But you are correct about commissions--there are none...it is the spread.
I did not say the banks were betting. Where did that come from? Methinks thou doth read things that aren't there.
I said they move the markets. I assigned no motive for moving the market. It could be for many reasons. They might want to lighten up on one currency or go heavy into another. They may also do it to help manage the market. For example, Japan might perceive that the Yen is getting too strong and it will slow down their export business--so they manage it lower. They do this, as I said before, through fractional reserve banking and the printing press. They also do it through the forex markets.
And there have been times, during this "management" process, where they've literally gotten their you know what in a wringer.
I dont disagree with this, but I've dug a bit deeper into that before and reached the conclusion that 1973 is THE year in terms of monetary policy. You may remember Nixon closed the bretton woods agreement ala no more gold standard for trade and free floating currencies. The monetary freight trail was out of control until Volcker. However onced he stablized the economy and left, the party began with Greenspan taking over and that leaves us here....
Tate, I agree with everything you say here. It only reinforces my point that there is a tremendous difference between
trying to stabilize a currency via responsible government behavior
and
trying to manipulate a currency by buying or selling huge blocks of that currency.
The former is what you are talking about and is the mark of good government. The latter, in view that 1.5 trillion dollars exchange hands every day on the FOREX, is just not possible anymore.
Disclaimer: Very thinly traded currencies like the Zimbabwe Dollar, can be made to swing wildly by buying huge blocks of that thinly traded currency. My claim only applies to major currencies.
Ok then Ron, we agree on the data, but I dont agree on the conclusion. Go read that LONG @$$ article I posted and tell me why Aaron is wrong. I dont think there is a such thing as responsible behavior by govt. Govts are only needed for basic right/issues and everything else should be left to markets to work it out. Look aat what perversions our current govt gets away with and tell me govt is responsible.
It sounds like you my friend are now putting a bit too much faith in the your fellow man. Govt's are run by people. Stop and actually think about what that means. People can call up their friends and give me inside info and how would we know? We dont until ten years later and we're all paying for it because someone gave a favor ala spoils system. I think you're a bit too nieve if you think gov'ts serve the interests of their subjects. That may be true in principle and in the start, but as it marginally increases no one notices until you stepback and realize we're on the opposite side of the field.
I dont think I ever said currencies are manipulated but lets square some numbers. You're right about the forex market and the ability to swing it is low. However my point is more that central banks are more involved in day to day activities in our markets including gold (check gata for the good stuff) and possibly even the NSYE. If you check the rally since the summer, it's index led. It's as if large buyers were simply buying indexes and MOST stocks not associated with ANY index (S&P, Russell) did not do 15% gains! Its as if the bid was always there in the major indexes right when the carry trade starting unwinding LAST TIME (MAY).
Maybe a larger point we can all agree on is simple. The system is now so complex, we dont know where the blood spills first. However we do know what will happen once a catalyzing event does happen. Im on record as saying I think this is the first SMALL leg down. We're talking lesds than 3% drop and we get a 64% spike in volatility. The fun has begun for some of us.
Tate, you are going to have to be more direct. I looked over the Tate article; "What (Really) Happened in 1995" and I am not sure what I am supposed to disagree with.
And what on earth gives you the idea that I am putting too much faith in my fellow man, or the government for that matter. I have damn little faith in either! I thought I made that pretty clear.
When the computer triggers automatic buy or sell programs that this creates dramatic swings in the market. Programs sense a difference in the S&P futures and the actual market. If the futures are way below the actual market, the program will automatically buy the futures and sell the stock short. And they will close out both positions when the gap narrows. Almost instant profit.
The opposite happens if the futures are above the stock. They sell the futures and buy the stock. My point in mentioning this is that the market can be made to swing dramatically but it is all done in the name of profit. There is no effort to stop a plunge. In fact, it usually accelerates the move in the direction it was already going. So what is your point?
I agree 100% that the banks are involved in the market. They buy and sell all the time in an effort to make a profit.
If you check the rally since the summer, it's index led. It's as if large buyers were simply buying indexes and MOST stocks not associated with ANY index (S&P, Russell) did not do 15% gains!!
Well not exactly. Automated computer buy and sell programs only deal with indexes and the stocks of those indexes! And unlike the oil market, the indexes follow the actual stock, not vise versa. Indexes always follow the market, they do not lead it. When indexes are way above or below the market, this automatically triggers buy or sell programs. When the index is above or below the market, this is what traders expect the market to do. But other than with automatic buy and sell programs, indexes cannot dictate what happens to the stocks that make up that index. It is the other way around. People buy individual stocks and the index follows accordingly. Understand that the index is nothing more than where that group of equities stand at any given moment. And people buy or sell the index futures, betting on the way they think those equities will move. But buying or selling futures in index alone cannot possibly move the value of the stock that make up that index. (Buying and selling the oil index does move the oil market, but that is an entirely different matter.)
Ron, thank you for your intervention this week. Discussions on currency, stocks, money supply and the Federal Reserve can easily get take on ludicrous proportions but your links and explanations served to ground the rhetoric.
China has an extraordinary problem with money supply in that hoarding is occuring. An upward revaluation of the Yuan has been expected for three years and everyone that can is accumulating or hanging on to hard currency. China has been keeping the Renminbi low to promote exports which enlarges its manufacturing base which in turn keeps the hordes who are moving in from its rural regions occupied. Busy, happy people are not revolutionaries!
Money supply has been dampened recently because their banks have been careless and current growth rates are unsustainable all things considered.
In the USA, the reverse is true on that subject. Money supply was broadly expanded in 2001 (21% annualize) to facilitate GDP growth (especially the new housing sector) coming out of the Recession. It steadily fell from 2002 until it bottomed at 0% in 2005. Continued real growth has required some liquidity and over the past months MZM money supply has been allowed to rise and is currently almost 5% annualized.
China recently announced that their rebalancing of Reserves will involve the spending of USDollars on imports rather than outright currency sales. China is seen to be slowly joining the *family of nations* as evidenced by their more conventional activities.
Tate, you should read the post and try to understand what has been said before you reply.
Last Viking wrote:
China has an extraordinary problem with money supply…..
Money supply has been dampened recently because their banks have been careless and…..
In the USA, the reverse is true on that subject.
Now do you understand where you screwed up? Your charts are about the US money supply. They have absolutely nothing to do with their banks or their money supply.
In the USA, the reverse is true on that subject. Money supply was broadly expanded in 2001 (21% annualize) to facilitate GDP growth (especially the new housing sector) coming out of the Recession. It steadily fell from 2002 until it bottomed at 0% in 2005. Continued real growth has required some liquidity and over the past months MZM money supply has been allowed to rise and is currently almost 5% annualized.
Now show me on those graphs where M3 decresed from 2002-2005....since the graph of the last ten or so years clearly shows it has increased at a decreasing rate from about 2003 until it bottomed in 2004.
China does not measure its money supply in american dollars. Your graph is fabrication; somebody is pulling your leg. Even if it had basis in fact, economists have not used M3 for years. It is a useless metric.
Same in the USA, the publishing of M3 has been reduced to quarterly offerings due to its limited utility.
The public perception and discussion of money supply is equivalent to its shock and awe confusion surrounding stock markets. Very few knew yesterday *or today* that the Shanghai market had risen 175% before its 9% correction and today's rebound.
Viking, Tate just screwed up by not reading your post properly. He thought you were talking about the US money supply when in fact you were talking about the China money supply.
The charts he posted are strictly US money supply charts, they have nothing to do with China.
Your graph is fabrication; somebody is pulling your leg. Even if it had basis in fact, economists have not used M3 for years. It is a useless metric.
At TOD we talk all the time about what the MSM DOESNT TELL YOU. And now you're going to try and pull some "economists don't use this, so it's useless." Do you understand what the REPO market is?
Same in the USA, the publishing of M3 has been reduced to quarterly offerings due to its limited utility.
As of March 23, 2006, information regarding M3 will no longer be published by the Federal Reserve. The other three money supply measures will continue to be provided in detail. On March 7th, 2006, Congressman Ron Paul introduced H.R. 4892 in an effort to reverse this change.[2]
is all a lie right? Somewhere it's published right? No it's not published to the public. It's having to be reconstituted by people since it's now hidden.
Last Viking tell me why M3 is useless. Does M2 on up include REPO's? NO. Why are REPO's important? Lets' see.
The Fed pulled a net of $1.5 billion out of the liquidity pool on Tuesday, even as it faces a huge wave of Treasury supply. It pumped in $8 billion in overnight repos against expirations of $9.5 billion. The Treasury raised $4 billion in new cash at Monday’s bill auctions, and today announced a $23 billion CMB to be auctioned tomorrow. The 4 week bill raised new cash of $17 billion. All of that settles Thursday. They settle net new money of $7.7 billion in 2 and 5 year notes on Wednesday. The Fed’s drain today came as a shock to the market (and to me) and exacerbates the supply pressure. The 4 week bill auction benefited from a huge flight to safety bid as investors fled from stocks worldwide.
This is from Tuesday morning. They were doing this in addition to the market caving on Tues. They have now said they will provide liquidity if the market strains.
Are you really going to argue that overnight lending aka REPOS, doesn't affect the MS? If daily, you leave more and more cash in the hands of large prime brokers (or in my example less), what the hell do you think they are going to do with? Put it to USE! This is precisely why M3 IS so important.
Really? Please show us the "important" correlation over time. Nobody else could find one that includes implied causation. Your documentation is basically tracking matching of funds issues wrt diff-date maturities. The Government often chooses to vary the mix betw short term and long term and yes, sometimes there are lags.
There is no conspiracy here implied or proven by your rant.
Tate, it is tres difficult to follow your line of thought or find anything meaningful in your argument. Sorry but I am exiting this thread.
Quite the rant. I wonder about this piece: "Govts are only needed for basic right/issues and everything else should be left to markets to work it out. Look aat what perversions our current govt gets away with and tell me govt is responsible.
It sounds like you my friend are now putting a bit too much faith in the your fellow man. Govt's are run by people."
Well, the design of markets, if not always directly attributable to governments, are only legitimate when mandated by governments via legislation and regulation. Illegitimate markets, those that govern the crack cocaine trade, or the human cargo trade, and so on, are ultimately also affected by government insofar as the traders will behave in ways to avoid the state.
Karl Marx had a utopian vision involving the withering away of the state. Perhaps when we no longer have much to trade, his vision will be realized. However, as long as we have a market-oriented society, we will have a busy, active government.
What you've go to do is to get off your lazy analysis and work to improve the quality of your government. It isn't going away.
Does anyone have enough buying power to stock a market slide?
There was a time when banks could stop the slide in currency by stepping in and buying huge amounts of that currency. But with the advent of the FOREX, those days are long gone. The FOREX sparked a boom in worldwide currency trading and speculation. The average daily volume on the FOREX is 1.5 trillion dollars. That is such a huge number it is hard to imagine. That is 1.5 thousand billion dollars, or 1.5 million million dollars. No bank has even a single billion dollars to risk in such a venture. Besides, what would happen tomorrow even if they did stop the slide today.
Though the dollar volume on the NYSE is no where near that of the FOREX, the same principle still applies. And besides, like the crash of 1929, there is always tomorrow, or next Monday.
On what has become known as Black Thursday, October 24th 1929, the market surprised everyone by going into a nosedive. Panic selling was everywhere. 12.9 million shares changed hands that day at a time when 4 million shares was a busy day. But then:
Alas, it might have worked had not Black Thursday not been followed a few days later by Black Monday.
And the crash continued....for three more years. The market did not hit bottom until 1932. It turned out that Whitney lost a lot of money for the Morgan Bank with this bit of bravado. Which all goes to prove that market momentum may be paused but if it is strong enough, it cannot be stopped. But I digress.
My point is all this happened in days when market volume was less than 4 million shares a day. In 2005 the average daily volume was 1.61 billion shares, over 400 times as great. No bank vice president would dare walk onto the floor of the exchange and risk millions, or billions of his banks dollars in an effort to stop a slide. They learned a lesson from Richard Whitney, all it will wind up doing is costing you a lot of money. If it didn’t work when the average volume was 4 million shares, it sure as hell would not work when the volume is 400 times as great. No one has that much money. And if the market is really ready to head south, nothing is going to stop it.
Is the market ready to head south? Hell, I don’t know, but I have a strange feeling that it just might. It’s getting jittery and all it needs is a trigger. A trigger might be something like: “Confirmed: Saudi Arabian oil production in terminal decline!”
Ron Patterson
Black Thursday
http://mutualfunds.about.com/cs/history/a/black_thursday.htm
Black Monday
http://mutualfunds.about.com/cs/1929marketcrash/a/black_monday.htm
I guess the sheer volume of currency trades is why the Chinese yuan swings around so wildly. No central bank can regulate a currency anymore.
Ron, you keep thundering like Jehovah while making claims that are simply contrary to fact.
Old Hippie, The Chinese Yuan is not traded on the Worldwide FOREX market. China has it's own internal Foreign Exchange Market with $200 billion in funds with which to trade. This is really a farce. China still controls everything. This is supposed to be an open market for the Yuan yet it is still under the Chinese' control. The Yuan swings in spite of the fact that the Chinese are trying desperately to peg it to the dollar and stabilize the swings. If there is truly an open market for a currency it cannot be actively managed by its country or origin.
The US cannot actively manage the value of the dollar, nor can any other country do the same if their currency truly floats.
Two things Old Hippie. You should get your facts straight before you post. And second, you should have a reference, preferable a URL, to back up your claims.
Just declaring that my claims are contrary to the fact rings hollow. You must prove what you claim with a reference, or at least a logical argument. You do neither.
For all the Chinese Yuan – Forex news you ever wanted to hear:
http://www.forexblog.org/chinese_yuan_rmb/index.html
Ron Patterson
Stating that for instance the Fed has no control over the value of the US dollar, or the Bank of England over sterling, is the same as calling the people who have had absolute power over the issuance of a currency for a very long time, a fact that makes them the richest and most powerful people ever to walk this planet, a bunch of fools. Well, no sale here on that idea.
Leanan posted an article yesterday that gives some insight:
Zero Degrees of US Dollar Separation
and there are plenty of other files at the Gold Anti-Trust Action Committee
The control in 1929 was in the same hands it is in now, and the argument that the world economy is so much bigger now presupposes that the very people who issue the money and made it so much bigger, wouldn't have grown proportionally with it, that they "let" it grow to a size where they lose their control. Other then them being really stupid, how do we explain that?
SoFly, please, please, please do not put words in my mouth that I never wrote or spoke. I never said that the Fed has no control over the value of the dollar. What I said was:
The US cannot actively manage the value of the dollar, nor can any other country do the same if their currency truly floats.
The Fed, the Congress and the Executive Department can try to control the value of the dollar. The Fed can do it by changing interest rates. The Congress and the President can do it by trying to manage the budget and decrease the deficit. Though they appear to be doing a poor job of it at the time. But they cannot actively manage, (manipulate), the value of the dollar. They can only act responsibility and hope this stabilizes the dollar. But if the dollar falls today and rises tomorrow, that is entirely beyond their power to change it. The market determines the value of the dollar, not the Fed.
Ron Patterson
Manage, manipulate, try to control. Define terms as you go, swing a big bludgeon and win every argument. Tiresome.
Old Hippie, there is a tremendous difference between trying to stabilize a currency via responsible government behavior and trying to manipulate a currency by buying or selling huge blocks of that currency.
I think you, or anyone else for that matter, clearly recognizes that difference. You are just being obnoxious by pretending there is no difference. But if I am wrong, if you truly cannot tell the difference, then that says something entirely different, something not very complementary of your intellect.
Ron Patterson
I only locate markets so magically large the big players all bow down and worship or "responsible government behavior" when in seriously deep mystical trances.
I also don't think I outrank George Stephanopoulos. Handwaves all around.
I personally ran up against blatant PPT intervention in the stock market in 2004, 2005, 2006, that I finally gave up and bowed out. Each time, I was trying to buy PUTS on either GM, Fannie Mae, or Ford. For those not in the know, PUTS are a bearish bet.
Each time I was told "U R OUT" and my order was canceled. Each time I called them to find out why. All they would tell me is that "we are not allowed to open any new positions on that security." When I asked about the free market, i.e., "if you have a willing buyer and a willing seller, what business is it of yours?" I received NO answer whatsoever---just stony silence.
Just on a lark, I tried to open a CALL position each time on the same security. A CALL is a bullish bet. I put them in with a limit order that I was pretty sure would not get executed. Each time I did this, the CALL orders did NOT get canceled.
First hand experience. I don't need any more evidence to know that the stories of manipulation are true. And the currency is most certainly manipulated right along with everything else. It is done by creating new money (via the fractional reserve banking system and/or the presses) and by reigning in the same.
Also, just out of curiousity Ron, do you know what the leverage is on the FOREX exchange? I trade forex, and I can tell you that it is obvious whenever a central bank buys or sells a currency because of what it does to the price. The buy and sell such huge quantities, that combined with leverage, it has a huge impact on the market. After the fact, you can always tie these moves to the central bank currency disclosures.
I wish I still believed that we have the best government in the world and that we lived in Wonderland. But we don't. All governments are corrupt, and that includes ours.
Ckaupp, I am having trouble with your story. I know what puts are, I was a stockbroker for all of six months back in 1986. A put cannot possibly affect the price of the stock and neither can a call. A put is a bearish bet but it has no bearish effect on the market whatsoever. It is only a bet that the stock will go down. Purchasing a put or a call has absolutely no effect on the price of the stock.
Even if a PPT actually existed, why on earth would they care whether you buy puts are not. That just does not make any sense whatsoever.
Ron Patterson
I know EXACTLY what they are---I've been trading them for years. I did NOT say purchasing either a PUT or a CALL has ANY effect on the share price of a stock. 6 months versus 8 years of options trading....
I was there and experienced first hand. My impression was that it was about perception control.
You have 2 of the biggest US Corporations and a huge GSE (Government Sponsered Entity) -- all 3 of them having serious financial trouble. A HUGE number of BEARISH bets looks BAD when you consider the old saying that "Where goes GM goes the US."
Since they were willing to let me open CALLS, or BULLISH bets, but not PUTS or BEARISH bets, I was left with the impression that it was all about PERCEPTION CONTROL. Lots of people really do look at such things at PUT/CALL ratios. It was not about controlling the stock price, but it most certainly was about "managing the market" and perceptions of these companies. If foreigners really knew the state of our economy, they would bail on US debt instruments and we'd be in a world of hurt.
Ckaupp, I traded options for years also, I was a broker for six months.
A put is only a bearish bet for the buyer of the put. It is a bullish bet for the seller of the put. Likewise a call is a bullish bet for the buyer of the call but a bearish bet for the seller of the call.
But no one pays the slightest bit of attention of the put or call volume or the put/call ratio for any given stock. Hell, they are not even listed in the newspaper.
This is absurd! Puts and calls are market neutral since either is a bet by two people, one betting the stock will go up and the other betting the stock will go down. Do you think if you tried to sell a put, a bullish bet, that your order would have been cancelled. Well, if the cancelled the buyer they would also have to cancel the seller. That just makes no sense whatsoever.
Ron Patterson
In 2001, the SEC widely published new regulations preventing investment houses from selling shares short over which they had no control. The diminished supply was reserved for Preferred customers.
Rather than corruption, this is an issue related to novice participants.
This had nothing to do with selling short.
The leverage on the FOREX exchange is pretty amazing. A small time investor can purchase millions of any currency he wants with a relatively little account. I have at least 20-40 thousand of different currencies at all times sloshing around
A billion or so by a bank would hugely move the FOREX market.
Indeed. When I first opened my puny little forex account, I opened a regular account.
After my first trade, I watched the huge swings in my tiny account as the losses/gains swung back and forth precipitously to what is essentially a "margin" call (but not handled like in the stock market---in forex if your losses breech your margin they automatically close your position).
When it finally swung back near where I started, I closed the position and closed the account and opened what is called a "mini" account.
In a regular forex account, currencies are trades in blocks of 100,000 units, such as $100,000 at a time. You can get leverage all the way to 1% -- meaning you only have to put up 1% of the value of the trade. Can you see where this can go? With 1% leverage, you can control $100,000 with $1,000.
In a mini account, you trade in blocks of 10,000 units, such as $10,000. I also had them decrease my leverage to prevent heart failure.
Normally the margin is 2%.
http://www.interactivebrokers.com/en/trading/marginRequirements/currency...
There are accounts that require only 1% margin. These accounts automatically liquidated at .99%.
http://www.ac-markets.com/en/online-forex/fx-accounts.asp
Ron Patterson
I didn't say anything different that what you just said. I said you "can" get 1% margin, and I said they automatically close your position when you get close to breeching your margin. I just didn't give the actual number.
I think you like to argue just to argue. I'm done here. You win.
The margin requirments for the FOREX is 2% for the major currencies. But if the currency moves against you by 2% you lose your entire investment. A billion dollars would purchase 50 billion dollars worth of any other currency. Or you could go the other way and buy 50 billion dollars, in Euros or whatever, worth of dollars.
When you invest (gamble) on the FOREX you must bet one currency against the other an in USD/Euro. And if you bet the wrong way, you start to lose money very fast.
But the question is, why would any bank do such a thing. The truth is they don't. Banks don't really give a damn which way the currency moves. A FOREX member bank makes its money by taking both sides of the bet. They make their money by taking the difference between the bid and the ask. That is usually about three basis points, (three one thousandths), greater for the thinly traded currencies. Banks or FOREX brokers charge no commission because they make their money from the difference between the bid and ask price of the currency. A trade always involves two parties. The bank never takes one half of the trade, there is always a bid and ask price.
Banks are not in the gambling business and it is simply foolish to think they are.
Ron Patterson
Boy have you twisted this.
Yes, you can get margin to 1%. It isn't uncommon. And no, your calcs are not correct since a unit in one currency doesn't usually equal the $ units in your account. I'm not sure where commissions came into this discussion at all. But you are correct about commissions--there are none...it is the spread.
I did not say the banks were betting. Where did that come from? Methinks thou doth read things that aren't there.
I said they move the markets. I assigned no motive for moving the market. It could be for many reasons. They might want to lighten up on one currency or go heavy into another. They may also do it to help manage the market. For example, Japan might perceive that the Yen is getting too strong and it will slow down their export business--so they manage it lower. They do this, as I said before, through fractional reserve banking and the printing press. They also do it through the forex markets.
And there have been times, during this "management" process, where they've literally gotten their you know what in a wringer.
I dont disagree with this, but I've dug a bit deeper into that before and reached the conclusion that 1973 is THE year in terms of monetary policy. You may remember Nixon closed the bretton woods agreement ala no more gold standard for trade and free floating currencies. The monetary freight trail was out of control until Volcker. However onced he stablized the economy and left, the party began with Greenspan taking over and that leaves us here....
http://www.itulip.com/forums/showthread.php?t=292
Tate, I agree with everything you say here. It only reinforces my point that there is a tremendous difference between
trying to stabilize a currency via responsible government behavior
and
trying to manipulate a currency by buying or selling huge blocks of that currency.
The former is what you are talking about and is the mark of good government. The latter, in view that 1.5 trillion dollars exchange hands every day on the FOREX, is just not possible anymore.
Disclaimer: Very thinly traded currencies like the Zimbabwe Dollar, can be made to swing wildly by buying huge blocks of that thinly traded currency. My claim only applies to major currencies.
Ron Patterson
Ok then Ron, we agree on the data, but I dont agree on the conclusion. Go read that LONG @$$ article I posted and tell me why Aaron is wrong. I dont think there is a such thing as responsible behavior by govt. Govts are only needed for basic right/issues and everything else should be left to markets to work it out. Look aat what perversions our current govt gets away with and tell me govt is responsible.
It sounds like you my friend are now putting a bit too much faith in the your fellow man. Govt's are run by people. Stop and actually think about what that means. People can call up their friends and give me inside info and how would we know? We dont until ten years later and we're all paying for it because someone gave a favor ala spoils system. I think you're a bit too nieve if you think gov'ts serve the interests of their subjects. That may be true in principle and in the start, but as it marginally increases no one notices until you stepback and realize we're on the opposite side of the field.
I dont think I ever said currencies are manipulated but lets square some numbers. You're right about the forex market and the ability to swing it is low. However my point is more that central banks are more involved in day to day activities in our markets including gold (check gata for the good stuff) and possibly even the NSYE. If you check the rally since the summer, it's index led. It's as if large buyers were simply buying indexes and MOST stocks not associated with ANY index (S&P, Russell) did not do 15% gains! Its as if the bid was always there in the major indexes right when the carry trade starting unwinding LAST TIME (MAY).
Maybe a larger point we can all agree on is simple. The system is now so complex, we dont know where the blood spills first. However we do know what will happen once a catalyzing event does happen. Im on record as saying I think this is the first SMALL leg down. We're talking lesds than 3% drop and we get a 64% spike in volatility. The fun has begun for some of us.
Tate, you are going to have to be more direct. I looked over the Tate article; "What (Really) Happened in 1995" and I am not sure what I am supposed to disagree with.
And what on earth gives you the idea that I am putting too much faith in my fellow man, or the government for that matter. I have damn little faith in either! I thought I made that pretty clear.
When the computer triggers automatic buy or sell programs that this creates dramatic swings in the market. Programs sense a difference in the S&P futures and the actual market. If the futures are way below the actual market, the program will automatically buy the futures and sell the stock short. And they will close out both positions when the gap narrows. Almost instant profit.
The opposite happens if the futures are above the stock. They sell the futures and buy the stock. My point in mentioning this is that the market can be made to swing dramatically but it is all done in the name of profit. There is no effort to stop a plunge. In fact, it usually accelerates the move in the direction it was already going. So what is your point?
I agree 100% that the banks are involved in the market. They buy and sell all the time in an effort to make a profit.
Well not exactly. Automated computer buy and sell programs only deal with indexes and the stocks of those indexes! And unlike the oil market, the indexes follow the actual stock, not vise versa. Indexes always follow the market, they do not lead it. When indexes are way above or below the market, this automatically triggers buy or sell programs. When the index is above or below the market, this is what traders expect the market to do. But other than with automatic buy and sell programs, indexes cannot dictate what happens to the stocks that make up that index. It is the other way around. People buy individual stocks and the index follows accordingly. Understand that the index is nothing more than where that group of equities stand at any given moment. And people buy or sell the index futures, betting on the way they think those equities will move. But buying or selling futures in index alone cannot possibly move the value of the stock that make up that index. (Buying and selling the oil index does move the oil market, but that is an entirely different matter.)
Ron Patterson
Ron, thank you for your intervention this week. Discussions on currency, stocks, money supply and the Federal Reserve can easily get take on ludicrous proportions but your links and explanations served to ground the rhetoric.
China has an extraordinary problem with money supply in that hoarding is occuring. An upward revaluation of the Yuan has been expected for three years and everyone that can is accumulating or hanging on to hard currency. China has been keeping the Renminbi low to promote exports which enlarges its manufacturing base which in turn keeps the hordes who are moving in from its rural regions occupied. Busy, happy people are not revolutionaries!
Money supply has been dampened recently because their banks have been careless and current growth rates are unsustainable all things considered.
In the USA, the reverse is true on that subject. Money supply was broadly expanded in 2001 (21% annualize) to facilitate GDP growth (especially the new housing sector) coming out of the Recession. It steadily fell from 2002 until it bottomed at 0% in 2005. Continued real growth has required some liquidity and over the past months MZM money supply has been allowed to rise and is currently almost 5% annualized.
China recently announced that their rebalancing of Reserves will involve the spending of USDollars on imports rather than outright currency sales. China is seen to be slowly joining the *family of nations* as evidenced by their more conventional activities.
Really? Please show me on this graph where it as been dampened.
http://www.nowandfutures.com/key_stats.html
Or this one....
Pure and simple the credit in the system is/has been out of control and it's evident in M3.
According to this...http://www.bractwo.bbk.pl/strony/ang/ozlocie.htm
and http://www.physicsforums.com/archive/index.php/t-2774.html
there is only "It says all the gold in the world would fit into a cube of 10m.
At a density of 19,300 kg/m^3, thats 19 million kg. In dollars, thats around $130 billion."
TODAYS MONEY: Ounces/KG = http://www.google.com/search?hl=en&q=how+many+ounces+in+a+kilogram
= 35.2739619/kg * 19,300 = 680787.4647 ounces * $670 = $456,127,601.33.
My point: $11.5T vs $446B is way out of whack with reality.
Tate, you should read the post and try to understand what has been said before you reply.
Last Viking wrote:
Now do you understand where you screwed up? Your charts are about the US money supply. They have absolutely nothing to do with their banks or their money supply.
Ron Patterson
I should read huh? Try again.
Viking Said:
Now show me on those graphs where M3 decresed from 2002-2005....since the graph of the last ten or so years clearly shows it has increased at a decreasing rate from about 2003 until it bottomed in 2004.
China does not measure its money supply in american dollars. Your graph is fabrication; somebody is pulling your leg. Even if it had basis in fact, economists have not used M3 for years. It is a useless metric.
Same in the USA, the publishing of M3 has been reduced to quarterly offerings due to its limited utility.
The public perception and discussion of money supply is equivalent to its shock and awe confusion surrounding stock markets. Very few knew yesterday *or today* that the Shanghai market had risen 175% before its 9% correction and today's rebound.
Viking, Tate just screwed up by not reading your post properly. He thought you were talking about the US money supply when in fact you were talking about the China money supply.
The charts he posted are strictly US money supply charts, they have nothing to do with China.
ron Patterson
At TOD we talk all the time about what the MSM DOESNT TELL YOU. And now you're going to try and pull some "economists don't use this, so it's useless." Do you understand what the REPO market is?
So the quote from here... http://en.wikipedia.org/wiki/Money_supply#Money_supply_and_cash
is all a lie right? Somewhere it's published right? No it's not published to the public. It's having to be reconstituted by people since it's now hidden.
Last Viking tell me why M3 is useless. Does M2 on up include REPO's? NO. Why are REPO's important? Lets' see.
http://wallstreetexaminer.com/?p=799
This is from Tuesday morning. They were doing this in addition to the market caving on Tues. They have now said they will provide liquidity if the market strains.
Are you really going to argue that overnight lending aka REPOS, doesn't affect the MS? If daily, you leave more and more cash in the hands of large prime brokers (or in my example less), what the hell do you think they are going to do with? Put it to USE! This is precisely why M3 IS so important.
Really? Please show us the "important" correlation over time. Nobody else could find one that includes implied causation. Your documentation is basically tracking matching of funds issues wrt diff-date maturities. The Government often chooses to vary the mix betw short term and long term and yes, sometimes there are lags.
There is no conspiracy here implied or proven by your rant.
Tate, it is tres difficult to follow your line of thought or find anything meaningful in your argument. Sorry but I am exiting this thread.
Thought so....
Quite the rant. I wonder about this piece: "Govts are only needed for basic right/issues and everything else should be left to markets to work it out. Look aat what perversions our current govt gets away with and tell me govt is responsible.
It sounds like you my friend are now putting a bit too much faith in the your fellow man. Govt's are run by people."
Well, the design of markets, if not always directly attributable to governments, are only legitimate when mandated by governments via legislation and regulation. Illegitimate markets, those that govern the crack cocaine trade, or the human cargo trade, and so on, are ultimately also affected by government insofar as the traders will behave in ways to avoid the state.
Karl Marx had a utopian vision involving the withering away of the state. Perhaps when we no longer have much to trade, his vision will be realized. However, as long as we have a market-oriented society, we will have a busy, active government.
What you've go to do is to get off your lazy analysis and work to improve the quality of your government. It isn't going away.
what would you have tate do ?.......... hire a lobbyist ?
Exactly. The right to complain about your government is proportional with the effort you spent to improve it.