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Brent
The following is only a breif explanation
Austrian economics is my prefferred "frame work" in assessing global
macro situation. Specifically, in japan , whats refferred to as the "pool of
funding" has been depleted in japan over the last 30 or so years. The "pool
of funding" basically encmpasses the net wealth of a nation. This net
wealth is eroded by the artificial manipulation of economics areas of
interest, primarily interest rates. In japan specifically, what people
referr to as the "bubble economy of the 80's" was the climax of this
manipulation of the pool of funding..Once manipulation occurrs, the short
term (prehaps many years) benefits of reduced unemployment, high eco growth
rates etc are not sustainable & the economy must collapse & return to
the mean. All gov't policies are manipulation. It is basically the
misallocation of resources.
The lowering(or increase) of interest rates by reserve banks is a
wealth consuming activity to a nation which, because it dosnt correspond to
consumers decision to save more, implies that there isn't an increase in the
allocation of the means of sustence ( ie productve resources) in the
economy. So capital (hence eventually other economic resources like labour
etc.. hence lower unemployment rates in short term) is diverted to less
deserving ventures in the economy which otherwise would not have taken place
(were it not for the artificial lowering of interest rates by the reserve
bank)...... this in essence is "fat" in the economy. Eventualy to support
this "fat" (ie economic booms in stockmarkets) the reserve needs to keep
lowering interest rates etc, otherwise it will all collapse. This is what
happened in japan, & recently asia.
The greater the manipulation the harder the fall & economic problems, &
hence the longer it takes to restorethe economies natural resource
allocations levels
In japan Money supply grew to such an extent by the artificial lowering
of interest rates that in order to keep supporting the economy (stockmarket)
the govt had to keep printing money, but this is only possible for so long,
so then what happens is you have asset deflation (leading to recession),
(eventually you get consummer deflation as incomes dwindle) & due to the
excessive money supply, coupled with the massive exsodus of capital from
the country due to the asset deflation you get exchange rate depreciation.,
this ofcourse raises riskpremiums in the country & interest rates to attract
the badly need capital for economic activity........ ie credit crunch.
TELL ME .....DOES THIS SOUND FAMILIAR......JAPAN, ASIA (yen, ringitt,
comsumer inflation world wide) ....& eventually the USA will succumb to this
outcome..
From this we can see that unless the govts of these countries allow
asset depreciation to take place & allow there ER to move freely, they are
only going to draw out the pain for there countries & exacerbate the
situation.
Manipulation of economies ocurred mostly in malaysia & indonesia &
therefore thats where most ecomonic damage has occurred. australia,
singapore etc havnt been hurt at all (comparatively)
Brent, fundamentals allow you to understand whats going on & why (&
importantly what comes next), its not for trading specifically on day to day
basis but you can pick whats going to happen to te yen for example
over..all. It allows you understand what MUST occurr & that it will
EVENTUALLY occurr. Fundamental analysis is all a "framework" of assesing
situations
. Hope this helped
Peter
-----Original Message-----
From: BrentinUtahsDixie <brente@xxxxxxxxxxxx>
To: Peter [ KKD ] <derivatives@xxxxxxxxxxxxxx>; RealTraders Discussion Group
<realtraders@xxxxxxxxxxxxxx>
Date: Saturday, 5 December 1998 4:48
Subject: Re: Economics
>Pete,
>
>Somebodys always wanting to quit just when your about to learn something:-)
>I did a quick brush up on these "schools" as I wasn't familiar with the
>terms. It would be interesting to hear how you think that this
understanding
>allows you to be able to understand whats happening in Japan & whats
>happening in Asia at the moment & why it occurred.
>
>Brent
>
>
>
>
>
>-----Original Message-----
>From: Peter [ KKD ] <derivatives@xxxxxxxxxxxxxx>
>To: brente@xxxxxxxxxxxx <brente@xxxxxxxxxxxx>; RealTraders Discussion Group
><realtraders@xxxxxxxxxxxxxx>
>Date: Thursday, December 03, 1998 11:39 PM
>Subject: Re: contango/backwardation
>
>
>>Brent
>> Austrian Economics is a school of thought, like Keynsian, its not the
>>economic well being of the Austrian economy. Your missing the point.
>>Knowing the difference betweeen Austrian & mainstream economics allows you
>>to be able to understand whats happening in Japan for example & whats
>>happening in Asia at the moment & why it occurred.. Austrian economics is
>>just one facet of fundamentals
>> You state " Economic forces are what move most everything but they are
>>difficult to fully understand and conceptualize"..... thats exactly
my
>>point, . Without having a proper understanding of Fundamentals your not
>able
>>to understand whats going on.
>> Dont confuse this with trading. I said that a trader worth his salt
>>needs to understand fundamental but to ignore it in trading.
>> You keep on reffering to news, fundamentals is not about news, its
>>about "laws" that govern economics & markets.
>> how about we just leave the discussion at then
>>cheers
>>Peter
>>
>>-----Original Message-----
>>From: BrentinUtahsDixie <brente@xxxxxxxxxxxx>
>>To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
>>Date: Friday, 4 December 1998 9:32
>>Subject: Re: contango/backwardation
>>
>>
>>>Pete,
>>>
>>>This is getting close to splitting a hair but how do you get your
>>>information on Austrian Economics? Do you go there and personally collect
>>>data and measure it? I don't think so. You probably rely on the news like
>>>most all of us. I think that you are talking about how you utilize
>>>information that is most likely obtained from the news. Economics is
>simply
>>>the amalgamation of all input and output of an economic system and news
is
>>>simply the reflection of that. Economic forces are what move most
>>everything
>>>but they are difficult to fully understand and conceptualize. In 1980
>>>everyone's idea of the economy didn't tell them that for the next 20
years
>>a
>>>bull market was going to ensue or everybody and especially the economists
>>>would be richer than Bill Gates. My point is that no one can possibly
know
>>>all fundament input whether it comes from the news, the boardroom, or the
>>>local tavern. And one key missing piece of information can negate all the
>>>other input. For example a dock strike can cause a price rally even
though
>>a
>>>large supply of something is produced and expected.
>>>
>>>Brent
>>>
>>>
>>>
>>>-----Original Message-----
>>>From: Peter [ KKD ] <derivatives@xxxxxxxxxxxxxx>
>>>To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
>>>Date: Thursday, December 03, 1998 12:49 PM
>>>Subject: Re: contango/backwardation
>>>
>>>
>>>>Brent
>>>> when I referr to fundamentals, Im not talking about news events (ie
>>>your
>>>>saddam comment), but rather things like "mainstrean econmics" vs
Austrian
>>>>economics, capital flows, intermarket integration & correlations, being
>>>>aware of how portfolio mangers utilise CAPM & hence their capital
>>>allocation
>>>>to different asset sectors in general, what EMU integration means for
>>>>fiscal/monetary policy, & why it cant really work, hence what it implies
>>>for
>>>>US/EU risk premiums, hence ER, & int rates differentials. etc etc, etc
>etc
>>>> FUNNYmentals encompase a much wider scope than you mentioned
>>>>Peter
>>>>
>>>>-----Original Message-----
>>>>From: BrentinUtahsDixie <brente@xxxxxxxxxxxx>
>>>>To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
>>>>Date: Friday, 4 December 1998 6:23
>>>>Subject: Re: contango/backwardation
>>>>
>>>>
>>>>>Pete, although I agree with the sprit of your statement that it is
>>>>important
>>>>>to understand fundamentals, I don't believe that anyone understands
>>>>>fundamentals completly. For example you virtually have to be all
knowing
>>>to
>>>>>know that Sadam ate something that gave him indigestion and kicks out
>>some
>>>>>UN guys or something. I followed a Copper backwardation for a while and
>>it
>>>>>was just market manipulation as near as I could tell. Surprise, there
>was
>>>>>more Copper in some wharehouse that they didn't count. You can't hardly
>>>>>believe a word of the news. So what else is new.
>>>>>
>>>>>Brent
>>>>>
>>>>>-----Original Message-----
>>>>>From: Peter [ KKD ] <derivatives@xxxxxxxxxxxxxx>
>>>>>To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
>>>>>Date: Thursday, December 03, 1998 9:35 AM
>>>>>Subject: Re: contango/backwardation
>>>>>
>>>>>
>>>>>>To be a trader worth your salt, you need to understand fundamentals
>>>>>>completely, but then when it comes to trading you need to forget about
>>it
>>>>>>totally. This however dosnt detract from its importance......... case
>in
>>>>>>point LTCM Euro positions
>>>>>>Peter
>>>>>>
>>>>>>-----Original Message-----
>>>>>>From: BrentinUtahsDixie <brente@xxxxxxxxxxxx>
>>>>>>To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
>>>>>>Date: Friday, 4 December 1998 3:20
>>>>>>Subject: Re: contango/backwardation
>>>>>>
>>>>>>
>>>>>>>I'll tell you what contango/backwardation means to me, it means that
a
>>>>>hole
>>>>>>>bunch of fundamentalist traders are going to be taken to the
cleaners.
>>>>>Just
>>>>>>>another good reason to trade 99% technically.
>>>>>>>
>>>>>>>Brent
>>>>>>>
>>>>>>>-----Original Message-----
>>>>>>>From: I4Lothian@xxxxxxx <I4Lothian@xxxxxxx>
>>>>>>>To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
>>>>>>>Date: Thursday, December 03, 1998 8:19 AM
>>>>>>>Subject: Re: contango/backwardation
>>>>>>>
>>>>>>>
>>>>>>>>You normally hear contango and backwardation in relation to New York
>>>>>>>>contracts. In Chicago the terms I hear used are a "Normal" market
>>(one
>>>>>>>with
>>>>>>>>carrying charges ), and an "Inverted" market (one with nearby prices
>>>>>>higher
>>>>>>>>than deferred prices). Just different terms to describe the same
>>>thing.
>>>>>>>>
>>>>>>>>An example of a normal market to an extreme is the Lean Hog market.
>>>>>There
>>>>>>>is
>>>>>>>>a glut of available nearby supply, not much capability to store
>>>product,
>>>>>>>and
>>>>>>>>weaker demand than anticipated when the farrowings were planned.
>>>>>>>>
>>>>>>>>Given our glut of supply in most all commodities, and weak worldwide
>>>>>>>demand,
>>>>>>>>there are not any significant inverted markets I can see right now.
>>>>>>>However,
>>>>>>>>the corn market of 1996 would be a good example. Nearby prices
>gained
>>>>>>>>dramatically on deferred prices.
>>>>>>>>
>>>>>>>>Sometimes markets will go inverted when there is a shortage of the
>>>>>>>commodity,
>>>>>>>>like the 1996 corn market. Other times you will see an inverted
>>market
>>>>>in
>>>>>>>the
>>>>>>>>first couple of months, despite a glut of supply. This will occur
>>>>>because
>>>>>>>the
>>>>>>>>owners of the commodity, like farmers holding and storing soybeans,
>>are
>>>>>>>>waiting for higher prices in the future to sell their crop. In the
>>>>>>>meantime,
>>>>>>>>processors of soybeans need to buy them to fulfill their nearby meal
>>>and
>>>>>>>oil
>>>>>>>>contracts. This creates a strong basis, which supports the nearby
>>>price
>>>>>>>due
>>>>>>>>to the relationship of the cash prices in the country to delivery
>>>values
>>>>>>of
>>>>>>>>the futures contracts.
>>>>>>>>
>>>>>>>>Regards,
>>>>>>>>
>>>>>>>>John J. Lothian
>>>>>>>>
>>>>>>>>Disclosure: Futures trading involves financial risk, lots of it!
>>>>>>>>
>>>>>>>>
>>>>>>>>In a message dated 12/3/98 7:53:09 AM Central Standard Time,
>>>>>>>stansan@xxxxxxx
>>>>>>>>writes:
>>>>>>>>
>>>>>>>><< Ketayun:
>>>>>>>> This is my understanding of these terms.
>>>>>>>> In commodities, e.g. oil, cocoa, etc., the contracts for
>>>>>>>> future delivery carry a higher price than contracts for
>>>>>>>> near term delivery.other factors being equal.
>>>>>>>> So a contract for oil expiring in 6 months would usually
>>>>>>>> cost more than the same contract expiring in 30 days.
>>>>>>>> This is due to several factors one of which is the carrying
>>>>>>>> cost. This normal situation is called "Contango" but I'm
>>>>>>>> not sure the origin of the term.
>>>>>>>>
>>>>>>>> However, a year ago long-delivery oil was priced below the
>>>>>>>> short-delivery oil and this unusual situation was referred
>>>>>>>> to as backwardation. I believe this term is appropriate
>>>>>>>> because the relationship of long term to short term is
>>>>>>>> backwards.
>>>>>>>>
>>>>>>>> I hope the RT'ers who deal in commodities can give
>>>>>>>> a better explanation.
>>>>>>>> BTW at the time of the backwardation in oil occurred
>>>>>>>> it was explained partly as due to temporary loss of
>>>>>>>> refinery capacity and was a near term factor only.
>>>>>>>>
>>>>>>>> Regards,
>>>>>>>> Stan R. >>
>>>>>>>>
>>>>>>>
>>>>>>>
>>>>>>
>>>>>>
>>>>>
>>>>>
>>>>
>>>>
>>>
>>>
>>
>>
>
>
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