Comments on: Beat the Market

By: Michael Mouse

Michael Mouse — Wed, 23 Feb 2005 16:34:46 +0000

Ken Houghton> Which is why one should never bet against the central banks, unless they are clearly and unarguably wrong. (In that one case, the rule is to stay out of the market.) Or unless the depth of your pockets is of the same or greater magnitude than the central bank(s) you’re betting against, in which you can put your money where your mouth is and reasonably hope it’ll pay off handsomely. The small number of entitities who are in this position probably don’t get their trading tips from CT comments tho’ …

By: Jack

Jack — Sun, 20 Feb 2005 10:37:57 +0000

Giles may be right about the result but the calculations are not as clear cut as he suggests. China wouldn’t lose 60% of GDP in one bung, maybe 30% if the effects were really extreme for starters. Nor would it lose the whole market—where would the US buy all that stuff from if not China? Over time the size of China’s influence will change in relation to the size of its economy, most likely in China’s favour. In any event it will depend upon what is at stake and finally it will be a game of chicken and nooone should rely on simple economic rationalism to determine behaviour in all circumstances. For example Saddam could have reasoned – why would the US spend $300bn to get rid of me? There are also many ways of wielding power. For example it would be fun, sort of, to see China do to the treasury market what Citigroup did to the Euro bond market.

By: Giles

Giles — Fri, 18 Feb 2005 21:44:50 +0000

Significant – but not credible. Dunping their reserves means that they loose about 60% of GDP in one bung – as well as their largest export market.

By: Ken Houghton

Ken Houghton — Fri, 18 Feb 2005 19:57:25 +0000

Sorry for the double-down. Not exactly anything profound enough to split.

By: Ken Houghton

Ken Houghton — Fri, 18 Feb 2005 19:55:11 +0000

Which is why one should never bet against the central banks, unless they are clearly and unarguably wrong. (In that one case, the rule is to stay out of the market.) A country’s assets include political influence bought by holding dollars. How much is it worth to China, for instance, to hold enough USD assets that the possibility of dumping them into the market would be a significant enough threat to change US foreign policy?

By: Ken Houghton

Ken Houghton — Fri, 18 Feb 2005 19:54:20 +0000

By: elliottg

elliottg — Fri, 18 Feb 2005 18:41:28 +0000

In holding a short position, short term momentum is much more important than being right in the long term. How many lost money on Internet stock shorts even if ultimately they would have been right? Did it serve McGovern to be right about Vietnam? Only Long Term Capital Management was able to weather the storm of short term irrationality (with a massive capital infusion and help by central bankers) only because the people in power were unwilling to let it fail.

By: Jeremy Osner

Jeremy Osner — Fri, 18 Feb 2005 13:15:02 +0000

Hmm… but goldbuggery is not What I Was Looking For…

By: Jeremy Osner

Jeremy Osner — Fri, 18 Feb 2005 12:36:15 +0000

Hmm… but goldbuggery is not what I was looking for…

By: Darren

Darren — Fri, 18 Feb 2005 09:40:18 +0000

Jeremy, see - Goldmoney and "The Coming Collapse of the Dollar" you may find both sites interesting.

By: Giles

Giles — Fri, 18 Feb 2005 04:41:04 +0000

I haven’t read this paper properly but doesnt it assume a competitive market. It seems to make sense for an economy like Lxembourg but at the end of the day the US accounts for about a quarter of world gpd and will continue to do so for the foreseable future. It therefore has market power and so, while interesting for most economies, has few relevant results for the big economies of the world ie US, china and EU that are actually setting prices as opposed to leaving the market to decide.

By: cdm

cdm — Fri, 18 Feb 2005 02:23:39 +0000

[d^2] As also has Pierre-Olivier…

By: Jeremy Osner

Jeremy Osner — Fri, 18 Feb 2005 01:38:22 +0000

Thanks all.

By: Andrew McManama-Smith

Andrew McManama-Smith — Fri, 18 Feb 2005 00:03:25 +0000

Are Euro demoniated Assets such a safe bet? I’ve read that the by a number of measures the Euro is OVERvalued v the dollar, though whether this means the euro will rise or fall against the dollar is a different issue. I guess this all returns to Asian central banks, since the RMB is pegged to the dollar at a ludicriously low rate. It may be nationalism, but I’ve invested a lot in AUS$ assets.

By: Michael Wolfe

Michael Wolfe — Thu, 17 Feb 2005 23:42:34 +0000

Jeremy- Read your fund’s prospectus to determine whether it’s denominated in dollars or not, and if not, whether or not the fund hedges to reduce its exposure to currency risk (which hedging, in this case, would be undesirable to you). T. Rowe Price has several no-load funds that that I know of that are denominated in Euros and not hedged against currency risk, including PRESX, PRIDX, PIEQX, and RPIBX. You could also look at http://www.everbank.com if you had 10k sitting around and were interested in opening a Euro-denominated CD.