Financial topics

[Higgenbotham]

Hmm, Higgs, does reported volume on the NYSE actually add in all those withdrawn trades? If it's correct that so many are being executed, then real trades are only about 25% of the market, and volume compared to the past before flash trading is not accurate unless you adjust for all the withdrawn trades.

The withdrawn bids and asks would not be counted as volume. Volume is the executed orders. I see bids and offers go in that are quickly withdrawn. And it appears that more and more of the volume lately, especially at night, is due to the computers. I wouldn't doubt, just based on guesswork and observation, that 90% of the night volume in the futures market is due to computers (or HFT).

[Higgenbotham]

http://www.tigeruniversity.com/mp3/Larr ... 020812.mp3

01:30 to 02:30 discussion of volume.

[vincecate]

It may all collapse in "about an hour".

I think the bond collapse and stock collapse will both set speed records. I think that flash crash was just a sample of how fast things can go down. My 75 year old mother is talking about stop loss orders without understanding how they could fail to get her out at that price when the market gaps down. If she is putting in stop loss orders and thinking this makes her safe I suspect many others are also. With enough stop loss orders the market can plunge really fast, so when done enough they don't make people safe.

[Higgenbotham]

It may all collapse in "about an hour".

I think the bond collapse and stock collapse will both set speed records. I think that flash crash was just a sample of how fast things can go down. My 75 year old mother is talking about stop loss orders without understanding how they could fail to get her out at that price when the market gaps down. If she is putting in stop loss orders and thinking this makes her safe I suspect many others are also. With enough stop loss orders the market can plunge really fast.

A lot of futures traders think they can catch the downside after the crash starts by going short with a sell stop. Not so. I called Chicago to verify for sure that this is right. They told me, if a sell stop order is placed, it only gets executed if it can be executed within 3 points of the price. So if you want to be short before the "gap down" crash you have to be short before it hits.

[Higgenbotham]

On another note, I think with what Bernanke is saying and doing, as well as what is going on in the rest of the world, hyperinflation is now a stronger possibility than ever before. The wheels are in motion and I think now it can happen as soon as two to three years, and be inevitable within a year. This even though gold, silver, and oil are temporarily down. I give hyperinflation 50/50 odds to occur within 3 years.

[vincecate]

On another note, I think with what Bernanke is saying and doing, as well as what is going on in the rest of the world, hyperinflation is now a stronger possibility than ever before. The wheels are in motion and I think now it can happen as soon as two to three years, and be inevitable within a year. This even though gold, silver, and oil are temporarily down. I give hyperinflation 50/50 odds to occur within 3 years.

It seems China is now on a path for printing money:
http://globaleconomicanalysis.blogspot. ... er-17.html

The EU is well down the path of printing money.

The UK and USA are too. I don't see how Japan can avoid it.

If we define hyperinflation as over 5% inflation per month, I think the odds of US dollar hyperinflation within 3 years is over 80%. This is the one thing I strongly disagree with John on, it is not a good time to be holding US dollars.

[Higgenbotham]

[The EU is well down the path of printing money.

The UK too.

There will probably be some more deflation this year, though it'll be slow in coming and may come and go quickly. I think gold and silver will dip down one more time this year and that may be as low as they go. At this point, if silver gets under $26, whereas before I said it would matter, now I don't think it will.

[Trevor]

At this point, the best way to describe Europe would be desperate. No matter what they do, the crisis just keeps getting worse. No one country can print money because they all have the same currency. Course, even if Greece was booted and massively inflated their currency, no one would buy their bonds for that reason, so they'd default in any case.

In the United States, we stand to have a national debt of over 16 dollars by the end of the year and with the way we're spending, we'll likely hit that barrier even sooner than that.

[John]

Here's something I wish I understood better from a generational point
of view. This is the velocity of money, split out for M1 and M2:



With data from the St. Louis Fed:
http://research.stlouisfed.org/fred2/categories/32242

Here are some possible explanations:

• M1V increased rapidly before 1980, as Boomers went into businesses
  that were created in the 1930s, and wages increased rapidly at this
  time.
• Both M1V and M2V rose rapidly in 1977-80, when the inflation rate
  was almost at hyperinflation levels.
• Both stabilized after Volcker's actions in 1982, which also
  stabilized the inflation rate.
• Then after the 1987 "false panic," M2V suddenly took off like a
  rocket. Why? After it became apparent that there wouldn't be a repeat
  of the 1929 crash, Boomer middle managers were suddenly willing to
  make a lot more investments.
• M2V started crashing in 2000 with the Nasdaq crash. M1V didn't
  start crashing until the 2007 credit crunch.
• M1V skyrocketed with the tech bubble (which was generated by
  Boomers) and with the credit bubble (which was generated by Gen-Xers).
• Both M1V and M2V started collapsing in 2007, resulting in the
  current deflationary spiral.

What's interesting and puzzling is why the two aren't better
synchronized, but seem to react independently, reacting to different
generational events, until converging in 2007, when they both
collapse. This will require more thought.

John

[vincecate]

This is the velocity of money, split out for M1 and M2:

I like Hussman's article explaining how interest rates impact velocity of money:

http://www.hussman.net/wmc/wmc101025.htm

In this he shows that higher interest rates historically come with higher velocity of money and lower rates with lower velocity of money. To me this makes sense. If interest rates are 0.25% it is no big loss if you let cash sit under your mattress but if interest rates and inflation are 20% you rush your money to the bank or spend it before prices go up more. Either way it will then go on someplace else.

velocityofmoney.gif (12.49 KiB) Viewed 3171 times

This is a key insight into understanding why when central banks first print lots of money you don't get inflation right away. At first they are lowering interest rates, which lowers the velocity of money. If they can keep lowering the velocity of money as they increase the quantity of money then prices don't go up. But at some point they can't lower interest rates any more, so velocity does not get any slower, and then prices start to go up. Once prices are going up too fast then they have to let interest rates go up, but this then lets the velocity of money go up, so it can be hard to keep a lid on inflation.