Friday, March 2, 2007

Economics and other scary stories

I'm back from my road trip. I was in Hawaii looking around at the state of their economy and the housing market there. I have made some observations that I will share in a later post.

A number of things happened while I was gone. One was the sharp decline durable goods orders in China resulting in volatile world trading markets. I still hold that spending in the US dropped off in October 2006 and the result as I speculated would be a reduction of orders for products made in China. It’s wasn’t precognition, it’s just simple math.

I don’t expect this to be a straight drop down however. With derivative markets feeling the effects of diminishing returns, it seems a good play would be to manipulate markets with those $-trillions to scare the hell out of you and me. Greedy buying by we small people on rapid up-swings and panic selling on rapid down-swings would result in a tidy and predictable profit for private equity clubs. If my guess is right, expect to see more of this type of volatility to come.

Another thing was the reporting, or lack there of concerning the restated GDP numbers for 4th quarter 06. As usual they were revised downward in February but the only report I heard about or could find was from an Australian newspaper. I’m not even sure what to make of that…

A third was the drop in gold prices on this recent bad economic news of February 28th 2007. Maybe I’m stupid but I expected the reverse reaction in gold prices. Being long on gold I got a spanking this week as you might guess.

And still more happenings. The Central Bank of Japan is set to raise interest rates! Will that action spell the end to the massive number of carry trades in play? Will this lead to a domino style unwinding in derivatives markets? The volatility in world markets would suggest that there is much fear about that very process taking place. I don’t know where the chips will fall in that event but you can bet we will all need a bath after they hit the fan!


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