Sunday Night Markets and Futures

If you are finishing up your weekend and ready to start a new week, sometimes it can be interesting to see if you can predict how the week will start. I wanted to give you a few resources that might help you. Monday's can sometimes be busy for people at work, and opportunities might be missed. If you take a quick survey on Sunday, you'll be at least mentally prepared for what might take place on Monday.

If you want to get a feel for how market futures are doing before you go to bed on Sunday, Forex Pros has a Real Time Stock Indices Futures page. It isn't perfect, but is kept updated pretty well. By the way, I would recommend you DO NOT invest in currrency exchange or Forex stuff. You are in essence giving money to people who are then betting against you. Don't bother. Just look at their futures page. :)

Bloomberg has a market futures page too. It isn't updated quite as well, but is worth a quick check. There are a couple of other worthwhile pages to check too on Bloomberg on a Sunday night. Many people don't know this but many Middle Eastern countries' markets are open Sunday through Thursday and closed Friday and Saturday, so that means you can go to their Europe, Africa and Middle East page and see how some of the Middle Eastern countries like Israel, Kuwait, Saudi Arabia, and Greece did today. Then you might also want to look at Asian Markets, because they are probably already open before your bedtime. 

To get a summary of the week ahead as well as any developments that happened over the weekend, I would highly recommend the Calculated Risk Blog which is updated several times per day including weekends. A couple of other good ones are Economist's View and Econbrowser. 

Finally, if you like charts, dshort's charts are quite viral and well updated, and Calculated Risk's Graph Galleries are great too. 

Best Wishes!

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Roubini and Wolfensohn

Here are two great economists of our time having a talk about economics of our World, and the important debates that we must have to move forward by becoming more competitive without having a trade war. They discuss the Chinese and Japanese economies. Wolfensohn suggests that the number of people in the middle class in Asia will exceed that of the Western World in just a few years. Roubini suggests that as China's wages rise, their ability to "take over" manufacturing as they are now will be diminished.

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Austerity Stimulated Growth?

There is this idea that through austerity economies will clear out debt and then businesses will have the confidence to invest in the economy. The problem is that it is not working. As we hear talk about getting government "out of the way", so businesses can invest, we need to look at what exactly means.

First of all, it is important recognize that government spending represents a significant part of GDP in virtually all nations. When we talk about cutting government spending, we are cutting government jobs as well. That is not to say that there aren't places where the government that need to be adjusted from time to time. However, as we make these adjustments, doing so "willy nilly" can bring great peril.

Already, government at all levels are cutting spending and jobs from municipal, state and federal budgets. Just today, it was announced that the Houston area lost 14,300 public sector jobs, and worth noting that the overall unemployment rate in Texas inched up for July. As we cut government jobs, if those jobs are not replaced by private sector jobs, we have a net job loss, more people unemployed, and an economy that is tipping back into recession.

On the other hand, the potential for growth is what attracts businesses. Governments in the past invested in their infrastructure, so that money, goods, and jobs were flowing more freely through the economy. Then businesses wanted a peice of this action, and competed against each other to be able to take advantage of the superior infrastrure. Wouldn't that be what we want now?

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Computerized Trading and the Private Investor

This past week there was a huge amount of volatility in the markets, and computerized trading represented a huge part of that volume. There are literally computers that buy and sell the same stock several hundred times per day, thousands of shared at a time. What they are doing is taking advantage of very small differences in the bid and ask prices, often trading at speeds that are faster than the time a trader submits a request to the time the actual trade is completed. In just a few tenths of a second they can trade 100,000 shares, and make a couple of cents per share. Repeating this hundreds of times per day.

SF Gate had an article this week getting responses to individual investors. Many either stay out of the market in times of volatility, or choose to do nothing, often feeling they are no match for these super computers. But with so little return on interest in bank accounts, individual investors are caiught between a rock and a hard place.

As one person put it, the markets are no longer a place where investors find value in promising companies that have potential for growth. Instead there are computers grabbing small gains every second, and very little thought for the actual companies involved in the exchange. So then we call into question the very nature of the stock exchanges. Do they even reflect the actual financial stability of the companies being traded?

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Credit Default Swaps, Goldman Sachs and Europe

Remember those Credit Default Swaps (or CDS) that you kept hearing about in the news during the housing crisis? Well, they still exist, and are a large part of European Sovereign Debt Crisis in 2011. Let’s first define Credit Default Swap and put some perspective on this.

A CDS is a form of insurance on an investment. Let’s take a real example. A bank sells a bundle of home mortgages to Goldman Sachs. Then for a fraction of the cost of buying the mortgages, Goldman Sachs buys insurance against default of these mortgage bundles. Goldman is able to get a great rate on the CDS because the mortgage bundles are rated AAA. Goldman pays the rating agency millions to rate these bonds, and if they don’t get a good rating they can take their business elsewhere. Therefore, a rating agency like Standard and Poors gives them a AAA rating.  So the end result is we have a CDS against a mortgage bundle with a AAA rating.

Next, Goldman starts selling the mortgage bundles to investors, but they keep the insurance on their default. They already know that these mortgages were not deserving of the AAA rating, but they are able to sell them that way.

Now we have almost the exact same thing happening in Europe. Goldman gave loans to Greek and other European banks, and also purchased insurance against them. In the case of Greece, they made a deal to receive revenue from airports and other state revenues in exchange for the loan. This allowed Greece’s balance sheet to appear sound enough for them to enter the EU several years ago.

And of course now we have firms like Goldman holding mostly the CDSs on the debt, and at the same time we see the rating agency downgrading their debt, increasing the likelihood of default, almost like a self fulfilling prophecy. Clearly the relationship of Goldman and the rating agency is one of mutual benefit at the expense of normal investors and the countries for which they are playing the financial games, which is now spreading to the rest of the World, just like the housing crisis.

Best Wishes to All!

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